Hello, and welcome to the Northwest Pipe Company First Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Scott Montross, CEO of Northwest Pipe Company. Please go ahead, sir.

Good morning, and welcome to Northwest Pipe Company's First Quarter 2024 Earnings Conference Call. My name is Scott Montross, and I'm President and CEO of the company. I'm joined today by Aaron Wilkins, our Chief Financial Officer. By now, all of you should have access to our earnings press release, which was issued yesterday, May 1, 2024, at approximately 4 p.m. Eastern Time. This call is being webcast, and it is available for replay. As we begin, I would like to remind everyone that the statements made on this call regarding our expectations for the future are forward-looking statements, and actual results could differ materially. Please refer to our most recent Form 10-K for the year ended December 31, 2023, and in our other SEC filings for a discussion of such risk factors that could cause actual results to differ materially from our expectations. We undertake no obligation to update any forward-looking statements. Thank you all for joining us today. I'll begin with a review of our first quarter performance and outlook for 2024. Aaron will then walk you through our financials in greater detail. Our first quarter results were mixed, with steel pressure pipe business surpassing our expectations, while precast came in softer than anticipated. On the whole, our net sales of $113.2 million increased 14.2% year-over-year on solid profitability levels and representing the strongest revenue first quarter we've ever had. First quarter revenue from our SPP segment totaled $80 million, an increase of 25.9% year-over-year, the highest first quarter ever reported in company history for this segment. Our performance primarily reflected higher production levels due to changes in project timing related to strong pipeline of bidding opportunities in the early to mid-first quarter and the improved bidding environment we've experienced to date following the relatively small bidding year…

Thank you, Scott, and good morning, everyone. I'll begin today with an overview of our first quarter profitability. Consolidated net income for the first quarter was $5.2 million or $0.52 per diluted share compared to $2.4 million or $0.23 per diluted share in the first quarter of 2023. Consolidated net sales increased 14.2% to $113.2 million compared to $99.1 million in the year ago quarter. Steel Pressure Pipe segment sales increased 25.9% to $80 million compared to $63.5 million in the first quarter of 2023. As Scott highlighted earlier, Steel Pressure Pipe sales exceeded our expectations driven by a 54% increase in tons produced, resulting primarily from changes in project timing, which was partially offset by an 18% decrease in selling price per ton primarily due to product mix. Precast segment sales decreased 6.6% to $33.2 million compared to $35.6 million in the first quarter of 2023 due to a 24% decrease in selling prices, primarily due to product mix, which was partially offset by a 23% increase in volume shipped. Our Geneva business benefited from high shipment volumes in the first quarter, while our Park business saw contractors extend delivery time lines. Products we manufacture are unique. Therefore, shipment volumes in the case of precast, production volumes in the case of steel pressure pipe and the corresponding average sales prices for both segments do not always provide comparable metrics between periods as they are highly dependent on the composition of each segment's product mix. Consolidated gross profit increased 21.5%, $20.1 million or 17.8% of sales compared to $16.6 million or 16.7% of sales in the first quarter of 2023. SPP gross profit increased 83%, $14.2 million or 17.8% of segment sales compared to gross profit of $7.8 million, 12.2% of segment sales in the first quarter of 2023, primarily…

[Operator Instructions] Our first question is coming from Brent Thielman from D.A. Davidson.

I guess just first on precast. I mean a little lower than we were thinking in terms of margins this quarter. Scott or Aaron, what's kind of a reasonable case for a rebound in the next few quarters, just considering some of the differences in regions and what sounds like a little bit of pricing -- or lower pricing being realized right now?

Yes. I think when you're looking at the free cash flow, Brent, it's really the Steel Pressure Pipe business ended up being significantly stronger than we thought it was going to be in the first quarter. So as you know, that ties up a lot of current assets initially, and then it starts to roll of those current assets and come back to the balance sheet. So we expect the Steel Pressure Pipe revenues to be relatively stable throughout the year. So now that we're up at a plateau, I think that we're going to see that reverse as we come out of this thing. The other thing we're getting more all the time is more prepayments for steel and actually MOH payments. In fact, we just won a big project not long ago, where we're receiving well in excess of $10 million of prepayment for the whole project. So I think that's going to contribute to the cash flow as we go forward, too. Plus, everybody in the senior management program at this company now has a cash flow goal for the year. So with -- tied to variable compensation. So that is being very, very closely watched. So...

