Welcome and thank you all for standing by. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at this point. And now I will turn the meeting over to Chief Executive Officer, Scott Montross, you may begin.

Thank you, Grace. Good morning, and welcome to Northwest Pipe's conference call. My name is Scott Montross, and I'm president CEO of the company. I'm joined by Robin Gantt, or Chief Financial Officer. As we begin, I'd like to remind everyone that statements we make in this call that are 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 second quarter results.

Thank you, Scott. Our second quarter loss from continuing operations was $5.7 million or $0.59 per diluted share compared to a loss from continuing operations of $1.4 million or $0.15 per diluted share in the second quarter of 2017. Sales were $28.8 million in the second quarter of 2018, which was the same level as in the second quarter of 2017. Water Transmission gross loss as a percent of sales was 4.3% in the second quarter of 2018 compared to income of 2.6% in the second quarter of 2017. We had a greater proportion of less value-added tons in our product mix in the second quarter that led to the swing in gross margin. In addition, gross margin was depressed by a reduction in fixed cost overhead absorption. Selling, general and administrative cost increased to $3.8 million in the second quarter of 2018 from $3.6 million in the first quarter of 2017 - pardon me, that's the second quarter of 2017. This increase was due to higher costs related to the acquisition of Ameron Water Transmission Group, partially offset by lower employee compensation cost. We had an income tax benefit rate of 1.9% in the second quarter of 2018 compared to an income tax benefit rate of 49.7% in the second quarter of 2017. In the current quarter, our rate was impacted by estimated changes in our evaluation allowance as well as tax windfall from share-based compensation. In the second quarter of 2017, our rate was higher than statutory rates because of the favorable impact of the decreased and on recognized income tax benefit of about $521,000 due to a lapse in the statute of limitations. In the first 6 months of 2018, cash provided by operating activities was about $600,000. Depreciation was $3.2 million in the first 6 months…

Our acquisition of the Ameron Water Transmission group represents the consolidation of two companies that have a long history in the Water Transmission business. This creates the opportunity for significant administrative and operational cost synergies as well as product diversification. Along with steel pressure pipe capabilities, the acquisition brings both concrete pressure pipe and reinforced concrete pipe to Northwest Pipe's existing product portfolio. All of these have a very strong positive impact on the ongoing earnings potential of the combined company. As of June 30, 2018, our pre-acquisition backlog, including confirmed orders, was approximately $122 million compared to $87 million at the end of the first quarter and $101 million as of June 30, 2017. We experienced very light bidding activity from the fourth quarter of 2017 through late March of 2018. The bidding level and resulting backlog only started to grow in very late March. As a result, we saw small revenue and very poor second quarter results. As we've previously discussed, the recovery in our market will be slow and we will see periods of disruption, which is what we saw in the second quarter. However, bidding activity improved dramatically in the second quarter and has resulted in the highest backlog that we have seen in almost 4 years. The bidding activity continues to improve and we have major program work scheduled to bid over the next several months causing 2018 to be a very strong bidding year. The improving demand along with a stable competitive landscape will lead to improving revenues and margins for the pre-acquisition Northwest Pipe business in the second half of 2018. In addition, we will see increased revenue and backlog because of the Ameron acquisition. The following is an outlook of current and upcoming Water Transmission projects. In the Texas market, the SWIFT…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question is coming from the line of Brent. Brent, your line is now open.

Thank you, good morning.

Good morning, Brent.

Good morning, Brent.

I guess, first question, Scott, when does this mix issue begin to resolve and I guess, some of the backlog - some of the big backlog you have now, when does that start to turn to revenues? Does this push into 2019 or the back-end weighted to the year?

No, I think when you look at what the backlog we have now, certainly, that's going to positively impact revenue in the third quarter. Looking at the second quarter, I think getting that out, we had a very well backlog. In fact, one of the backlog - slowest backlogs that I've seen since I've been here until the very end of March. We didn't get the - with the project that we announced the southern supply project really to the last week of March. And that led to really low overall production. We expected to be able to be running that southern supply job in the second half of June, but we had some transportation-related delays with getting raw materials to the plants. So we couldn't run any of that in June. So certainly, the production was lower and that had an pretty large impact on the revenue. Also, the product mix was a product mix that was basically where we were running the things that we had in backlog and really what we could get our hands on for the second quarter and a lot of that was very low value added. Very low fabrication revenue in that and that had a pretty big impact on selling price and also, margin. But I think due to the low production levels and the small amount of value-added revenue generation, we had a very low amount of hours that were worked in the second quarter. And as a result of that, we had a significant under absorption of fixed cost. And that had also a relatively large impact on the gross margins. Plus, we've had a lot of things going on through the first half of this year. Obviously, we shut down Monterrey, we shut down Salt Lake. There's a bunch of extra cost associated with that. So there's a lot of things going on. But I think, Brent, to really get back to the crux of your question, backlog plays a large role in the financial performance and sitting in a $122 million of backlog at the end of the second quarter, that's the largest backlog as we look back that we've had since really the third quarter of 2014. And the biggest thing of that is the third quarter work that we expect to run is all in backlog at this point. And we haven't had that going on for a relatively long period of time. So the third quarter is looking pretty sound, as we go forward, for the, what I would call, the pre-acquisition Northwest Pipe business. We have the backlog. We have the work in backlog. We're running for the third quarter. So certainly, we expect to see some good improvement in the third quarter of this year.

