Northwest Pipe Company

Greetings and welcome to the Northwest Pipe Company third quarter 2024 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Scott Montross. CEO. Thank you. You may begin.

Good morning and welcome to Northwest Pipe Company's third quarter 2024 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, October 30th, 2024 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 from expectations. Please refer to our most recent Form 10-K for the year ended December 31, 2023, 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 third quarter performance and outlook for 2024. Aaron will then walk you through our financials in greater detail. Once again, we delivered strong third quarter results, achieving new quarterly records in several key financial metrics. Our performance was driven by growth on the residential side of our precast business, as well as ongoing strength in our steel pressure pipe business. Our consolidated net sales increased 9.7% year-over-year to $130.2 million, outpacing our strong second quarter and reflecting the highest quarterly revenue ever reported by the company. And the $27 million of gross profit generated in the third quarter was also a quarterly record. In addition, our focus on effective working capital management helped drive another quarter of strong cash flow generation. To further break down our segment level results, revenue from our steel pressure pipe segment remained at near record levels totaling $85.9 million and increasing 6.7% year-over-year in line with our expectations. Our performance primarily reflected continued high production levels through the ongoing strength in the bidding environment that has carried over into the second half of 2024 as well as changes in project timing. Our SPP backlog, including confirmed orders, was 282 million as of September 30th, down from 348 million as of June 30th, 2024, and down from 335 million as of September 30th, 2023. Although our backlog declined, our SPP team has done a tremendous job executing on bids and projects. We attribute the third quarter decline in backlog primarily to the timing of expected job awards, our mix in backlog, and to a lesser extent, lower steel prices. Nevertheless, we believe our backlog remains healthy and the bidding environment remains strong with a significant number of tons expected to bid in the fourth quarter. As a result, we expect our backlog to improve through year end. Our third quarter performance was partially offset by lower realized selling prices due primarily to lower raw material costs. While steel prices were fairly volatile throughout the course of the third quarter, they appear to be stabilizing in the $700 per ton range, with lead times standing at about four to five weeks. Now turning to our precast segment. Precast revenue increased 15.8% year-over-year to a new quarterly record of 44.3 million, driven by strong operational execution by our teams in the field and a backdrop of continued robust demand on the residential side of our Geneva business, which resulted in strong production and shipment levels. However, reduced shipments on the non-residential construction-related portion of our precast business at PARC offset some of this strength. mainly due to the continued impact of current interest rate environment on the commercial construction portion of the business. We expect this to reverse and become a tailwind as rates continue to come down. To a lesser extent, our production was also impacted by the severe weather events we experienced in Texas in July. Currently, in the non-residential construction market, for projects that are going into planning, which is generally about 12 months prior to breaking ground, the commercial and institutional segments are up 31% and 4%, respectively, versus last year's levels. As interest rates fall, the length of time between planning and breaking ground is expected to compress. As a result, we are expecting upcoming near-term strength in the non-residential market. On the pricing side, The residential part of our precast business has enacted multiple price increases throughout 2024, driven by strong demand that we've experienced at the Geneva locations. However, our non-residential precast business experienced some downward pricing pressure as a result of the elevated interest rate environment and the negative impact it has had on the commercial construction demand. With the initial Fed 50 basis point rate cut in September and the additional cuts that are expected before year end, we expect the non-residential construction market to strengthen in the near term. As of September 30th, our precast order book totaled $57 million, down modestly from $62 million as of June 30th, 2024, further reflecting the resilience of this segment as we enter the traditionally slower time of the year. and it was up from $52 million as of September 30, 2023. Our consolidated gross profit for the third quarter increased 40% year-over-year to $27 million, a new quarterly gross profit record for the company, which resulted in a strong gross margin of 20.8%, up from 16.3% in the third quarter of 2023. This is the strongest quarterly gross margin we've reported for the current SPP and precast configuration of the company. Our SPP gross margin of 19.4% was strong, increasing by approximately 580 basis points over the prior year period and 40 basis points over the prior quarter, primarily due to high production volume with strong overhead absorption, as well as changes in product mix. This in addition to the ongoing strength in the bidding activity we've