Brent, just to make -- I think you may have said precast. We heard free cash. Are you talking about the precast margins?

Well, that was one of my questions was free cash. So you answered that. But yes, no, I was referring to that the precast margins and that kind of rebound we ought to be thinking about because it sounds like you think it's going to get better for me.

Actually, the thing with the precast was it was really on the nonres side. Part the bookings were really, really slow in the fourth quarter of 2023. When we booked like $16 million worth of business at Park in the fourth quarter which really led to a -- and this is pretty transactional business on the precast side, right? So it really led to a very small shipping first quarter of 2024. Well, that's kind of rebounded now as we've gone through the first quarter. We've booked in excess of $22 million at Park in the first quarter, which should lead to a pretty strong second quarter in Park and those margins coming back up. The other thing is with precast, we are still seeing substantial demand from the residential side. And ultimately, what we're seeing is a Geneva order book since that's mostly residential that's continuing to grow. And we just implemented a price increase there in March because the bookings are coming in so strong. So we're pretty confident we're going to see a pretty good rebound in both revenue and margins as we get into the second quarter and through the rest of the year.

Okay. And Scott, just coming back to SPP. I would have thought you would have seen some delays. I think you did see some delays just with respect to the poor weather in parts of the country, but it does seem to have been a huge impact. Was there a pull-forward this quarter? I'm just wondering why the outsized performance because it -- I had expected some delays there.

We're starting to see changes in project timing. I wouldn't say anything it was pull-forward. But it's really, we had so much work bid in the first quarter and won so much work in the first quarter that we're starting to get pretty loaded up at some of the facilities. So as we're having to jockey the production schedules around a little bit so that we can produce these things on time, and it really wasn't a pull-forward. But I mean we produced $80 million worth of revenue in the first quarter, and the backlog still went up by like $18 million or $19 million. I can't remember what exactly it was. So you could kind of do the math on how much we won work in the first quarter. So we're pretty loaded up at some of the facilities.

And just the last question to that, Scott, with all the work that you're picking up, maybe the pricing attached to that. Is it more attractive? I guess is the bid climate more appealing to you from a competitive standpoint?

Yes. I think when you're dealing about -- with the pricing, it's a function of what steel prices are. And one of the things is that steel prices are remaining pretty high by historical standards. They're pretty stable right now, fluctuating around $8.25 or $8.35 for a hot-rolled band. But there's 2 things that drive margins for the steel pressure pipe thing. One is obviously demand, and demand builds backlog industry-wide. And when backlogs build like that industry-wide, what happens is not everybody can do a job at the same time. So you have less bidding pressure on these jobs, and you tend to see the margin start to move its way up a bit, too. So we're pretty happy about the direction that all that is going right now, and these margins are moving in the right direction at this point.

Next question is coming from Julio Romero from Sidoti & Company.

Maybe staying on that point on SPP. Just trying to maybe understand strong margins a little better because they were really impressive. And as you just said in response to Brent's question, it was customer-driven project timing. You said you had to move around production levels a bit, but it wasn't pull-forward. So are you saying maybe you took on some quick turn work at like -- favorable -- is that what...

We got in the first quarter, which was a short fuse on it. And ultimately, we got a little bit higher production levels on it. But we're seeing really, really strong bidding through the first quarter. And we expect the year to be a pretty good strong bidding year. And we have not even gotten to the IIJA-funded part of this market. For us on Steel Pressure Pipe, that is a thing that's probably out in, wait, '25, '26, '27, '28. So the expectation is we have a pretty strong steel pressure pipe market coming at us for multiple years in a row. And when you get multiple strong markets for steel pressure pipe in a row, you tend to get a situation where the margins start to push up toward something that begins with a [ 2 ] at that point. So I think that we're kind of heading in that direction right now because of the demand that we're seeing coming forward. And the other thing with the margins is higher production levels, and you're spreading your fixed costs out over more tons, right? So it's a better situation that way. So we've got a pretty decent tailwind behind this, we believe, on the steel pressure pipe side both on revenue and margin right now as we go through the near term, and quite frankly, longer term because of the IIJA.

