Scott Montross – President and Chief Executive Officer Robin Gantt – Chief Financial Officer.

Brent Thielman – D.A. Davidson & Co.

Welcome, and thank you for standing by. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at this time. May I introduce your speaker for today, Scott Montross. Please go ahead..

Thank you, Ed. Good morning, and welcome to Northwest Pipe’s conference call. My name is Scott Montross, and I’m President and CEO of the company. And I’m joined by Robin Gantt, our Chief Financial Officer.

As we begin, I would like to remind everyone that statements we make in this call about our expectations for the future are forward-looking statements and actual results could differ materially.

Please refer to our most recent SEC filing on form 10-K for a discussion of risk factors that could cause actual results to differ materially from expectations. I will now turn to Robin, who will discuss our first quarter results..

Thank you, Scott. Our first quarter loss from continuing operations was $2 million or $0.20 per diluted share compared to a loss from continuing operations of $3.5 million or $0.37 per diluted share in the first quarter of 2017. Sales increased slightly to $33.4 million in the first quarter of 2018 from $29.7 million in the first quarter of 2017.

Water Transmission gross profit as a percent of sales was 4% in the first quarter of 2018 compared to 4.2% in the first quarter of 2017. The mix of jobs produced in the first quarter of 2018 led to the minor difference in gross margin.

Selling, general and administrative costs decreased to $3.4 million in the first quarter of 2018 from $3.8 million in the first quarter of 2017. This decrease was due to lower employee compensation cost. We expect that our selling, general and administrative costs will be around $15 million in 2018.

We had an income tax benefit rate of 12.2% in the first quarter of 2018 compared to an income tax benefit rate of 4.4% in the first quarter of 2017. We had a tax windfall from share-based compensation in the first quarter of 2018. In the first quarter 2017, we had an excess tax efficiencies from share-based compensation.

Additionally, in the fourth quarter and in the first quarter of 2017, our net operating losses were subject to evaluation allowance, which impacted the rate. In the first quarter of 2018, the company had a net outflow of cash from operations of $2.3 million.

Depreciation was $1.5 million in the first quarter of 2018, and $1.7 million in the first quarter of 2017. Capital expenditures through the first quarter were $744,000, which were for ongoing maintenance. We have planned about $8 million in total capital expenditures for 2018, most of which fall under maintenance capital spending.

We had restructuring charges related to the Monterrey and Salt Lake City shutdown of $305,000 for severance and demobilization. We expect to incur an additional $800,000 for these activities in 2018. Now I’ll turn it over to Scott for an update on our business..

one, improving the performance of our existing business by focusing on margin over volume; two, driving cost reductions and efficiencies in all levels of the company; three, monetizing the remaining nonstrategic assets in Houston and Monterrey; and four, finding strategic growth opportunities for our water infrastructure business.

At this time, we’d be happy to answer any of your questions..

[Operator Instructions] And we do have our first question. And our first question is from Brent..

Thanks, good morning Scott and Robin..

Good morning, Brent..

Good morning, Brent..

Scott, with pipeline, you always worry about schedule sliding a bit.

I get that this influx of work that you’re looking to bid in 3Q, do this schedule feel pretty solidified to you at this point, I mean, is the robust concern that the ones you’re most focused on could shift right, and maybe some reasons, why?.

I think, it – obviously, that’s always a concern, but we are starting to get relatively close to these bidding dates on the two major projects that are out there. And certainly, as we discussed on Lower Bois d'Arc, I mean, they have funding and permitting in place, and they may have already left the dam portion of the project.

So in our discussions with the people involved with the job, that certainly looks like it’s moving forward at the present time. I think it’s the same thing with Atoka, Atoka was originally supposed to be bidding in the 2017 fourth quarter – third and fourth quarter timeframe. But that seems to be sticking right where it is at the present time.

And with all indications from the owner that, that thing is going forward. We always get concerned about, obviously, things like debt sliding, but what we’re seeing is, these projects are sticking in those days right now, and not being announced that they’re moving out.

