NWPX Infrastructure, Inc.

Greetings and welcome to the Northwest Pipe Company fourth quarter and full year 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. I would now like to turn the conference over to your host, Scott Montross, Chief Executive Officer for Northwest Pipe Company. Please go ahead, sir.

Good morning and welcome to Northwest Pipe Company's fourth quarter and full year 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. February 26, 2025, at approximately 4 p.m. Eastern Time. This call is being webcast, and it is available for replay. As we begin, I would like to remind everyone that statements made on this call regarding our expectations for the future are forward-looking statements, and actual results could differ materially. Please refer to our most recent Form 10-K for the year ended December 31, 2023, and in our other SEC filings for 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 2024 performance and outlook for 2025. Aaron will then walk you through our financials in greater detail. We delivered strong results in 2024, achieving record financial and operational performance in a complex market environment. Our annual net sales of 492.5 million were one of the highest in our company's history, increasing 10.8% over 2024 in what I would call a decent but not remarkable SPP bidding market environment. With an added element of depressed market conditions on the non-residential side of our precast business impacting our volumes. However, our strategy led us to produce record consolidated gross profit dollars, as well as record profitability that was consistent with our free cash flow generation, both of which translated to $3.40 per share, demonstrating the strength and quality of our earnings. Most importantly, we achieved record safety performance in 2024 with a total recordable incident rate of 1.25, underscoring our unwavering commitment to the well-being of our employees, as well as demonstrating a stable operating environment. To further break down our segment-level results, revenue from our SPP segment totaled a record $337.9 million in 2024, up 14% year-over-year. Our performance reflected higher production levels resulting from ongoing strength in our backlog due to the consistent level of bidding, as well as changes in project timing. Our SPP backlog, including confirmed orders, increased to 310 million as of December 31st, from 282 million as of September 30th, 2024, and was down slightly from 319 million as of December 31st, 2023. The bidding environment is expected to remain fairly consistent in 2025. Our SPP team has continued to do a great job executing on bids and projects. However, our 2024 performance was partially offset by lower realized selling prices due primarily to lower raw material costs. While steel prices declined throughout 2024, they have been on the rise in 2025, now in the $850 per ton range, up approximately $125 from the end of January. With lead times standing at about six to eight weeks, though still well below levels from a year ago, we believe the recent steel tariff overtures will help support higher steel pricing in 2025, and in turn, support higher SPP project pricing. in general we are in favor of higher steel prices which are positive for our spp business now turning to our precast segment precast revenue increased 4.5 percent year over year to a new annual record of 154.6 million despite ongoing challenges in the non-residential construction market our performance was driven by continued strength on the residential side of our geneva business as strong demand led to higher production and shipment levels While our volumes were very healthy, reduced shipments on the non-residential construction-related portion of our precast business at PARC partially offset some of this strength. As the current higher interest rate environment has continued to affect the market for commercial construction, however, Dodge Momentum Index was 19% higher in December of 24 than it was the previous year, indicating growing strength in the non-residential construction market for 2025. The commercial sector was up 30% versus the prior year period, while the institutional sectors remained fairly flat. On the pricing side, while the residential portion of our precast business benefited from multiple price increases throughout 2024, driven by strong demand at the Geneva locations, low demand and downward pricing pressure on our non-residential precast business more than offset these benefits. As of December 31st, our precast order book surged to 61 million. which was up from $57 million as of September 30, 2024, and a significant increase from $46 million as of December 31, 2023, indicating strong momentum heading into 2025. Importantly, a fairly large portion of the year-end precast order book surge was on the park non-residential side of our precast business. The order book on the residential side of our precast business at Geneva remains stable at strong levels. Our consolidated gross profit in 2024 was another record at $95.4 million, up 22.9% year-over-year, and resulted in strong gross margin of 19.4%, up from 17.5% in 2023. This is the strongest annual gross margin we have reported for the current SVP and precast configuration of the company. Our SPP gross margin of 18.5% was also strong, increasing by approximately 420 basis points over 2023, primarily due to higher production volumes with strong overhead absorption, as well as changes in product mix. Our precast gross margin of 21.2% declined by approximately 260 basis points from 2023, primarily resulting from changes in product mix. While margins on the residential construction side of the Geneva location strengthened versus last year, lackluster demand on the non-residential commercial construction portion of our business, resulting from higher interest rates, has led to some margin compression. Next, I would like to provide an update on our precast product spread strategy, which has been a crucial element of our top strategic priority to grow the business. As part of level one product spread, we bid over $57 million worth of projects outside of Texas in 2024 and booked approximately $10 million worth of orders, achieving our goals for the year. This endeavor enhanced capacity utilization at our Texas-based precast plants to help maximize overall efficiency and production volume. As part of our Level 2, we gained additional traction on product spread at the Geneva plant in