been experiencing. Our pre-Caspros margin of 23.5% improved by approximately 160 basis points over the prior year period and 140 basis points over the prior quarter, primarily resulting from the strength in the residential construction market as well as changes in product mix. Margins on the residential construction site at the Geneva location strengthened versus the year-ago quarter. As indicated, non-residential commercial construction market demand has been adversely affected by the high interest rate environment creating some margin compression. In addition, early third quarter severe weather-related impacts on our production and shipping days not only reduced early third quarter revenue at the park facilities, but also reduced production levels leading to lower overhead absorption, further impacting non-residential margins. Next, I would like to provide an update on our precast product spread strategy to promote organic growth in the business. Year-to-date, we have bid on over $47 million worth of projects outside of the state of Texas and booked approximately $8 million worth of orders. As a result of our ongoing efforts to enhance capacity utilization at our Texas-based precast plants to maximize overall efficiency and production volume, Further, we gained additional traction on product spread at the Geneva plants in Utah by booking approximately $1.7 million of park-related projects. Our goal is to book in excess of $2 million worth of park-related projects at Geneva in 2024. As previously noted, once the park precast products... established at the Utah locations. We plan to expand our product spread strategy to additional current Northwest pipe geographic locations. This is in the planning stage and is scheduled to occur over the next couple of years. Further to expanding our capacity, we are pleased to report that our investment in the new reinforced concrete pipe and manhole mill at our Salt Lake City, Utah facility is near completion. This will unlock additional production capacity and capabilities positioning the Geneva business for additional growth. In addition to our organic growth activities, we are continuing to actively evaluate M&A opportunities in the precast-related space that would help accelerate progress in our precast strategy by increasing our manufacturing capabilities and production efficiencies and expanding our geographic reach and product portfolio. The ideal candidate would be accretive to our earnings, possess strong potential for organic growth, enhance our margins, and deliver consistent positive cash flow generation. To properly execute our growth strategy, repaying debt we've incurred to finance the 2021 acquisition of Park USA remains a top strategic focus of our capital allocation philosophy. In the absence of accretive M&A opportunities, we may opt to repurchase shares of our common stock. While we did not repurchase any shares during the third quarter, we remain opportunistic in our approach. Since the initial authorization of our share repurchase in November of 2023, we've bought back a total of 174,000 shares for $5.1 million as of September 30th. Before I conclude, I'd like to summarize our outlook for the fourth quarter of 2024. In our SPP business, we anticipate a stronger fourth quarter than we've seen in recent years, despite it generally being the slowest quarter of the year due to two major holidays as well as expected weather-related events. Nevertheless, we expect revenue and gross margins to be relatively strong for a fourth quarter of a year, primarily related to a mix of projects that we've booked and their overall impact on production volume. We also expect backlog to remain strong by historical standards, given the volume of expected steel pressure pipe bidding for the remainder of 2024. Further, we remain encouraged by the amount of activity we're seeing on our current and upcoming water transmission projects, which can be found detailed in our investor presentation on the investor relations portion of our website. We continue to expect a healthy bidding year in 2025, similar to 2024 levels. In the precast business, we are expecting our fourth quarter revenue to be down sequentially from the record third quarter we just reported with relatively stable gross margins. We continue to believe in the strength of the precast business in the mid to long term, given the significant level of pent-up demand specifically for residential housing and a growing need for infrastructure spending in the U.S. and our growing market position. In summary, I'm very pleased with the strong operational and financial performance we delivered in the third quarter. Thank you to all of our team members for your continued dedication to success and safety in the field as we execute our growth strategy in pursuit of enhanced shareholder and stakeholder value. Our performance continues to be bolstered by strong bidding environment in 2024 that is anticipated to remain elevated throughout the balance of the year and into 2025. Looking ahead, our priorities remain on, one, maintaining a safe workplace where our employees are proud to work, two, persistently focusing on margin over volume, three, continuing to implement cost reductions and efficiencies at all levels of the company, four, intensifying our focus on strategic acquisition opportunities to grow the company, and five, in the absence of M&A opportunities, returning value to our shareholders through opportunistic share repurchases. I will now turn the call over to Aaron who will walk you through our financials in greater detail.

