NWPX - NASDAQ

Greetings, and welcome to the NWPX Infrastructure Third Quarter 2025 Earnings Call. [Operator Instructions] 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 29, 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 the year ended December 31, 2024, 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'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 and 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 the $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 embodied carbon and overall product life cycle impacts and help us meet by 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 and 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 in 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 nonresidential 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. Free cash gross profit totaled $10 million, down modestly from both second quarter and the third quarter of 2024, with gross margins that were flat with the prior quarter. Margins were temporarily impacted by mix 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 nonresidential demand continues to build. Momentum within the nonresidential 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 continued to advance our Precast product spread strategy across multiple levels. First, optimizing capacity at our park plans 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, and 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 Systems 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 onetime $22 million noncash 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 Systems 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 of precast and 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. Precast 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 nondeductible 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. The full year 2025, we continue to expect CapEx in the range of $19 million 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 $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 million 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. I'll now turn it over to the operator to begin the question-and-answer session.

[Operator Instructions] The first question comes from Julio Romero with Sidoti & Company.

I wanted to start on the Water Transmission Systems segment. Really impressive to see a [ two-handle ] in front of the segment margin there, obviously, strong execution in the quarter by you and your team. One item you called out was stronger-than-anticipated customer shipping requirements in the quarter. I was hoping you could dive into that a little bit and expand on that and how much of a driver that in particular, was in the quarter?

Yes, I think that was a really big driver of the quarter, Julio. The production levels were strong in the quarter. So we had good absorption levels in the quarter, and we had increased fab work. But the level of shipments that we saw throughout the quarter were pretty significant because just to give you an example, at our Adelanto, California plant, we shipped 421 loads in September alone. And then in Saginaw, our plant in Saginaw, we shipped 272 loads alone. So it was really interesting because when we -- when the numbers came out and it was actually over $100 million at first blush, you start to look at, "Oh man. Maybe it's getting caught up in current assets". But if you look at what's happened to our current assets, really since last year at this time, our AR was up like almost $20 million versus where it was in the second quarter and about $19 million from where it was in the third quarter of '24, which means stuff is being shipped build to the customer. And I think even more importantly, the contract assets, which is when we produce and recognize revenue on something before it's shipped, those numbers versus the second quarter were down $6 million and versus the third quarter of '24, they were down $24 million. So all that stuff moved in the right way, which shows production was good, really the shipments outpaced what the production level was in the quarter, which was really a driver for it. So it increased the revenue, and increased freight revenue that we got and the absorption numbers were fantastic. So that's really the story of the quarter for Water Transmission.

Very helpful there. And you mentioned you expect backlog levels will remain above $300 million through year-end, and that implies pretty significant order acceleration here in the fourth quarter. Can you maybe talk about the drivers of that implied order acceleration? And secondly, what kind of margin profile is anticipated for those orders?

Yes. What I would tell you is, right now, looking at the bidding schedule, we have somewhere in the area of about $200 million worth of work bidding in the fourth quarter. And just to give you a little bit of a perspective on that, we have in the schedule right now, and this is on a tonnage perspective, 60,000 tons worth of projects that are scheduled to bid in the next six weeks. So those are projects like Red River, IPL, there's a reliner project in California. There's projects from Oklahoma City that are scheduled to bid in the next six weeks. So it's a very, very strong bidding quarter. And what you'll really see, Julio, is those bids and those jobs is those are one and put into the backlog, which will keep the backlog above 300 and likely improve it as we go through the end of the quarter. Those projects will be done in 2026. So really, what it's doing is setting us up for a very strong entry into 2026 with those things bidding.

Yes, that's fascinating. I mean Red River is something you've talked about for a long time now for several years, if I'm not mistaken. So to see that bidding in the fourth, is that correct or?