Utah by booking approximately 2.3 million of park-related projects in 2024. And finally, as part of Level 3 product spread, we're in the process of expanding park and other precast-related products to additional Northwest Pipe legacy locations now that the park precast products are more comfortably established at the Utah-Geneva locations. Our new goal for 2025 is to book in excess of $12 million worth of park-related projects outside of Texas. We expect Level 3 will be put into place by mid-year and will begin to benefit our results more in 2026 and beyond. Additionally, we are continuing to organically invest in our footprint and equipment to drive capacity expansion and greater efficiencies. We are pleased to complete the reinforced concrete pipe and manhole mill at our Salt Lake City Utah facility and are in the process of commissioning. As a reminder, this investment provides the rapidly growing Geneva operations with additional production capacity and capabilities. It is our intention to continue to invest in our precast facilities to drive organic growth. We are also investing to maximize efficiencies in our other Northwest Pipe Legacy SPP plants. In addition to our focus on organic growth, we are actively evaluating M&A opportunities in the precast-related space that would help accelerate progress on our precast strategy by increasing our manufacturing capabilities and production efficiencies and expanding our geographic reach and product portfolio. Concurrent with our growth plans, we are actively repaying the debt we incurred to finance the 2021 acquisition of Park USA. In 2024, we repaid $26 million of our debt, and our balance sheet remains healthy with ample liquidity. As I've mentioned, we will opt to repurchase shares of our common stock as we did this past year in the absence of a viable M&A opportunity. Before I conclude, I'd like to summarize our outlook for the first quarter of 2025. In our SPP business, we anticipate modestly lower revenue versus the first quarter of last year related to product mix and the continuing impact of nationwide weather events. Due to typical seasonality and severe weather conditions that have led to unscheduled downtime at our various SPP facilities, However, we expect margins to be similar to the first quarter of last year. That said, we enter 2025 with a strong SPP backlog, and while we expect light bidding environment in the first quarter, we anticipate strong bidding activity in the second and third quarter with full-year bidding levels aligning closely with 2024. We continue to remain encouraged by the amount of activity we're seeing on our current and upcoming water transmission projects. For a more complete view of these projects, please review our investor presentation, which can be found on the investor tab of our website within the events and presentation section. In our precast business, we entered the year with a robust order book and are projecting a strong 2025. The residential business remains strong, and we are now seeing a surge in the non-residential order book, indicating improved strength in 2025. For the first quarter of 2025, our precast revenue and margins are expected to be as good or higher than the first quarter of 2024 due to higher production levels and associated better absorption, as well as the growing strength of our order book. 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. On a consolidated basis, we expect the first quarter of 2025 to be relatively similar to the first quarter of 2024, as weather events in various locations across the country continue to have an impact. In summary, I'm very pleased with our record 2024 performance across various metrics. I'd like to thank our talented team at Northwest Pipe for their strong execution of our growth strategy in a highly complex market environment and for executing another record safety year. We look forward to benefiting from a solid bidding market and precast order book in 2025. Looking ahead, our priorities are to, one, maintain a safe workplace where our employees are proud to work. Two, focus on margin over volume. Three, implement continued cost reductions and efficiencies at all levels of the company. Four, intensify our focus on strategic acquisition opportunities to grow the company. And number five, in the absence of M&A opportunities, return value to our shareholders through opportunistic share repurchases. I will now turn the call over to Aaron, who will walk through our financial results in greater detail.

Thank you, Scott, and good morning, everyone. I'd like to echo Scott's sentiments surrounding the company's back-to-back record safety year. We hold safety as the core value most important to our corporate culture. We believe our team's success with workplace health and safety has a direct correlation to the financial performance I'm about to take you through. Again, congratulations to the entire company on this outstanding accomplishment. Now we'll discuss our record year and fourth quarter profitability. Consolidated net income for the quarter was $10.1 million, or $1 per diluted share, compared to $5.4 million, or $0.54 per diluted share, in the fourth quarter of 2023. I'd also note that our profitability benefited from the realization of previously uncertain tax positions. As anticipated, this reduced our effective income tax rate and resulted in a favorable impact of approximately $2.3 million on our net income in the fourth quarter of 2024. Without this unique item, our consolidated net income for the quarter would have been approximately $7.8 million, or 77 cents per alluded share. There was no like item included in our earnings per share for the fourth quarter or full year of 2023. For full year 2024, consolidated net income was a record $34.2 million, or $3.40 per diluted share, compared to $21.1 million, or $2.09 per diluted share in 2023. Our fourth quarter consolidated net sales increased 8.6% to $119.6 million, compared to $110.2 million in the year-ago quarter. Steel pressure pipe segment sales in the quarter increased 9.9% to $82.5 million compared to $75.1 million in the fourth quarter of 2023. The improvement was primarily driven by an 11% increase in tons produced, resulting from improved market demand and a continued solid bidding environment, as well as changes in project timing. Precast segment sales in the fourth quarter increased 5.9% to $37.1 million compared to $35.1 million a year ago. This was driven by a 