Welcome, and thank you all for standing by. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now I'd like to hand the meeting over to your host, CEO, Scott Montross. Sir, you may now begin.

Thank you, Tory. Good morning, and welcome to Northwest Pipe's conference call. My name is Scott Montross, and I'm President and CEO of the company. And I'm joined by Robin Gantt, our Chief Financial Officer. As we begin, I'd like to remind everyone that the statements we make in this call about our expectations for the future are forward-looking statements and actual results could differ materially. Please refer to our most recent SEC filing on Form 10-K for a discussion of risk factors that could cause actual results to differ materially from expectations. I will now turn to Robin, who will discuss our third quarter results.

Thank you, Scott. Our third quarter loss was $1.5 million or $0.16 per diluted share compared to income from continuing operations of $5.9 million or $0.62 per diluted share in the third quarter of 2014. Water Transmission sales decreased 48% to $40 million in the third quarter of 2015 from $77 million in the third quarter of 2014. Water Transmission gross loss as a percent of sales was negative 1.8% in the third quarter of 2015 from income of 21.5% in the third quarter of 2014. Our volume dropped 35% and our selling price per ton decreased 21%. These results were negatively impacted by reduced demand and project timing, with some work being pushed out to later in 2015. In addition, steel costs have decreased 19% per ton. As steel tends to be a passthrough, lower steel costs lead to lower total sales and sales per ton. Gross profit was negatively impacted by depressed market conditions and the resulting extremely competitive bidding landscapes, along with the mix of products produced. In addition, we had about $1.1 million in lower cost of market inventory adjustments related to the rapid decline in steel prices, along with about $400,000 in additional costs related to a steel quality issue from one of our suppliers. Selling, general and administrative costs decreased to $4.8 million in the third quarter of 2015 from $6.5 million in the third quarter of 2014. This decrease was due to lower wage, benefit and incentive plan expense and decreased travel and entertainment. Earlier in 2015, we completed a restructuring plan that decreases our manufacturing overhead and G&A by about 15%, and those decreases can be seen in the third quarter results. Interest expense was $195,000 in the third quarter of 2015 and $457,000 in the third quarter of 2014. The decrease…

As of September 30, 2015, our backlog in Water Transmission was approximately $101 million, a 7% decrease from the $109 million as of June 30, 2015. Even though our backlog has decreased in dollars from the end of last quarter, the tons are almost exactly the same, reflecting the impact of falling steel prices and the harsh bidding environment. The backlog was about $138 million a year ago as of September 30, 2014, and yet the tons in backlog now are higher by 21%. We expect the fourth quarter of 2015 will have higher revenue and backlog than the third quarter but it will still be challenging. The collapse in steel coil prices has reduced our revenue and the cutthroat bidding environment has severely impacted margins. We expect a large volume of bidding in the fourth quarter with about 35% to 40% of the year's volume of bidding. The following is an outlook of the upcoming Water Transmission projects. The third segment of IPL, 15-2, started production in the third quarter and is expected to run through the end of 2015. The bid for the fourth segment of IPL, Segment 14, was recently delayed and is now scheduled to bid during the week of November 16. Trinity River Main Stem, part of Lake Texoma project, has bid and we are expecting the project to award in the next couple of weeks. Luce Bayou Interbasin Transfer Project in Houston, which was previously known as Houston MSA, is a major project that we expect to start bidding in mid-2016. This project is expected to represent an excess of 90,000 tons of steel pipe and will take place over a several-year period. The Lower Bois d'Arc Reservoir is a pipeline being planned by the North Texas Municipal Water District, which represents approximately 30,000…

[Operator Instructions] Our first question is from Bhupender Bohra.

So you mentioned this -- in this pretty good quarter, Water Transmission sales. You mentioned something on the timing of the projects, if you can just give some color on that.

I guess I don't understand the question. The timing of the projects?

I mean, you mentioned that the sales are down, I believe 48%, and then there were some 35% due to tons, due to reduced demand and project timing. Were there some projects which were supposed to shift...