Yes. There is apparently -- in each one of the states is a little bit different, but there's some spending that has to happen. There are actually three large segments of Red River bidding in that time frame, in the fourth quarter. I don't know if they're all within that 6-week period, but they're all bidding and scheduled to bid in the fourth quarter. There's also a segment of IPL that's scheduled to bid in the fourth quarter, which you heard us talking about 10 years ago, which is another extension of that program. So it -- the fourth quarter is going to be a pretty interesting bidding quarter for us. And like we said in the script, it should really work to enhance backlog as we travel through the quarter.

The next question comes from Ted Jackson with Northland Securities.

All I can say is, wow, what an amazing quarter, wow. I'm going back into water transmission or SPP. I mean you've got tonnage up 14%. I mean, you just had a blowout quarter with it. Can you just talk a bit about kind of the utilization rates that you had across your facilities and kind of like what -- where are you with that? And is there -- I mean, the fact that you could do something like this in the right environment, I mean, you could repeat this. I'm just kind of curious like what are some of the metrics you had...

Yes. For -- I think -- just before I talk about the metrics, I think that these kind of quarters are definitely more possible as we go forward, as Aaron said in his script, it's not a new level that we're getting to. But I think that when you look at a good water transmission quarterly revenue rate, you're looking at something that's between $80 million and $90 million. That's a good quarterly rate, probably more like $82 million to $85 million. But these kind of things can happen. When you look at the utilization that we ran across our facilities in the third quarter, I would call it somewhere in the high 60s to about 70% utilization because we did have a couple of cases in the quarter where there was enough shipment requirement demands from our customers that we actually had to do a little bit of second shift work because normally, our water transmission systems plants are really run on one shift. So I would call it high 60s to low 70s when I looked at it over the last couple of days. And we have a lot more that we can do. And if demand follows it, we can staff up and continue to produce more and more because we're really doing this on one shift at each one of the plants.

With a 14% rise in tonnage, I mean -- and clearly, very robust bookings world. The businesses out there, the competitors that you have, you're not -- you don't have to fight on price for volume. How much of that -- like, is there an opportunity for you to see better than maybe -- let's take this quarter out, but better than historic margins, given kind of the macro environment you're in right now? Or how is the competition for the use of your facilities these days? I mean how does it compare to...

I think it's pretty stable with the competitive landscape. I think when you look at backlogs across the industry, it appears that everybody's backlog is up a bit. And that's always a recipe for better margins as you move forward. So when you start looking at better than historical margins, we have a market right now that's a good market, right? And I don't want to get too much into the IIJA stuff in front of this. But we have a good market right now, and it's not a blowout market, but it's a good market. And right now, the competitive landscape fits the size of the market very well. Bids are competitive. You've got to continue to work on cost to drive your costs down in the plants, and we do that with lean manufacturing programs and things of that nature and setting metrics in each one of the plants. But I think the landscape is good. It's still very competitive on some bids. We have some bids in the fourth quarter that we expect to be very competitive bids. When you start getting up over -- and we're right now still, Ted, in the demand level that's probably about 140,000 to 145,000 tonnes. It might inch up a little bit above that with what's going on in the fourth quarter, and that's just a pretty good quarter. If you get a quarter that -- or excuse me, demand that's for a year. If you get a year that's over 200,000 tons, I do think that's the point where you can start seeing those margins that are larger than what we've seen historically. Now I started talking about the IIJA a little bit before that, and you probably have other questions on that. But the thought of the IIJA has originally been, "Hey, this is going to cause a substantial spike in the markets for the water transmission systems business as we move forward during some period". But I think that the funding is trickling out relatively slow. And of the $50 billion -- EPA has about $43 million or $44 million, The Bureau of Rec has probably about $8 million, only about $20 million of it has been obligated by the EPA and the Bureau of Rec has about $5 million, $6 million. So only about half of the funds have been obligated at this point. The other thing to note that the funds that have been dispersed is only about $8 billion. So it's not a high percentage of what's out there at this point. So the feeling is, instead of seeing a big spike in the water transmission systems market, what you're going to see is that, that market, like we're seeing right now, maybe a little bit of inch up in the market, extend further out into the future. And for -- as we look at that, we think that's better for the business because normally when you have a big spike, you have a big fall and then the business falls off for a period of time. This level of marketplace as we look out to '26, '27, 928 is a better scenario for the water transmission business over that period of time. And I think it will allow for a stable business, higher stabilized margins and improved performance as we go forward related to cost reductions that we're doing in the plants.