That's great to hear. I'll ask about steel prices, I understand the company has some natural hedge there, but any concern or an impact? Just given the substantial increase in prices and as you start to perform on these jobs?

No, I don't - we don't really - we're not really concerned that much about high steel prices. In fact, obviously, as we've said in the past, we're good with high steel prices. But we want stable steel prices so that it doesn't make it difficult to bid. So we're not really having any issue on the steel pricing side. I think the biggest thing, Brent, is this tariff issue kind of get rolled out and all of a sudden, effectively the imports into the country got eliminated. What happened is at least, initially, it pushed the lead times out pretty far and ultimately, made it a longer lead time to get steel. But it certainly, looks like those things are starting to really come in line. We're not seeing much of a steel price deterioration at this point but those things are coming in line. So we're not really worried about the steel pricing as much as we are as I guess, what I would say, violence changes in the steel pricing because it makes it much more difficult to bid jobs. And obviously, as you know, we have a really large amount of jobs coming between now and the end of the year. I think tonnage wise, for just what we expect to bid this year on Bois d'Arc and Atoka, there's probably in the area of 100,000 tons of that bidding from now to the end of the year, and there'll be additional bidding on some of that as we go into next year. And then, there's probably at least another - the way we see the schedules right now, 40,000 or 50,000 tons of other projects bidding in the second part of the year. So certainly, we're starting to see things I guess, come to fruition on all these jobs that we've been following and talking about in these earnings calls for a long period of time. And I think one of the biggest things that we're seeing is we're seeing, over the next several years, a - an improvement to the Western market. And that we've seen a bunch of that this year. I think it's - a lot of that's getting reflected in our backlog. It's getting reflected in the way that Ameron, or the company formerly known as Ameron, measures their backlog. So there's a, what I would call, a substantial amount of work in front of us right now and then, another substantial amount of work bidding. So this is - quite frankly, obviously, we're very, very excited about the Ameron acquisition, but I think the way that this market is starting to shape up as we go through this year is just as exciting. So I think there's some good stuff in front of this year.

Okay. And I guess I'll dive into Ameron. Two questions really there. One, Robin, thanks for the financials there, I understand that, that'll change. But as you look at this deal, do you need the market to bail Ameron out to get them in the black or as you've looked at it, are there specific things you think you can do there that can significantly improve the financial performance there without the market?

Yes, I think there's a lot of - like I said, Brent, there is a lot of administrative and operational cost synergies there. Obviously, a good market, a strong market makes everything even better. But we've looked at this thing - quite frankly, when we were looking at this thing and doing the assessments with discounted cash flow analysis, we tried to take as negative a view as we could on looking at what the market was going to be in the Western United States. And as negative as we made it look, it still made one heck of a lot of sense. So I don't think it's a market thing. I think a lot of it is based around the synergies that we expect to get out of the two companies, I think the additional - the products that it gives, the combined company and the concrete pressure pipe, and the reinforced concrete pipe products are also another plus. So there is just a whole heck of a lot of synergies around this thing. And quite frankly, we've been kind of after this thing for some number of years. So certainly, this has come to fruition and ultimately, the upside that we see in this is tremendous.

Okay. And a follow-up there, I mean, as I've known the market, it's a pretty small group of participants. And now it's consolidated into even smaller group. Does this effectively make you the only player on the West Coast in Water Transmission projects?

No, what I would say is, there is two other players on the West Coast that are - have been very solid and good competitors over a long period of time. There is other player out of the Midwest that gets work in the California and West Coast market on an ongoing basis. And we actually see Western product - Western projects bid even out of the Southwest. So certainly, there is a lot of competition that's available on the West Coast. Now that being said, we are a very - we'll be a very large supplier in the West Coast. And obviously, we will be focused on doing everything we can to meet the customer needs and make it a fantastic situation for the customers.