Thank you, Scott, and good morning, everyone. Beginning with our third quarter profitability, consolidated net income was $10.3 million or $1.02 per diluted share compared to $5.8 million or $0.58 per diluted share in the third quarter of 2023. Consolidated net sales increased 9.7% to $130.2 million compared to $118.7 million in the year-ago quarter. Steel pressure pipe segment sales increased 6.7% to $85.9 million compared to $80.5 million in the third quarter of 2023. The improvement was driven by an 18% increase in tons produced, resulting primarily from improved market demand in a continued strong bidding environment, as well as changes in project timing. It was partially offset by a 9% decrease in selling price per ton due to lower raw material costs. Precast segment sales increased 15.8% to a new quarterly record of $44.3 million compared to $38.2 million in the third quarter of 2023. This was driven by a 35% increase in volume shift, which was partially offset by a 14% decrease in selling prices, resulting from changes in product mix. Our Geneva business continued its strong performance on resilient demand in Utah, while the headwinds for commercial construction demand in Texas continued, encumbering our park business that was also slowed by weather-related delays. As a reminder, the products we manufacture are unique and 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 was also a record, increasing 40% to 27 million, or 20.8% of sales, compared to 19.3 million, or 16.3% of sales in the third quarter of 2023. SPP gross profit increased 52.4% to 16.6 million, or 19.4% of segment sales, compared to gross profit of 10.9 million, or 13.6% of segment sales in the third quarter of 2023, primarily due to higher production volume resulting from improved market conditions. Precast gross profit increased 24% to $10.4 million or 23.5% of precast sales from $8.4 million or 21.9% of segment sales in the third quarter of 2023, primarily due to increased shipment volume, particularly in Utah. Selling, general, and administrative expenses increased 13.1%, to $11.6 million or 8.9% of sales compared to $10.2 million in the third quarter of 2023 or 8.7% of sales. Selling general and administrative expenses increased 13.1% or $11.6 million or 8.9% of sales compared to $10.2 million in the third quarter of 2023 or 8.7% of sales. The increase was primarily due to higher incentive compensation expense. Our non-cash incentive compensation expense in the third quarter of 2024 was $1.2 million compared to $0.7 million in the year-ago quarter. For the full year of 2024, we now expect our consolidated, settling, general, and administrative expenses to be in the range of approximately $47 to $48 million. Depreciation and amortization expense in the third quarter of 2024 was $5.2 million compared to $4 million in the year-ago quarter. We expect depreciation and amortization expense to be approximately $19 million in the full year of 2024. Interest expense increased to $1.5 million from $1.2 million in the third quarter of 2023 due primarily to higher interest rates and an increase in average daily borrowings. The full year of 2024, we expect interest expense to be approximately $6 million. Our third quarter income tax expense was $3.7 million, resulting in an effective income tax rate of 26.3% compared to $2 million in the prior year quarter, or an effective income tax rate of 25.7%. Our tax rates for the third quarters of 2024 and 2023 were impacted by non-deductible permanent differences. We now expect our tax rate for the full year of 2024 to be within the range of 20 to 21%. The change in our expectation is due to the statute of limitations that have expired on uncertain tax positions during the fourth quarter. Now I will transition to our financial condition. Net cash provided by operating activities, 22.7 million in the third quarter of 2024, per to $16.9 million in the third quarter of 2023 due to the company's improved profitability. Improving cash flows remains a key strategic focus of our business and critical for the execution of both our growth and stockholder return priorities. While our third quarter free cash flow has improved, the working capital needs of our steel pressure pipe business can be highly variable between quarters, and therefore we concentrate on the annual performance of this key metric. We continue to anticipate free cash flows to range between $19 and $25 million for the full year 2024. Our capital expenditures totaled $6 million in the third quarter of 2024 compared to $4.8 million in the prior year quarter. As a reminder, we anticipate completion of the new concrete pipe mill project in Salt Lake City by year end. which after successful commissioning is expected to improve production yields and efficiencies on reinforced concrete pipe and manholes we produce and sell out of that facility. Participate our total capex to be in the range of 20 to 22 million for full year 2024, which includes approximately 8 million of investment in our new reinforced concrete pipe mill and associated building and the remainder primarily for standard capital replacement. As of September 30, 2024, we had $60.7 million of outstanding borrowings on our credit facility, leaving approximately $63 million in additional borrowing capacity on our credit line. In summary, we were pleased to deliver another very strong quarter of financial performance and the consecutive quarterly records for consolidated gross profit. Our steel pressure pipe business is well positioned for the remainder of the year and into 2025, and our precast business returned a new quarterly revenue record for that segment. These achievements are made possible by our employees' exceptional execution. I would like to thank each of them for their commitment to safety, as well as our shareholders for their continued support and trust in Northwest Pipe Company. I will now turn it over to the operator to begin the question and answer session.

