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spk02: Greetings. Welcome to the Northwest Pipe Company first quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. And please note that this conference is being recorded. I would now like to turn the conference over to Scott Montross, CEO. Thank you, sir. You may begin.
spk03: Good morning and welcome to Northwest Pipe Company's first quarter 2022 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, May 4th, 2022 at approximately 4 p.m. Eastern time. This call is being webcast and it is available for replay. As we begin, I'd 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 31st, 2021 and in our other SEC filings for 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 Aaron will walk you through our finances in greater detail. Consolidated net sales were $109.3 million, which included a $19.7 million contribution from our acquisition of ParkUSA. Revenue from our steel pressure pipe segment increased 24.4% year-over-year to $74.7 million. The increase was primarily due to higher steel pricing that we saw throughout 2021, which drove higher project pricing. This was partially offset by decreased production volumes resulting from the very small bidding year that we saw in 2021 related to bidding delays that we experienced throughout the year. These delays put product bidding out into 2022, which is partially why we experienced such a significant amount of project bidding in the first quarter of 2022, leading to the substantial increase in our current backlog. As of March 31st, our backlog, including confirmed orders for the steel pressure pipe segment, was an all-time record of 341 million. compared to our previous record of $290 million as of December 31, 2021. This compares to $210 million as of March 31, 2021. I'd also like to highlight that our record backlog includes a 63% increase in tons versus the fourth quarter of 2021. As anticipated, the strength in our backlog was a direct result of robust steel pressure pipe bidding during the first quarter of 2022. While we project the first quarter will be the largest bidding period of the year, and therefore the high watermark for our steel pressure pipe backlog in 2022, we expect bidding should remain solid throughout the remainder of the year. As such, we expect that our backlog will remain elevated compared to recent historical levels, and the improvement in the overall quality of our backlog should lead to steel pressure pipe margin expansion into the mid-teens in the second quarter of 2022. Sales from our precast segment increased 182.5% year-over-year to $34.6 million, driven by a 22% increase in sales at our Geneva operations, which we acquired in January of 2020. In addition, we benefited from the aforementioned $19.7 million contribution from our Park USA operations, which we acquired on October 5th of 2021. Our precast order book remains at all-time highs and totaled $65.5 million as of March 31st, 2022, compared to $51 million as of December 31st, 2021, in 16.1 million as of March 31st, 2021. I'd also note that our order book as of March 31st last year did not include Park USA. Our consolidated gross profit increased 68.5% year over year to 14.8 million, which resulted in gross margin of 13.5% up 140 basis points from the first quarter of 2021. Our steel pressure pipe margins remain muted in the first quarter as expected as we work through older backlog that was subject to the extremely small bidding market and associated bidding pressures we experienced in 2021. The process of permitting, bidding, and engineering steel pressure pipe project took much longer in 2021 given the highly complex and fluid challenges in the steel pressure pipe market related in part to the pandemic. The resulting reduced production volumes at our steel pressure pipe facilities led to higher levels of underabsorption. This was in addition to a volatile 2021 steel pricing environment with significant delivery disruptions and customer-driven production delays of orders already in backlog, which have since diminished. Additionally, we recorded a discrete charge for a product liability settlement associated with a dispute originating back in 2015 that had a negative impact on our first quarter steel pressure pipe gross profit. Without the settlement charge, our first quarter steel pressure pipe gross margin would have been similar to both the first and fourth quarters of 2021. Positively benefiting our consolidated gross margin in the first quarter was our pre-cast related margins which remains strong throughout the quarter. As a reminder, our growing precast business serves as a stabilizer to both our top line and gross margin during slow periods for the water transmission business. We expect our precast order book will continue to remain strong in the near term, which should facilitate further margin expansion as we progress through what appears to be a very strong precast market in 2022. In general, the steel pressure pipe project bidding environment has been very robust, which should bode well for the