Got it. That's good color. So I guess are you guys saying that you kind of exited March at a strong production level and that kind of carried into April? And that's what gives you the confidence that revenue and margins in 2Q for SPP should look like something that you posted in 1Q?

Yes. It's really what we have in backlog already. I mean we carried -- like I said, when Brent was asking questions, I mean we produced $80 million worth of revenue on steel pressure pipe in the first quarter, and the backlog still went up by $18 million. So you could do the math on how much kind of we won in the first quarter with work and starting to build up with these things. So we expect the rest of the year on steel pressure pipe to be strong. And when you look at some of the construction trends, the nonresidential stuff is really -- nonresidential and the nonbuilding part of nonresidential stuff has been pretty solid, and that's the thing that affects where we are on steel pressure pipe. So we expect that to be pretty solid as we're going forward through the rest of the year.

What do you guys think -- why do you think volume and bidding inflected so quickly and strongly in 1Q? Was there anything that you can call out there that drove that?

No. I think the part of it was that we had some stuff that was originally intended for '23 that ended up in the first part of 2024. So probably the years would have been a little bit more level had it not been for that. But I think it's that and some of the stuff that's coming forward. We're just now starting seeing some of the IIJA funding come into place. And it's slow getting started because there's like $46 million -- or $46 billion that's set aside for water-type projects like the things that we do. And so far, through the end of the year in 2023, only about $1.8 billion of it's been actually put out and paid out. So there's a lot to be done. And I think those projects are really going to help buoy this stuff as we go forward. And I'm not sure if I answered your question the way you wanted. What was the other part of that, Julio?

Just trying to get a feel for what -- like how you ended up with strong volumes and backlog up. And anything onetime in nature that caused this inflection in bidding and volumes in the first quarter? But I think you answered it.

Yes. [indiscernible] in the first quarter that anybody is starting to fill up a little bit. And remember, we -- there's only 3 major competitors in steel pressure pipe after the consolidation that happened with us acquiring Ameron in 2018. So the tendency is as those backlogs start to shift a little bit and the -- we're the ones that have a nationwide footprint, right? So we can take on much more work than anybody else can, and it's -- we're benefiting from that at this point.

Got you. Just last one for me is, can you just speak to how active you are in the M&A pipeline right now on the precast side?

We're starting to get more active all the time. We're starting to see things that we're actually interested in and looking at. And I think as we go through a period of time, it's going to continue to improve. The multiples are still a little frothy on the acquisition side because obviously, we're coming off a period where there's been some pretty high business levels. And I don't know that, especially on the general precast side, that everybody is seeing the kind of strength that we're seeing in Utah. So we're starting to see those multiples adjust a little bit. And I think as we get out through the rest of this year, it's going to get more interesting with what we're seeing because we've got a couple that we're interested in looking at right now. And ultimately, we're going to be going down that road. But I think the way we look at it, Julio, is that the share buyback thing is part of our growth strategy now, right? If we can't do anything and there's nothing practical or accessible on the M&A side, we're going to look at buying -- continuing to buy some shares back because we have to do something to make it better for our shareholders. And that's how we're looking at this thing. So ultimately, we will come up with something on the M&A side. And until we do, we're going to continue down the path that we are because we're very active at this point.

Next question is coming from Ted Jackson from Northland Securities.

Congrats on a super quarter.

Ted, thanks.

My questions have all pretty much been answered, but just a couple of things. With regards to the outlook and your view with regards to steel pricing, am I right to infer that you expect steel prices for 2024 to be relatively stable on a go-forward basis and that it's underpinning your kind of $80 million quarterly run rate view?

