NWPX Infrastructure, Inc.

Greetings and welcome to the NWPX Infrastructure Third Quarter 2025 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 today, Mr. Scott Montross, CEO. Thanks, sir. You may begin.

Good morning and welcome to Northwest Pipe Company's third quarter 2025 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 the 29th, 2025, 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 a year-ended December 31, 2024, 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 share our updated outlook for the remainder of 2025. Aaron will then walk through our financials in greater detail. We're proud to report another quarter of record-setting results, delivering the highest quarterly revenue, gross profit in EPS in our company's history. Consolidated net sales reached 151.1 million, representing growth of 13.4% sequentially and 16% year-over-year. Gross margin expanded by 230 basis points sequentially to 21.3%. EPS grew to $1.38 per share, up 35% versus the prior year period. and we generated over 21 million in operating cash flow during the quarter. These strong results underscore our disciplined execution against our strategic priorities and the sustained demand across both our water transmission systems and precast segments. Let's begin with our WTS segment, which delivered record net sales of 103.9 million a 20.9% increase year over year. This performance was fueled by favorable market dynamics, including stronger-than-expected customer shipping requirements, project mix, and timing. Tons produced rose 14% year over year, driven by sustained customer demand, while revenue per ton benefited modestly from trade policy dynamics and disciplined pricing strategies. Importantly, while our strong cash flow generation in the third quarter can be attributed to the collective efforts of the entire company, the WTS business was a notable contributor. We saw this trajectory throughout 2025 with improving cash flow through the first nine months of this year versus 2024. This builds on the significant improvements we've achieved over the last few years. Bidding activity remained robust throughout the quarter, and we expect even greater momentum heading into the fourth quarter. At quarter end, our WTS backlog, including confirmed orders, stood at 301 million. While this reflects a sequential decline from 348 million in June due to the elevated shipping activity, it marks an increase from the 282 million a year ago. We anticipate backlog levels will remain above 300 million through year end, supported by what we expect to be the strongest bidding quarter of the year. In addition, as part of our commitment to environmental stewardship, we recently published our first third-party verified environmental product declaration, or EPD, for cement mortar line welded steel pipe. The EPD measures embody carbon and overall product lifecycle impacts and help us meet buy clean and other state level transparency requirements. It also helps differentiate us from competitors in sustainability driven bids. This milestone underscores our dedication to transparency and sustainability in infrastructure development. For additional details on water transmission projects underway at NWPX, I encourage you to review our investor presentation available on our website. Turning to precast segment, our net sales reached $47.2 million, marking a 6.6% year-over-year increase and landing just shy of the record set last quarter. While shipment volumes declined modestly, an 8% increase in average selling price reflects our pricing discipline. We saw notable strength in our park-related non-residential business, which has navigated persistent macroeconomic headwinds, including trade policy uncertainty and elevated interest rates. Third quarter results reflect early signs of stabilization and improving trajectory in this business. Residential activity at Geneva moderated slightly during the quarter, partially offsetting gains. Our precast order book closed the quarter at $55 million in line with recent levels and demonstrating consistent stability over the past several quarters. Looking ahead, we anticipate improved demand and accelerated project starts as interest rates ease. On a consolidated basis, gross profit reached a record $32.2 million, representing a margin of 21.3%, up 50 basis points from 20.8% in the third quarter of 2024. Water transmission systems gross profit reached $22.1 million, with a margin of 21.3%, up approximately 190 basis points year-over-year, and 350 basis points sequentially. This margin expansion reflects strong customer demand, favorable project pricing, and consistent operational execution, all while sustaining a healthy backlog. Precats gross profit totaled $10 million, down modestly from both second quarter and the third quarter of 2024, with growth margins that were flat with the prior quarter. Margins were temporarily impacted by mixed shifts at Geneva and increased depreciation associated with new equipment investments. Production volumes rose year over year with park up double digits and Geneva up high single digits. Absorption rates are beginning to improve and we anticipate margin recovery as non-residential demand continues to build. Momentum within the non-residential portion of our precast business is showing encouraging signs of recovery and is expected to contribute positively to our margins. Let me now turn to our capital allocation strategy. Growth remains our top priority. In the third quarter, we continue to advance our precast product spread strategy across multiple levels. First, optimizing capacity at our park plants by booking orders outside of Texas. Second, producing and shipping park products from Geneva. Third, producing and shipping Geneva products from park locations And fourth, expanding precast related offerings to additional Northwest Pipe legacy locations, which includes water transmission systems plants. We currently have two water transmission systems plants that are in the process of getting their National Precast Concrete Association certification. We booked 3.3 million in precast product spread orders in the third quarter. and our full year goal remains to book over 12 million in product spread projects outside of Texas. We also made targeted organic investments, including the installation of a catch basin machine at our Orem plant for Geneva, which will expand our production capabilities. Additionally, we are investing in new forms at our water transmission systems plants to support precast production and further advance our product spread strategy. On the M&A front, we continue to evaluate acquisition opportunities in the precast space, including single-plant candidates that would expand our geographic reach and capabilities. Our acquisition criteria remains disciplined, and we are actively exploring several options. Other capital priorities include paying down debt and returning value to shareholders. During the third quarter, we repurchased approximately 186,000 shares at an average price of $42.90, totaling $8 million. In summary, we remain on track to deliver a record year in 2025. We are well positioned for continued momentum in 2026. Looking ahead, we're expecting to see a normal fourth quarter. due to seasonal factors such as two major holidays, but more importantly, severe weather-related events, which we have a lot of experience with over the last few years. In the fourth quarter, we anticipate modest year-over-year growth in both revenue and margins in our precast business, and revenue and margins for the water transmission systems business to be similar to the year-ago period. Our record-setting performance throughout the year underscores the strength and resilience of our business model, the durability of our end markets, and the exceptional commitment of our employees who continue to drive consistent execution across both segments. As always, our priorities remain clear. One, maintaining a safe and rewarding workplace. Two, focusing on margin over volume. Three, intensifying our pursuit of strategic acquisitions. Four, implementing cost efficiencies across the organization. And five, returning value to our shareholders when M&A opportunities are limited. Thank you to our entire team for your continued dedication and execution. I will now turn it over to Aaron, who will walk you through our financials in greater detail.