remainder of the year, in part due to orders from 2021 moving and sticking in 2022, and since steel supply and delivery related issues have largely abated for our business since the beginning of the year. Steel prices have fallen from the highs we saw late in 2021. However, over the last couple of months, they've recovered a substantial amount of what they lost, especially given the conflict in Ukraine, which has put upward pressure on steel pricing this year. New North American capacity coming online currently appears to be stabilizing hot roll band pricing, which is our primary steel pressure pipe raw material. But steel prices still remain elevated by historical standards. And in general, elevated steel prices are good for our steel pressure pipe business. Next, I would like to turn to a discussion on our two-pronged growth strategy. First, we remain focused on our core objective of driving growth in the precast related space. The integration of Park USA is our top priority, and it remains on schedule. Park USA's operating and commercial structures are in place, and we've aligned their human resources, sales, and operating teams and have implemented and continue to refine both operational and commercial KPIs. As we've discussed previously, we are in the initial stages of implementing our organic growth product spread strategy, which focuses on adding the production of park products at our legacy Northwest pipe plants, and in some cases, products for the existing Northwest pipe facilities may be added to the production at park facilities. We continue to be very excited about the future growth prospects of this business. Another key focus of ours includes the expansion of our Geneva operations to increase our production capabilities, and capacity. As previously announced, we committed over $18 million in new capital improvement projects, of which $4 million was already spent. The projects are scheduled for completion in the first quarter of 2023 at the Geneva plants and will include facility expansions, automation, and equipment upgrades to meet the growing market demand for reinforced concrete pipe and other concrete products. We believe these investments will be beneficial for both our top line and margin profile over time. In following the successful integration of Park USA, our goal remains for our precast related business to grow to a similar size as our steel pressure pipe business within three years, supported by the increasing infrastructure needs in the United States. The second prong of our growth strategy is focused on continuing to maximize our steel pressure pipe water transmission business to drive shareholder value. We remain intensely focused on margin over volume, lean manufacturing, and cost reductions to drive efficiencies at all levels of the company. And we will continue to explore investment projects that help us reduce costs and maximize margins. I will now turn to a look at current and upcoming water transmission projects. This is typically the point in the call where I discuss upcoming projects that are bidding in the steel pressure pipe market. The program work that we continue to talk about is fairly similar on each call because many of them are multi-year programs. Therefore, we're going to be very abbreviated in our earnings call moving forward and are providing a different avenue by which you can review the jobs. In the West, we expect bidding to be healthy as California's Proposition 1 $7.5 billion bond is expected to fund projects for the next several years. There are multiple ongoing programs in California, such as San Diego Pure Water Program and the PCCP Rehabilitation Program. The site's reservoir water storage is a major project scheduled to start in 2024 in the state of California. There are also other active programs in the West, such as Navajo Gallup Supply Program in New Mexico. In the central region, which includes Texas and the central part of the country, we expect bidding to remain active with programs like the Houston Surface Water Program, the Alliance Regional Water Authority Program, and the ongoing Red River Water Supply Program in the Dakotas, in which we were awarded the contract for the first section to manufacture over 7,500 tons or 8 miles of engineered steel pipeline system to be delivered to the job site this summer. For more information on our current and upcoming water transmission projects, please review our investor presentation, which can be found on the investor tab of our website within the events and presentation section. Before I conclude, I'd like to highlight some of the recent executive leadership changes. Most recently, we appointed Mike Ray, our Senior Vice President and General Manager of our Precast Infrastructure and Engineered Systems business as a Corporate Officer just last month. Mike has led the Precast business since we acquired Geneva in January of 2020 and has been instrumental in leading the integration efforts of our most recent acquisition of Park USA, which was acquired on October 5th of 2021. Additionally, Eric Stokes