Welcome, and thank you for standing by. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to introduce your CEO, Scott Montross. Sir, you may begin.

Thank you, Holly. Good morning, and welcome to Northwest Pipe's conference call. My name is Scott Montross. 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 the 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 second quarter results.

Thank you, Scott. Our net income was $5.6 million or $0.59 per diluted share in the second quarter of 2013, compared to $3.6 million or $0.38 per diluted share in the second quarter of 2012. Water Transmission sales decreased 1.5% to $58 million in the second quarter of 2013 from $59 million in the second quarter of 2012. Water Transmission gross profit as a percent of sales increased to 20.9% in the second quarter of 2013 from 13.8% in the second quarter of 2012. The decrease in sales was due to a 34% decrease in tons produced, partially offset by a 49% increase in selling prices per ton. The increase in gross profit and gross profit as a percent of sales was driven by the timing of production on the Lake Texoma project, which was substantially completed in the second quarter of 2013. In addition, cost-reduction efforts in labor hours, quality and material usage have improved profitability. Tubular Products sales decreased 18.6% to $59 million in the second quarter of 2013 from $72 million in the second quarter of 2012. Volume decreased 6%, and selling prices per ton decreased 13%. We sold 52,900 tons in the second quarter of 2013, compared to 56,500 tons in the second quarter of 2012. Tubular Products gross profit as a percent of sales was 6% in the second quarter of 2013, compared to 7.5% in the second quarter of 2012. Our energy products comprised approximately 77% of Tubular Products sales in the second quarter of 2013, compared to 74% in the second quarter of 2012. Gross profit and gross profit as a percent of sales were negatively impacted by increased competition from imports, which exerted significant downward pressure on selling prices and volumes. Profitability was positively impacted by a onetime state research and development…

As of June 30, 2013, our backlog in Water Transmission was approximately $115 million. As of June 30, 2012, our backlog was approximately $245 million. We expect that the third quarter will be the weakest quarter for the year, particularly in Water Transmission. The backlog in Water Transmission has significantly decreased, as we have completed much of the drought-related emergency work in Texas. We expect Water Transmission sales, gross profit and margins to be lower in the third quarter compared to the second quarter, with gross margins in the low to mid-teens. A potential break spot for the fourth quarter is the KWA project, which is a 72-mile pipeline from Lake Huron to Lower Eastern Michigan communities. In Tubular Products, we expect to see compressed margins to continue in the third quarter, as imports have had a negative impact on both volumes and margins. The trade case filed on July 2 addressing the high imports of oil country tubular goods has not yet had a significant impact on sales prices or volumes. The impact of trade cases should become clearer as the International Trade Commission and the U.S. Department of Commerce progress with their investigation and findings. We expect margins will be in the low single digits for the third quarter. We expect between $26 million and $30 million of total capital expenditures for 2013, which include some investment projects and normal capital maintenance. The biggest investment projects are the previously announced expansion at our Saginaw facility, as well as the continued modernization of our Atchison, Kansas plant. The Saginaw project is now substantially complete. The Atchison modernization includes the installation of a second accumulator, which was completed in the first quarter. In addition, we're installing a new Hydro tester and replacing the existing front end of our 16-inch mill. We expect that this project will be completed in the first quarter of 2014. In conclusion, we anticipate a less profitable third quarter. As we have not seen a significant benefit from trade case on oil country tubular goods, we believe volumes and margins in Tubular Products will remain compressed for the near term. While there are some larger Water Transmission projects on the horizon that could start production in the fourth quarter of 2013 and early 2014, our third quarter order book is at depressed levels. At this time, we'll be happy to answer any of your questions.

[Operator Instructions] And our first question on the phone comes from Brent Thielman. Taryn Kuida - D.A. Davidson & Co., Research Division: This is Taryn filling in for Brent. And so, as you mentioned Q3 is expected to be your weakest quarter of the year, would you mind providing the assumptions you have built in to expect Q4 to be stronger than Q3?