Okay. I got two more topics and I'll get out of line, too. Just quickly over on to the precast side of the house. I mean, a nice revenue number. I was a little surprised on the margin given that my understanding has been that if the Park business is turning around, then that's typically been a better margin -- set of products for you all. I mean, so maybe you could just unpack that a little bit for me. Is that just because you had some underutilization at Geneva or is my memory on that incorrect? Just kind of curious as to on the market side...

Yes. No, I think you're right, I think the Geneva business is still very strong. It's very strong. But we're now up and fully running the Exact 2500, which is the RCP Manhole machine. So we've got increased depreciation that started associated with that in the building. So that's had a little bit of an impact on the margin at the Geneva business in the quarter. We expect, as we get the exact 2,500 up to the production levels that we want that we'll be adding a second shift to that, that we're working on, which will further enhance the market or the margins. And the old transmatic that we have at Geneva, we'll be able to shut that down and not have to be running that. So that will reduce cost and enhance the margins. So we expect the Geneva margins to start coming back up in the fourth quarter to a more normalized rate. On the Parks side, what I would tell you is the Park margins now are up probably a few hundred basis points from where they were from the beginning of the year. So that is definitely traveling in the right direction and really being driven by, I think, owners and developers are taking into account that the interest rate is going to fall over a period of time. So they're pushing projects into planning in design right now, which is going to continue to build that business over the next 12 months to 18 months. So we think we'll start to see the Park margins probably start to normalize in the next couple of quarters. But the Park margins have really come up by about 300 or maybe even a little bit more than 300 basis points since the beginning of the year. It's really the Geneva fall off with the increased depreciation, the double running of the equipment in the quarter until we get it shut down and then getting the Exact 2,500 up and getting it on to a second shift that impacted the third quarter for Geneva, and we see that coming back in the fourth quarter and the margin starting to return to normal. So it's just a timing thing, Ted.

Okay. And then my last one is implicit in the guidance that Aaron put forth is that being said, fourth quarter SG&A would be about $13 million. And if you're going to hit your -- when you say $52 million for the year, how would we think about your that expense? I mean I know you're not talking '26, but would we expect a similar run rate for '26, $52 million, $53 million. I mean, just given kind of how those expenses have kind of scaled up during the last fiscal year?

Yes, I would tell you that we always think about it first maybe as kind of a normal sort of inflationary adjustment when we start to model our SG&A for our budgeting process. But the other thing I would tell you is that we internally are pretty devoted to looking at our costs, especially at some of the support centers and the sales cost centers to really try to drive in on the value creation that they're supporting, right? So we're looking at places where potentially some zero basis budgeting where we can potentially look at things that we can scale away. So I think we're going to be having some opportunities to kind of maybe cut modestly kind of from that level up for inflation starting point. I think that's kind of where we'll kind of go with things. Now obviously, if you have things like any sort of M&A or anything like that, that kind of blows everything I just said out of the water. But the other thing that we've really been impacted by in this year has been the bonus expense, too. So that's obviously -- since that's incentive compensation, that's really subjective to the level of profitability of the company to achieve.

Yes. That's not a bad expense.

And that's what does have us elevated this quarter, particularly on what I expect to be something that elevates us in the fourth quarter as well.

Just a little bit of an add on to that. When you think about SG&A expense, my view when we look at that is that our operating margin should be 10% or above. And we're not quite there yet. So we've got some pretty hard looks going, like Aaron said, on SG&A. We've implemented some zero-based budgeting this year to really kind of hone in on that because the idea is to get those operating margins above 10% on an annual basis, not just for a quarterly basis, but to have that sustained 10% or better for the year.

The next question comes from Jean Veliz with D.A. Davidson.

