NWPX - NASDAQ

Greetings, and welcome to the Northwest Pipe Company Fourth Quarter and Full Year 2023 Earnings Call. At this time all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Scott Montross, CEO. Thank you, sir. You may begin.

Good morning, and welcome to Northwest Pipe Company’s fourth quarter and full year 2023 earnings conference call. My name is Scott Montross, and I am President and CEO of the company. And 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 March 4, 2024, at approximately 4:00 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, 2022, and in our other SEC filings for a 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'd like to begin with a review of our 2023 performance and an outlook for 2024 and Aaron will then walk you through our financials in greater detail. 2023 was a year that presented some fairly significant headwinds, including a very small bidding market for a steel pressure pipe business, as well as challenging interest rate environment that suppressed both the residential and non-residential construction markets, negatively impacting demand in our precast business. Despite the challenging market conditions, our annual net sales of $444.4 million declined only modestly from 2022 record levels and profitability levels remain fairly solid, demonstrating what we believe is a new level of through cycle resilience driven by the growth strategy that we have deployed for the last several years that we will continue to deploy moving forward. Annual revenue from our steel pressure pipe segment remained fairly strong at $296.4 million, a decline of 3.6% from 2022, primarily due to lower tons produced resulting from changes in project timing and relatively small bidding year we had in 2023. This was partially offset by higher selling prices due to sales mix. After a highly volatile pricing year in 2023, prices of hot-rolled steel bands increased 50% from the end of the third quarter to the end of the fourth quarter. However, year to-date in 2024, prices have declined by about 15% and lead times remain fairly short. The steel pressure pipe backlog, including confirmed orders, was $319 million at the end of December 31, which modestly declined from $335 million at September 30, 2023 and from $372 million as of December 31, 2022. Our backlog remains elevated by historical standards, even when taking into account the relatively small bidding year we had in 2023. We anticipate a significantly stronger bidding year in 2024. Now, turning to our precast segment, precast revenue modestly declined by 1.4% from 2022 to $148 million, primarily due to lower production and shipping volumes resulting from the current interest rate environment impacting the U.S. construction market, which led to changes in our product mix and increased levels of under absorption. That said, our teams in the field did a great job at keeping pricing levels high, helping to offset elevated raw material input costs, which mitigated the impact to our top line. Our precast related order book remained fairly strong, totaling $46 million as of December 31, 2023, which was down from $52 million as of September 30, 2023 and down from the record levels we saw last year at $64 million as of December 31, 2022. Our 2023 consolidated gross profit decreased 9.6% year-over-year to $77.6 million, resulting in a gross profit margin of 17.5% down from 18.8% in 2022. Our Steel Pressure Pipe gross margin of 14.3% declined by approximately 20 basis points over 2022, primarily due to changes in production volume. Precast gross margin of 23.8% of precast sales in 2023 decreased by approximately 380 basis points from the record year we experienced in 2022. The decline was predominantly due to the impact of rising interest rates on the commercial construction and residential housing markets, which moderately reduced precast production demand, reducing overhead absorption and resulting in changes to our product mix. Next, I would like to provide an update on our capital allocation priorities. Our focus on growing the business remains our top strategic priority through our precast product spread strategy and attractive M&A opportunities. Our level one product spread effort has been ramping up to build out capacity utilization at our Texas based precast plants to maximize efficiencies in production. To that end, we bid on $55.8 million worth of projects outside of the state of Texas in 2023, mainly in the western and southeastern regions of the United States. And of that, we booked approximately $9.1 million worth of orders outside of Texas in 2023. As previously discussed, our precast operations in Utah have been serving as the pilot location for level two product spread activity to produce primarily precast Park products out of our existing Northwest pipe locations. In 2023, we reproduced 17 projects in Utah and are currently in production on four precast project orders