Thank you.

Thanks, Brent.

Thank you. Our next question is coming from the line of David. David, your line is now open.

Scott, Robin, good morning.

Good morning, David.

Good morning, David.

A lot to digest here. Congratulations on this acquisition. I mean, I guess on a gross money basis, you could say you traded Atchison for Ameron.

That is - yeah, that's pretty much correct.

Before I ask you some questions there, and just following up really on Brent's first question to try to take it a little further, is it feasible that the company, excluding Ameron and excluding restructuring charges, could show an operating profit for the full year?

I think what I would say, David, is that we have discussed in the previous calls, the first and second quarter were very, very low. And I think as with as low as they were, it would be tough to generating - generate an operating profit out of those quarters. Certainly, in the second half of the year, as we've talked before, we expect that to improve to those kind of levels as a standalone.

Right, but I wasn't asking about the first six months, I was asking about the whole year? Can the second half make up for the first half?

I would think it's going to be a little difficult for the second half to completely make up for the first half.

And do you see an environment based on the bid - the job opportunities over the next couple of years for the company to be a $300 million, $400 million revenue company? Again, the traditional Northwest Pipe and make $20 million or $30 million a year of operating profit?

Yes, I would say, on the revenue side, if you look at historically, what we've been - Northwest Pipe on the Water Transmission side, of a company that's been between - somewhere between $200 million and $250 million in a normalized market. And then, you take a look at what the Ameron revenue that Robin had talked to you about earlier, that was just below $60 million. Now obviously, that revenue is a little bit muted because they've been going through the same market situation that we've been going through. So certainly, you can add those numbers together in a normalized market and see something that's $250 million plus on the low side to in excess of $300 million on the high side. Whether it gets all the way to $400 million, I think, that's a stretch, but certainly the $250 million to over $300 million. When you look at what's normal in this market that we haven't seen for a relatively long period of time, certainly that's very possible.

Okay. I'll turn to Ameron with a couple of questions. I think when National Oilwell bought Ameron some years ago; they paid many hundred million dollars for it. Did you buy everything that was left of that business or have they kept a part of it or previously removed a part of it in earlier years?

What I would say is when they bought that business, and I can't comment on why they bought it, but that business had an epoxy fiberglass segment to it, that from my understanding was more for offshore-type oil rig business. And it also had a facility in Columbia. It had a plant in Phoenix, Arizona. And then, it had a couple other plants in Southern California, which they ultimately closed and basically replaced with the SLRC plant. So you're definitely missing a big piece of that business with the epoxy fiberglass. I think that was a really big part of the buy for NOV. And again, I'm - I do want to speculate on why they bought it. But you're also missing a plant in Phoenix and a plant in Columbia and South America.

But you bought everything that was left?

Yes, we bought everything that was left which consists of the plant in Tracy, California. A brand-new greenfield site plant in Rio San Luis Colorado, Mexico, which is - it's probably 20 miles across the border in Mexico from Yuma, Arizona, which I think is what it is. I'll tell you it's very, very warm down there. And then, there is a small linings plant in Southern California called T-Lock, which is in Brea, California. That is what we bought along with - there is a headquarters in Rancho Cucamonga, California. That house is a bunch of our administrative staff for the company, formerly known as Ameron.

Okay, are all of those owned assets?

The Rancho Cucamonga is at lease that expires I think, Robin - in May of next year. The property in Tracy, California, is an owned asset. The property in Mexico is an owned asset. Brea is a lease. But the Brea property that we are occupying with the HELOC business is relatively small. I want to say we occupy several acres there, and we have a lease that goes on for potentially a couple of years.

Okay, that's good. How many employees are you assuming?

We're assuming somewhere in the area of about 228 to 230 employees.

And any of them unions?

The Tracy plant has a union. And then, obviously, Mexico, by virtue of the fact that it's in Mexico, is union.

Okay, just two more quickly. Will there be much goodwill from this acquisition?

We're not really expecting, we of course, haven't really started the purchase price allocation yet, but seem that the net assets on acquisition, as I gave, were about $38 million and that's what we paid. I wouldn't expect to see a lot of goodwill towards that. So but we're just starting that process.

Okay, great. And then, just finally, can you tell me annual capacity that you're picking up both in steel and concrete pipe?