Okay. Yes, I see what you're saying. Well, we originally expected the next segment, segment 14 of IPL, to be earlier bidding than it is right now. It's been delayed actually until September 16 week, so that's actually pushed out. But Bhupender, we've actually seen a number of projects throughout this year, projects that are anywhere from $500,000 projects up to $2 million, $3 million, $4 million projects that continue to push out. So that's something that we've seen throughout the year from quarter-to-quarter. One of the other things, when you look at what the top line is for the Water Transmission business, being about $40 million in the third quarter, the steel price is actually having a pretty major impact on that also because, really, what that becomes is almost a passthrough, especially with the market being in this condition. Steel prices versus last year at this time are probably down somewhere in the area of 35-or-so percent. That alone can take probably 15% or so out of the top line of what the Water Transmission business has been, not to mention with the very aggressive bidding environment that's actually due to lower the prices. So I think all of those things together are things that pushed a lower Water Transmission top line. But I think one of the other things to note, as we said in the script, when we look at our backlog, if you look of the backlog at the end of last quarter, it was $109 million. Right now, it's $101 million at the end of this quarter on almost exactly the same amount of tons. Again, the effect on price of steel in the bidding environment. But looking at it a year ago, it was $138 million. And right now, we have 21% more tons in backlog than we had a year ago. So I think those factors are all starting to really press on what the top line in the Water is as we go through this period of time.

Okay. And Robin, on the free cash flow, year-to-date, $30 million. Is there a goal? I mean, how should we think about like how you end 2015 on free cash flow?

Right. I think it'll probably be a little bit higher in the fourth quarter. But practically speaking, as the backlog increases, we're going to start buying some inventory to do some job, so we may get a little bit more in fourth quarter. But I would expect in the first quarter of next year moving on, with that higher backlog, that the free cash flow is going to start going in the other direction.

Our next question is from Brent Thielman.

Scott, on Water Transmission, understand you're kind of burning through some competitive rebid work right now. But should we take from some of your comments that it's gotten kind of incrementally worse out there in terms of the bid margins?

I think, Brent, it's actually -- it's pretty much settled in right now to kind of an even situation because I think everybody in the business right now is dealing with pretty low backlogs, right? So as the backlogs remain in this kind of a situation, every job that goes out there is pretty hotly contended, okay? Even the bigger jobs. For example, we're seeing this IPL segment 14 bid November 16 week, we expect that to be an absolute war bidding, okay? So ultimately, everybody is becoming very focused on trying to put as much into the backlog as they can, and I think that's what you're seeing. And like we've mentioned in the past, where these things start to loosen up on the margin and the competitive bidding landscape is as this water market improves and, obviously, we expect that to happen because of the buildup of requirements. And people's backlogs start to grow, then price will start to move up because every job doesn't become as critical as a bidding situation. So I think it's going to be a period of time. I think we certainly see that into the fourth quarter. I think that, like I said in the call -- or on the script, that we're also seeing some nontraditionals in the water market that are maybe trying to escape some of the issues in the large diameter API market right now and coming in and really blasting some of these projects, maybe not knowing what the market is in particular, and it's creating a few problems. So I think over time, that abates as not only the API market improves in the future but the water market. I think for a period of time, it's still going to be contested.

Scott, these untraditional competitors, where are they having success? Or what sorts of projects are they having success winning? Is it the large projects or smaller ones?

Well, I think we -- say that again, Brent? Say the last piece again?.

Is it the large projects or the smaller work that they're...

Well, to this point, it's been really the smaller work. But I think we've also seen some of that show up on the larger projects where we haven't seen those people win any of those larger projects but they certainly can do damage to the pricing on those projects, right? And really, when you're in a situation like that where you're taking stabs into a market like that, you maybe don't know what the bidding environment should be and, ultimately, you get a price situation that's probably not a great price situation. But what we're seeing is them going in and just really driving down on some of these smaller jobs to try to get a foot into the door in the water business. But ultimately, it's a performance thing. And depending on how they perform, we'll ultimately cast the die in where they are in the business. We don't expect -- when you have people that come into there trying to flee a market where the majority of their capital is spent and things like that dip their toe in a market like the Water Transmission business, obviously, that becomes a short-term escape from the market situation. So ultimately, we expect that to abate as things go forward. But they are having an impact on the pricing right now.