23% increase in volume shift as demand at our Geneva operations in Utah remained strong. It was partly offset by continued softness in commercial construction demand in Texas. Additionally, our precast sales were negatively impacted by a 14% decrease in selling prices resulting from changes in product mix. As a reminder, the products we manufacture are unique. Shipping 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, which are highly dependent on the composition of each segment's product mix. Our fourth quarter consolidated gross profit increased 16.3%, 22.4 million, or 18.8% of sales, compared to 19.3 million, or 17.5% of sales in the fourth quarter of 2023. SPP gross profit increased 32.2%, 14.8 million, or 17.9% of segment sales, compared to gross profit of 11.2 million, or 14.9% of segment sales in the fourth quarter of 2023, primarily due to higher production volume resulting from improved market conditions, as well as changes in product mix. Further, our steel pressure pipe margins were negatively impacted by tariffs enacted on foreign steel starting in July 2024. Regardless of our ongoing dispute over the applicability of these tariffs and their retroactive application, our gross profit was reduced by $0.8 million during the quarter. If we are unsuccessful in disputing the merits of our steel sourcing for the handful of jobs affected, we expect the future incremental costs associated with these previously enacted tariffs to be approximately $0.8 million and realized over the next two quarters. We intend to work vigorously to defend the company's position regarding this matter. Precast gross profit decreased 5.4% to 7.7 million or 20.7% of precast sales from 8.1 million or 23.2% of segment sales in the fourth quarter of 2023, primarily due to changes in product mix, specifically with a higher proportion of shipment volume derived from lower margin commercial products. Selling general and administrative expenses for the quarter increased 12% to $11.9 million, or 10% of sales, compared to $10.7 million in the fourth quarter of 2023, or 9.7% of sales. The increase was primarily due to higher incentive compensation expense, including for both cash-based and share-based programs. Our non-cast share-based compensation expense in the fourth quarter of 2024 was $1.2 million compared to $0.6 million in the year-ago quarter. For the full year, our selling general administrative expenses increased 7.7% to $47.2 million, or 9.6% of consolidated net sales, compared to $43.8 million, or 9.9% of sales in 2023, also due predominantly to higher performance-based incentive compensation program costs. For the full year 2025, we estimate our consolidated SG&A expenses to be in the range of 47 to 50 million. Depreciation and amortization expense in the fourth quarter of 2024 was 4.8 million compared to 4 million in the year-ago quarter. For the full year, depreciation and amortization expense was 19.1 million compared to 15.8 million in 2023. We expect depreciation and amortization expense to be approximately 18 to 20 million for the full year 2025. Interest expense decreased to $0.9 million from $1.1 million in the fourth quarter of 2023 due to a decrease in average daily borrowings. For the full year, interest expense increased to $5.7 million compared to $4.9 million in 2023, and for the full year 2025, we expect interest expense to be approximately $3 million. Our 2024 income tax expense was $8.2 million, resulting in an 19.3% compared to $8.2 million in the prior year or an effective income tax rate of 28%. As previously discussed, our effective income tax rate for 2024 was significantly impacted by the realization of uncertain income tax positions due to a lapse in statute of limitations from the year the tax attribute originated. This resulted in a favorable impact on our fourth quarter and full year provisions of approximately $2.3 million. In 2023, the effective income tax rate was primarily impacted by non-deductible permanent differences, accrued interest on uncertain income tax positions, and state income tax rates. We expect our tax rate for the full year 2025 to be within the range of 24% to 26%. Now I'll transition to our financial condition. We generated strong cash flows in 2024. For the quarter, net cash provided by operating activities was $36.1 million compared to $9 million in the fourth quarter of 2023. For the full year, we generated net cash provided by operating activities of $55.1 million, a modest increase from $53.5 million in 2023 due to our improved profitability partially offset by a reduction in cash provided from working capital. Additionally, our full-year free cash flow of $34 million was better than anticipated due largely to shifting working capital needs in our steel pressure pipe business, which will vary quarter to quarter. For the full year 2025, we anticipate free cash flow to range between $23 and $30 million. As we've previously emphasized, enhanced cash generation remains a key focus of our leadership team. Our capital expenditures for the fourth quarter were $4.2 million compared to $5 million in the fourth quarter of 2023. For the full year of 2025, we anticipate our CapEx to be in the range of $19 to $22 million, including about $5 million in various investment projects, most notably to support the precast product spread, as well as initiatives to grow revenues at both our park and Geneva businesses to $100 million in the near term. As of December 31st, 2024, we had $24.7 million of outstanding borrowings on our credit facility, leaving approximately $99 million in additional borrowing capacity on our credit line. We remain committed to our capital allocation strategy, which is duly focused on both growth and providing stockholder returns, including our anticipated adoption of a new share repurchase program from which we expect to start transacting early in the second quarter. In summary, we are extremely pleased that we have achieved new annual performance records in safety, revenues, gross profit, and earnings per share. We believe our steel pressure pipe and precast businesses remain well positioned in 2025 and beyond, the new level of through-cycle resiliency achieved through our growth into precast. Thank you again to our dedicated employees who made these achievements possible and to our shareholders for their continued trust and support Northwest Pipe Company. I will now turn it over to the operator to begin the question and answer session.