Thank you. We will now conduct 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 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 the star key. One moment while we pull for our first question.

Our first question comes from Brent Thillman with DA Davidson. Please proceed.

Hey, good morning. Good morning.

Hey, Scott or Aaron, just on the backlog for the quarter down 16% year on year, how much of that decline is just comparisons of lower steel prices versus what you burned in the quarter in terms of volume?

I think it's a little bit of a decline, Brent, but right now it's waiting for some of these jobs awards that we've been notified that we're going to get are a little bit slower coming in. That's a piece of it. It's just how things are bidding. As we're looking at this, we expect the backlog actually to start going up through year end and And ultimately, the way things were bidding earlier, we thought it was going to go down. So I think that the backlog is strong. What I would say about the pricing level, the steel costs are probably down for us about 22% versus where they were year over year. But the price is only down 9 percent. So, the price is staying up there pretty good. It's just a matter of job timing being awarded. And we feel pretty comfortable with the backlog that we're going to carry out at the end of this year. And what we're going into with the bidding environment next year looks to be pretty similar. So, and what I would say about, you know, the current bidding environments or the bidding levels, I mean, these are okay years with the amount of tons that are bidding in the steel pressure pipe markets. but they're not huge years. And ultimately, with the IIJA funding that's out there, we think that those numbers are going to really jump up as we get out to 26, 27, and 28, based on the amount of projects that are coming through. So I think we've got a pretty long runway with strong backlog in front of us. And the steel price is going to jump up and down. But I think the most important thing right now, Brent, is the margin on the steel pressure pipe side is responding significantly. positively, getting up to 19.4%, even in an environment when it's just an okay bidding level in the environment. And a lot of that's due to the consolidation that's happened in the business. So we're pretty comfortable with what's going on. Steel price is going to fluctuate. And it seems like there's this invisible barrier that's at around $700 a ton, where it really doesn't get much lower than that, where You know, 25 years ago in the steel business, you know, you saw things drop off the cliff like a rock. You don't see that anymore. So it seems to get down to around $700 a ton and then start to bounce back up because we've seen steel price increase announcements coming out, which will ultimately affect what the amount of backlog is too. Now, that's a long-winded answer on probably a relatively simple question that you asked, but I thought I had to get a bunch of that stuff in there for you.

I appreciate it, Scott. Maybe just, I guess, a follow-up on the, Scott, I mean, if everything held constant with steel prices, and I know they won't, how much of a revenue headwind do you have going into next year in SPP just from a pricing perspective? And I don't think that means any impact to your gross profit since it's essentially a pass-through, but trying to get a sense of what kind of headwind you'd still have in the next year, just from a pricing perspective?

You know, I think that if it stays constant to where it is right now, you know, we're going through our annual planning process right now, creating an annual plan. You know, I don't see much of a change from, you know, I mean, this is a huge year. I mean, this is a really big year for steel pressure pipe, the way it's coming in. And you can do the numbers annualized and come out when it's going to be, but I think we're kind of looking at numbers that are right in the $300 million plus range, and that's without anything changing in the steel pricing. And if the steel price goes back up, obviously that will carry more revenue and create not a better gross margin, but it will create more gross profit dollars. So I don't think we have a huge headwind with that right now because we just don't see the steel price fall down to $345 or $350 a ton now. It stops at like $700. And the pricing is relatively stable because the business has been consolidated down to really three major suppliers in the steel pressure plate market. Us, Thompson, and American Spiral Weld. So you have the capacity in the hands of fewer people. And ultimately, it's a more stable bidding environment because of it.

Very good. Just last one. I mean, it's a meaningful turnaround in revenue and precast this quarter. I guess taking all your commentary, it seems as though you think there's some sustainability in this trend going forward, just given what you're seeing out there in the markets, product spread, et cetera.