Sure, okay. And then, Robin, in terms of the deal prices today, are your raw material inventories generally reflecting current market prices? Or is there some more room to go?

Well, they are right now. But as steel continues to drop, which it does seem highly likely based on what we think, we will have additional LCM adjustments. It's falling a lot. Since our last conference call, when we talked in early August, CRU was at 466 a ton. And this week, it's at 393, that is a very big drop for a quarter.

Sure. And then just one more if I could. I mean you guys have done a ton here in terms of the cost structure of the company in recent years. And I know there's always a point you don't want to go beyond because you want to be ready when the work eventually comes back. But kind of based on what you see out there over the next 12 months or next 2, 3 years, however you want to look at it, do you feel like the water business is rightsized enough that the capacity you have in place is appropriate for the size of the market, all the opportunities you mentioned in that time frame?

Yes, I would say that one of the things that -- obviously, we look at these facilities all the time because there's always the idea, well, is there too much capacity out there. One of the problems is that as soon as you shut that capacity -- any capacity down, you're basically ceding that piece of the market place because these markets are very, very geographically distinct markets. And this pipe doesn't really travel very well because when you're shipping 108-inch pipe that has a 0.5-inch to 0.75 of an inch of cement mortar lining in it, it doesn't ship very far and it ships by truck. So one of the reasons why we've been able to have the 45-plus percent market share, and we are in excess of 45%, is because we have that nationwide footprint unlike any of our other competitors. And I think, ultimately, the market share is up simply because we have that nationwide footprint. But to go a little further on your question, Brent, we've done a lot of work in these plants with cost reductions. The direct costs in these plants are down by 15%. The overhead costs are down by 15%. We've taken about 15% out of our SG&A. As a company, we'll continue to look at rightsizing our SG&A to our business levels in the Water Transmission business. So there's always more cost work to be done. But I think our big advantage right now is the fact that we do have that market share, we have the ability to continue to grow our market share and that's why we are the big player in this market. So -- and that's why it puts us probably in a significantly stronger position than our competitors.

Your next question is from Coryn Bertrand [ph].

My name is Coryn [ph]. One of the things that I wanted to ask about -- I'm going to kind of follow up on this last conversation with the cost reductions. Are you planning any additional reductions in force and/or curtailments at any other plants right now to continue the cost cutting plan?

Coryn [ph], where are you from?

Los Angeles.

What company are you with?

I'm an independent investor.

Okay. We're just -- obviously, we haven't talked to you before. But -- so hello, Coryn [ph]. I guess what I would say is we're constantly rightsizing our plants for the production levels that we have. Obviously, different plants in different regions have loads that are different at different times. For example, our Saginaw facility is deep in the middle of running the integrated pipeline job right now. So we're -- we have been fully staffed at our Saginaw facility for quite some period of time. But some of the other facilities, as the work continues to drop down or as drops-down at any point in time in those facilities, we will rightsize those facilities. And as we look at where we are, if you look at right now our 5 main Water Transmission plants outside of Permalok and outside of our Monterrey plant, we were probably somewhere in the area of about 600 people in 2013. We're now down to about 484. Those are all reductions that we've taken in those plants during the period of time when the work has been less, and we always rightsize those. Now obviously, we're going through a lean manufacturing program right now, so we're continuing to find ways to do that. So we'll continue to work through leaning out what we have in the plants to be as efficient as we can. That cost work never ever stops. And quite frankly, we've done that at the corporate level, too. As business levels have subsided, we've looked at our corporate structure. And over the last few months, we've eliminated 3 senior level management positions. So those are things that we'll keep doing over time as the market keeps presenting us with these challenges.

Okay. With regards to the credit line and the -- actually, the reduction in credit line my question is, is a $60 million line going to be able to facilitate you through a project which is near and dear to my heart, which is the L.A. pipeline replacement program? How do you expect to continue to operate to fulfill the program through 2026 with negative margin, reduced borrowing due to the reduction that you just went through on the refi and continued negative gross margin? I'm just curious on how you can talk about some of these big projects that would require several years considering the tightness of the situation right now.