Just looking at precast, can you talk about your ability to push pricing right now as some of the cost inputs begin to ease? And a second part of the question -- go ahead.

No. Let me answer the first one because, Jean, I won't remember the second part by the time I get to the end of the first. Yes, we've been successful in pushing pricing increases at both sides of the precast business recently at the Park side, and that's really driven by, I think, the improvement that we're seeing in the nonresidential side of the business. We're seeing that in our revenue at Park. We're also seeing it in the volumes that we're getting. And it's really supported by what we're seeing in the Dodge Momentum Index. So that's moving in the right direction. And on the Geneva side, for that business still is standing strong. It had a record year last year. It's very likely heading toward another record year this year and price increases are being pushed forward in that. So we are successfully pushing them forward. And we -- as you mentioned, we are seeing the material costs, the cement, the small rock, the large rock, the aggregate piece, all those to the sand, all those kind of flattening out and stabilizing a little bit versus what we've seen over the last couple of years. So what was the second part? Sorry, I interrupted you during the first part.

No problem. Thanks for giving us that color. Yes. So just given what you said, I was wondering what the -- what kind of volume posing your expectations versus pricing?

Say that one more time? You cut out for a second.

No problem. I was just wondering about how does the volume play into the growth of both these businesses over the next 12 months. Does it make sense?

Yes. I think you'll see a growing volume in the Park side of the business. And that's simply is related to the nonresidential piece. I also think you'll see a volume in the Geneva business that is continuing to inch its way up, and we're starting to do a little bit more nonresidential work at the Geneva plant site. So that will improve the volume next few quarters. And really, I think that by the time we start getting into mid-next year beyond that the Geneva facility is probably going to be on close to $100 million annualized rate, and Park will be a little bit behind that. But running toward that probably maybe more toward the first quarter of 2027. But the -- both of those businesses are expected to improve throughout '26 based on the numbers that we're looking at preliminarily in the plan.

Between volume and pricing, what has been a better driver over the next 12 months?

I think probably the volume and the absorption, the higher levels of absorption and the volume will be a little bit more of an impact on what the pricing is.

And just one last one for me in the water transmission. Can you just talk about a little bit of more going into next year about your backlog, specifically, just trying to understand more about the sustainability? Or how should we think about what the high watermark is starting in Q1 and through the next year?

For backlog specifically?

Yes. And then just probably add a little bit about the revenue cadence as well.

Yes. And I think the backlog is based on the amount of bidding that we have going on in the fourth quarter, we have the expectation that there'll be some wins in that bidding for us and that our backlog is going to continue to inch up through year-end. That's what we anticipate at this point. So we're going to end up pretty strong with backlog going into the first quarter of 2026. As far as revenue for the Water Transmission Systems business, you -- when you look at revenue numbers, for that business, good revenue numbers are somewhere between $80 million and $90 million. At the beginning of the year, generally, you're ending up with revenue numbers because you're coming through some quarters in the first quarter, that's also affected by weather. You're probably something closer in the low 80s in the first quarter. As you climb up to the second and third quarters like we've seen over the last couple of years, you end up something within -- that's more like $85 million up to close to $90 million. And then in the fourth quarter, you're getting down to something that's probably more like mid-80s to low 80s. That's how you can think the revenue on a normalized basis with the water transmission business as it sits right now. But I will say, I think that there's potential now and again, to get a quarter. And when you look at the quarters over the last couple of years, last third quarter, I believe, was the record at that point before the second quarter of this year, which is what I think became the record quarter for us and obviously driven by both water transmission and precast until the first quarter of -- or the third quarter of this year, which became the record. So the second and the third quarters are generally the big ones for both sides of the business, Jean.

We have a follow-up from Julio Romero with Sidoti.

Thanks for taking a couple of follow-ups here. My first one is just on the state of Texas has Proposition 4 on the ballot next week and that dedicates I think, $20 billion towards water infrastructure over the next 20 years with dedicated state taxes. Would your company -- would NWPX benefit from that? And if so, which parts of the portfolio would benefit?