Well, I think one of the things that we see is we've seen a little bit more bidding activity than we've had previously, specifically in California, and we've just gotten a couple of jobs or we're working on getting a couple of jobs that we expect to pick up or help pick up the fourth quarter. Also, what's potentially out in the fourth quarter is the job that we mentioned in the reading, which is the KWA project or Karegnondi Water Authority, which is a lower Eastern Michigan water project. It's 72 miles to -- from Lake Huron to bring water to Lower Eastern Michigan communities. And right now, our best information tells us that there's a possibility for that to start in the fourth quarter of this year. So I think that's -- we're hoping that some of the additional project work that we've seen as we've gone out over the last several weeks and the KWA projects will help start to pick up the fourth quarter a little bit. Taryn Kuida - D.A. Davidson & Co., Research Division: Okay, that's helpful. And then Tubular margins were a little bit better than what we were expecting. How much did mix help with this quarter? And will that be a factor in the second half?

Well, I think, on the Tubular Products margins, as Robin said, we -- something that contributed to them was about a $1.2 million research and development tax credit that we had related to our Bossier City, Louisiana facility. So that helped pick those margins up and made them 6%. But I think as we look at going into the third quarter and the fourth quarter, we're still projecting low single-digit margins in Tubular Products, down to even breakeven, like we've been talking about, while the trade case is still trying to get legs, if you will. Taryn Kuida - D.A. Davidson & Co., Research Division: Okay, that's helpful. And then lastly, how much of the 49% increase in ASPs for Water Transmission was attributable to the Texas project? And how much was attributable to the overall increase in ASPs across the industry?

Can you repeat that? I didn't hear the first part of that, Taryn. Taryn Kuida - D.A. Davidson & Co., Research Division: Just the 49% increase in your ASPs for Water Transmission. How much was attributable to the Texas project and -- compared to the industry?

Okay. So I'm not sure that it's a big amount was contributable to overall Water Transmission. Now the Texoma project did have a little bit higher pricing. We've also had some additional projects that we carried out of 2004 into the first quarter and into the second quarter of 2013 that helped the average selling price, okay? I think one of the big things that really helped what we saw margin-wise in the second quarter, besides what we had left over from Texoma and a couple of the other projects that had higher margins, was the work that's been done on costs. We've focused very hard on taking costs, not only out of Tubular Products business, like you've heard us talk about many times, but also on the Water Transmission side of the business. We've had a pretty significant reduction in the man hours per ton that we have in Water Transmission between the beginning of 2012 and where we are now. We've had a very large reduction in the cost of quality versus where we were in 2011 and 2012, as well as we've continued to focus on making sure that we leverage our raw material buys so that we're getting the best values we can in the marketplace for the raw materials that we're getting. So all of those things really contributed to that.

And our next question comes from Scott Graham with Jefferies.

So kind of piggybacking on the last question, what would you say, Scott, Robin, would be sort of the pricing outlook for Water Transmission in the second half based on what you're seeing in the order book?

I -- what we're seeing is we're still seeing relatively depressed levels of bidding activity, Scott, compared to what we saw in 2011. And I think what we expect is that there's fewer jobs overall. We still think bidding activity is down probably 35%, so there's fewer jobs and there's the same amount of competition -- in some cases, even a little bit more competition -- focused on those fewer jobs. So there is more pricing pressure on those jobs. So I think you'll continue to see downward pressure on pricing in Water Transmission as we go through the third quarter and into the fourth quarter. And you'll see -- you'll continue to see some downward pressure on the margins as a result of that.

Okay. So you're expecting, essentially, what was a plus 49% in the 2Q to flip negative in the second half?

I think we're expecting that the plus 49% -- if you look at the number of projects we had, we carried some pretty high-priced projects through the first quarter and into the second quarter. And those were projects over and above the Texoma job that we had. So as we go out into -- further into the year, the projects that we're going to be bidding, we don't have any of that high-priced work left. There are going to -- there is going to be more pressure on the price levels on the projects that we're bidding. So that's why we said that we believe the profitability margin levels and everything in total is going to be lower in the third quarter and going into the fourth quarter, depending on what happens with the KWA project. But there will be more pressure on those prices.