with more scheduled to come. We plan to expand upon level two product spread once the Park precast products are more comfortably established at the Utah locations before we expand those products to additional geographic locations. Following organic growth, we remain highly focused on repaying the debt we incurred to finance the 2021 acquisition of ParkUSA in order to position ourselves for further acquisitions. Next I'll turn to our M&A strategy in which we are continuing to seek accretive acquisition candidates in the precast related space. We are continuing to evaluate prospective high quality opportunities that possess strong organic growth potential and margin characteristics, solid asset efficiency and a positive cash flow profile. In the absence of meaningful M&A activity, we may return value to our stockholders via opportunistic share repurchases subject to our liquidity, including availability of borrowings and covenant compliance under our amended credit facility and other capital needs of the business. During the fourth quarter, our strong cash generation enabled us to repurchase approximately 29,000 shares for a total of $0.8 million. And as of February 29th, we have repurchased a total of approximately 149,000 shares at a total of approximately $4.4 million. Before I conclude, I'd like to summarize our outlook for 2024, which is very positive. In our SPP business, we anticipate moderately stronger revenue and margins in the first quarter of 2023. However, when compared to the prior quarter, we anticipate revenue to have a modest sequential decline and for margins to be in line with the fourth quarter of 2023. Due to typical seasonally and severe weather conditions that have led to unscheduled downtime at our various SPP facilities, that said, we expect continued strength in our backlog, despite the relatively small level of bidding that we saw in 2023. I'd also like to add that we remain encouraged by the amount of activity we're seeing on our current and upcoming water transmission projects, as we are currently expecting a larger bidding year in 2024. For a complete view of these projects, please review our investor presentation, which could be found on the investor tab of our website within the events and presentation section. In our Precast business, we anticipate macroeconomic factors to continue to weigh on our volume. As a result, our precast revenue in the first quarter is expected to be down modestly from the prior year period. With margins that we expect will continue to be depressed due to lower production levels and associated under absorption, as well as product mix changes related to the slower market. All associated with the impact of interest rates on the construction market. However, we expect this to be only a near term issue as we are projecting a strong 2024 for precast. We continue to believe our precast business is well positioned to grow longer term, given the significant level of pent up demand specifically for residential housing, a growing need for infrastructure spending in the U.S. in our strong market position. In some rate, 2023 was a challenging year considering the significant volatility we saw with steel prices, the relatively small SPP bidding year and the rising interest rate environment. Nevertheless, we finish the year strong with only modest declines to both our top line and gross profit margins, which is a testament to the resiliency we've built into the business through maintaining our competitive edge in the SPP market, as well as our investments in the precast space to diversify the business and provide for strong organic growth potential in a shorter cash conversion cycle. Our goal remains for our precast related business to grow to a similar size as our SPP business. In addition, I'm extremely pleased to report that in 2023, we achieved our best safety year ever. Collectively, our 13 plants were well below the national average for recordable incident rate at 1.5, achieving the lowest total recordable incident rate ever seen at Northwest Pipe. Our safety culture of accountability is at the core of our culture, which is infused at every level of our organization. Our commitment and teamwork sets the foundation for the stable manufacturing environment and ensures the well-being and performance of all of our employees. Thank you to our team at Northwest Pipe for your continued strong performance, execution against our growth strategy, and for operating safely. Looking ahead, our priorities remain, one, maintaining a safe workplace where employees are proud to work. Two, persistently focus on margin over volume, three, continuing to implement cost reductions and efficiencies at all levels of the company, four, continuing to identify strategic opportunities to grow the company. And finally, number 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 to walk through our financials in greater detail.