Right. Well, at this point, I'm going to let Robin answer the credit facility. But I think, obviously, we talked about exploring the sale of our energy tubular facility, the final one that we have in Atchison, Kansas. That's provided a significant amount of drag on the company this year because of the market conditions. When you look at Water Transmission, the gross margins this quarter were slightly negative. There was a couple of factors for that. Obviously, we had in LCM adjustment in that, that wasn't expected because of the speed at which the coil price has fallen, as well as the steel claim issue that we have that we're working to resolve. So I don't think you see ongoing negatives in that. And one of the things that's been a big consumer of our credit facility in the recent past is the energy tubular business because of the inventory levels that we've seen on that, so that's a bit of the front liner on that. And I'll let Robin answer the rest regarding the overall credit facility.

Go ahead.

I was going to say before we go into the credit facility, I wanted to ask one more question. We'll go back to it, I'll let you go ahead, Robin.

I was just going to say that we've $60 million. We can accordion up to $100 million as need develops. So as market turns around -- presumably the market turning around, volume picking up, the backlog's for everybody increased, the margins pick up, so this idea of negative margins continuing indefinitely and yet we're doing these big projects doesn't really fit in our plans right now. That is not what we see because we do believe that those backlogs will fill up, margins will improve. As we develop those needs, things pick up, we'll be able to borrow more. And like I said, we can accordion up to $100 million, if need be.

We've become significantly stronger at being able to manage our current assets, especially as we've kind of gotten smaller in the energy tubular business, that consumes a lot of cash when we do that. So we obviously -- we've looked at all this pretty in depth with what we see in the markets over the next 5 years. So we don't see any issues in front of us with that, Coryn [ph].

Okay. So with regards to the potential sale of the energy tubular business, what do you expect the potential book losses to be that we can look forward to? And how will that impact your cash flow once the facility has been sold?

We can't really comment on any of the pricing or things that we see related to the sale of that facility, okay, simply because that's an ongoing process. What we can tell you is -- and I think we've talked about this before, the total PP&E in the facility is about $36 million, okay? And our inventory levels are relatively low at this point. But we're engaged in the process on that right now, and so we can't really comment on valuation.

Our next question is from Matt Sherwood.

Just a quick question. So going to that prior answer that you gave, so you're saying that the NAV is like $51 million at the Atchison facility and PP&E's $36 million, so that leaves about $15 million of working capital. Is that right?

Yes, I think that's about right at this point, Matt. Obviously, that can -- some of the working capital is in coil form, obviously. And as that stuff is converted into finished pipe, that can adjust those working capital numbers. But those working capital numbers and what I would call, I guess, more or less the inventory and receivables have continued to come down over the last probably 4 quarters since we've really tried to drive that down at this point. So we're seeing that at a pretty low level and we expect that to continue. I think that the energy business is going to be challenged for a period of time simply because of the larger structural issues that we see in that business. So our game plan on that is obviously to get that inventory value as low as we can while still servicing our customers needs while we're exporting the sale of the facility.

Got you. And then can you sort of give an update if there is anything on the Houston land from the OCTG sale and what that -- how's that situation is playing out?

Yes. We're still -- we're actually still working through the environmental cleanup on that property that we had when we went through the sale of equipment there. We're working with a couple of different environmental firms, and that is progressing. But what I would say is we've seen a level of interest in people wanting to buy that property. So far what we've seen is valuations that what I would say don't represent what the value of that property is. Obviously, we're in a little bit of a trough with the real estate market in Houston, too, with what's going on with the energy business there. So obviously, we want to get as good a value out of that as we possibly can. So we're working to see if there's some kind of better offer that we can get on that. In the meantime, if we can't, what our process would be is just to hold onto it until those real estate values come up. So -- but we are seeing some interest in that, Matt.

I mean -- I guess, you're not a Houston real estate company, so sort of why wouldn't you just accept what the market would -- so assuming that you've done the environmental cleanup and you have a clean piece of land, what's the difference in -- why not get cash now rather than own a piece of land in Houston? And I guess, just a second part of the question is like can you give us any color on what the acreage of the land, the potential use cases for a buyer or something like that?

