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Note 4 - Revenue Recognition | 3 Months Ended
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Apr. 30, 2022
Notes to Financial Statements |
Revenue from Contract with Customer [Text Block] | Note 4 - Revenue recognition The Company accounts for its revenues under ASC Topic 606, "Revenue from Contracts with Customers" ("Topic 606"). Revenue from contracts with customers: The Company defines a contract as an agreement that has approval and commitment from both parties, defined rights and identifiable payment terms, which ensures the contract has commercial substance and that collectability is reasonably assured. The Company’s standard revenue transactions are classified into two main categories:
| 1) | Systems and Coating - which include all bundled products in which Perma-Pipe designs, engineers, and manufactures pre-insulated specialty piping systems, insulates subsea flowline pipe, subsea oil production equipment, and land-lines. Additionally, this systems classification also includes coating applied to pipes and structures.
| 2) | Products - which include cables, leak detection products, heat trace products, material/goods not bundled with piping or flowline systems, and field services not bundled into a project contract.
In accordance with ASC 606-10-25-27 through 29, the Company recognizes specialty piping and coating systems revenue over time as the manufacturing process progresses because one of the following conditions exist:
| 1) | the customer owns the material that is being insulated or coated, so the customer controls the asset and thus the work-in-process; or
| 2) | the customer controls the work-in-process due to the custom nature of the pre-insulated, fabricated system being manufactured as evidenced by the Company’s right to payment for work performed to date plus seller’s profit margin for products that have no alternative use for the Company.
Products revenue is recognized when goods are shipped or services are performed (ASC 606-10-25-30). A breakdown of the Company's revenues by revenue class for the three months ended April 30, 2022 and 2021 are as follows (in thousands):
|  | Three Months Ended April 30, |
|  | 2022 |  |  | 2021 |
|  | Sales |  |  | % to Total |  |  | Sales |  |  | % to Total |
Products |  |  | 2,912 |  |  |  | 9 | % |  | $ | 2,587 |  |  |  | 10 | %
Specialty Piping Systems and Coating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenue recognized under input method |  |  | 10,617 |  |  |  | 34 | % |  |  | 9,952 |  |  |  | 41 | %
Revenue recognized under output method |  |  | 17,693 |  |  |  | 57 | % |  |  | 11,884 |  |  |  | 49 | %
Total |  | $ | 31,222 |  |  |  | 100 | % |  | $ | 24,423 |  |  |  | 100 | %
The input method, as noted in ASC 606-10-55-20, is used by the U.S. operating entities to measure revenue by the costs incurred to date relative to the estimated costs to satisfy the contract over time. Generally, these contracts are considered a single performance obligation satisfied over time and due to the custom nature of the goods and services, the input method is the most faithful depiction of the Company’s performance as it measures the value of the goods and services transferred to the customer. Costs include all material, labor and direct costs incurred to satisfy the performance obligations of the contract. Revenue recognition begins when project costs are incurred. The output method, as noted in ASC 606-10-55-17, is used by all other operating entities to measure revenue by the direct measurement of the outputs produced relative to the remaining goods promised under the contract. Due to the types of end customers, generally these contracts require formal inspection protocols or specific export documentation for units produced, or produced and shipped, therefore, the output method is the most faithful depiction of the Company’s performance. Depending on the conditions of the contract, revenue may be recognized based on units produced, inspected and held by the Company prior to shipment or on units produced, inspected and shipped. Some of the Company’s operating entities invoice and collect milestones or other contractual obligations prior to the transfer of goods and services, but do not recognize revenue until the performance obligations are satisfied under the methods discussed above. Contract modifications that occur prior to the start of the manufacturing process will supersede the original contract and revenue is recognized using the modified contract value. Contract modifications that occur during the manufacturing process (changes in scope of work, job performance, material costs, and/or final contract settlements) are recognized in the period in which the revisions are known. Provisions for losses on uncompleted contracts are made in contract liabilities account in the period such losses are identified. Contract assets and liabilities: Contract assets represent revenue recognized in excess of amounts billed for contract work in progress for which the Company has a valid contract and an enforceable right to payment for work completed. Contract liabilities represent billings in excess of costs for contract work in progress for which the Company has a valid contract and an enforceable right to payment for work completed. Both customer billings and the satisfaction (or partial satisfaction) of the performance obligation(s) occur throughout the manufacturing process and impacts the period end balances in these accounts. The Company anticipates that substantially all costs incurred for uncompleted contracts as of April 30, 2022 will be billed and collected within one year. During the year ended January 31, 2021, one of the Company's customers in Qatar made a call on a performance bond held to secure one of the Company's contracts. The Company believes the customer's claims of non-performance under the contract are invalid and that the customer's actions were themselves a breach of the contract. The Company has engaged local counsel to seek reimbursement as well as additional compensation for lost profits suffered as a result of cancellation of certain work orders under the contract. The Company has recorded the expense related to the encashment of approximately $0.6 million in other income, net in the consolidated statement of operations for the year ended January 31, 2021. No receivable has been recorded related to the potential reimbursement in the consolidated financial statements as of April 30, 2022. The following table shows the reconciliation of the cost in excess of billings:
(In thousands) |  | April 30, 2022 |  |  | January 31, 2022 |
Costs incurred on uncompleted contracts |  | $ | 23,326 |  |  | $ | 20,021 |
Estimated earnings |  |  | 13,531 |  |  |  | 12,030 |
Earned revenue |  |  | 36,857 |  |  |  | 32,051 |
Less billings to date |  |  | 32,026 |  |  |  | 31,019 |
Costs in excess of billings, net |  | $ | 4,831 |  |  | $ | 1,032 |
Balance sheet classification |  |  |  |  |  |  |  |
Contract assets: Costs and estimated earnings in excess of billings on uncompleted contracts |  | $ | 6,004 |  |  | $ | 2,309 |
Contract liabilities: Billings in excess of costs and estimated earnings on uncompleted contracts |  |  | (1,173 | ) |  |  | (1,277 | )
Costs in excess of billings, net |  | $ | 4,831 |  |  | $ | 1,032 |
Substantially all of the $0.8 million contract liabilities balance as of January 31, 2021 was recognized in revenues during 2021 and substantially all of the $1.3 million contract liabilities balance as of January 31, 2022 is expected to be recognized in revenues during 2022. Unbilled accounts receivable: The Company has recorded $6.7 million and $2.7 million of unbilled accounts receivable on the consolidated balance sheets as of April 30, 2022 and January 31, 2022, respectively, from revenues generated by its subsidiaries in the Middle East, North Africa and India ("MENA"). The Company has fulfilled all performance obligations and has recorded revenue under the respective contracts. The deliverables under these contracts have been accepted by the customer and await customer to pick up or arrange shipping for the product before billing can be made. All of the amounts included in unbilled accounts receivable as of April 30, 2022 are expected to be billed before July 31, 2022. Practical expedients: Costs to obtain a contract are not considered project costs as they are not usually incremental, nor does job duration span more than one year. The Company applies the practical expedient for these types of costs and as such are expensed in the period incurred. As the Company's contracts are less than one year, the Company has applied the practical expedient regarding disclosure of the aggregate amount and future timing of performance obligations that are unsatisfied or partially satisfied as of the end of the reporting period.

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- Definition The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -URI https://asc.fasb.org/topic&trid=49130388 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 10 -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130551-203045 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 13 -Subparagraph (b)(2) -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130556-203045 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130554-203045 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 9 -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130550-203045 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (e) -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130554-203045 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130554-203045 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (d) -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130554-203045 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 15 -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130558-203045 Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (c) -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130554-203045 + Details
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