NWPX Infrastructure, Inc. (NWPX) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Rich Roman. I am Chairman of the Board of Directors of Northwest Pipe Company. The directors and officers of the company join me in welcoming you to this annual meeting of shareholders. I would like to thank everyone for joining us. I'm joined today by Scott Montross, the company's CEO; and by our CFO and Corporate Secretary, Aaron Wilkins. We are excited to be hosting our annual shareholders' meeting virtually, which is part of our effort to maintain a safe and healthy environment for our directors, members of management and shareholders in light of the COVID-19 pandemic. We also anticipate that holding a virtual meeting will allow us to reach a greater number of our shareholders. Virtual attendance at our annual meeting constitutes presence in person under our bylaws. As our custom, we will first conduct the business of the annual meeting. After the formal meeting has been adjourned, Scott will provide a brief update on the business, after which we will provide time to answer your questions. Shareholders are asked to submit their questions through the meeting portal. Though we may not be able to answer every question, we will do our best to provide a response to as many as possible. At this point in the meeting, I will ask that all participants refer and adhere to the code of conduct posted for this meeting, which can be accessed in the portal. Today's meeting is being recorded and can be replayed later by accessing the company's website. I would now ask that the meeting come to order. Our annual meeting is being held today for the purpose of electing 3 directors, conducting an advisory vote on executive compensation, ratifying the appointment of Moss Adams LLP as the company's registered public accounting firm for the year ended December 31, 2020 and transaction -- transacting such other business as may properly come before this annual meeting. The agenda for this meeting will be as follows: first, these preliminary procedural matters; second, matters for shareholder consideration, which include the election of directors, the advisory vote on executive compensation and the ratification of appointment of Moss Adams LLP; third, the vote results; fourth, adjournment; and then fifth, the business update by Scott; followed by, sixth, questions and answers. I've been advised by the company's secretary that pursuant to the bylaws of the company and Oregon law, the notice announcing the intent to hold this annual meeting was duly and properly mailed to the shareholders of record as of April 9, 2020. Broadridge Financial Services has been appointed as inspector of the election. They have advised me that based on a preliminary count, there are present at this annual meeting votes, represented in person or by proxy, amounting to more than majority of the outstanding shares entitled to vote at this annual meeting. Based upon this count, I declare that a quorum is present and that this annual meeting is lawfully convened and may proceed to transact business. Under the company's articles of incorporation and bylaws, the company's directors are dividing into 3 classes, with each class to be as nearly equal in number as possible. The term of office of only one class of directors expires each year, and their successors are generally elected for terms of 3 years and until their successors are qualified and elected. The company's Board includes 3 continuing directors, which include Keith Larson and Mike Franson. I am also a continuing member. I would like to introduce the nominees for election today. Scott Montross is the company's President and CEO and was originally elected to serve on the company's Board of Directors in 2013. John Paschal and William Yearsley were appointed to serve on the Board of Directors in August 2019 and March 2020, respectively. This is their first nomination for election by our shareholders and they are being nominated due to expertise they offer to both the Board and the company. Detail of their experience is provided in the proxy, which is available in your portal. Mr. Montross and Mr. Paschal are nominated for 3-year terms, which is the standard duration for our nominees. Mr. Yearsley is being nominated for a 2-year term. The shorter term is only for the purpose of balancing the directors among the classes as required by the company's articles and incorporation and bylaws. In accordance with the bylaws of the company, nominations by shareholders were required to have been received prior to the date of this meeting. No such nominations were received. We will now proceed to the matters for shareholder consideration. Votes can continue to be cast until I announce the voting as closed. Votes that were previously cast can also be changed during this period. For shareholders who have already voted and do not wish to change their vote, no further action is required. As this meeting is being conducted virtually, we will vote on all matters for shareholder consideration concurrently. In addition to the election of 3 directors I introduced, we ask for an advisory vote on the compensation of named executive officers identified in the company's proxy. The third and final matter for shareholder vote is the ratification of the appointment of Moss Adams LLP as the independent registered public accounting firm for the year ended December 31, 2020. You can cast your vote electronically by clicking the Vote Here button and then completing the props. I will now pause for approximately 1 minute to allow the votes to be cast and tabulated. [Voting]

Voting on all matters is now closed. Aaron, will you please announce the results?

Based on the preliminary results provided by Broadridge Financial Services, the 3 nominees for election to the Board have been approved. The advisory vote on executive compensation has received a sufficient number of votes and is also approved. Finally, the ratification of the appointment of Moss Adams LLP has been approved.

I, therefore, declare that the Board's nominees are elected to the Board of Directors and the advisory vote on executive compensation and the ratification of the appointment of Moss Adams LLP have all been approved. This completes the formal business to come before this annual meeting. There being no further formal business, this annual meeting now stands adjourned. We'll now move to the business update portion of this meeting. After the conclusion of the business update, the management team will answer shareholder questions. The company's shareholders are reminded to submit their questions by way of the associated link in your portal. At this point, I would like to turn things over to Northwest Pipe Company's CEO, Scott Montross.