was appointed to the position of Senior Vice President and General Manager of Engineered Steel Pressure Pipe and became a corporate officer in March of 2020. Prior to his appointment, Eric served as our Senior Vice President of Sales and Marketing for our Engineered Steel Pressure Pipe business. He's now responsible for all commercial and operating activity for our Engineered Steel Pressure Pipe group and has been involved in securing several of the largest orders in our company's history. In addition, we appointed Megan Kendrick, our vice president of human resources, a corporate officer in 2021. Megan has held a variety of positions with increasing responsibility in both accounting and human resources since joining our company in 2008 and has been instrumental in developing the organization as our company has continued to grow. And last but not least, I'd like to congratulate Bill Smith, our former executive vice president, of engineered steel pressure pipe on his retirement last month after 12 years of service with Northwest Pipe, over 14 years with Ameron, a company that we acquired in 2018, and more than 40 years in the business. I'd like to thank Bill for his many contributions and dedication to the company as a key part of our management team, which will continue even into his retirement as he stays on as an independent consultant. Bill is succeeded by Miles Britton who has been with our company since 2013 and spent the last year working very closely with Bill as Executive Vice President. I've worked with Miles for the better part of 35 years and we are confident that Miles will help continue to position our steel pressure pipe and precast businesses for continued future growth and success moving forward. In summary, We're very pleased to see the record level strength we experienced in both our steel pressure pipe backlog and our precast order book continuing to 2022. We are maintaining a very positive outlook for the remainder of the year based on robust bidding activity that we experienced in the first quarter, which should position us well for steel pressure pipe margin expansion into the mid-teens in the second quarter. We currently estimate bidding activity could be approximately 50% higher for 2022 compared to 2021 levels. Further, we believe the strength of our precast order book will continue throughout the year. Looking ahead, we will remain focused on our top priority of taking every precaution to keep our employees safe through the ongoing pandemic. Number two, integrating Park USA as quickly and efficiently as possible. Number three, a persistent focus on margin over volume. Number four, continuing to implement cost reductions and efficiencies at all levels of the company. And lastly, continuing to identify strategic opportunities to grow the company once we have completed the integration work with Park USA. Thank you to all of our Northwest Pipe employees for your dedication to strong operational execution and your commitment to working safely. I will now turn the call over to Aaron, who will walk through our financial results in greater detail.
spk01: Thank you, Scott, and good morning, everyone. I'll start with our financial results. Consolidated net income was $3.6 million, or $0.36 per alluded share, compared to $2.2 million, or $0.22 per alluded share, in the first quarter of 2021. Our consolidated net income in the first quarter of 2022 included $0.9 million in amortization and other transaction costs specific to Park USA, which were partially offset by $0.2 million in associated tax expenses for these items. Adjusted net income, excluding the aforementioned items, was $4.2 million in the first quarter of 2022, or 42 cents per diluted share, compared to $2.3 million, or 23 cents per diluted share, in the first quarter of 2021. Adjusted net income is provided for comparability purposes. Please refer to the reconciliation of non-GAAP financial measures in our earnings release for a comprehensive schedule detailing the adjustments for each period. Consolidated net sales increased 51.2% to $109.3 million compared to $72.3 million in the first quarter of 2021. Steel pressure pipe segment sales increased 24.4% to 74.7 million compared to 60.1 million in 2021 due to an 85% increase in selling price per ton resulting from increased steel costs along with changes in product mix, which was partially offset by a 33% decrease in tons produced resulting from changes in project timing. Precast segment sales increased 182.5% to 34.6 million compared to $12.3 million in the first quarter of 2021, primarily due to $19.7 million contribution from the recently acquired Park USA operations, which Scott discussed earlier. This is in addition to a 22% increase in sales at our pre-existing precast operations, resulting from a 35% increase in selling prices, partially offset by a 10% decrease in shipments. Consolidated gross profit increased 68.5% to 14.8 million, or 13.5% of sales, compared to 8.8 million, or 12.1% of sales in the first quarter of 2021. SPP gross profit remained relatively flat