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'm joined today by Scott Montross, the company's CEO; and by our CFO and Corporate Secretary, Aaron Wilkins. We are to begin hosting our Annual Shareholders Meeting virtually, which is, in part, in light of the COVID-19 pandemic. However, we also believe the virtual format allows us to reach a greater number of shareholders. Virtual attendance at our annual meeting constitutes presence in person under the company's bylaws. As is 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 for you -- to answer your questions. [Operator Instructions]. 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 by accessing the company's website. I would ask that the meeting now come to order. While I will walk you through the matters for shareholder consideration, at this point, I would like to declare for our shareholders that voting is open. Shareholders have been provided access to the company's proxy, which details these matters. The proxy can also be found in your meeting portal. Votes can continue to be cast until I announce that voting is 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. 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 ending December 31, 2021 and transacting such other business may properly come before this annual meeting. The agenda for the meeting is as follows: first, the preliminary procedural matters, which I have largely covered; then the matters for shareholder consideration, which include the election of directors, the advisory vote on executive compensation and the ratification of the appointment of Moss Adams; followed by the vote results then adjournment, at which time we'll get to the business update by Scott, followed by your questions and answers -- or your questions and our answers, actually. 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, 2021. Broadridge Financial Services has been appointed as Inspector of the Election. They have advised me that based on a preliminary account, there are present at this annual meeting votes represented in person or by proxy amounting to more than a 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 the 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 divided 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 3-year terms and until their successors are elected and qualified. Company's Board includes 4 continuing directors: Mike Franson, Scott Montross, John Paschal and Bill Yearsley. I would like now to introduce the nominees for election today. Amanda Kulesa was appointed to serve on the Board of Directors in July 2020. This is her first nomination for election by our shareholders, and she's being nominated due to the expertise she has provided and continues to provide to the company. Her experience is detailed in the proxy, which is available in the meeting portal. Keith Larson was originally elected to serve on the company's Board of Directors in 2007. And finally, me, Rich Roman. I have been serving on the company's Board since 2003. All 3 directors are nominated for 3-year terms. 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. In addition to the election of the 3 directors, we are asking for an advisory vote on the executive compensation of named executive officers identified in the company's proxy. The third and final matter of the shareholder vote is the ratification of the appointment of Moss Adams LLP as the independent registered public accounting firm for the year ending December 31, 2021. At this time, voting on all matters is closed. Aaron, will you please announce the results?

Based on preliminary results provided by Broadridge Financial Services, 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 ratification of 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 move now to Scott's business update. After the conclusion of the business update, the management team will answer shareholder questions. [Operator Instructions]. Now I would like to turn things over to Northwest Pipe's CEO, Scott Montross.