Thank you, Scott, and good morning, everyone. Before I begin today, I would like to echo Scott's sentiments surrounding the company's record safety year. Congratulations to the entire company on this accomplishment. Now moving to an overview of our profitability. Consolidated net income for the fourth quarter was $5.4 million, or $0.54 per diluted share compared to $8 million or $0.79 per diluted share in the fourth quarter of 2022. For the full year, consolidated net income was $21.1 million, or $2.09 per diluted share compared to $31.1 million or $3.11 per diluted share in 2022. Our fourth quarter consolidated net sales increased 3.1% to $110.2 million compared to $106.8 million in the year ago quarter. Both business segments surpassed our revenue expectations for the fourth quarter. Steel Pressure Pipe segment sales in the quarter increased 4.1% to $75.1 million compared to $72.1 million in the fourth quarter of 2022. This was driven by a 2% increase in tons produced resulting from changes in project timing as well as a 2% increase in sign price per ton primarily due to product mix. Precast segment sales for the fourth quarter increased 1.1% to $35.1 million compared to $34.7 million in the fourth quarter of 2022. This was primarily due to a 25% increase in volume shift due primarily to product mix, partially offset by a 19% decrease in selling prices, which was a result in changes in product mix in addition to lower demand. As a reminder, due to the unique nature of the products we manufacture, shipment volumes in the case of precast and production volumes in the case of steel pressure pipe, and the corresponding sales prices for both segments do not always provide comparable metrics between periods as they are highly dependent on the composition of the mix of our products. For the fourth quarter, consolidated gross profit decreased 11.8% to $19.3 million or 17.5% of sales compared to $21.9 million or 20.5% of sales in the fourth quarter of 2022. Steel Pressure Pipe gross profit decreased 6.8% in the quarter to $11.2 million or 14.9% of segment sales compared to gross profit of $12 million or 16.6% of segment sales in the fourth quarter of 2022 primarily due to changes in product mix. Precast gross profit decreased 17.8% in the quarter to $8.1 million or 23.2% of precast sales from $9.9 million or 28.5% of segment sales in the fourth quarter of 2022 due to pricing pressures brought on by lower demand, which also resulted in lower cost absorption. The downward pressure we've seen has been concentrated in the commercial construction markets. Our residential precast markets have remained relatively strong despite ongoing macroeconomic headwinds with the current mortgage rate environment and the implications that poses on new housing starts. Selling, general and administrative expenses for the quarter decreased 2% to $10.7 million or 9.7% of sales compared to $10.9 million in the fourth quarter of 2022 or 10.2% of sales. The decrease was primarily driven by $1 million in lower incentive compensation expense partially offset by $0.4 million in higher professional services including system implementation fees. For the full year, our selling, general and administrative expenses increased 6.7% to $43.8 million or 9.9% of consolidated net sales compared to $41 million or 9% of sales in 2022. The increase in SG&A expense was largely due to higher professional fees and system implementation costs coupled with broader inflationary pressures. For the full year of 2024, we estimate our consolidated selling, general and administrative expenses to be in the range of $45 million to $47 million. Depreciation and amortization expense in the fourth quarter of 2023 was $4 million compared to $4.4 million in the year ago quarter. For the full year, company-wise depreciation and amortization expense was $15.8 million compared to $17.1 million in 2022. Given the larger bidding year expected for the Steel Pressure Pipe business and the plan commissioning of our new reinforced concrete pipe plant, I currently expect depreciation