I'll tell you that I haven't seen -- and my background is in steel, and I haven't seen stable steel pricing for many years, right? So I think you go back from before 2004, before things were really stable for long periods of time. But right now, it appears that we're in a little bit of a period of stability. I would think -- a lot of the publications are saying that they expect it to kind of drift down as we go through the rest of this year. But I think the steel producers at this point are doing a pretty good job at -- on managing their markets. And you see those guys will pull production capacity off relatively quickly if things start to drop too far. And I think it's either going to be a little bit stable or maybe even potentially moving up at some point. But I just don't see it dropping as we go through the year. So I think -- and higher steel prices are good for us on the steel pressure pipe side. It may tie a little more cash up short term, but ultimately, that rolls off and goes to the balance sheet. But I think it's probably relatively stable to maybe inching up as we go out through this period of time. Because the minute that starts dropping a bit, those guys will pull production capacity off and stabilize things.

What are you guys -- in terms of your kind of forward modeling, what are you kind of penciling in for kind of a per ton pricing for steel? And when I look at first quarter in the Midwest contract, it looks like the average was just under $1,000 a ton. But obviously, it's been -- lately, it's been closer to $800. I mean kind of when you think about the remainder of '24, what are you penciling in as you model for your own business?

Well, with steel prices that we realized in the first quarter -- now remember, some of these are bought previous or their previous pricing. And we're steel -- incoming steel costs that are in the low to -- yes, probably lower $900s because those include freight costs and extras for whatever kind of greatest deal that you're buying, right? So if you -- from what we've talked about, we've probably got something in the area of about $900 penciled in, maybe a little bit less than that for the year and don't really expect that to change too much, to tell you the truth.

And then when you look forward -- and we talked about within -- I think it came up in the last -- one of the last questions with regards to the second quarter view for margins in the SPP product to be similar to the first quarter. Is it fair? What I'm hearing from you and everything else is that there's a more robust market in terms of opportunity. So it's lessening competition for individual bids. I mean is it -- are we going to see the margins that you had in the first quarter continue? Or as this market kind of goes along, is there an opportunity for margins actually to improve, all else being equal, because you have the greatest capacity, and hence, you have the more -- you know what I'm saying? You have the appetite to take on more business than other people can?

That's a fair question. I think that with the backlog that we have and the projects that we've won and stuff that it's at least something that we view to be as stable going forward, but with the potential of having some upward movement, if that makes sense.

That does make sense. And then going into free cash flow -- and thanks very much for all the color with regards to '24 guidance, very helpful. But I mean, obviously, I was a little surprised. And I understand why the free cash flow number for the first quarter went the way it did. I mean it's actually a pretty decent problem to have because business is growing, you're committing capital. But if you're going to keep your run rate at $80 million, then was to say that the runway for you given kind of the length and opportunity with a lot of the water projects that you mentioned rolling not really until the end of '24 but really '25 and '26. Is it fair to assume that if you maintain kind of a revenue run rate going forward for the next year or 2 at that $80 million that we would continue to see just more and more improvement in free cash flow because your working capital levels would run kind of flat? Do you understand what I'm saying -- where I'm going with this? Like if you're going to run at an $80 million run rate and you're running there now and you've just put this big increase in this big drain in terms of your cash flow from working capital changes, would it be fair to say that your working capital levels would run relatively stable and that we could see an extended period of very solid free cash flow generation?

Yes. Ted, that would essentially be the way it works. We got caught in a little bit of a perfect storm this quarter. Obviously, production levels go up for steel pressure pipe. Had to kind of load the gun for the production levels that we see [indiscernible] coil in our inventories, right? So -- and really, we just didn't kind of get some of the good balances that we -- a year ago, and those good balances are going to come. Like Scott said, we're doing a good job of getting out and working on MOH payments with our customers, working on prepayments with our customers. So some of those good timing things that we've seen in the past are just kind of still in front of us for 2024. I think the other thing, though, is as you kind of go back to just kind of that normalization of the revenue levels, that will really kind of steady the shift. The only thing that would really kind of steer it, I think, off that path would be just a really weird blip in steel prices. That has some potential if it were to -- and like we say, we don't foresee that happening or anything like that. But that would be the thing that could really kind of derail in that kind of $80 million run rate for SPP.

