Northwest Pipe Company
Q4 2021 Earnings Call Transcript

Published: 16 Mar 2022

[Operator:]

Greetings and welcome to Northwest Pipe Company Fourth Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Scott Montross, President and Chief Executive Officer. Thank you. You may begin.

[Scott Montross:]

Good morning and welcome to Northwest Pipe Company's fourth quarter and full year 2021 earnings conference call. My name is Scott Montross and I am 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 March 15, 2022 at approximately 4

[Aaron Wilkins:]

Thank you, Scott, and good morning, everyone. As Scott highlighted, we have revised our historical segment reporting practices to now reflect two reportable segments

[Operator:]

Thank you. Ladies and gentlemen at this time, we will conducting a question-and-answer session. Our first question comes from the line of Brent Thielman with D.A. Davidson. Please proceed with your question.

[Brent Thielman:]

Hey, thank you. Good morning.

[Scott Montross:]

Good morning.

[Aaron Wilkins:]

Good morning.

[Brent Thielman:]

I guess first question, Scott at the end -- it sounds like at the end of the first quarter presumably you could be over $300 million in backlog potentially just based on your commentary. How much of that do you think you can convert to revenue here in 2022?

[Scott Montross:]

What I would say is as you can see the backlog has continued to grow, right, finishing the year at $290 million. I think the biggest part of this Brent is we have 51,000 tons of projects that are bidding in the first quarter, okay? So this first quarter is one of the larger first quarters we've seen in a long time. And a lot of this stuff is relatively near-term. So the backlog that we have now generally spreads out over a relatively long period of time. But I think that you're going to see some pretty strong revenue numbers. If everything proceeds the way that we think it's going to proceed this year, very strong first quarter bidding on the steel pressure pipe side. The work that we have bid and that we're getting to in the backlog that is I guess better quality margin work, starting to run in the first and the second quarter. And all of those things are going to build into a pretty strong steel pressure pipe year if everything remains the way it is right now.

[Brent Thielman:]

Okay. Great. And then maybe your thoughts on the current Precast margins. Aaron, I think you said closer to 20% stripping out some of the onetime items this quarter. But is there sort of a catch-up opportunity there as well, just because you've been implementing price increases and absorbing higher costs there. I guess just your thoughts around those gross margins as we progress through the year?

[Aaron Wilkins:]

Yeah. The gross margins on precast are really -- the way we've always tried to characterize them Brent is the utility piece which is more of the Geneva type applications are probably, it gets to the very high side of what Water Transmission can get to. So when you're looking at those kind of margins, I think that potentials there are the low-20s as you go forward. We've had probably five or six price increases in the Precast side this year and actually we just got another one going in because the raw material prices continue to move on us, not only the cement, but the aggregates and things like that. So we're keeping up with the raw material prices, but that margin looks like it has the potential to continue to build. When you look at the Park margins in that part of our Precast business with Precast and the Precast equipment, they're generally a little bit higher, maybe moving more toward the mid-20s is the way it looks right now. So I think that's probably as we sit right now and as we through this Precast business, it's probably a relatively good bellwether. And I think we said in the script that Precast order book is really strong at the end of the year at $51 million. That also continues to gain strength in the first quarter, similar to what's happening in the steel pressure pipe side. So I think we've got a good bit of momentum behind us as we stand right now.

[Brent Thielman:]

Yeah. That's good to hear. Yeah, I guess and to that point Scott, I mean it looks like Geneva is still growing at a very healthy sort of double-digit clip here. I mean any reason why that should moderate this year?

[Scott Montross:]

The Geneva is a pretty regional set up, right? We're in Utah. And I think what we're seeing in Utah is a really strong economy, unemployment rate below 2% in Utah, the housing rate and the number of put in place residential housing units they're putting in continues to grow. We -- there's continued net migration into Utah. So I think what we see in front of us at least for the near term looks to continue to be really strong in Utah. Obviously, the Fed with the interest rates can eventually affect this. But right now, what we're seeing is continued strength. And like I said, a order book on the Precast that continues to grow. So it looks to be strong on the Precast side, whether it's Park or the Geneva side all the way through this year as we sit right now.

[Brent Thielman:]

Okay. Great. I’ll pass it on. Thanks guys.

[Scott Montross:]

Brent. Thanks.

[Operator:]

Our next question comes from the line of Gus Richard with Northland. Please proceed with your question.

[Gus Richard:]

Yes. Thanks for taking the question. Nice quarter guys.

[Scott Montross:]

Hey, Gus.

[Gus Richard:]

Hey. Real quick on the Precast business. How much of that is tied to housing starts? And how much of it is tied to other activities?

[Scott Montross:]

I would say that when you look at the utility side which is more of kind of the Precast side of what Park or what Geneva does, A big piece of that is tied to the residential side. When you look at the Precast piece of the business that Park does, it's relatively small to the residential side, maybe 15% or less of that. A lot of the Park stuff ends up in more relatively large industrial commercial applications, whether they're pump stations or water meter vaults or gigantic backflow preventers or things like that that's significantly more commercial driven and away from the residential piece.