Thank you again, Rich. It's an understatement to say that our society, country and company have been significantly impacted by the pandemic. For us at Northwest Pipe Company, health and safety of our employees is our #1 priority. During the pandemic, we put many additional protocols into place to help protect our employees, such as extensive sanitation procedures at all the facilities, social distancing guidelines, staggered work schedules and remote working environment and additional paid sick leaves to sort of support employees and their families. At the beginning of the pandemic, our operations were deemed essential due to the nature of our business, which is producing critical water infrastructure projects. So we continued to operate our plants. However, we did have operational and business disruptions related to COVID. First, our facility in Mexico was ordered shutdown by the Mexican government on a temporary basis at the beginning of the first quarter of -- or excuse me, at the beginning of the second quarter of 2020 and remained close for pretty much the entire second quarter. We were allowed to reopen the facility in July of 2020, getting back on to normal production schedules. We also had additional COVID-related issues at many of our other plants, which caused production disruptions, such as delayed raw material deliveries, customer delivered -- driven production delays and significant project bidding delays, especially in the second half of 2020. So we did see some impact from the COVID pandemic. If you go to the next page, just a little bit about Northwest Pipe Company. We're the largest producer of steel pressure pipe engineered systems in North America with a recent entry into the precast concrete sector. Our company is well positioned to meet North America's growing water, wastewater infrastructure needs. And Northwest Pipe is the supplier of choice on high-pressure, long-distance infrastructure transmission projects. We've been involved with the majority of the major projects in the United States over the last 10 years, and we have 10 manufacturing facilities in North America, 9 across the United States and 1 in San Luis Rio Colorado, Mexico. We are headquartered in Vancouver, Washington. Looking at our growth strategy. Growth strategy is to expand into the precast concrete-related market, capitalizing on our market position and nationwide footprint in order to drive transformational growth and profitability, all driven towards creating greater shareholder value. Our growth strategy is two-pronged. First, the growth in the precast concrete-related market through both acquisition and expansion. And when we talk about expansion, we mean expanding precast products to already existing Northwest Pipe plants. And when we talk about acquisitions, most of you that listen to our earnings call know that we're always working on M&A opportunities to grow the company in the methodical and appropriate cadence fashion. The second prong of our growth strategy is to maximize our core steel pressure pipe business, a market that's fairly small at about $450 million to $650 million annually. Since we already have about 50% market share in that market, the acquisition opportunities are limited but identified. Therefore, our focus in growing and improving that business is by driving cost reductions and efficiencies to really drive the maximization of that business for Northwest Pipe. Looking at the Geneva Precast business and really the precast concrete part of Northwest Pipe. We acquired Geneva Pipe and Precast in January 31, 2020, which was our original entry into the precast concrete business, a market that is somewhere between $4 billion and $5 billion annually for water-related products. But the total precast market is approximately $15 billion annually. With Geneva, we got a company with a strong brand reputation, solid profit margins, consistent top line growth and a much faster cash cycle than we see in our steel pressure pipe business. The orders are generally smaller and more transactional and have a much higher velocity than what we see in steel pressure pipe. Geneva's product portfolio consists of products for water, storm water and sanitary sewer applications, and our new line products for reinforced concrete pipe and manhole sanitary sewer applications should provide additional organic growth opportunities for the precast concrete side of our business. We have a durable business model. Obviously, there have been some challenges as we've gone through the pandemic and resulting in a relatively weak first quarter. And as we said in our last earnings call, our second quarter, we still expect to be pretty challenging. But when you look at where we are, when we -- as we came through the first quarter, we still ended with a backlog that was still in the area of $210 million, which is very high by historical standards and represents the 11th straight quarter that we have over $200 million. When you look at the precast concrete part of our order book, right now that business is very strong, and right now that order book is currently at or above historical highs that Geneva is seeing for that business. After pretty significant delays in the steel pressure pipe business in the second half of 2020 and the first quarter of 2021, it appears that there's a large amount of municipal bidding that stacked up in the second half of 2021, which could result in very strong bidding as we go out through the remainder of the year. And looking at the precast side of the business, precast looks strong as we go through the rest of this year. And balance sheet, when you look at our balance sheet and liquidity, we're well positioned to continue to grow the company, which is, as I said, something that we are always working on. Looking at our strategic footprint. The map shows the locations of our facilities. Our water transmission steel pressure pipe plants are located pretty much the rest of the country. You can look at those, and they're in yellow, and they're in all of the major markets to serve the steel pressure pipe water market. The one dot I would call your attention to that is actually yellow but it's not a steel pressure pipe plant is the one in St. Louis, Missouri, which is our Permalok facility, which produces steel pipe for casing applications, for trenchless applications and carrying other products inside of the pipe, like -- could be anything from other pipe systems to fiber optics to protecting different types of pipe under railroad crossings and things of that nature. The red dots are precast concrete facilities which are located all in Utah. And the precast business is a much more localized business and it really -- it ships probably 150 or so, maybe 200 miles, from its source, so much more local. So those plants in Utah support the surrounding states like Nevada, Arizona and Idaho, along with Utah. Looking at our competitive strengths. On steel pressure pipe side, we have the largest, most flexible capacity in the business. We have very experienced project management group in steel pressure pipe that provide customer service to both contractors and owners, helping manage production and meeting customer delivery schedules. We have in-house fabrication at all of our steel pressure pipe facilities, providing customers with an engineered system, not just a steel pipe but an engineered system, which is the difference between a company that just produces pipe and companies that produce engineered systems like we do. The addition of our precast business to our portfolio provides a strong area for potential growth. As you heard me say before, the precast market in total is somewhere in the area of $15 billion annually. And the company, as we've talked about in a lot of our earnings calls, has a strong focus on improving efficiencies and reducing costs. We have a very developed lean manufacturing programs with dedicated staff at the plants. Turning to the full year 2020 highlights. As I mentioned before, 2020 was marked by the pandemic. Our SLRC facility in Mexico was mandated shutdown. We had COVID-related production disruptions and significant bidding delays. When you look at our net sales. Our net sales were up about 2.4% over what they were in 2019 to about $286 million. That was really due to the addition of Geneva Pipe and Precast. In 2020, the steel pressure pipe business was a smaller year than what we saw in 2019. It was about $242 million of the total top line