Welcome and thank you for standing by. At this time, all participants are in a listen-only mode until the question-and-answer session of today’s conference. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at this point. I will now turn the meeting over to your host Scott Montross. You may now begin..

Thank you, Patrick. Good morning, and welcome to Northwest Pipe's conference call. My name is Scott Montross, and I am President and CEO of the company. I'm joined by Robin Gantt, our Chief Financial Officer; and Aaron Wilkins, our Vice President of Finance & Corporate Controller.

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 fourth quarter and full year results..

Thank you, Scott. Our adjusted fourth quarter net income was $12.1 million or $1.23 per diluted share compared to an adjusted net income of $2.6 million or $0.27 per diluted share in the fourth quarter of 2018. Sales were $72.2 million in the fourth quarter of 2019, compared to $57.5 million in the fourth quarter of 2018.

Gross profit as a percent of sales was 23.4% in the fourth quarter of 2019, compared to 11.8% in the fourth quarter of 2018. The sales increase was due to a significant increase in tons produced partially offset by a decrease in selling prices per tons that occurred with a change in product mix.

Gross profit and gross profit as a percentage of sales improved with the increases in production volume. In addition, we received $1.3 million in insurance proceeds net of the expenses incurred in the fourth quarter related to the fire at our Saginaw facility.

If we exclude the benefit of these proceeds, our gross profit as a percent of sales would have been 21.6%, which is the best quarter since 2013. We have about $1.6 million in net costs remaining for reimbursements from the Saginaw fire. We are working with the insurance company on receiving the remaining recovery.

As we mentioned in our third quarter call, Saginaw was fully operational in October. Selling, general and administrative costs increased to $4.6 million in the fourth quarter of 2019 from $4.1 million in the fourth quarter of 2018. This increase was primarily due to increase incentive compensation expense, with the increase in profitability.

Moving on to the full year results, our net income was $27.9 million or $2.85 per diluted share, compared to $20.3 million or $2.09 per diluted share in 2018.

We did have several one-time adjustments in 2019 and 2018 that impacted results including the bargain purchase gain, gains on the sale of Houston in Monterey, acquisition related costs, restructuring expenses, and illegal settlement.

When we adjust the results for these one-time items net of tax, our adjusted net income was $26.7 million or $2.73 per diluted share in 2019 compared to an adjusted net loss of $1.7 million or $0.18 per diluted share in 2018. Sales increased to $279.3 million in 2019 from $172.1 million in 2018.

Gross profit as a percent of sales was 16.9% in 2019, compared to 7% in 2018. The Ameron acquisition added about $55 million in sales. Remaining increase was due to an increase in tons produced with the increase in demand partially offset by a decrease in selling prices per ton, which was due to product mix.

Gross profit as a percent of sales improved with the increases in volume. Selling, general and administrative costs increased to $18.5 million in 2019 from $16.7 million in 2018. This decrease was due to higher incentive compensation costs in 2019 with the return to profitability, partially offset by a decrease in acquisition related costs.

We had about $2.6 million in acquisition related costs in 2018 with the acquisition of Ameron, and about $600,000 in 2019, the latest to the acquisition of Geneva Pipe and Precast in early 2020. We have an income tax rate of 14.5% in 2019, compared to an income tax benefit rate of 19.1% in 2018.

Our 2019 rate was impacted by the changes in the valuation allowance. In 2019, the company provided $42.9 million in cash for continuing operations. Depreciation and amortizations were $12.7 million in 2019 and $9.3 million in 2018.

Capital expenditures were $8.6 million in 2019, which were for ongoing capital maintenance and replacement building and equipment in Saginaw. We have about $14 million to $15 million in total capital expenditures for 2020 which is for ongoing maintenance capital spending.

Before I turn it over to Scott, I would like to say thank you and farewell to everyone I have met in the investor community. As we announced in October, this is my final conference call before I leave as planned at the end of the month. I will be moving on to new adventures, and I am very confident that I am leaving the company in good hands.

It has been an honor to work at Northwest Pipe. And I will miss the conversations with many of you over the twists and turns in the water business. Thank you very much for your kindness over the years. Now I'll turn it over to Scott for an update on our business..

As we discussed during our last call on February 3, when we announced the acquisition of Geneva Pipe and Precast, we have two parts to our growth strategy.