Thank you, Scott, and good morning, everyone. As Scott mentioned, we delivered record-setting results this quarter, achieving the highest quarterly revenue, gross profit, and earnings per share in our company's history. In particular, the water transmission system segment's performance was exceptional, benefiting from several tailwinds, including higher than expected volume, as well as cost efficiencies realized on improved plant utilization and favorable costing against our project estimates. We believe that shifts in the competitive landscape combined with a favorable demand environment, have created conditions where strong quarterly results, such as those seen in the third quarter, are occasionally achievable. However, we do not consider this level of performance to represent a new baseline for the WTS segment. I'll now turn to our third quarter profitability. Consolidated net income was $13.5 million, or $1.38 per diluted share, compared to $10.3 million, or $1.02 per diluted share in the third quarter of 2024. This is the highest earnings per share posted in the company's history outside of the third quarter of 2018, which was elevated by a one-time $22 million non-cash gain on bargain purchase associated with our acquisition of Ameron Water Group. Our results since that acquisition, including the record results achieved in the third quarter of 2025, serve as continued validation of that acquisition's positive contributions to the organization. Our third quarter consolidated net sales increased 16% to a record $151.1 million compared to $130.2 million in the year-ago quarter. Sales for the water transmission system segment increased 20.9% to a record $103.9 million compared to $85.9 million in the third quarter of 2024. The increase was driven by a 14% increase in tons produced resulting from changes in project timing and a 6% increase in selling price per ton due to changes in product mix. Precast segment sales in the third quarter increased 6.6% to $47.2 million compared to $44.3 million a year ago. Our performance was driven by an 8% increase in selling prices due to changes in product mix, which was partially offset by a 2% decrease in volume shipped. As a reminder, the products we manufacture are unique. Shipment volumes in the case to precast production volumes in the case of WTS, 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 third quarter consolidated gross profit increased 19% to $32.2 million, or 21.3% of sales, compared to $27 million, or 20.8% of sales in the third quarter of 2024. Water transmission systems gross profit increased 33% to a record $22.1 million, or 21.3% of segment sales, compared to gross profit of $16.6 million, or 19.4% of segment sales in the third quarter of 2024, primarily driven by higher pricing due largely to changes in product mix, as well as higher production volumes and associated operational efficiency gains. Pre-cast gross profit decreased 3.4% to 10 million or 21.3% of segment sales from 10.4 million or 23.5% of segment sales in the third quarter of 2024, primarily due to changes in product mix. Selling general and administrative expenses increased 13.2% to 13.1 million compared to 11.6 million in the third quarter of 2024 due to higher compensation and benefits expense. However, as a percentage of sales, SG&A improved to 8.7% from 8.9% in the prior year. For the full year 2025, we now estimate our consolidated selling general and administrative expenses to be approximately $52 million. Depreciation and amortization expense in the third quarter of 2025 was $4.2 million compared to $4.1 million in the year-ago quarter. For the full year, we expect depreciation and amortization expense to be approximately $19 million. Interest expense decreased to $0.8 million from $1.5 million in the third quarter of 2024, due primarily to a decrease in average daily borrowings. For the full year 2025, we expect interest expense of approximately $3 million. Our third quarter income tax expense was $4.7 million, resulting in an effective income tax rate of 26%. This compares to $3.7 million in the year-ago quarter, or an effective income tax rate of 26.3%. Both quarters were primarily impacted by non-deductible permanent differences. We continue to expect our tax rate for the full year 2025 within the range of 24% and 26%. Next, I'll transition to our financial condition. Our strong balance sheet and ample liquidity support the execution of our capital allocation strategy. As of September 30, 2025, we had $27.6 million of outstanding borrowings on our credit facility, leaving approximately $96 million in additional borrowing capacity on our credit line. For the third quarter, net cash provided by operating activities was $21 million, compared to $22.7 million in the third quarter of 2024. The modest decline was primarily due to changes in working capital, partially offset by our increased profitability. Our capital expenditures for the third quarter were $7.8 million, compared to $6 million in the third quarter of 2024. For the full year of 2025, we continue to expect CapEx in the range of $19 to $22 million, including approximately $5 million for various investment projects, most notably to support precast product spread, as well as initiatives to grow both our park and Geneva businesses to $100 million top line in the near term. Accordingly, we generated positive third quarter free cash flow of $13.2 million compared to $16.7 million in the year-ago quarter. For the full year 2025, we now anticipate free cash flow to range between $32 and $37 million, up from our prior outlook. Consistent strong cash generation remains a top priority for our leadership team, which is focused on driving growth both organically and through prospective M&A as appropriately valued opportunities arise. We remain committed to enhancing shareholder returns, consistent with our capital allocation strategy, including repurchasing shares. In the third quarter, we repurchased 186,000 shares for an average price of $42.90 per share. To close, we are proud of our strong performance and sustained momentum this quarter, resulting in another period of record-setting results. We remain focused on driving long-term growth and positioning the company for sustained success through the remainder of 2025 and beyond. We want to thank our employees for their strong execution and for their commitment to safety, which remains the foundational value central to our culture. We also appreciate continued confidence and support of our shareholders as we execute our long-term strategy.