versus $279 million in 2018 due to a lot of the pandemic-related delays. But the newly acquired precast business helped offset the off-fall in steel pressure pipe, which is one of the things that getting into the precast business was intended to do, help us balance out some of the periods of volatility that we see in the steel pressure pipe business. Gross profit was up 7.1% to $50.5 million. As I said, it was a smaller year for steel pressure pipe, but it was offset by the contribution of Geneva that the precast business is bringing to the bottom line of the company. Year-end backlog was a bit off, down to about $221 million, really largely related to the amount of bidding delays that we saw in the second half of 2020. We saw somewhere in the area of about $130 million worth of project bidding move out of 2020 down the calendar. So that obviously had a pretty good impact on what the backlog was, and the backlog was off a little bit. Our liquidity position continued to be strong at the end of 2020, and we finished the year with almost $38 million of cash on the balance sheet. Looking at the first quarter of 2021 highlights. As we moved into the first quarter and as we discussed in the last 2 earnings calls, we knew that the first quarter was going to be challenging. Again, the second half 2020 bid delays, when you look at stuff that bids in the second half of a year like that, it's usually starting to hit production in the first half of the next year. And that had an impact on what we were able to produce in the first half of 2021. But they were only delays, not cancellations. So those projects have just moved down the calendar. We also saw some steel market supply and delivery disruptions, which during the first quarter, postponed some production of existing projects that affected what the results look like in the first quarter. And I think as probably many people remember, we saw some pretty severe weather events in January and especially February, which had our Saginaw, Texas plant down for almost 5 days and portions our Parkersburg and Portland plant down for multiple days. And all of this led to a pretty slow couple first months of -- the first 2 months of the first quarter. So first quarter was pretty challenging. Our net sales for the quarter were up about 4.9% versus the first quarter of 2020. We had a full year of Geneva in the first quarter of 2020 versus -- or excuse me, in the first quarter of 2021 versus the previous year in 2020 when we had them only 2 months of the first quarter because they were acquired on January 31. And when you look at the legacy business in the first quarter of 2021, it was down slightly from what it was in the first quarter of 2020. Looking at gross profit. Gross profit was down about 8.4% to $8.8 million. Again, the issues we experienced in January and February had an impact. It impacted the direct hours, causing underabsorption at the plants. We also saw some panic bidding by some of our competitors during that period of time. When you take $130 million worth of work and push it out of the back side of the year, there gets to be some panic on the amount of work that's going to be available to bid on. So we saw some panic bidding that affected the margins for a period of time. And all of that together had an impact of what the first quarter margins look like. We ended the first quarter of 2021 with a backlog of $210 million. And I think that is actually our 11th straight quarter over $200 million in backlog, which is historically a very high backlog. Looking at the liquidity position at the end of the first quarter. Liquidity position continued to be strong, and we ended the quarter with about $30 million of cash on the balance sheet. As we also said in the last earnings call, we continue to expect the second quarter of 2021 to remain a little bit challenging due to the impacts of the bidding delays from the second half of 2020, which continued into the first quarter of 2021. We also expect additional steel supply and delivery disruptions in the second quarter because the second quarter is normally the time when the steel producers are taking their annual outages and taking their blast furnaces down and their electric arc furnaces down. So there's a little bit less availability in the marketplace during that period of time because they're producing less when those outages are going on. When you look at the precast side of our business for the second quarter, it definitely continues to look solid. Like I said, that order book is pretty close to, if not above, an all-time high for what Geneva has seen for the company. As we move into the second half of 2021, I think the thing that continues to be a theme as the precast business continues to look strong with what's going on in that business and the amount of orders that we actually see coming in. And on the steel pressure pipe side of the business, we've seen the bidding sliding, abating as we've gotten through the second quarter. And like I said before, it currently appears that there's a significant amount of work that's stacked up in the second half of the year. And if all that holds -- because those of you that have listened to our earnings calls and talked to us before know that these jobs can slide around, but if all that holds we look to have a pretty strong bidding second half of the year for the steel pressure pipe business, along with what's appearing to be a pretty strong year for the precast concrete business in the second half of the year. Actually, precast looks relatively strong for the entire year. So when you look at the points of focus, things that we're focused on, you've heard us talk a lot about this before. The biggest thing is making sure that we keep our employees safe, not only with the COVID pandemic that is still ongoing at this point but also in their daily work environments. Safety is the most important thing we do with this company. The second thing is continuing to focus on margin over volume and getting better margin business on the order book all the time. The third thing is looking at strategic growth opportunities in the precast concrete water infrastructure market and looking at growth through expansion and acquisition. And like I said before, we are always looking at M&A activity. And for those of you that are on our calls, there's always things going on. We're always engaged and looking at potential targets and things like that, trying to find ways to methodically grow the company at a good cadence. And then finally, last but not least, continuing to work on cost reductions at all levels of the company. That really means, for us, our lean manufacturing programs and things that we're working on to drive efficiencies into the business. In summary, what I would say is that first half of the year 2021 looks pretty challenging. However, we're cautiously optimistic about the second half of the year because it continues to shape up that we're going to see continued strength and relatively strong business in the precast side of the business. And on the steel pressure pipe side of the business, as I said before, there appears to be work stacking up in the second half of the year. And if it holds, I think we're going to have a strong bidding schedule in the second half of the year. So the second half of the year, we're cautiously optimistic and things look promising at this point. So that's where I'll stop and see if anybody has any questions or anything that they actually want to talk to.

Turning to the portal, Scott, we don't have any questions this morning.

No questions?

No questions. Do you have any closing remarks you want to end with?

No. It's just -- I think it's the same thing. I think it's a situation where we've seen a little bit of a disruption in our business in the first part of the year related to the pandemic and what happened to the bidding in the second half of last year. But the precast business looks strong. The second half of the 2021 time period, steel pressure pipe bidding looks to be at this present time like it's going to be pretty strong. So we're cautiously optimistic about what the second half of the year is going to look like. And like I said before, we're always looking for ways to grow the company and to create greater shareholder value. And that's what we do. So those are my closing remarks, Aaron.

Very good. Well, thanks, everybody, for joining today, and we'll do this again next year. Thanks very much.

Thank you.