[Gus Richard:]

Okay. So when I think about it blended, it sounds like roughly 50-50 when you blend Geneva with Park?

[Scott Montross:]

Yes, that's probably relatively close.

[Gus Richard:]

Okay. And then given the low bidding activity last year, I think, you have some lower margin stuff on the books you got to work through. Can you sort of talk about the profile of working through that backlog?

[Scott Montross:]

Yes. I think it's -- when we started talking about the fall off, I think, it's when it originally started, it was really the second half of 2020 that was -- we're starting to fall off. And then the first half was rough of 2021. We expected the second half to be really strong with the bidding in the second half like well over 100,000 tons of work bidding and that started to deteriorate. A lot of it was COVID related getting jobs pushed around. Actually a lot of that is being sent out into 2022. So with that, it's a really small market, you get a lot of market bidding pressure, right, during that period of time. So what we're seeing right now really fourth quarter, what we expect to see in the first quarter is being subjected to a lot of that bidding pressure that we saw during that period of time. As we got later in 2021, the bidding very late in the year started to pick up. And what I would say is the quality of the work that was going into the backlog as far as margin concern started to really improve. And what we've seen in the early part of 2022 continues to improve margin-wise. So certainly we expect, like we said to see some expansion in that margin. But I think, it's going to be into the second quarter until we really get there. And we've got some pretty good quality work in backlog coming forward. And quite frankly, the amount of that work as we progress through the first quarter that's in backlog continues to grow based on what's bidding. So it's pretty substantial.

[Gus Richard:]

And then do you think you can get back to historic -- the high end of your gross margin range exiting the year?

[Scott Montross:]

It really depends on how stable the marketplace is, Gus. If we get a market that has good extended demand that we see right now and we see industry-wide backlogs with competitors that are solid and in good shape, can you get a stable bidding environment? You can start getting up to the higher end of that range again. The issue we always see is, there's always some period of disruption that happens that once we get to that period, we'll have a bit of disruption in the market and it falls off for a period of time and then we have to climb all the way back up there. So that's -- I would say that we are heading in that direction right now.

[Gus Richard:]

Okay. And then last one from me. You mentioned that steel delivery has gotten a little bit better and that pricing has eased a bit, but seems to be stabilized except for recent events. And I was just wondering if you could talk about what has happened particularly with delivery and project delays going forward?

[Scott Montross:]

Well, we really saw most of the delivery and project delay issues probably starting, as we got toward the beginning of the second quarter in 2021, and still got really tight, and we had all the restrictions with the 232s are bringing imported steel into the country, and you couldn't -- there really wasn't enough supply to fit the demand profile that we had in the company -- or excuse me, the country, which caused the tightness throughout the industry. That caused prices to go up to almost $2,000 a ton on hot bands during that period of time. It also caused lead times to go out to eight, 10, 12 weeks to get a hot-rolled band delivered if you could get into somebody's order book at that point in time. Well, that kind of continued really into the third quarter and it started to abate as we got out a little bit later into 2021. We're not seeing that now. It started to really kind of crest and fall off as we got really late in 2021. We saw steel prices start to fall pretty significantly to where they fell down to probably $1,050 to $1,100 a ton all the way down from almost $2,000 a ton. Lead times started to come back in. And that's kind of what we're seeing rate up to this point. But what we've seen in the last couple of weeks, Gus is that based on recent world events, we've actually seen steel prices start to move back up again. They're kind of to the $1,100 $1,200 range. We're still able to get steel, but what is the effect on the conflict in the Ukraine and other issues going to have on steel, how do the transportation costs affect that as we go forward. So, those are things that we're going to have to pay close attention to and make sure that we're passing that on through the system. But right now things look to be pretty stable and lead times in -- the general probably four, five-week range for hot-rolled band, which is pretty manageable. But we're keeping our eye on it with what's going on in the world now and see what happens. But I think that there's a little bit of upward pressure on steel again, and we'll see what happens. It could move up quite a bit again I think. And we're not opposed to high steel prices. We're just opposed to the volatility in prices, where it causes us problems with deliveries and things like that. And we are definitely in favor of high steel prices, just not volatility.

[Gus Richard:]

Got it. Very helpful. Thanks so much.

[Scott Montross:]

Absolutely.

[Operator:]

There are no further questions in the queue. I'd like to hand the call back over to Scott Montross for closing remarks.

[Scott Montross:]

Okay. Thank you, and thanks again for everybody joining our call today. And before we close out of the call, I just wanted to leave you with a couple key takeaways. Record backlog achieved in 2021 bodes pretty well for both our SPP business and our Precast business as we move into 2022, both on the revenue and margin side. So, we are very pleased with the way that the Park acquisition is progressing and the integration of Park and all the things that we're doing there. And the business that it's getting us into we're very excited about the idea of product spread, which we've talked about, we'll be talking way more about as we go into the future and the kind of organic growth that it can provide for the company. So pretty excited about all that stuff and I think we've got some really good solid momentum going into 2022. I'd like to thank everybody for your time and attention today, and we look forward to speaking with you again very soon on the first quarter call in May. So, thank you.

[Operator:]

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