Oh, God. The steel is relatively easy. I think when you look at basically total capacity and total rated capacity, it's somewhere in the area of probably around 60,000 tons. When you look at practical capacity, it may be closer to 30,000 or 40,000. It all depends on the product mix, David. It's easy to say hey, overall total capacity is 40,000 tons but ultimately, what you end up running because these are giant job shops, you can have 15, 20, 30 projects going through, which each project is different and ultimately, you end up with bottlenecks in your facilities, which a lot of times become lining and sometimes coding and things like that. So what I would say in total, when you look at what this means for us in total capacity wise, you're probably looking somewhere in the area of 180,000 and if you've got perfect product mix, may be somewhat higher. But these jobs are so different that - you have setups and lots of different things that affect them. So it's really tough to look at a fully rated capacity and make anything out of it.

So then, just lastly, can you give us a sense of how much of their business - if you don't have the capacity, how much of their businesses is concrete and the other new lines you're picking up?

What I would say is - well, what I can tell you is they've got a job right now out of the Tracy plant that's a wet cash reinforced concrete job. That's a - it's a project called Contra Costa Phase 4. It's a canal enclosure. That's a several million dollar job that they are working on right now. There's right now, no other on the concrete pressure pipe side. But I think I've got a further answer your question on the - so to answer your first part of the question, it's several million dollars that they have in the canal enclosure job right now. But I think the biggest thing that we're looking at is a product that's called bawrap [ph] and it's really a composite product. It starts with a thin steel cylinder, and it's ultimately lined with a mortar and then wrapped with a mild steel bar. Then it's coded in mortar, so you end up with a semirigid project. So what you end up with is a product that in small diameter applications and when we look at small diameter, it's probably 54 inches and less. This use is less steel in a lot of cases, and you've got a very fast rate of welding on the steel cylinder because it's a joggle welding process with a relatively fast weld speed. So its smaller diameters, those are more competitive than a steel product is, okay? So certainly, the big thing on that is that when you look at a major project that we've talked about several times it's going on right now near the city of San Antonio called Vista Ridge, that's probably about 70,000-ton project. And I want to say, and I'm going off the top of my head, that probably 70% of that is bawrap product. So there is pretty significant bawrap product markets in the Southwest. And it's a, what we view, is a pretty competitive product at lower diameters with steel in certain regions. And I think the Southwest is one of those regions that, that kind of product would be very advantageous in. And we have the ability to make bawrap products out of both our SLRC Mexico plant and out of the Tracy plant.

Well, it's all very exciting. Congratulations on getting an asset that you've been after for a while.

Thanks, David, we appreciate your questions and I got to tell you, we're - I'm pretty excited about not only the Ameron acquisition but the way that the market looks in front of us right now. It's pretty exciting after going through a few years that have been pretty brutal in the business and things are starting to swing the other direction. But it's a little bit like swinging an aircraft carrier, it takes some while to swing that in a direction and ultimately, I think we're getting there at this point.

Okay, well, good job. Keep it up.

Thanks, David.

Thank you. Our next question is coming from the line of Tom. Tom, your line is now open.

Tom Spiro, Spiro Capital. Good morning.

Yeah, Tom, good morning. How are you?

Good morning, Tom.

I'm good, how are you.

Good.

Thank you and congratulations on the Ameron transaction. A question about that transaction. How did it come about? Were the auctioning the facility? Did you contact them? Did they contact you? What was the process that led to the deal?

Well, what I would say, Tom, is we've continued to contact them over a several year period about that ultimately some years ago we were unsuccessful in that. And I think we finally got to a point that, not only did everything lineup because we had a willing seller at that point in time. Because ultimately, as you know, NOV's business is more oilfield services and offshore stuff. So there - they've got a huge business to that. It's a large, very solid well-run company and ultimately. I think that they are more focused on that then on the Water Transmission side. And at that point, I think that obviously, they felt like it was the right time to move down that road. We are focused on the water business. We've gone through this multiyear program of becoming a pure-play water company. So the timing was right on that. And quite frankly, with the things that we've been doing up to that point, we had the ability to, with the cash on the balance sheet, to be able to do the transaction. So everything just kind of lined up, Tom, after a - after really several year period of us really being after them to do something.

Well, your persistence paid off. Scott, you mentioned in your commentary that turning around Ameron is going to be a challenge. It's going to take some time. I was curious whether you are hinting that there was some particular problems associated with this facility? Or were you simply mentioning and noting that any time making acquisition, it can be challenging?