Yeah, I would say we're in a situation right now, Brent, where You know, we're still not hitting on all cylinders because the residential side of the business is off a little bit right now due to interest rates, right? There was a little bit of a weather impact to the beginning of the third quarter, but the non-residential business has been off a little bit, and that's mainly at the park facilities. But what we're seeing now – and I'll say this before what we're seeing going forward – We're seeing significant strength on the residential side of the business at the Geneva facilities. I mean, we're looking at numbers where they're almost twice as big in revenue as when we purchased them back in 2020, and the residential side is really, really strong. But going forward, I think we continue to see that kind of strength because if you look at a lot of the indexes out there, the total construction starts are only up about 2% right now. Residential is up about 6%. And right now, non-residential is pretty flat, again, because of the interest rate impact. Well, the 50 basis point drop that the Fed did in September – And the expectation of 25-25 basis point drops at the next two meetings are starting to create a little bit more momentum in the Dodge Momentum Index. And right now versus September of last year, the Momentum Index is about 21% higher than it was in September of 23. And most of that is on the commercial side. And, you know, a little bit higher on the institutional side. But the institutional side has held in quite well. But the commercial side with these data center construction and hotels are starting to pick up, all those things. And all that indicates a pretty strong non-residential market coming at us. So if we continue to have the strength that we're seeing in residential at the Geneva facilities, and start hitting on all cylinders in the non-residential market comes back strength-wise. We expect that to continue to grow as we go into next year and beyond. So we see a lot of strength in that business right now. So I think there's some sustainability there, and there are some growth plans there that you're going to continue to see that grow, you know, even before you're considering any M&A activity that we may be working on at this point. So I think there's good sustainability there.

Very good.

I'll pass it on. Thanks, guys. No problem. Thanks.

The next question comes from Julio Romero with Sidoti & Company. Please proceed.

Hey, good morning, Scott and Aaron. Hi, Julio.

Good morning, Julio. Hey, morning. What do you guys attribute the resilience of the residential portion to?

You know, I think it's the same thing that's been going on. It's the net migration into the states of Utah and in and around Utah. And the housing market is very, very strong. And we've seen it. We were worried, as we've talked before a couple years ago, about it falling off with the increase in the interest rates. But we just have not seen it. In fact, it's continued to get stronger and stronger. You know, there's some pent-up demand in the housing market because when the interest rates were high, there isn't enough inventory on the market. So houses are still being built. And Utah and around Utah, Idaho is a pretty good place for people to move to and live. And that's really what we attribute the strength to. Plus, I think we've got a really good management team at the Geneva facilities, and they've been very good at executing growth in the market and focusing on getting the price up and things like that. And it's just a strong market, and we're making sure that, you know, we're doing the right things in the market to continue to grow the business.

Got it. That's helpful.

And you mentioned you expect the non-residential portion of precast to strengthen in the near term due to interest rates falling. Just trying to, you know, if you could help us put a finer point on the timing of that strengthening. You know, is that like a first half 25 event, a second half 25 event, or maybe even 26? And then Secondly, how much of that near-term strengthening of non-res should be from interest rates falling versus maybe an increase in public spending flowing through?

Okay.

So the first part was what piece again? What was the first part?

Just trying to think of a finer point of the timing of when non-res gets better. Like, you know, is there maybe a first half event or? Yeah.

Normally, Julio, when you're looking at these things in this momentum index, it's usually projects that are going into planning about 12 months before the project actually breaks ground or starts. But with the interest rates coming down, the time that these things are coming to fruition starts to get a bit compressed. because people have been waiting to do stuff for the interest rates to come down. So you're probably seeing, we're starting to see the beginning of it right now, where some of the yards of production of concrete at our park facilities are going up quarter over quarter versus last year. So it's starting to move up. So what you're probably seeing is a mid-25 or a little bit past that mid-25 event when it really starts to strengthen. And I think it's going to strengthen slowly. And then what we're going to see is it really strengthen when we get out to mid to later 2025. And, you know, at that point, we expect to have both the residential and non-residential hitting on all cylinders. What was the next part of that question?

Yeah, well, you answered the question I had even after that, which was, you know, the residential should stay resilient as possible. as the non-res gets better, and then you are kind of hitting on all cylinders going out. The second part of my question was really just, you know, how much of that near-term strengthening of non-res should be from interest rates falling, but also from, you know, an increase in public spending, IIGA funds flowing through, et cetera.