Okay, all right, got it. So if I look at Lake Texoma in the second quarter, I'm assuming that, that was about $5 million.

Yes. The majority of it was fourth -- we did about in the area of $39 million in the fourth quarter, I think about $25 million in the first quarter and, I believe, around $5 million in the second quarter.

Okay, okay. Are you guys around later? Because I have a couple of other questions.

Sure.

And our next question comes from Matt Sherwood with Cooper Creek Partners.

Just had a quick question. So KWA. So Lake Texoma is a 46-mile pipeline. You guys got some portion of it, and it was like $69 million in revenues. KWA looks like it's going to be at least like 50% longer. Can you just help us understand the potential for that job?

Well, I think in total, you're looking at a job that's well in excess of $100 million. And I think if the job goes -- because that's really -- that really is the question. Because right now, we've done our bidding on the job to the KWA Water Authority, but they apparently are having a few issues with the bonds. JPMorgan is working on the bonds, and the coupon rate that they are projecting into the marketplace isn't really getting the kind of attention that they wanted to. So that's starting to slow things down a little bit. Now that being said, if it goes in the fourth quarter, I think we're positioned to take a relatively large part of that job, okay? So I'm not sure that it would be quite as big as the Texoma job, but I think that, depending on how much of the job we get, depending on how competitive the bidding environment is, we could get a pretty substantial piece. But I think it'd be hard to get to the levels of Texoma.

Well, if you get above 50% of a $100 million job, you're pretty close to Texoma, I think, which is $69 million in revenue.

Yes. We call Texoma about $70 million in revenue, and I don't think what we would get out of this job would get to $70 million of revenue. It would be something below that.

Fair enough. Okay, great. And then can you just update us on what's going on with the Tarrant County project?

Well, we -- our latest information on Tarrant County is there's still a couple of issues with it. One is some right-of-way issues with some of the landowners that they're working their way through. And another one is an Army Corps of Engineers permit, a 404 permit, that they're trying to get squared away so that the whole project can go forward. What they're saying right now, Matt, is that the bid will likely be in the first quarter and that production would likely start in the second quarter of 2014. That's the way it's going to be.

Okay, great. And then on the Tubular side, I think most industry observers believe that pricing should -- as long as the rig count hangs in, that pricing for OCTG, at the very least, should start to firm in September if this preliminary determination is successful on August 15. How much of that is baked into your guidance for Q3?

Well -- and I think like you said, it depends on when it starts the firm. Because the next major event -- I mean, nothing really has transpired with the trade case at this point, to speak of, with volume or selling price impact. But the next major event is the International Trade Commission in mid-August making its preliminary ruling on whether there's injury, threat of injury, harm on this. I think once that happens, that starts to give the -- as long as it's positive, and we all expect it to be positive, that starts to give the, really, the forum for the prices to begin to move up. And we really think that, that's more like a fourth quarter event if everything goes the way that we hope it goes. So I think it's more fourth quarter. Right now...

So you're not giving yourself any credit in your outlook for that?

Yes. Right now for the third quarter, we're not giving ourselves a heck of a lot of credit for that in the third quarter.

But keep in mind in the third quarter, as I mentioned, we did have some plant shutdowns. And of course, we're going to have those costs in the third quarter. So we have all of that kind of in the mix.

Okay, great. And then final question, the capital project on the Atchison facility. Can you just sort of update us on how that -- the plans are shaking out and the potential that it could have for 2014?

Yes. That project, as we've said, is basically a new hydro tester for this facility and a brand-new front end to the larger of the diameters that we have there, the 16-inch mill, a breakdown section and a thin pass section. So we expect that, that will all be completed by the February of 2014 time frame. At the latest, probably, early March. And as we've said in the past, what it does is it allows us, one, to take the volume that we currently have and run it at a higher production rate, a better speed and, obviously, drive lower conversion costs. It makes us not only more competitive on the current product mix that we have, but it also opens up our product mix to really almost double the available market to us because that allows us to go from where we are now to going up to 3/8 of an inch thick X-80 products, which really double the market available. And the people that buy those type of products are really the same people that are buying the line pipe from us now. So I think it's a pretty easy transition. Obviously, we have to work to get that extra volume, but I think it's a pretty easy transition to get that volume for us.