First, to maximize our core steel pressure pipe water transmission business by continuing to focus on cost reductions in lean manufacturing, and by pursuing limited but known growth opportunities ultimately leading us to our acquisition of the Ameron Water Transmission Group, in July of 2018, which was immediately accretive to the company's financial results.

We now have approximately 50% of the steel pressure pipe market, which is generally a $450 million to $600 million market with fairly limited expansion and acquisition opportunities, which is why there's a second part to our growth strategy which is to grow in an adjacent water segment, having superior growth opportunities, strong margin characteristics and a better cash flow profile.

We chose the Precast concrete market, which led to our recent acquisition of Geneva Pipe and Precast.

The acquisition of Geneva Pipe and Precast diversifies our product offering and opens avenues for growth by significantly expanding our available market, adding innovative products that are expected to provide organic growth opportunities, and creating opportunities for expansion and acquisitions.

As of December 31, 2019, our backlog for the Northwest Pipe legacy business was a year end record of $258 million compared to $270 million at the end of the third quarter, and $252 million at the end of the fourth quarter of 2018.

The strong demand levels, elevated backlog and stable competitive landscape that we experienced throughout 2019 led to a fourth quarter that had the highest gross margin since 2013, and a full year that had revenue and gross profit that was close to historical highs for our water transmission steel pressure pipe business.

Looking at the first quarter for the legacy Northwest pipe business, the first quarter is generally the time of the year when weather events or customer delays affect our business. We have seen some jobs that have pushed out into the second quarter. As a result, we expect our backlog to drift a bit lower, but remain elevated by historical standards.

Revenues are expected to be similar to the first quarter of 2019 with gross margins that are four to five percentage points higher. Weather issues and customer job delays have affected the first quarter backlog, revenue and gross profit.

For the newly acquired Geneva Pipe and Precast business in the first quarter, which will include the months of February and March, we expect to generate several million in revenue and gross margins that are expected to be similar to the recent highs that we've seen in the legacy business.

The following is a look at current and upcoming water transmission projects. In the Texas market, the SWIFT program has funded over $8 billion in projects over the last six years. SWIFT has expected to continue to fund major programs like the Houston project and Bois d'Arc Lake well into the future.

The Houston surface water project is a major multiyear, multi-agency program with a series of segments representing 90,000 tons of pipe. Northwest Pipe has been the successful bidder on multiple Houston segments, representing over 15,000 tons of pipe.

The production of the individual segments are in various stages from pre-manufacturing to ship complete. We are forecasting that an additional segment or segments of the Houston surface water program will bid throughout 2020 representing an additional 50,000 tons.

Bois d’Arc Lake project by the North Texas Municipal Water District has begun construction and represents approximately 60,000 tons of pipe. Northwest Pipe was a successful bidder on a portion of the raw water line in on all of the finished water line for the Bois d’Arc Lake project.

The segments that we were awarded represents approximately 50,000 tons of pipe which are currently in various stages of production and delivery. The balance of the IPL project representing 32,000 tons is expected to begin bidding later this year and continue through 2020.

We were one of the major suppliers on the IPL project between the years of 2013 and 2017. In the Western market, California prop 1 $7.1 billion bond for water infrastructure has created the much needed funding for projects within the state. According to California Natural Resources Agency 86% of those funds have been appropriated for various projects.

We expect requirements for these projects to stretch out over the next several years. Water reuse programs have generated new opportunities in California market in which we expect to see bidding activity continue for the next year representing 10,500 tons.

The PCCP rehabilitation programs will result in about 10,000 tons annually over the next two to three years. The site's reservoir is a water storage project that has received funding from prop 1. It will involve over 30 miles of 144-inch pipeline. The project is projected to begin in 2024 to 2025.

In North Dakota project has slowed on the 140 mile 87,000 ton Red River Valley Water Supply project, as it is competing for funding with an urgent flood diversion project, which appears to be taking priority. We are hopeful that bidding on this project will start with a two mile demonstration segment this year.

Navajo-Gallup is a multi-phased major project underway in New Mexico. Northwest Pipe was selected to supply the last large diameter phase, which represents over 7300 tons of pipe, production has started on this segment.