Yes, I think one of the things on -- with the acreage, I'll answer that first. It's around 12 acres, 12.5 acres in that area, okay? And right, we are not a real estate company. But we certainly want to get the maximum value out of it for the shareholders. So that's what we're looking at. What we've seen as far as offers on that to this point, Matt, doesn't represent anywhere close to what we had the land appraised at when we were going through to the sale process on OCTG. So obviously, we're not in the Houston real estate business and we want to monetize that as quickly as we can, but we do want to make sure we're getting enough value out of it. Because, really, what it's turned into is it's surrounded by residential neighborhoods now and, ultimately, with the pretty loose zoning restrictions in the Houston area, it's going to end up as a residential property. So there's multiple parties looking at it and, hopefully, those values come up because we do want to monetize that as quickly as we can.

Great. And I mean, between that and the potential for working capital on OCTG -- on the line pipe facility assuming you haven't sold it, it seems like you should be well positioned to support your working capital growth from an increased backlog even if you -- even without -- with very limited debt.

Yes, I think that our current credit agreement sufficiently supports what we need in the go forward. But again, we've named, in this call, a significant amount of large projects, right? So ultimately, we certainly want to make sure that we have our ducks all in a row to be able to do all the things that we need to handle those projects because if 2 or 3 of those projects hit at the same time, it could consume a significant amount of cash. And to -- that's why we're being, at least, careful and cautious with the idea of the share buyback, especially with the market situation being what it is right now and in front of being able to monetize the Atchison facility in a sale. So we're just -- we just want to be careful and walk our way through this thing.

Got you. And final question, just when you look at -- as you said it was 35% to 40% of the year's work being bid in Q4, and the preliminary project bidding year that you're seeing in '16, how does that look relative to '15 in terms of volumes?

Well, just to finish off on the '15, I think we have somewhere in the area of 35,000 tons alone bidding in November, okay? So obviously, you've got IPL segment in there and a couple of other things, we've got Madison Gillette going on in there. So there's a lot going on in the fourth quarter with the bidding environment. As we go into 2016, you -- we've talked about some of these projects. We're starting to see the construction numbers move up. But I don't know if what we're starting to see in construction is representative of what we're actually going to see the business, especially in the state of California, right? Because ultimately, Proposition 1 in the State of California, that $7.2 billion general obligation bond is going to create some projects, and I think we're seeing the beginning of those. One of the things that's going to impact on how '16 looks versus 2015 is how quickly California develops, Matt, right? Because you still have Texas going with IPL projects in '16. Although, the IPL projects that we expect in '16 are probably a little bit smaller segments. We expect to see 2 of those in '16. But there also is this Luce Bayou project that will start in 2016. But there's things that are -- that I think we're going to see generated in 2016 because of the buildup requirements that aren't necessarily apparent right now. So when we look at 2016, obviously, we've expected that to grow over what we've seen in 2015 because of what we expect from California and Texas. It's hard to say how much, preliminary number's at somewhere 10% and 20% in 2016. And I would say that in tons because if you have noticed, we've started to talk about tons, it's very difficult to represent things in revenue anymore because of the change in pricing in steel pricing. So if all those things develop like we think that they could develop, that market could be 10% to 20% higher in 2016, so things have the develop in California. And unfortunately, I wish I could control and push this market a little bit more but, ultimately, we're a little bit at the whim of the development of the market here. So we are well positioned to be able to handle it, it's just when will it develop. I also think that private money is going to start playing more into it, Matt, to tell you the truth.

The last follow-up, the competitive situation in California versus Texas, it's similar with 2 major players. And is it any better with these nontraditional players?

Well, I think the -- California is a little bit more, obviously, off to the West, okay, if you will. So there's not as much of concentrated competition is what I would call -- what we're seeing in Texas right now. But that doesn't mean that, ultimately, you won't see people from -- that are located 1,500 miles, 1,200 miles, or 1,000 miles away bidding on jobs in California at some point. What we actually need, I think, for things to get really healthy and improve is a couple of different geographic regions to hit at one time, kind of like we had in 2011. We had Southern Delivery going on in the middle of the country in Colorado, we have Provo Canal going on in Utah and we also had stuff going on in Texas. 2011, '12, '13 and even into '14 were pretty healthy markets because of some of that work that was multiple regions in that carrying over, but we haven't seen that recently. Really, for the last couple of years, we've really seen only Texas, which is why the concentration on Texas and the margins are really crushed. Once you see California and Texas, we certainly think that, that loosens up the margins and allows the prices to start to move up.