And our next question comes from Barry Vogel.

First, Scott, I have a couple of questions for you. Assuming the ITC goes forward on August 16, what -- and again, this is your guesstimates -- what would be the minimum outlook for Tubular profits in 2014, given the capital expenditure projects, all the changes that you have -- you will have accomplished in production, your more aggressive marketing expansion and, obviously, modest tonnage improvements? What would be your minimum outlook?

Okay. Well, I think what we're looking at is, like we've been saying all along, the getting -- we've got to at least get to the low double-digit margins first, okay? And we've done several things. You mentioned the modernization project at our Atchison facility. We've also positioned ourselves in our OCTG products, which are our Bossier City and Houston facilities, to have a more longer-term beneficial relationship with heat treat suppliers that give us more favorable pricing for heat treat and heat treat costs as we sell into the market, which -- ultimately, we're paying spot market heat treating prices. And we've been paying spot market heat treating prices. Now going forward, with the longer-term arrangements, we'll have an arrangement where those prices that we pay for the heat treating process will be significantly lower. Those things, along with the work that we've done internally to reduce our costs, obviously, we've talked about implementation of Lean manufacturing. And again, no matter which side of the business you look at, whether it's Water Transmission or it's Tubular Products, it's a cost, cost, cost game. So we focused on continuing to increase our uptimes at these facilities, not only the Water Transmission, but again, the Tubular facilities; increasing yields; and ultimately, driving down total conversion costs. And we've made a lot of progress in that, and it'll be interesting to see what exactly the margins look like as a result of that when we get into better market conditions. So I think that all those things together, we are expecting to get us to the double-digit margins like we've talked about for a long time here, but really, we have yet to achieve. So -- and I think we've got the right things in place now to be able to get us there once we get into a -- what I should say, maybe a more normalized market situation. But I think even longer-term, Barry, we can't -- and I've said this before, we can't rely on trade cases to protect us from the market. We have to continue to drive costs out of the business so that we can achieve those double-digit margins, whether there's trade issues or not.

Well, I understand that. Now as far as your Tubular capacity, when the remaining projects are completed, let's maybe go forward to somewhere in the first quarter of '14. And this question's been asked before. What is your effective capacity in Tubular around that time frame, given that these projects have -- will have been mostly completed?

Right, we'll be right around 500,000 tons or so of total capacity, depending on how it runs. That's probably -- we're at about 425,000 rate now after the completion of the 2 accumulators at our Atchison facility. But once we put the new front end of the mill in at Atchison and the new hydro tester, we expect to have a capacity level above 500,000. And again, the capacity level isn't really as important as the efficiency and productivity, especially at the Atchison facility, when -- after we get that mill in because we do believe we can take our same product mix that we have now, same volumes -- although we do expect to get more volume, obviously, but we can take the same volumes that we have now and drive a substantially lower conversion cost and total cost of conversion when you include yields. So there's a lot of potential upside to that.

Yes. And you've done a great job in accomplishing that, there's no question about it. Now as far as the Water Transmission business, you continue to impress with the level of sales and the level of gross margins. If we look at the second quarter of this year, you had a gross margin of 20.9% on revenues of $58 million. In the second quarter of '12, you had a 13.8% gross margin on the same revenue basis, about $59 million. And I know you talked about Texoma contract, but you -- earlier in the call, you stated that it was about only $5 million of revenues out of the $58 million. Can you give us an idea of what percentage of the gross margin improvement was due from the Texoma contract in the second quarter versus all the changes that you've made that have improved margins dramatically in the last 2 years?