and amortization to increase modestly in 2024. Our non-cash incentive compensation expenses were $0.6 million and $1.2 million in the fourth quarters of 2023 and 2022 respectively. And for the full year, non-cash compensation related expense was $3.7 million, which was relatively flat with 2022. For the full year, interest expense increased to $4.9 million compared to $3.6 million in 2022 due to the increase in interest rates, which more than offset the decrease in average daily borrowing seen in 2023. We currently expect interest expense between $5 million and $6 million for full year 2024. Our 2023 income tax expense was $8.2 million, resulting in an effective income tax rate of 28% compared to $10.2 million in 2022 or an effective income tax rate of 24.7%. Our effective income tax came in higher than anticipated due to accrued interest on uncertain income tax positions, state tax rates, and non-deductible permanent differences. We expect our tax rate for 2024 should be within the range of 25% to 27%. Now I will transition to our financial condition. We generated strong cash flows in 2023. For the quarter, net cash provided by operating activities was 9 million, compared to net cash used in operating activities $8 million in the fourth quarter of 2022. For the full year, we generated net cash provided by operating activities of $53.5 million, compared to net cash provided by operating activities of $17.5 million in 2022, primarily due to favorable changes in working capital, which was partially offset by lower profitability. Our capital expenditures for the fourth quarter were $5 million compared to $11 million in the year ago quarter. For the full year, our capital expenditures totaled $18.3 million, compared to $22.8 million in 2022. We anticipate our total cap-ex for the full year of 2024 to be in the range of $19 million to $22 million. As a result, our full year free cash flow totaled $35.2 million, compared to negative free cash flow of $5.3 million in 2022. Looking forward, we anticipate full year 2024 free cash flow to range between $19 million and $25 million. While we expect some pressure on working capital needs for the steel pressure pipe business in the first half of the year, we believe that will reverse in the second half of 2024. Consistent cash flow generation remains a key strategic focus of our business, as evidenced by the addition of our new goal within our 2024 incentive compensation plan and applicable to every member of our management team. Collectively, we view free cash flow as critical to the execution of our growth and shareholder return strategies. As Scott highlighted, through February 2024, we completed $4.4 million in share repurchases, all of which were executed under a 10b5-1 trading plan, and of which $0.8 million of the repurchases occurring in 2023. The average repurchase price paid today was $29.32 per share. As of December 31, 2023, we had $54.5 million of outstanding borrowings on our credit facility, down from $83.7 million as of year end 2022, leaving approximately $69 million in additional borrowing capacity on our credit line. In summary, I'd like to echo Scott's sentiment and that I am proud of our 2023 financial performance achieved in a challenging operating environment, positioned in us well for the year ahead. We are very pleased to have the material weakness remediation project behind us, and I would like to thank the employees that made it possible to accomplish that important objective. The MRP pilot implementation project was another important 2023 accomplishment, and we will continue to seek opportunities to automate our precast business segment systems and thereby optimize our operating performance and market share moving forward. I would also like to take this opportunity to express my sincere -- 2023 and encourage their continued commitment into 2024. Finally, I would like to thank our shareholders for their continued support and confidence in Northwest Pipe. I will now turn it over to the operator to begin the question and answer session.