at 7.2 million between the first quarter of 2022 and the corresponding quarter of 2021. Resulting gross margin was 9.6% of segment sales in the first quarter of 2022 compared to 11.9% in the first quarter of 2021. In the first quarter of 2022, we recorded a reserve for a product liability claim, which Scott discussed earlier. Given the settlement process is not quite complete, we are not in a position to go into detail surrounding this pending legal matter at this time. Excluding this reserve, The SPP segment's gross margin would have approximated the margins realized in the first quarter of 2021 as well as those that were realized in the preceding quarter. I would also note that product claims of this magnitude are unusual and infrequent. Precast gross profit increased 368.7% to $7.6 million or 21.9% of precast sales from $1.6 million or 13.2% of segment sales in the first quarter of 2021, primarily due to the contribution from Park USA, as well as higher prices at our pre-existing pretest operations. Selling general administrative expenses increased 60.7% to 9.4 million, compared to 5.8 million in the first quarter of 2021. The increase was primarily due to the addition of Park USA, which added $1.5 million in costs that are primarily compensation-related in nature, along with $0.8 million in higher amortization expense. We also realized higher labor expenses and professional fees compared to the year-ago quarter. For the full year of 2022, we expect our consolidated selling general and administrative expenses to be in the range of $36 to $39 million. Company-wide depreciation and amortization expense was $4.1 million in the first quarter of 2022 compared to $3 million in the first quarter of 2021. We expect depreciation and amortization to be in the range of $16 and $19 million for full year 2022. Interest expense increased to $0.6 million in the first quarter of 2022 compared to $0.2 million in the first quarter of 2021. As we move through 2022, we expect our interest costs to vary with working capital needs for the steel pressure pipe business and with tightening to the current rate environment. In addition, we have limited nearly half of our current exposure to variable interest rates with an interest rate swap contract initiated in April. Our 2022 first quarter income tax expense was $1.3 million, resulting in an effective income tax rate 27.4% compared to 0.6 million in the first quarter of 2021 for an effective income tax rate of 21.7%. The effective income tax rate for the first quarter of 2022 was impacted by non-deductible permanent differences, while the rate for the first quarter of 2021 was impacted by tax windfalls recognized upon the vesting of equity awards. We believe our full year 2022 tax rate will approximate 2021's effective income tax rate. Now, transitioning to our financial condition. Net cash provided by operating activities in the first quarter of 2022 was $1.6 million, compared to cash used in operating activities of $0.6 million in the first quarter of 2021, primarily due to improved profitability net of higher non-cash amortization expense in the first quarter of 2022. As of March 31, 2022, we had approximately $90 million of outstanding borrowings on our credit facility, leaving approximately $34 million in additional borrowing capacity. We are diligently managing our working capital and believe our available borrowing capacity is sufficient to meet our near-term liquidity needs. Our capital expenditures for the first quarter totaled $4.4 million, compared to $1.9 million in the first quarter of 2021. We continue to project our total CapEx to be in the range of 26 and 30 million for full year 2022, which includes approximately 13 million in investment CapEx for the new reinforced concrete pipe mill, with the remainder to be used primarily for standard capital replacement projects. We expect the timing of our 2022 CapEx spending will continue to depend on broader economic forces. In summary, We are very pleased with our first quarter results and the prospects for the balance of the year. Thank you to all the employees for your hard work so far this year, and most importantly, for your ongoing focus on safety. I will now turn it over to the operator to begin the question and answer session.
spk02: Thank you, sir. At this time, we'll begin a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing any star keys. One moment, please, while we poll for any questions. Our first question comes from the line of Brent Thielman with D.A. Davidson. Please proceed with your question. Hey, guys. Good morning.
spk01: Hey, Brent. Good morning.
spk05: Hey, Scott, maybe unlike a lot of other public companies right now, I haven't really heard you talk about challenges and margins with respect to supply chain constraints, inefficiencies, logistics. It seems like you all are working through that pretty well. Maybe there's something on the covers there that we can't see, but can you just talk a little bit more about how that's impacting the profitability you see in the business today? Sure.