Yeah, so for the, you know, really when we're talking about the non-res and res, we're talking about the precast piece, right? So, So the interest rates are really, really going to drive that, and it's really going to be more commercial. The non-building residential side is really more the IJA stuff or taking into account what that's going to do with the steel pressure pipe business. So we haven't even really seen any of that yet. That's, I think, all in front of us. based on what we can see. So the interest rates are just kind of lighting the fire. And the more they come down, the fire is going to rise. And the business gets stronger and stronger. And for us on the residential side, as we talked about in the script, You know, we have the exact 2,500 facility getting ready to start up. And what that does is it's going to increase our capacity and increase our efficiency in the residential market in and around Utah. And that's just going to lead to higher production capacity and higher revenues and margins in residential. So we see growth going into 2,500. on the pre-cash side. And the increase in the non-residential market can really, really, I guess, push that up as we go late into 2025. So the prospects really look strong.

Great context there. And then maybe just last one for me would be on talking about the free cash flow a little bit. You know, you had another strong quarter here, even as steel pressure pipe continues to do well. And, Aaron, I think you mentioned the working capital needs of SPP can be variable on a quarter-to-quarter basis. We saw the day sales tick up a little bit sequentially. Does that day sales figure kind of continue to trend upward as steel pressure pipe continues to do well?

Yeah, you know, it does tend to go that direction, especially in the two larger quarters of the year, which is typically the second and the third quarter. Yeah, it's not atypical for the fourth quarter's days to kind of fall off a little bit and to see a little bit more working capital efficiency come through in your fourth quarter free cash. Be lifted up by a little bit of a drop there. Now, our business levels aren't something right now that we're expecting to see as much of a fourth quarter fall off as we've seen in other years. We're actually expecting them to stay relatively elevated. So I'm not – I think we'll get a little bit of it, Julio, in the next fourth quarter, more working capital bounce in our free cash than we got in the second quarter compared to – or sorry, the third quarter compared to the third quarter of a year ago. But I think the biggest thing that's really kind of propelling our cash flows for this year is really our profitability.

You know, and another piece of that, Julio, is the – The thing that we've worked on with cash flow is making sure that we're mining the cash out of the steel pressure pipe business. And a big piece of that is getting paid for progress payments for steel pressure pipe, getting paid up front for steel, and anything we can get paid up front with. And that's really contributing to the cash flow, too, going forward, along with the efficiency of how we're managing the cash now. So I think that that's such a focus because that's part of the goals this year, and the variable compensation is really to drive a cash flow level for the company that which obviously we know means a lot, and it means maybe not quite as much as the profitability of the business, but it means a lot. Cash is king, right? So the idea to get cash in is really being driven into the business now and the way we approach the business, and I think the team's responding well to getting that cash in and really bumping up the cash flow. That's going to continue to be a focus for us.

Really helpful.

Thanks again for taking the questions. Sure, Leo.

The next question comes from Ted Jackson with Northland Securities. Please proceed.

Thanks. Congratulations on another excellent quarter. Hey, Ted. First of all, I'm going to tell you that I have a couple of friends that have decamped from California and moved to Utah, so they're helping you out on the coast and they love moving to Utah.

The more you can push that, the better we're going to be.

I'll trust you, man. Their houses took a lot of concrete to build. They're big. On SPP and the backlog, you've put up a couple of quarters of really, really excellent margin. If you look at it, you're up at the higher end of the historicals for the margin you're generating out of that business. And I know some of that's capacity, you know, utilization rates and such. But when we look or when you look into the backlog that you have, what's the margin profile for that? I mean, were we able to maintain that, you know, call it 19-ish percent margin in SPP in fourth quarter? And then how would we think about that for 2025?

Yeah, I think that the thing about the fourth quarters is weather events, right? What are we going to have? Weather events, icing storms, things like that. And you've got two major holidays in the fourth quarter, so generally it's a little bit lower. So I don't know that fourth quarter is going to be as indicative as what we're going to see going forward. We think the margin is going to be strong, like it's been going through this year. But we don't think that it's going to be like we're going to see it in 2025, right? Because we're expecting production levels and business levels to be similar to 2024. There's been a lot of stuff bidding, a lot of stuff in the fourth quarter. So the margins and backlog are very strong. But a really big thing is the overhead absorption, right? The amount of production that we've been getting has been relatively strong. Right now, I would tell you we're at about 65% capacity utilization at our steel pressure pipe facilities, and that is a pretty strong capacity utilization. So if we stay up at those levels, I think you see margins stay up like that and maybe even get a little bit higher. When you start putting multiple strong years together with demand, that's when you start seeing margins in the steel pressure pipe business that start beginning with a two and it being sustainable. And 2025 looks like it's going to be a decent bidding year, too, but not like I think what we're going to see in 26, 27, and 28 with the IIJA funding. I think those are the years where you can see margins be higher. be very strong. And what I'll tell you is, you know, we don't announce our results on a monthly basis, but we have seen months recently that have been over 20% margins in steel pressure pipe. So that's a good sign, and it's a good sign for going forward, especially with the bidding that we expect to see.