Thank you. We will now be conducting a question and answer session. [Operator Instructions] Our first question comes from Brent Thielman with D.A. Davidson. Please proceed with your question.

Hey, thanks. Good morning, Scott. Aaron.

Good morning, Brent.

Morning, Brent.

Hey, I guess the first question, Scott, maybe is there any more context than the uptick in bidding or bidding tons in '24 versus '23 as you see it today and is that kind of more front half or back half loaded just as we think about this backlog potentially expanding?

Yes. Like we said, Brent, 2023 was pretty small bidding year and we're seeing a year that in 2024 is somewhere between 40% and 45% higher just in the amount of tons that we expect to bid during the year and a pretty significant portion of that is in the upfront part of the year, which obviously is good for the back part of the year for production levels. So I mean, we're pretty happy about how this is starting to shape up bidding ways this year.

Okay, great. And then, you mentioned that precast margins could remain depressed just given some of the cross currents in the market there. I guess, Scott, is the 20% plus gross margins that you've been generating still sustainable for the business with the conditions you see right now? And then can you just talk about where you think precast margin should be under sort of better market conditions?

Yes. I think the first quarter of the year, which is kind of what we're talking about, we've obviously there's been some pretty significant weather events like almost every other year in the first quarter of the year. And just to give a little bit of example, which is why we're giving a little bit of the trending guidance about things being down a little bit. We've had about eight plant days down in our steel pressure pipe business and about the same in our precast business. So when you're looking at the precast business and we're talking about margins being a little bit compressed, it's really more of a near term thing. We're believing in the first quarter and those margins start to expand a little bit as we get past the first quarter of the year, especially since with the construction market, what we're seeing is that there's, obviously it's relatively flat right now, right? The activity is a little bit muted, but it looks like there's a lot of projects that are in the queue and planning for like, if you listen to the Dodge Momentum Index, there's a lot of stuff in the queue and the expectation with interest rates as we get into the back half of the year as they start to ease and the belief is that those projects are going to go from the planning stage into the breaking ground stage as we get into the back half of the year and the construction market is really going to start to pick up. I think when you're looking at overall margins, Brent, for the precast business, probably in a relatively normal year, you're looking at margins that are probably between probably 20% and 24% depending on your product mix. If they're years like what we saw in 2022 with a tremendous amount of demand, which maybe what we're seeing going forward, I think you could see margins that are 26%, 27%, 28% on an ongoing basis. So it just kind of depends on how everything hits and what the product mix looks like. But we're pretty happy with the way that the margin performance is coming out on the precast side. And what I would say, Brent, is interestingly enough, the margin on the Geneva side, residential, which you would expect to be being hit, the most is actually holding up really, really well. And the Geneva market is holding up really, really well for, for the impact of the interest rates. We're seeing Park being off a little bit more on the non-residential side, specifically on the commercial piece. But again, with what we see in back, or in not in backlog, but in the planning stages on the construction market, we think all that's going to start to come back by middle of the year anyway. So I think it looks pretty good going forward.

Excellent. Maybe just last one. Could you talk about some of the things that you've done, or maybe looking to do to accelerate the M&A strategy, because I mean, the precast strategy is paying dividends here. It's pretty clear on the financials. But I'm just wondering if the company is in a position to potentially accelerate that.

Yes, we've, it really, it really comes down to, Brent, and looking at the M&A market and is it accessible? Is it practical, right? So, accessibility for the M&A market, are there things that are out there? I think one of the things that you run into in a year like this is it's a little bit of a challenging year compared to what we're seeing in 2022. So maybe people that own the businesses or whoever owns the businesses that we're looking at aren't in such a big hurry because maybe the EBITDA generation isn't what it was. So they're waiting to get back to a higher level period. The other piece is what is the practice, the practicality of it, right? For us, I mean, we're pretty cognizant of, and sensitive to what we're trading at. So, if we're seeing things that are out there that are trading at multiples at 9, 10, 11 times, that's a little bit of a deterrent. So we are -- we constantly are looking at things right now and we're actually seeing more things all the time at this point. So I think people are starting to get back into the market. As you know, we're just looking and finding the right one that fits the profile that we're looking for. Good cash flow profile, strong margin performance, all those things and it's just going to be additive and creative to the business. But we constantly look for those things. And at any one time, we're probably looking at two or three different ones. So we're accelerating it just as fast as we can. So sometimes it takes a while.

Yes, I get that, Scott. I think my question was just more around internally, are you sort of building a base of folks that, you know, see the integration of the deals going forward. I mean, obviously, depending on what's out there and what people are asking?

Yes. You kind of hit the nail on the head for what we've been talking about internally because, what we've ended up with is in these past acquisitions, the same people that are doing the day-to-day running of the company are involved in the due diligence and everything on the acquisitions and the integration. So it starts to be kind of a burnout factor a little bit with people internally. So what we've done is we've started to add almost like pieces to a little bit of a SWOT team, we'll call it, that we can have in here working on normal things when the business is just ongoing. But then when we have an acquisition, we will be able to deploy those people to the acquisition and not be taking up the time of the people that are running the company day-to-day. And we're actually just starting that with one of the first pieces in the next couple of weeks that we're bringing in. So we're bringing in a little bit of a -- we're calling a little bit of a SWOT team to be able to handle these things right now, Brent.

Excellent. Really interesting. I'll get back in queue. Thanks, guys.

Okay, great. Thanks, Brent.

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

Thanks. Hey, good morning, Scott and Aaron.

Good morning.

Good morning, Julio.

Hey, Aaron, did I hear you correctly that you said the material weakness remediation is behind the company?