spk03: Yeah, sure. When you look at the steel pressure pipe side, Brent, on the steel piece, like we mentioned in the script, obviously steel fell off quite a bit toward the end of the year, end of the first quarter, and then started to come back up pricing-wise. And we've got some additional capacity that's come online in the steel business. And I think it's kind of stabilizing the supply right now. So we're not seeing really that much on the steel side. I think when you look at other parts of our business, though, Like, for example, on the Park USA side, we're seeing delivery issues with mainly the components, right? The pumps, the valves, and things like that, which we're seeing extended deliveries on. It's not that we can't get them. It's just that the deliveries get a little bit extended, which, quite frankly, has caused us to carry a little bit more inventory at Park at this point just to make sure that we have the components we need to make on-time deliveries. And with the precast infrastructure, the Geneva business, really we haven't seen as much. We've seen a little bit with cement deliveries and obviously pricing on cement and all those components are moving up at the same kind of rate. But I think it's mainly around the component side right now and a little bit on the cement side and maybe a little bit on aggregates in the precast infrastructure side, which again is Geneva. But right now we're working our way through those and generally not having many issues with them at this point.
spk05: Yeah, that's great. And then, you know, the precast margins looks like a great start here altogether. I mean, can they get better from here as we get into kind of the seasonally stronger periods of the year?
spk03: Yeah, I think when you look at the first quarter, generally on the precast side, it's generally the slower quarter especially. on the precast infrastructure, the Geneva-type business, because you've got colder weather where they're located, so it starts to slow things down a little bit. And then on the park side, we haven't seen anything slow down anywhere on park, and it continues to be really strong. And I think when we look at margins, and we've talked a little bit about this on the past, I think a good measuring stick for like what you see with the precast infrastructure or Geneva margins is probably the very high side of what we can get in water transmission when things are really, really strong. And then when you look at the park margins, you know, you're looking at probably 500 or 600 basis points above that And I think as we go through time and continue to get efficiencies in those facilities and cost reductions, that those margins will continue to improve as long as the market sticks. Because I can tell you right now the precast and precast-related markets that we're in have been very strong and appear to be setting up for a really strong 2022 full year. So it's looking pretty good.
spk05: Scott, I mean, to that point, you know, it looks like Geneva in itself was up over 20%, you know, again, this period. I mean, what do you think is driving all this demand on the precast size? Do you select markets you can point to?
spk03: Yeah, you know, I think the business drivers on the precast, because PARC and Geneva are a little bit different, right? PARC is only about 15% residential demand. So it's more population growth, urbanization, and interest rates that are business drivers to that business. But like I said, we have not seen the order book slow down at all at Clark. And, you know, obviously they're in Texas. And when you start looking at what the conflict in Ukraine is doing with with the oil distribution around the world, obviously there's going to be a lot of money being spent in the Texas economy. So the Texas economy is really, really strong. And I think the things that we've worried about more, Brent, are like obviously the Fed increases in the interest rates and the effect that those are going to have. But even when you're looking at where we have our park facilities right now, even if the interest rates start to slow down, single-family residential housing, people are still going to need places to live in Texas. So you're probably looking at potential growth in multifamily apartments and things like that. So I think that is really a big piece of the park site. On the Geneva side, a little bit different drivers, a little bit different because it's mostly related to residential. You're looking at population growth, housing starts, and interest rates. And the worry there, obviously, is the interest rates are going to slow down the residential market. I think what's happened, and you mentioned it before about supply chain, that the supply chain issues that are through the system have caused a little bit of a buildup in construction starts on residential housing. So there's been a lot of delays in getting construction started and completion. So I think there's some momentum behind that market. And that momentum just is a continuation of what we've seen you know, really for the last probably year and a half in both of those businesses.
spk05: Yeah, good to hear. I guess last one, I'll turn it over. How much of that $341 million in backlog do you think you could convert this year?