So if I were to take what you just told me and consolidate it down a if you take out the utilization, which I completely understand that, you know, the next couple of quarters, it's all seems like there's always something that happens and it's beyond your control. But that the business you have in pipeline and the outlook that you see for the next few years results in all else being equal, a better margined environment. And it will push you, you know, if, you know, if it, comes to pass the way it looks like it might push you into, let's call it sort of on an average basis, you know, historical records. If you're starting to push regular margins north of 20%, I mean, that's the top of the top for you guys, isn't it?

Yeah, I think that's right. I think we've seen margins in the past and quarterly margins there, and you have to correct me if I'm wrong, but I think we've seen them as high as 25% in a quarter. when we had a lot of work going on. But I think what you're saying is right, Ted. I think when you start getting over 20%, 21%, 22%, that's probably about the top of it that we've seen. But, you know, we haven't seen an environment like this with IIJA-funded jobs coming at us. And, you know, who knows? I mean, you could see those margins get into the mid-20s again if all that hits like we think.

Okay. Okay, I'm switching over to CapEx. So you had a big, big piece of CapEx during 2024 with the Geneva plant and the $8 million that you put into the Salt Lake City expansion. I think about 2025 CapEx Would you, is there other projects like that that are going to come in to keep CapEx from falling off, or would we see CapEx drop down from, you know, what are you probably going to do, call it $20 million? Do you understand what I'm asking? When I think about CapEx, you know, if you have, I mean, that's a really big project, and I know you've had big projects in the past, but, you know, like, would we see it come back down to like a, a 21 level where you're, you know, like 13, 14 million bucks? Is there something else on deck that's going to keep it up around 20?

No, I don't think it comes down to like a 12 or 13. But, you know, I think when we've looked at this going forward with the things that we're doing, I think in the area of 16, 17, 18, it's probably reasonable unless we have a big project like we did with the exact 2,500 at Salt Lake City. That project was a, you know, over a number of years was in excess of $20 million. So spent on that project. So ultimately, if you look at in the level, in the area of depreciation minus a big project like that, it's probably right in the $16, $17, $18 million range.

Okay. And then just circling over to the M&A, I know you guys, you know, have been looking hard, knocking around, trying to find stuff. I mean, you described your ideal acquisition, and I hope you find it because it sounded perfect. But is there something like that? Is there something like that that you're actually in process of discussion? I mean, you know, we're getting to the point where I would say that most of the things that you wanted to get done with regards to bringing Geneva and Park into Northwest Pipe and kind of, you know, cross-pollinating, if you would, for those businesses, they're well along. And, you know, I know, you know, it's not that you haven't disdained doing any acquisitions, but ideally your thought to me had always been, you know, that you know, it would be best that once you get this integration work done, that really have something kind of come in. And I think you're kind of at that point now. I mean, what's the timeline? Can we see something in 2025? I mean, is it that active or, you know, you're just still knocking around trying to find it?

Yeah, we would like to have something by 2025, right? I mean, we're always working on things. We're always in discussions with people on M&A. And it's an area of focus. And ultimately, we would like to have something done by 2020. That's where I hit this point.

You're putting me off.

I'll let you go. So then my final question, and I'll let you go, Scott, is just talking about backlog a bit. You know, you always put forth the backlog number on a dollars basis, which is fine. But, you know, given the volatility, and you touched on this a bit within the context of today's call, but, you know, the volatility within steel prices, could you offer some, you know, like color? I know you don't want to get into too much detail about it, about kind of what's the volume of backlog that you have today relative to, say, 12 months ago and last quarter and kind of how you see it rebounding because you are clearly expecting it to rebound in the fourth quarter, you know, in the fourth quarter. But, you know, like just kind of something to kind of sort of apples to apples it for us.