Well, that's why I prefaced it with steel with all else being equal because I understand what steel does with regards to the business itself. But all in all, I mean, that's all super encouraging. And my last kind of question is when you talk about a fairly strong market for precast in second quarter and beyond, I mean, are we talking -- like can you -- what are we talking about here? I mean like -- it's not the biggest part of your business, obviously. But I mean, can you see that business popping north of $40 million in the second quarter? I mean is it that kind of pop? Or is it something a little more modest than that? And by the way, congratulations on the improvement in bookings in that business. That was -- you've had a lot of decline in that for many periods. So it's really nice to see that, by the way.

Yes. I think the second quarter is kind of where you're saying. If you look at last year, where we were in the second quarter, second and third quarters for precast are the big time of the year. First quarter is generally always slow, okay? And obviously, for us, one of the businesses of the precast infrastructure in Geneva is in Utah, and they tend to get a lot of snow in the winter, and the contractors aren't out doing as much work during the winter. So we believe that it's going to rebound like similar to what we did last year in the second quarter, and probably the year before in the second quarter also. So I think it's kind of on a similar path. And we expect -- again, after a pretty slow first quarter for free cash, we expect for the rest of the year to be pretty good.

Okay. Well, I mean, it was a great quarter. And it looks like you're really teed up for an extended period of financial performance, market performance. Congratulations on everything, and I'll talk to you later.

[Operator Instructions] Our next question is coming from David Wright from Henry Investment Trust.

Congratulations. Great job on the stock buyback during the quarter. I think down here, that's a great thing to use your capital for, and that's a really great average price. Scott, you were talking about kind of having a lot of SPP business and getting loaded up and highlighted a 54% increase in tons produced in Q1. How do you -- do you have to flex the labor force at all? I know in quarters and years past, you've been kind of lower capacity utilization. How does the ramp up work from a staffing point of view?

We -- sometimes, we have to do that. Generally, when we're adding people back, it's not like a whole shift or a whole crew. We may be adding here 4, 5, 7 or something like that. When the production levels on steel pressure pipe get low, we will shed probably something similar. We could shed 10 or 12 at a time at certain ones of the plants. But we flex up and down pretty regularly with the changes in the market situation. But I think that right now, we're kind of in a position where we're staffed and the guys -- I guess we had a little bit of a foreshadowing, and this was going to potentially be coming because the way the bidding was that we've kind of staffed up for that already, and we're ready to kind of take it on the rest of the year. It shouldn't be much of an issue for the steel pressure pipe side at all. So we regularly do that, not a big deal.

Any sense of kind of what capacity in the aggregate facility is operated at in the first quarter?

Yes. In aggregate, what I would say as a practical capacity for steel pressure pipe, it was about 64%, 65%.

Okay. And so you still have some room.

Oh, yes.

We reached the end of our question-and-answer session. I'd like to turn the floor back over to Scott for any further closing comments.

Again, thanks, everybody, for joining us today. And just wanted to leave the call with a few comments. Obviously, we've seen significantly improved bidding in 2024 on the steel pressure pipe side. And we expect that this kind of environment is going to continue near term, which is really a 2024 thing. But I think the most important thing is we expect this environment to really continue for the next 3 or 4 or so years, which should create a pretty interesting situation in steel pressure pipe. And I think longer term, we're well positioned to continue to absorb that -- those business increases and produce them. On the precast side, the -- 2024, we anticipate we're going to have a stronger '24 than we did '23 even with the macroeconomic pressures that we're seeing from the elevated interest rates. So I think we're in a situation where we said this last call, with the consolidation that has happened in the steel pressure pipe business and the entry into the precast business and what that's done and where it's taken us to, it's created a different level of resiliency for this company. And ultimately, we're seeing that now. We had a relatively soft quarter in precast, and the quarter still came in at one of the biggest first quarters we've ever seen -- or the biggest first quarter we've ever seen in the company. So if this would have been several years ago, it wouldn't have been that way. So I think that's an important thing to remember. So -- and again, thanks, everybody, for your time and attention today. We look forward to speaking with you again in August on our second quarter call. So thank you very much.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.