spk03: Oh, geez. You know, some of the backlog is always longer lead time. I mean, there's obviously stuff in that backlog that stretches out into 2023 and maybe even a little bit into 2024. I think we ended 2021 with kind of a 280-ish of the steel pressure pipe business. I think obviously the backlog would foretell that the revenue in that business should continue to climb. over this period just because there's more work in backlog. And it's not even related to a steel price thing now, Brent, because what we're dealing with is we saw steel prices fall a bit at the beginning of the year so that the steel prices aren't as big of an effect. And what we're seeing is way more tons in backlog. There's like 63% more tons in backlog now versus where there was in the fourth quarter. And actually... A bunch more than that, when you look at the first quarter of 2021, it's even higher than 63% in the amount of tons in backlog. So I think that there's a good chance that revenue, while I don't want to throw a specific number out, continues to grow from where we were in 2021. Okay. All right.
spk05: Well, I figured that, but I thought I'd ask anyway. I'll pass it on. Thanks, guys.
spk00: Thanks, Brent.
spk02: Our next question comes from the line of Gus Richard with Northland. Please proceed with your question.
spk04: Yes, thanks for taking the question. Just on the pressure pipe business, you know, in the past there's been, you know, some shipment delays from the steel companies. Are you still experiencing that or are the deliveries more predictable now?
spk03: Well, what I would tell you, Gus, is you always experience some delays from the steel guys, right? There's always delays depending on the different mills that you're dealing with. But certainly where we are right now, we're not seeing nearly what we saw in 2021. And I think in a couple of words, it's definitely become more predictable than we've seen. So that has been a pretty good plus, especially since we saw last year delays in projects that we already had in 2020. and backlog, and we're ready to produce, and we're waiting on steel for some of those projects. We're not seeing nearly as much of that now. So that's kind of leveled out. And really, Gus, I think you've still got some of the markets that are steel-related markets. like the automotive guys are still a little bit down. Obviously, the chip shortage is creating issues there. But we're also seeing additional capacity coming online, which is making more steel available. So I think those things are all helping.
spk04: Got it. That's helpful. And then, you know, just thinking about the margins in this pressure pipe business, you know, in the past you've been able to get to, you know, 20%. You know, do you see a path to getting there or, you know, sort of how do you see those margins trending based on the better backlog?
spk03: Yeah, we see, you know, obviously we're going to be able to run more tons in the second. First quarter was relatively small tons of production, right? I mean, when you look at overall capacity utilization in the first quarter and look at the practical capacity of the facilities, we're probably somewhere in the area of about 35% capacity utilization. Well, we're going to be running more in the second quarter of the year, and obviously with running more you get better overhead absorption rates. So that's why we're kind of focused on those things getting into the mid-teens. You know, we think that as we go through the year, there's a chance that they could continue up. But I think when we get into the 20% range, there's a few things that have to happen. One, obviously, you need a really strong, good extended market because the key for margins over 20% are strong industry-wide backlogs. And that only comes with strong demand in the market. So it creates a much more stable environment. And I think that's what you're looking for. And I can't say that we're there yet. Obviously, we had a really big first quarter bidding in 2022. And that's kind of set things up for the rest of the year. But I think the rest of the year I would kind of deem as just solid bidding. And I think that that backlog is – the $340 million or $341 million backlog is a good carry forward through 2022. And I think the other thing is, as we mentioned, that's going to be the high watermark because of what we see for the rest of the year. But we still think it's going to remain up a ways. So as long as backlogs remain up industry-wide – You know, there's no reason you can't start moving up at least toward that 20% number, but they've got to remain strong for a period of time to get there. So I think people have to have or competitors have to have a longer-term look at stronger backlogs, and that's really what starts to drive that. It's higher production levels. which creates better absorption rates in the plants, and then the better backlogs that creates a more stable bidding environment. So I think we're not quite there yet, but I think we're starting to move in that direction.