Throughout 2019 we saw strong bidding volumes, stable bidding market in a backlog that remained close to historical highs for the entire year, a year which ended with revenue and gross profit close to historical highs for water transmission business.

The bidding volumes look to continue to be strong in 2020 with a continuation of a number of large multi-year programs. We expect continued strength in our backlog for the near-term and continued positive business conditions through 2020.

As we move forward, we will be focused on one; the successful integration of Geneva Pipe and Precast; two, improving the performance of the business by focusing on margin over volume; and three, driving cost reductions and efficiencies is all levels of the company. At this time, we'd be happy to answer any of your questions..

[Operator Instructions] We have our first question coming from the line of Brent Thielman. Brent, your line is now open. You may ask your question..

Yes, congrats on the year-end and Robin all the best to you, it's been great working with you companies come a long way since you joined, and a lot to be proud of here with the latest results..

Thank you..

I guess my first question Scott, I don't recall it time I've seen the company generate this type of margins in the fourth quarter, which I still kind of tend to think of it seasonally slower. And I appreciate 1Q is always seasonally slower and it sounds like some weather here.

But still a little surprised to see the margins come in as your forecast, and so maybe any more granularity around that?.

Yes, I think, Brent, when you look at the way that the bidding lined up in 2019, is when you're looking at what's going on in the fourth quarter, really you're seeing stuff that actually bid either early the previous year, or sometime in the first half of the year.

And I think that's just the accumulation of backlog with a better market, where the pipe pricing was continuing to move in the appropriate direction, as well as the spread between steel and pipe prices.

And, you know, I think some of it has to be attributed to the cost work that we've done at all of our plants with lean manufacturing and taking costs out of the entire production process. So I think that was - we had a big fourth quarter.

And I think it's a lot to do with the backlog and the cost reductions that we've been working through over the last few years..

Yes.

And I guess, can you talk a little bit about on new tons or new projects bid, trying to step away from mix, which I know is going to have an impact, but how the pricing environment looks today relative to where we stood a year ago, and, again, I know it depends kind of on the flow of work through facilities, but are we still in an environment conducive to - continue to do 20% plus gross margin?.

Yes, I think you're in a pretty good environment. Obviously, that can always change relatively quickly, but right now, I would say that the competitive landscape is still pretty stable. I would also say the spread between pipe pricing and steel pricing remains pretty stable, which is also conducive to the margins.

So certainly, we expect as we get through the first quarter, and quite frankly start getting back to some of the larger jobs that we've seen some delays in with the overhead absorption, we expect those margins to start declining back up in the second quarter of the year..

Yes.

And then just a clarification on the first quarter outlook as the thought process around Geneva, essentially, it will offer some revenue, but it'll be offset by transaction costs?.

Well, we were getting two months out of Geneva, right because it was just acquired at the very, very last day of January. So there is several million in revenue. We are looking and working through all the transaction costs to see what the gross margins are going to look like.

But when you look at those gross margins for Geneva, they are generally what we see toward the high side, what we see on the water transmission business. So there were a little bit higher.

So once it stabilizes, it should be positive and pulling the overall margin up, at least to some extent because the Geneva business is still $43 million, $44 million or so on an annualized basis.

But the gross margins are high enough where it's going to pull that up, but we do expect to see it be a little bit messy in the first quarter because of the transaction and the amount of time the transaction took and some costs associated with that, which is why you'll see a little bit of an elevated SG&A number as we get into the first quarter because we've got some transaction related costs, legal costs, and quite frankly the process with the acquisition took quite a long period of time.

So ultimately, there is a little bit more costs than we expected on that, but I think it's going to have a positive impact to the overall margins going forward, even when you're looking at us being on the high side of the water transmission margins..

[Operator Instructions] The next question is coming from the line of Gus Richard. Your line is now open. You may ask your question..

Yes, thanks for taking my question and congratulations on a great year.

As you hold in Geneva, can you talk a little bit about your expectations for seasonality and then how much do you think he can grow that business over the course of the next few years?.

Yes, I think when you look at the Precast business and the RCP business that's associated with that, generally you start hitting the seasonal high points in the main part of the construction season in the second and third quarters, and things start to cool off a little bit in the fourth quarter, and then slowly pick up in the first quarter.