Yes, I think it's really about the size of the acquisition for us. Obviously, this is big for us. A lot of people look at this and say well, it's $38 million acquisition, that's not any big deal. Well, it's a big deal for us. And I think we want to do things the right way. I think Ameron has a lot of good people on the sales side, on the operating side. I think there's some real talent that it brings to the talent that we already have in Northwest Pipe, which is going to make the company even stronger. I think when you look at these plants, Tom, both of them; both of the Water Transmission plants are very well laid out with material flow. So certainly, it is a situation that the market's been really slow for everybody for the last few years. And I think one of the things is there's been a little bit of stability issue for these assets. They've gone through some changes in - maybe three different changes in the management over the last four years. And I think because we're a water company and we want to be in the water business, we bring a lot of stability to it. And what I would say is they really have some good athletes there that we've met that certainly can add to the strength of this company. But it's a big acquisition for us. I think that looking at this thing ultimately, getting the like the bidding and the estimating of the jobs brought together is a relatively quick process. Getting the plants all brought into the fold with doing the same things that all of our other plants are doing or a process that we can get through in a reasonable amount of time. I do think that the, Robin can comment on this more than I can, that the fact that we're on a percent complete revenue recognition process or program. And they're on a shipment program; it's something that's going to take a while to get squared away. And their ERP system is a different system than ours. We - and getting them over on to our SAP system from Oracle is going to take some period of time. I think Robin should probably comment more on that.

Yes, Tom, the challenging part is probably a bit more my area than certainly Austin sales. It's being a, carve-out; they were completely integrated within NOV, so taking them out of that integrating with us, that's really the challenging part. But yes, from certainly, the sales side, clearly, they have a great backlog in front of them, long history running, so it's not - it's certainly not like we need to teach them anything. It's bringing in the two companies together just to make, what I believe, will be an even stronger company. But yes, it is my area, Tom; it's got to be the challenge. So we're just gearing up for that and doing what we can to hopefully get through this transition as quickly as possible.

All eyes will be upon you Robin.

Yes, sounds that way, Tom.

And just a question about the backlog, it's - it jumped up roughly one third from the March 31 backlog, from 87 to 120, I think, or 122 so backlog plus the confirmed orders. And I'm guessing that pricing is going up a lot too. So is that big jump from Q1 to Q2, is that mostly price or tonnage? Tonnage going up dramatically as well.

Yes, I think as we've looked it through the bidding that we're seeing now the tonnage is moving up. What I would say is that when you look at where we were until the very end of March to where we were at the end of the second quarter, we've almost actually doubled in it. Because it was only the last week of March when we got that big Southern supply job that we announced. And we've gotten through some pretty major jobs now that are continuing to add more tonnage to this. So I would say that even over where we were in the second quarter, we are continuing to add tons to it. There is several major jobs going on. We just had a big job bid on Monday that we were successful on. So the backlog continues to move in a positive direction, both on the tonnage side and the revenue side. And I think some of it is, Brent - this kind of goes back to what Brent's question was on steel pricing. Some of its related to steel pricing because if you look at the impact of what steel pricing has had on the cost anyway of a project, it's probably somewhere between 15% to 20% since last year because quite frankly, steel prices are up almost 50% from the end of last year. So that's had an impact on it. But also, the pricing on pipe products is moving up in lockstep with that. So we're staying really everything move in a positive direction now, Tom, tons and pricing on these and then, resulting in higher backlog.

I guess one of the factors driving the pricing is the imposition of the tariffs and what that's done to steel. Somebody looking at that might say, well, that's a sort of a short-term phenomenon on the six, nine, 12 months that will be gone. Maybe I should defer my project. Why go out to bid today? Why don't I wait six months, it might be a lot cheaper? You anticipate much of that?

Yes, no. I think that there's been at least some of that's been thought out at the beginning of this thing but the tariff thing could go away relatively quickly, but in a lot of cases, steel is not that big of a part of an overall cost of a project. So some of that comes into play, and quite frankly, a lot of these have been funded up to this point and the projects are just moving forward. Not to say that it couldn't cause a delay but even if it was a delay, the projects aren't going away. The things that we're seeing now are real projects. So I don't know that we're going to see too much of a delay on that. Certain things could delay but we haven't seen any indication of that yet with what's in front of us.

Well, that's great. I appreciate your comments and good luck.

Thanks, Tom.

Thank you, Tom.

Thank you, Tom. At this time, speakers, we do not have any questions over the phone. [Operator Instructions]

Okay, Grace, I don't think that there is any other questions at this point. So I guess the biggest thing is I'd like to reiterate, how excited we are about the Ameron acquisition and getting the people from Ameron brought into the company and moving this forward. It's - I think it's something that we've been trying to do for a long period of time. And it's come to fruition and I think everybody is very excited about it. We're obviously excited about the way the market looks too going forward. So certainly, as we go through this, and we are - our next call is -

Early November, probably.

Early November, we'll continue to have updates on that and thank you, again for joining the call. So thank you.

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