It's definitely on -- for water infrastructure, it's the water transmission systems side, right? The state of Texas, what I would say about the state of Texas is they're not waiting on IIJA funding, okay? They create their own funding. They had the Texas SWIFT program going 10 or 12 years ago, which is the State Water Implementation Fund for Texas. And now they're driving this Proposition 4 forward. So that will certainly have some funding for projects that are water transmission systems projects going forward. In fact, I think the legislation in Texas, even before the vote on this because this has to be voted on here in November, by the citizens. I think the legislation has about $2.5 billion already teed up to go into the Texas Water Development funding to start funding some of these projects. So we will benefit on the water transmission side from these funding mechanisms in Texas, just like we have over the last probably 15 or 20 years, from the SWIFT program for -- you have Lake Texoma, you had IPL and all these different projects. And quite frankly, which is why the state of Texas is always one of the biggest markets for water transmission systems. So it's going to be a good thing.

Very helpful there. And then earlier, you touched on the cash flow benefit from water transmission systems in the quarter. Can you maybe just talk about the sustainability of those cash flow dynamics going into '26 and beyond?

Yes, I think that it's kind of a new way of approaching the business our -- the guys on the water transmission. I mean everybody on the precast side and the water transmission side has done a great job getting cash in. And obviously, the water transmission systems business years ago tied up a lot of cash in current assets, right? Well, what we've done is we put a focus by putting part of the senior level variable compensation based on cash flow, there's a big focus on that and getting progress payments for projects that we're doing, getting paid for steel upfront and things of that nature. So we think the sustainability of that is great as we go forward in the future. We would like to have a target always that our cash flow is similar to what our EPS is, which I think is a good level to have that at. And we're always going to be doing that because really the water transmission systems business has kind of turned into a cash flow machine at this point, and it's really helping drive the growth platform for the company. So that's what's doing it. Material on hand or material on hand payments, prepayments, progress payments, all those things are now happening on the water transmission systems business, something that didn't happen 5 years ago.

Julio, I would say that for your benefit, the water transmission site, cash cycle was something that we had seen kind of usually getting pretty elevated during our busy quarters, see something like Q2, Q3 of those quarters, we'd see a spike because we were basically working the job as opposed to thinking and being very thoughtful of the related working capital management. I would say over the last four quarters, we've been excellent now. We have not seen a spike at all. In fact, our -- we've seen exactly the opposite. We started basically the middle of last year, and what we thought was a very good level of working capital days for the WTS segment, just below 190. And since then, we've seen it decrease down to about 165 days. So on your sustainability part, I mean, I think it's something that is a mindset that Scott has mentioned earlier that has really changed something that he's really pushed through the business and something we talk about which I think it's very sustainable. And I'm actually excited to say that because if he asked me two or three years ago, it was probably more than quite a bane on my existence to be honest with you.

At this time, I would like to turn the call back over to Mr. Scott Montross for closing comments.

Yes. Again, I'd like to thank everybody for joining us today, and we're pretty pleased with the operational execution that we've had in what we consider to be a fairly dynamic environment in 2025. I think really affirms the strategic choices we've made over the last several years and starts to highlight the strength and the resilience of our evolving business model. And I think we just talked about a little bit with Julio. The execution continues to drive growth and free cash flow, particularly in the water transmission systems business, which for many years, tied up a bunch of cash. And like I just said, it's the water transmission systems business has really become a cash flow generating machine. As we look ahead, as we talked about, the bidding activity for water transmission is really strong for the rest of 2026. We think we're going to have very strong backlog momentum building and positioning for positioning to us to go into 2026, very strong. In the precast business, nonresidential side is continuing to gain traction and the Geneva on the residential side remains strong. In closing, we're still committed to, number one, workforce safety. That's the #1 thing that we do. Margin expansion and executing our strategic growth initiatives to create long-term value for our shareholders. I'd just like to thank everybody again for your time and continued support, and we look forward to speaking with you again on the fourth quarter call in the February time frame. So thank you.