spk04: And the sequential decline in bidding activity is just a function of the deferred bidding in 21 just being – taken care of in the first quarter, and that pretty much is cleaned out. Am I getting that correct?
spk03: Yeah, I think we can still see a little bit of that in the later part of the year, but a lot of it was in 2020, 2022 first quarter. I think some of that work actually moved down into 2023. But in general, what you're saying is correct.
spk04: Got it. And then in terms of Geneva with this CapEx you're putting into it, Can the Geneva margins migrate up towards Park USA, or is that just a generically lower margin part of the precast?
spk03: Yeah, because you're dealing with more of a, I don't want to say commodity product, but it's more of a commodity-type product than what we see at Park USA. It's more the RCP pipe and manholes and things like that. So I think that there's room for improvement in Geneva margins, but I think the bigger question is how high can park margins get, right? I think the Geneva margins have developed quite nicely over the last year and a half, but the question starts to come down to where the park margins get to, right? Because, like I said, they are – They are 500 or 600 basis points above the Geneva margins, which we think is okay at this point, but I think that there's some room to move up in those, too.
spk04: Got it. Got it. Okay. Appreciate it. I think that's it for me. Thank you.
spk03: No problem. Thanks, Gus.
spk02: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from the line of David Wright with Henry Investment Trust. Please proceed with your question.
spk00: Hi, good morning. In the press release, you talk about the, at Geneva, 35% increase in selling prices. That's pretty stunning. Can you put any context on that?
spk03: Yeah, you know, what I would say, David, is the selling price is reacting to the increase in raw materials. Because when you look at the raw materials on the precast business, you've seen a lot of them move up, like whether it's reinforcing rod or wire or the sand and aggregates. A lot of those are up 15 or so percent, in some cases even a little bit higher. So, you know, obviously what we're trying to do is trying to make sure that we are covering the increased costs of But I think the other piece is the demand on the Geneva business has been so strong. Quite frankly, we're actually trying to slow down the order book, right, because you don't want to get the order book too far extended. Otherwise, the lead time gets extended, and what it means is it takes longer to get the price increases into the market. So we've continued to work price increases in the market to stay out in front of these cost increases. We see at Geneva, and I think the guys on the precast side, Mike Ray and his team of guys have done a really good job at that. Same thing with PARC. We're seeing the same kind of increases with PARC on the raw materials side, which, again, you're dealing with a lot of the same that Geneva has for the precast concrete vaults, but also the components. I think they're doing a pretty good job of keeping out in front of those things at this point. Hopefully that answers your question. I didn't get off on too much of a tangent.
spk00: I'm just thinking like a utility vault, a pretty generic precast item for the price of that to go up so much and have the market tolerated. It's interesting to think about.
spk03: I'll tell you, David, the order book has been really strong. It continued to grow through the back half of the year, and it's continued to grow in the first quarter and into the second quarter. So the key is to make sure that we're managing the order books so we don't get it too far extended. So, you know, we ended with about a – I guess it was about $66 million in backlog – or backlog. It's actually order book for the precast and precast-related business. Ideally, we'd like that to be a little bit closer in, you know, maybe in the mid-50s, high 50s. When we're getting out that far, it just takes longer to get the prices into the market to keep up with the cost increases. So the guys are doing a good job. But the demand on precast has been pretty stunning at this point.
spk00: Well, that's been a good move that the company made, you know, to expand into precast. And, you know, you've hit the beginning of the cycle and are benefiting from from the improvement. So that's, that's a really great move. And then my other question is with, with possible further expansion on the precast side is, is there any kind of a debt metric that management and the board are kind of comfortable with getting to, but not exceeding?