So that's kind of the way it seasonally develops. But our order book at Geneva right now seems a little bit larger than it normally is at this time of the year. I think when you're looking at growth on that, we talked about it Gus on the call where we talked about the acquisition, we're looking at a growth rate of probably about 4%.

We think that year-over-year growth rate, we think that actually could be a little bit better based on these innovative products that we're working on for the corrosive sewer applications.

So we see that as a 4% rate being added to buy these new and innovative products on a year-over-year basis, as long as the market stays relative to where it is right now..

And then just thinking about the growth of that business. You have a capability in Tracy, California.

Are you going to augment that and how does that fold into the strategy with Geneva?.

Yes, I think - the one thing that we've talked about when we've looked at this whole Precast concept and that being a growth pattern for the company is that we look at not only acquisitions, but expansions and like you said, because we have the ability to expand what we're doing at Tracy California plant that's one of the first places we're going to be looking because we already do a wet cast RCP product, very large diameter wet cast, RCP products.

They're up to 12/13 feet in diameter, which is a little bit different than what we do at Geneva where Geneva only goes up to about 96 inches in diameter, and they can do wet cast, but a lot of it's a dry cast product to.

So we're looking at the idea of creating something that - at the Tracy plant where these innovative products might be a little bit more play. We already have a lot of forms, to be able to make RCP product there.

We'd have to do a little bit of different things to make other Precast products like vaults, but that certainly is one of the directions that we've been looking and seeing what we can do with the Tracy plant because we think that there's some opportunities there..

And then, in terms of the guidance, I just want to make sure I understand clearly, you expect the legacy business to be flat year-on-year and then several million from the Geneva acquisition on top of that is that correct?.

Correct..

Our next question is coming from the line of Mike Morales. Your line is now open. You may ask your question..

Good morning, folks and thank you for taking my question and Robin to echo everything that Brent said, great work and best of luck on your future endeavors..

Thank you, I appreciate it, Mike..

Got just a housekeeping question from me now that we're through the Ameron transaction. In the minds of some of the expansion discussion that you just had on the Tracy plant.

Can you just give us an update on how you're thinking about capital allocation post acquisition?.

Well, we go through the capital allocation process every year in the October timeframe. So - it's kind of a little bit disjointed this year, because we've already got capital allocation for the legacy business. But as we did the purchase of Geneva in the January timeframe, we were working through capital allocation there.

So we're probably going to be somewhere in the area of another, probably 1.5 million Geneva over the course of 2019.

Mainly geared toward building out for these innovative products that I think get us a little bit deeper into the dirty water side of the business, which we think is going to create a lot of organic growth at the Geneva facilities and then relatively normal capital.

It's pretty much in line with depreciation that we've had at the legacy Northwest Pipe plants..

As at this moment speakers, we have no question over the phone. [Operator Instructions] As at this moment speakers, we have no questions over the phone. You may proceed..

Okay, well, if there are no other questions, we appreciate everybody's attendance on the call. I think the - we’re very, very excited about the Geneva Pipe and Precast acquisition and what it's going to bring to the company and growth opportunities.

We're coming out of this year into 2020 with relatively close to a record year with our steel pressure pipe business. We have a very, very strong backlog.

And the big thing about the backlog is when we talk about a backlog over $200 million, when you date it back to 2011, before the last part of 2018, there were only two or three quarters that we had $200 million in backlog. Well, right now we've had $200 plus million for the last six quarters, and we see that going forward, all the way through 2020.

So that bodes well. I think the other big thing is the precast market being the size that it is a $13 billion market, $3.5 billion to $4 billion for water related presents a lot of opportunities for growth and Geneva has a very strong position in that market. We think those innovative products add even more to that.

So and - it is I think some of the questions were around, we think we have very exciting expansion and acquisition opportunities going forward. Obviously right now, our biggest concern is making sure that we successfully integrate the Geneva Pipe and Precast business.

But I think the opportunities that this markets going to present are really exciting and setting us on a very solid growth path as we move forward from Northwest Pipe. So we appreciate everybody attending the call, and we'll be excited to talk to you again here in May timeframe, I think it is right. So thank you very much..

Thank you..

Bye, bye..

And that concludes today’s conference. Thank you for participating. You may now disconnect..