Yeah, so I think the way – no, the way to look at it is – The volume right now is a little bit lower than it was. So part of the thing that makes up a backlog is when we have a lot of tunnel work in backlog, we refer to that as long fuse work because it's tons that are in backlog that can be in there for sometimes two years before it actually turns into orders. Well, we don't have much of that tonnage in backlog right now. that what we have in backlog is actionable. And it's down a little bit from the areas that you just asked about. But we are also waiting for tons to come in and hit the backlog, which should start pushing us back up toward where we've been tonnage-wise as we get through the end of this year and early next year. So we haven't really fallen off that much. And like I said, steel prices are down year over year for us. And you looked at consumed steel prices. about 22%. Our price is only off 9% year over year. So the prices are staying up pretty high. And so it's not quite apples to apples, but the tons are going to be pretty similar as we get through the end of this year, Ted, to those other periods that you asked about.

Okay. Okay. That's a fair answer. Again, congrats on the quarter. It was impressive.

It was good to talk to you.

The next question comes from David Wright with Henry Investment Trust. Please proceed.

Yeah, good morning. Good morning, David. Hey, well, I'll offer my congratulations. You have $10 million net. You got your 20% margins. So, you know, you've been at it a long time, and it's got to feel good to have all the cylinders firing. And thanks for that extensive discussion about SPP margins that Ted asked you about, and that was super informative. I wanted to ask about, you said that in precast the better, it sounded like Utah was really good. You know, how would that contrast with how Texas was?

Well, Texas has been lighter volumes, Ted, or excuse me, David. So that's been down a little bit. So the margins are, God, probably on the residential side are at this point probably a few to several hundred basis points higher than the non-residential side because of the amount of absorption that's going on in the higher level of business. And, you know, we're not quite hitting on all cylinders of at this point because, like I said, the non-res is relatively light, and those are the park facilities, and it's just starting to come back. So ultimately, when that comes back, we expect the margins at park to be as good, if not better, than they are at the Geneva facilities because, obviously, it's more of a specialty product. So it is down, though, right now, and the Geneva facilities are about, I'd say, a few to several hundred basis points higher at this point.

Okay. And when you mentioned in the press release, you talk about increase in volume, decrease in selling price due to changes in product mix and precast. What products are you selling a lot of?

Well, the Geneva products are a bigger part of the precast mix right now. So those are more infrastructure products that are generally carrying lower selling prices than what you see of the park products. So that's a big part of the product mix. The other thing that we're seeing a lot of is culvert work, especially in the Geneva facilities. And that culvert work is not a huge price item, but it's a lot of concrete, and it carries a really good margin. And so that's a little bit of what's affecting it, too. But overall, it's really the higher mix of Geneva shipping in precast versus, you know, what we saw, you know, maybe a couple years ago. And that's what I would attribute it to.

Okay. Well, that's all I have. And again, congratulations and thank you.

Great to talk to you, David.

Thank you. At this time, there are no further questions in queue. I'd like to turn the call back to Scott Montrose for closing comments.

Yeah, just a few takeaways before we leave. Obviously, we expect to finish with a strong fourth quarter, really at levels that are strong for a fourth quarter of the year. As we've talked about in this call, we expect 2025 to be very similar to what we saw in 2024 on the steel pressure pipe side, and we expect to continue to gain strength on the precast side. We're positioned pretty strongly for for the near-term and mid-term on both SPP and on the precast side. And ultimately, we're going to get some tailwinds from the IIAJ-funded stuff or the work that's going to be funded by the infrastructure package. And it probably really kicks us into high gear as we get through 2025 and into 2026. And, you know, again, we expect to see the precast business strengthen over that period of time. And, you know, we've talked about the product spread. The product spread is going fairly well, and the park product business at the Geneva facilities is continuing to grow, and ultimately, you know, we're going to spread that park product to other Northwest Pipe locations and spread that product across the country. So, and if you look at, and I've said this before, if you look at where we are in the just in the third quarter of 2024, we were at over $130 million in revenue and $27 million of gross profit in just the third quarter. Compared to 2017, the full year of 2017 was $132 or $133 million of revenue, and I think it was something about like $5 million of gross profit. So obviously the company's grown significantly over that period of time. And that's a path that we're going to remain on, not only through organic growth with product spread to taking products to different locations, but also on the M&A side. So ultimately, we have a lot of runway in front of us and are going to continue to grow the company. And I just want to thank everybody on the call and all the employees for their support and and dedication to this business. And we look forward to speaking to you again in March when we talk about full year results. So thank you very much.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.