spk03: Yeah. You know, that's, that's been a big level of discussion specifically with Aaron and I, because obviously the, The big thing is where we are now, we'd like to get the credit facility down into a reasonable range. So, I mean, that's going to be the first order of business, I think, before we get any more expansion going on. It could be a little bit of a while before that happens because we're still integrating PARC. But I would say at this point – You know, to us, and both Aaron and I are pretty debt light. I don't like to have a lot of debt, so I like to keep working things down. At this point, I would say, you know, these are just kind of round numbers. I'd start feeling more comfortable with a credit facility that's kind of in the 40s range. You know what I'm saying? at this point because we've got some integration to do, and obviously we like to do things off the balance sheet if we can, and we're going to continue looking at that as we go forward. But we're pretty debt conscious when you look at how we run the business.
spk01: Yeah, our credit facility allows for three times EBITDA right now, David, due to the acquisition. That acquisition holiday kind of ends in the fourth quarter. So we would drop down to 2.5. I mean, Scott and I have typically been comfortable at 2 and not feeling too much stress at 2. But like Scott said, we naturally want it as low as we can and are pretty conscious on paying that loan down. So something we're very focused on, haven't been focused on forever. I mean, Scott really kind of brings that to the culture and something that he does during his meetings with the executive team where we really start a lot of meetings with discussion around our current assets and receivable collections and cash. So something we pay attention to all the time.
spk03: Yeah, and I think that's been a big piece of it, is the receivables and working those percent on times much higher, especially in the steel pressure pipe business.
spk00: So it sounds like on a debt-to-equity ratio, for example, that you wouldn't be comfortable going any further than you are right now.
spk03: Yeah, you know, it would have to be something that was really transformative. I think that the, you know, obviously there's variability in the steel pressure pipe business, and we're conscious of variability. Just like, you know, when we talked about 2021, we thought the back half of 2021 was going to be a really large bidding back half of the year. And as we got through the back half of 2021, it deteriorated and things pushed out into 2022. So I'm more comfortable with a little bit less leverage. unless there's something out there that really made sense. And it's really, you know, that's the focus on, all right, well, we've got to continue to grow the precast business to continue to balance off the variability that we see in steel pressure pipe. Because when the steel pressure pipe business is good, I mean, it's pretty good. But when it's slow, obviously, you've seen some really, really slow years for us on the steel pressure pipe side. And You know, the key, I think, is getting something to balance that out, and that was the reason for, you know, the precast growth strategy and continuing down the road in the precast growth strategy into a market that, you know, as we see it now, has a much faster cash cycle, better margins, and is more consistent. But, you know, we're still, you know, the base of the company is still the steel pressure pipe water transmission business. And we've got to pay attention to the variables that we see in that based on how jobs line up. Because you start the beginning of a year and you think you're going to have a certain amount of jobs bidding throughout the year, and you build your plan based on those number of jobs. And as we saw in 2021, which obviously had some unusual events like the continuation of the pandemic, it can change relatively quickly. So we're pretty conscious of that, and that affects how we look at how the how we look at comfortably being in a certain debt level.
spk00: Well, that's great because sometimes when management start making acquisitions and they're successful, they say, oh, wow, let's do some more. So your discipline is very comforting. So that's great. Great quarter, and thanks for taking my questions.
spk01: Thanks, David.
spk00: Thanks, David.
spk02: At this time, we have reached the end of the question and answer session, and I will now turn the call back over to Scott Montross for any closing remarks.
spk03: Yeah, I'd just like to say thank you. Thank you again for joining our call. The call just to leave you with a. With just a couple takeaways, our first quarter backlog for steel pressure pipes should position us well for improved margins in the second quarter. And at the same time, our precast businesses remain strong with record order book, which should facilitate the potential of margin expansion as we progress through what appears to be, as I said before, a pretty strong 2022 precast markets. And finally, we're pleased with the integration of Park USA. It's on schedule, and we continue to be very excited about the future growth prospects of the business. And I, again, say thank you for all your time and attention today, and we look forward to speaking with you again on our second quarter call in August. So thank you very much.
spk02: This concludes today's conference call. You may disconnect your lines at this time. Thank you all for your participation, and have a great day.
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