Our next question is from Ted Batey [ph].

Just a quick question regarding the energy business. Just kind of in regards to timing either way, when do you expect to make a decision or an announcement?

An announcement on...

Of the sale, no sale, discontinue to bid, whatever you guys choose to do when you...

Yes, Ted, we're in the middle of a process, so I can't really give you a specific timing on other than that, ultimately, we think it's in the best interest of the company to focus on exploring the sale of that opportunity or that option at this point. So we are -- we're focused on getting that done. Obviously, we're working through a bunch of things in relation to that. But ultimately, if we can't get a sale done, what we'll do is we'll put that in a configuration so that while the energy market is in a situation that it's in right now, which we consider obviously to be extremely poor, that it does the least amount of damage to the company. So -- but unfortunately, I can't give you a specific time line on when things would happen with the sale on that. But I can tell you that it's a process that's ongoing right now.

And our next question is from Brent Thielman.

One more, Matt actually asked my question on the bid opportunity for '16 versus '15. But on the Tubular side, can you refresh us on anything developing with respect to tariffs in the line pipe business? I can't remember where that was at.

Yes. Actually, Brent, what we've seen is we've seen a final determination by the -- I believe it's the Department of Commerce on the line pipe trade cases which, the antidumping piece, which obviously is the major piece of the trade case, you have 2 pieces. You have a countervailing duty piece and you have an antidumping piece. And the countervailing duty piece is usually relatively small. The antidumping piece is usually what we've seen, at least in the last couple of these cases, holds the biggest impact on people that are violating by dumping in this country. So what we saw is the Department of Commerce come out with a final determination on the Koreans that are -- that it's between 2% and 6%, okay? Obviously, relatively de minimis and significantly less than what they came out with on the OCTG business. Now the dumping margins that they came out with against Turkey, the countries from Turkey, were a little bit higher. I think it was somewhere 15% or 18%, 20%. But really what we've seen is the South Koreans being the bigger -- the biggest impact on that market. And quite frankly, those kind of antidumping margins are really de minimis and probably has not a very big impact. Now -- and I think it's -- the next step of the process is the International Trade Commission now has to rule on if there's injury or harm. So that's something that comes out, I believe, sometime mid to late this month. But it certainly wasn't a very good sign, Brent, when the Department of Commerce came up with between 2% and 6% on the Koreans because we don't -- we certainly don't think that, that has a big impact on the Korean shipping line pipe into this market.

Sure. And you don't see anything else kind of developing or possibly brewing that would be, in terms of trade cases or what have you, that'd be worth waiting for in terms of thinking...

I think that there has been some discussions on broader trade remedies, section 201s that obviously become a little bit bigger that could put quotas on the amount of imports that come in, but I think that could be some time off. And really, I think for it to have a major impact on, certainly, the commodity type products, it's got to be broader than just pipe and tube or steel. And obviously, the steel guys are going through their trade cases with what we've seen happen to the steel pricing over the last, probably, almost a year and the impact of the imports there. So I think it's really got to be broader. It's got to be pipe and tube and steel. But I think that that's probably some time out into the future now, and I really can't give you a good estimate on when something like that would even be considered. But for right now, we haven't seen much of anything that helps on the energy tubular side, especially line pipe. And obviously, the steel guys are going through their trade cases now and starting to get rulings on galvanized, came out yesterday with some rulings. But the rulings on cold-rolled and hot-rolled products will likely come out over the next, I guess, probably few months. So we'll know more on that. But I think to have an impact overall on these huge amount of imports that are affecting the market, Brent, it really has got to be some broader trade remedies that are put into place.

At this time, we don't have any other questions in queue. [Operator Instructions]

No further questions, Tory?

At this time, we still don't have further questions on queue. I'd like to hand the call back to you, sir.

Okay. Well, we appreciate everybody attending the call. And obviously, we're looking forward to better times in the future in the water business because demand is building, so thank you and we'll talk to you next time.

Thank you, speakers. And that concludes today's conference. Thank you all for joining. You may now disconnect.