So, it certainly looks like those projects are moving forward on the large project side. When you look at other stuff, I think the things that are going on in the west are very interesting. And it’s not just California now, we’re seeing additional work in certain parts of Colorado.

We’re seeing work in Arizona, bidding in – so certainly, if we look at the western market, the way it’s coming out this year it’s – those jobs are sticking in and bidding as we go through time, and we’ve seen a relatively small western market for the last few years. And this year, the western market alone is looking like it’s over 60,000 tons.

So right now, Brent, it certainly looks very positive with the way that these projects are lining up. And the way that these things are going, and I think that even with the big projects, the – it looks like you’re going to see certain amount of bidding taking place in 2017 and certain amount in 2018. So the schedules are starting to solidify.

For example, on Lower Bois d'Arc, our latest information says, well, it looks like about 37,000 tons or so of that project is going to be bidding in 2018, and the rest is likely at the beginning of 2019, really, early, first quarter to mid first quarter.

So they’ve got – the schedules are starting to solidify at this point, which definitely gives us a lot more optimism that these things are going to happen this year. I think that when we look at this year, and the way it’s lining up.

Obviously, we said in the script that we saw a really slow bidding in the late fourth quarter, really through almost the whole first quarter, except for late March, right. On the last earnings call, we expected that. Now we got into the first quarter of the year and some things slid out a little bit, but it’s – these jobs aren’t dissolving.

They are just moving to dates, whether it’s permitting issues or engineering items. And they’re trying to get these things in the queue, so these things can get done. So I think it’s looking pretty positive right now Brent..

Okay..

A lot more – I would say, probably, a lot more positive, then we’ve been about some of the jobs that we’ve looked at in the past, right. You see these jobs and say, you know they’re saying, it’s bidding then, but there is – and this is what they’re saying. So that’s what we have to go to. So there’s always a thought that it can slide.

But these are looking pretty positive. Not saying that it can’t slide, but they’re certainly looking more positive at the present time..

And Scott, maybe after those comments, when you look at the total market opportunity over the next year, 2 years in terms of tons.

Is it, I guess, one, when you, particularly, related to last cycle, is it more dominated by large programs or less? And maybe, as that opportunity is potentially growing, are you seeing more smaller jobs showing up?.

Well, we are seeing more smaller jobs showing up and more middle-sized jobs showing up. Now I think the California reline job, you’re getting 2 or 3 of those bidding a year, and that’s totaling 8,000 to 10,000 tons, in some cases, even little bit more.

I think the one thing when you look back to when we had relatively large markets like 2011, 2012, probably early 2013. One of the overriding factors on those markets were that there were multiple large programs going on at once.

If you think back it is and you probably remember some of the names like Texoma, Southern Delivery, Provo Canal, you had multiple large projects going on.

What we saw going through the – really through late 2014, and through quite frankly, most of 2017, is there was only really 1 major program going on that was significant steel program and that was the – it is case with IPL. Okay, so it was cut up in several different segments.

Now what we have is, we have a situation where the Houston project is ongoing over a several year period, right. We look at that now and say, well, it looks like the total project is about 90,000 tons, but some of the segments are 2,000 or 3,000 tons, some of them are 5,000 or 6,000 tons.

So that goes on, over – a several year period, at least a few year period. When you look at Atoka, that’s likely over a 5-year period, that 60-some-thousand tons is going to spread over a 5-year period, and Bois d'Arc certainly, goes out over a couple of year period.

So we are again in a situation, where we have multiple projects going on that are starting to prop up the market. And I think when we’ve seen bigger markets before, we’ve had those multiple projects going on. So I think that’s a good indicator that all these things are heading in the right direction in this marketplace..

Okay. And Scott, for better or worse, you’re the only public player in this market. So we can see the financials.