Thank you, Rich. First and foremost, our thoughts are with those who've been impacted by the COVID-19 virus. It's obviously had a major impact on society and the economy. Our #1 priority is the health and safety of all of our employees, and some of the following are the steps that we've taken in order to protect our employees: more frequent and intensive sanitation issues and measures, social distancing. We obviously have very large plants, so the people at the plants are socially distanced by virtue of how they're working, but we still have implemented significant social distancing measures. We've created staggered work schedules and offered opportunities to work remotely to our employees, along with having additional paid sick leave to support both the employees and their families. The operational impacts are that -- have been relatively minor for our plants at this point in time. Our plants have been deemed essential by the Department of Homeland Security and cybersecurity and the infrastructure security agencies. We continue to operate and produce products for critical infrastructure products at all of our U.S. plants. The Mexican government ordered COVID-related shutdown of our SLRC Mexico plant on the first of April. That represents approximately 1/6 of our production capacity for steel pressure pipe in the company. We've been using existing plants in the U.S. to absorb some of the orders. We've been working with government agencies to get the plant running at full operation as soon as possible. We've been working with senators from New Mexico, Senator Heinrich, and Senator McSally from Arizona, and we've made significant strides in getting the plants reopened. In fact, just the other day, we were notified that we could bring 35 to 36 people back to our plant at SLRC, San Luis Rio Colorado, Mexico, and we're beginning operations as we speak. About Northwest Pipe. We are a pure-play water company with a legacy that's grounded in water. We have 10 manufacturing locations that are located in strategic markets across the width of the United States and 1 plant in SLRC Mexico. The major markets we supply are the steel pressure pipe market for the high-pressure transmission of potable water; concrete pipe and precast market for drainage, storm water and sanitary sewer applications; and the microtunneling market for trenchless installation, casing products and really tunnels and casing products for understructures. We are the largest supplier of engineered steel pressure pipe for the water infrastructure market. 6 of our 10 plants supply steel pressure pipe for the water infrastructure market. Those 6 plants are spread from coast to coast, and we're the only one in our peer group that has a nationwide footprint. Our steel pressure pipe systems are used in high-pressure water transmission lines, plant piping, tunnels and hydroelectric applications. We are the supplier of choice for long distance, high-pressure steel transmission lines. Over the last 10 years, we have participated in the majority of large products, and we are an industry leader well positioned for further growth and consolidation. Northwest Pipe's growth strategy is to expand into a broader water market to create transformational growth and profitability to drive shareholder value. Our growth strategy is 2-pronged. First, to maximize our core steel pressure pipe business through cost reductions and operational efficiencies and also knowing that potential acquisition opportunities in the steel pressure market are relatively limited. We currently have approximately 50% market share, and in a market there's generally somewhere between $450 million and $600 million, making further expansion in the steel pressure pipe market difficult. As a result, there is a second prong to the strategy, which is the entrance into an adjacent water space that provides better growth opportunities, strong margins, improved cash flow profile. We chose the concrete pipe and precast market, which for water is a $3.5 billion to $4 billion market, which led to the acquisition of Geneva Pipe and Precast, which has had a strong historical financial performance, top line that has grown at a strong CAGR, a faster cash flow cycle than we see in our steel pressure pipe business, strong brand reputation as well as innovative products that extend the life of concrete products for sanitary sewer applications, providing good growth -- organic growth potential. Geneva Pipe and Precast provides a solid platform for growth in the precast concrete business. Despite the uncertainties created by the COVID-19 virus, structurally, our business is solid. We've been deemed essential and continue to provide critical water infrastructure systems in the United States. Our first quarter ending backlog of $224 million was the second-highest first quarter ending backlog in the last 10 years. And bidding activity for 2020 is projected to be strong with over 209,000 tons of work bidding for the entire year, which is spread over approximately 240 jobs that are projected to bid, that's versus about 242 jobs that actually bid in 2019. Our balance sheet continues to remain strong. We had $15 million of operating cash flow in the first quarter and only a small amount of debt and a growing cash position. Our strategic footprint gives us access to customers throughout the U.S. This slide shows the locations of our manufacturing facilities with projected CapEx infrastructure spending by state. The 3 new acquired plants that are precast facilities are shown in Utah. Our Permalok microtunneling plant is in St. Louis, Missouri. The remaining 6 plants are the steel pressure pipe water transmission plants. These plants are all strategically located to support water market infrastructure requirements across the United States, and we are headquartered in gene -- or excuse me, in Vancouver, Washington. The Northwest company strengths. Our steel pressure pipe facilities have a nationwide footprint and the largest, most flexible capacity in the market. And we have skilled project management resources to help our customers manage projects. The microtunneling project from our Permalok facility allows us to serve the casing side of the water market. And our addition of precast concrete capabilities opens a much larger market to Northwest Pipe, one that is expected to provide significant growth opportunities. And we continue to focus on operational efficiencies, driving cost reductions through our lean manufacturing programs. The 2019 recap shows the business prior to the acquisition of Geneva. Revenue and gross profit in 2019 improved to the highest level since 2008 with a 62% increase in revenue and a 290% increase in gross profit. We also finished 2019 with a record year-end backlog of $258 million. Looking at the first quarter 2020 highlights, the U.S. plants were deemed essential and continue to operate during the COVID-19 pandemic. First quarter finished with the second-highest first quarter ending backlog in the last 10 years of $224 million and with an improved liquidity position. Our revenue and gross profit year-over-year grew by 10% and 46%, respectively. As we move forward, we will be focused on the successful integration of Geneva Pipe and Precast; improving performance by focusing on margin over volume; driving cost reductions and efficiencies at all levels of the company; and finally, growing the precast concrete water infrastructure market through expansion or acquisition. At this time, we'd be happy to take any of your questions.

Scott, there are no shareholder questions in the queue.

Okay. Then this concludes our meeting. We appreciate everyone in attendance. And hopefully, next year, we'll see everybody in person. Thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.