That is correct. We were able to, obviously, a lot of work involved, a lot of functional teams involved. It was the priority project for the year to obviously get that material weakness behind us that was associated. A lot of great work was done to compliment the team enough, also to point out the team members that are external to us. We have an externally procured internal audit function as well as our external audit. All were very successful in the process.

Excellent. Congrats to you guys. As I know that was a big undertaking for you. And then do you expect to get that reflected on the 10-K in terms of a clean audit?

Yes. We'll see that reflected in the K that we filed today. This afternoon, the opinion to be reflective of no material weakness.

Excellent. That's great news. Great to hear. I guess turning to precast, we've heard some industry peers talk about contractor delays impacting the value chain, and particularly on the commercial side, which is where I think you guys also mentioned some pressure as well. Can you just comment on if you've seen the same in terms of contractor delays and any way to quantify the impact to your precast segment in the fourth quarter?

We've only been more on the commercial side, and for us, the commercial side is mostly on the Park side. So we are seeing the Park business being more impacted by that in the fourth quarter, and maybe just a little bit early into the first quarter, just because the amount of production is down because of the interest rate impact. And as a result, overhead absorption is not as good, and it's impacting the margins. So I think the biggest impact that we're seeing right now with some of the commercial delays based on interest rates and owners and builders waiting to see what happens is really slowing the business down at Park and the production levels at Park and impacting the margins there. That's the biggest impact that we're seeing. We're not quite seeing that as much on the residential side for Geneva. Geneva has been surprisingly strong as we've gone through this thing, and quite frankly, they were the ones that we were expecting to see the biggest impact from, and we just haven't seen that impact at this point. It's mostly been the commercial side, mostly Park, mostly under-absorption for lower production levels is what it is.

Got it. That's helpful. And then maybe if you could speak to customer sentiment across the precast segment, particularly as it relates to the expecting interest rates to maybe come down later in the year. I know you talked about you kind of expect 1Q to be down, whether, contractor delays, but expecting a strong overall year for the segment.

Yes. I think the sentiment is there's a lot of people waiting to see what's happening. And ultimately, obviously, that's going to have a lot to do with how the order book looks. And to me, we get a pretty good look at it because those precast customers vote with their order book, right? And what I would say is, we're seeing that the order books start to grow again, not only on the Geneva side, but the Park side is starting to grow again. So I think the expectations from the customers across the board, or by the time we get into the back half of this year, like I said a little bit earlier, a lot of these projects that are right now in the planning stages, whether the commercial or institutional or the residential stuff, are going to go from the planning stages into the breaking ground stages, and then the market starts to really pick up. And that's what we're expecting as we get into the second half of the year. And if you listen to a lot of the stuff that Dodge talks about, specifically on the momentum index and the construction starts, they're really starting to think that we're setting up for a really strong 2025 on the construction site. So I think its back half strength and '24 going into a very strong 2025 is what we're looking at.

Great context, and I'll pass it on. Thanks very much.

Thanks, Julio.

[Operator Instructions] Our next question comes from David Wright with Henry Investment Trust. Please proceed with your question.

Hey, Scott. Hey, Aaron. Good morning.

Hey David, good morning.

Good morning, David.

Hey, congratulations on the good safety results and also a new deck that you posted yesterday. It's pretty good. So congratulations for that.

Thank you.

At the end of the deck, where you started, including the project Scott, I wanted to ask in years past, your project list, they generally had a whole lot of stuff in Texas. And you've just listed Houston surface water program as the only kind of Texas job on your market update. Is this just sort of a condensed list of larger opportunities it's in the deck?

Yes. We just, you know, we're calling out ones that are relatively major programs, David, so that people get an idea of the big stuff that's coming through. But vast majority of projects that we bid on are projects that can be anywhere from a couple hundred tons to 800 to 1000 tons. And the ones that we show you guys on this list are really the ones that are, you know, they could be anywhere from 10 to 25,000 to 50,000 tons, depending on the project, like the Red River Valley water supply project, it's always there. And when you guys hear us talk about these projects, you hear us talking about them in segments too, right? Well, we got this segment and this segment. Well, each segment can be about 5000 tons of pipe and fittings and things like that, but there could be 12 segments. You know what I'm saying? So we just pull out the big ones. The vast majority are much smaller projects that we're bidding on. We do a bid log meeting really every Tuesday morning and go over the projects and probably 10 to 1 smaller projects versus decent size projects. So there's a lot of those out there. There's a lot of bidding that goes on really small projects.