I guess, I’m curious, over the last few quarters or however you want to look at it, as you enter this kind of potentially really robust bidding period, I mean, do you expect to see the usual players in the market chasing after them? Or are you sort of taking a step back from the market and waiting for this larger project work to show up? I’m just kind of curious what that competitive landscape might look like, or if at all it changes, you kind of go after some of these big jobs?.

Well, I mean, I think, it’s – Brent, the competitive landscape is stabilized. I mean, I think, what you can say is that there is – we’re a couple of players that were nontraditional players that no longer participating in this segment of the market, which is kind of allowing things to start to normalize. I mean, every job is impounded.

And the really – the big key behind markets and – really raising prices and improving margins is the development of a industry-wide backlog, which if you look over the last 2 to 3 years, anyway, because like you said, we’re the only one that’s public. You can see those backlogs have been pretty low on our side.

And I think that, for the most part, they are representative of what the industry-wide backlogs look like. When these backlogs and these projects that are bidding now start to pick up, those backlogs improve. Every job gets less pressure because the industry players have bigger backlogs.

And I think, with what’s going on in the market because we are certainly seeing pricing improve, not only because of the increase in steel prices, which have been relatively dramatic over the last few months.

But also, with the stability of the bidding environment, I think that competitive landscape, the way it looks right now, it’s kind of normalized to what we were seeing really back in mid-2014 and before. So it certainly sets up like it’s – It’s very stable as we go forward. We expect the normal traditional players to take place in the bidding.

But again, as backlogs improve and prices increase because of improved backlogs, just like it does in any business like the steel business. I think certainly, everything heads in the right direction. Hopefully, that’s kind of a long-winded answer on this, and I don’t know if I got to the root of your question, but.

No, I think, I get it.

Maybe a shorter term question just with the moving steel prices, maybe just by somewhat luck, even the industry is a little bit slower right now and there is a lot of business to do, should we think there is some – maybe some margin pressure and as a consequence steel moving up or do you think you can kind of hold these gross margin levels in the next quarter?.

You always worry about that when things are moving up. Certainly, when you have a competitive landscape like we saw really prior to – probably early 2017, you would worry about that. I think the landscape has changed a little bit.

And certainly, we’ve seen pricing levels, especially, as we’re booking out in – first up in the third and fourth quarters projects, moving up with steel, and certainly, getting pass through.

I don’t think you can really see much of those kind of price increases in the first quarter because you’re still dealing with stuff from what was really done late last year, and steel prices have really increased a lot.

I mean, you’re looking at coil prices that where mid-600s or so, up to coil prices that mid-900s, and maybe a little bit beyond at this point. And because the bidding was so slow, you really don’t see it in the second quarter. I think, where that starts to become more evident is, the third and the fourth quarters.

When we went through the fourth quarter of 2014, and – or excuse me, the fourth quarter of 2017, and then the first quarter of 2018, we really didn’t see much bidding at all, in that period of time.

It was really just the latter part of March, where all of a sudden, we put someplace in the area of $25-or-so million dollars into our backlog, which allowed us to end the back – the quarter pretty much where we were in previous quarters. Otherwise, it was – it was pretty small a backlog.

But certainly, those things have started, what I would say about that bidding. It’s a little choppy, as we go through the month of May. Later in May, it really starts to pick up with not the big projects, but a lot of smaller and what I’ll call medium-size projects. And then, we get toward the bigger ones as we get into the third quarter.

So I think, there is a lot of stuff going on there. But it’s certainly headed in the right direction..

Okay. Sounds good. Sounds like the calm before the storm. So looking forward to.

Yes, we are pushing that hard..

Correct, thanks..

We show no questions at this time. [Operator Instructions] We show no questions at this time..

Okay. Thank you, everybody, for attending the call. And we will see you, I guess, in.

Early August..

Early August. So thank you very much, and obviously, we’re here thinking that we are going to be looking at some different things going on as we’re moving forward. So thanks, again, and goodbye..

That concludes today’s conference. Thank you for your participation. You may now disconnect..