Thanks for that clarification. Hey, for Aaron, the executing on the stock buyback, that's great. The stock is below stated book value. It's $29 every day. Nobody seems to care. And it's good that the company cares and that you're putting the money into it. So I think that's great. In January and February, you bought a total of about 120,000 shares. So that'd be 60,000 shares a month. Is that kind of the cadence to look for over the balance of the year absent any other kind of unexpected capital needs?

Yes. David, we have a 10b5-1 trading plan that takes us up to $10 million of total transactions, at which point we would have to reconsider our capital allocation with our board of directors and think about what we for M&A. But I would say that it up in $10 million, I think that the rate that you've seen in January and February.

Okay. Thank you. You're going in and out there. I don't know if that's your microphone or my speaker. And then, you mentioned, did I get this right, that free cash flow is projected $19 million to $25 million in 2024?

Yes, that's correct.

And that has been added as one of the -- as a new incentive for the executive compensation plan for everyone?

Yes, that's, that's also correct. Scott has worked with his senior team to devise a new short-term incentive plan goal that would be focused on cash flow and cash flow generation. It's not something that we haven't looked at. We look at actually every single week. But he wants to, to get to a place where we all have a little bit more skin in the game and can drive better results for the company.

Right. And is equity generally an increased component of the executive compensation plan over say prior years, kind of to be consistent with the emphasis on share repurchase?

I think if I understand your question correctly, David, there's no change in total, I guess offered to employees. It's just that one piece of the cash bonus element to our senior team has been devoted to this specific goal. In years past, it would have been devoted to departmental or functional goals divided by leadership. But Scott has kind of said, hey, for one of those three goals, I want us to all be aligned and have a uniform objective.

Yes. To me the cash flow thing becomes very important to the valuation of the company, right? So we tie up a lot of cash in our steel pressure pipe business with contract assets and receivables and things like that. And really the thought process is having the focus on mining as much of that cash as possible on an ongoing basis that comes in and everything from prepayments to steel for getting paid for material on hand from the steel pressure pipe business, so that the flow of the business is better than what we've seen. Because what I think it's doing is it's affecting the valuation of the business and the share price going forward because the cash flow component is low enough where it's not adding to anything. So if we can find a way to continue to mine more of those dollars out of the steel pressure pipe business, we're just going to generate better cash flows and I think help the valuation of the company.

Okay. Last question kind of how deep into the employee base does equity participation go?

It goes down into past the senior management into the higher level of the general management structure. It doesn't go all the way down into the business, generally senior management down into the next level, like director level and people like that.

Yes. And so would that be stock options or would that be shares?

No. When you're looking at the equities piece, it shares. We have restricted shares, which is a small piece and then performance shares, which is a larger piece. Restricted shares make up 25% of the total and performance shares based on our EBITDA generation and percentage EBITDA generation makes up the rest.

Okay. Thanks, great. It goes down to that level and best of luck for 2024.

Thanks, David.

There are no further questions at this time. I would now like to turn the call back over to Scott for closing comments.

So, really appreciate everybody joining us today. And obviously, we're coming through a, a period here where we've had some headwinds, the small bidding environment and steel pressure pipe and the pressure with interest rates on the precast business. And even with those headwinds and like we said in the press release, we think we've kind of gotten to a different level of resiliency with this business through these cycles and not as far ups and downs. And we think we're heading into a pretty good 2024 and beyond. So obviously we're looking forward to continuing to grow the business on the precast side and just continuing to add more value for the shareholders. So we appreciate everything that you guys do and listen to with us and let's just keep this thing going.