I think a little bit -- it's hard to put a percentage on Texoma in the second quarter because there was only $5 million or $6 million, but there was additional jobs that we've been doing through the first quarter and into the second quarter that also had more margins that were significantly above Texoma. So those also played into that. So I think those jobs, if you go from 14%, 15%, 16% margins up to 20%, those probably started to have an impact on more than -- a little bit more than half of what the total increase was. But again, we've been pretty solidly focused on cost here. Even when the market was good, making sure that we're getting our man hours per ton down at the Water Transmission facilities -- because, really, it's all about labor. A lot of it is about labor at the Water Transmission facilities. And we've had somewhere in the area of about a 15% reduction in the man hours per ton that we've had in 2011 versus where we are right now. So a lot of work has been done on that. You heard me mention the cost of quality before. We are down, in the Water Transmission Group versus what we were in 2011, about $1.8 million less in quality issues related to customer claims and things of that nature based on work that we've done with our quality systems internally. And we've also -- I think we've also put together a better program for leveraging our raw material buys, whether it's steel or linings, coatings, weldings, any of those things. So all those things together, I think, you're starting to see the impact on what the margin did. It's not just higher selling prices. It is some of the cost efforts that we've been making and that we're continuing to make. Because I'll tell you, at this point, as we walk our way into the second quarter of the year -- or the third quarter of the year, which we expect to be low, we're focused on our direct labor cost at the plants, our indirect labor cost at the plants, as well as our total SG&A cost as a company so that we're making sure that we're not only rightsizing what we've got going on at the plants, but making sure that we're doing the right things to reduce our cost as much as we can while the business levels are this low.

And hopefully, the markets will come on in terms of getting increased demand, and then you'll really start to hit all cylinders. Robin, I have a couple of quick questions for you. Robin, could you give us an idea what your full estimates of D&A and interest expense for this year is, and also what you think the provision for taxes would be for the year?

Right. Our D&A, we expect, will be about $26 million for the year. The tax rate will be about $33 million. And did I miss one in the middle there?

Interest expense.

Interest expense, we expect that will be about $4.5 million, $5 million.

And our next question comes from Gerry Sweeney with Boenning.

A lot of my questions have been answered, but the one question that I think Scott just gave some detail on was -- I was looking to see how much improvement was done in Water Transmission Group and maybe some metrics, and he went over that. But would you characterize that as maybe some low-hanging fruit? Is there still a lot of opportunity there, knowing that, especially on the Water Transmission side, it's a lot more labor intensive? Any thoughts on that front?

Yes. I think there is more opportunity there, and we're certainly focused. What I -- what my motto is on this is that we want to continue to drive improvement on there and continue to drive at each one of these plants until the people at the plants can't do anymore without making some kind of capital adjustment to the equipment, okay? So I think that there is -- there's been a lot done, but I think that we still have a good ways to go on not only improving our man hour per ton -- man hours per ton, but many of the different metrics that we're looking at. And it's just -- it just becomes a matter of time and a matter of focus. And even though the business levels are low, as we've seen in the third quarter, we focused on that all the way through from the fourth quarter through now, and that focus will continue. I think it almost even increases, when business is slow, trying to find a way to get costs out. Because theoretically, what we want to try to do is have the same man hours per ton at a plant when we're running, say, for example, 65% capacity as we are when we're running 40% capacity. So I think it's -- there's more work to be done. We're going to continue the program, and it's just -- we'll have to see what it does, but I think we'll get more costs out of it as we go, significantly more.

Okay. And then jumping over to Tubular. You mentioned the heat treating side, and I know in the past you've spoken about pricing is pricing in the market and you had to do things to enhance either your value-added services or cut deals like the heat treating side. Is there anything else you're working on from a -- from that perspective to increase the value-added services?

One, obviously, you've heard about our heat treating arrangements, okay, that we've made. While they don't sound like they're a big deal, they are pretty significant to what our cost is on total heat treating. So as far as anything that we've done, really, that's related to commercial, that's probably as big a thing as we've done. Plus, we've worked hard on developing longer-term arrangements with the customer base that we have on all API products so that we're not so much of a...

Spot player?

Spot market. And then you're obviously -- you're subject to all the big swings in the market. Obviously, when the market's swinging up and the pricing is moving up, that's a good thing. But when the markets are not in your favor and swinging down, I mean, you're making the price adjustments in the market. So those things are 2 big things on the commercial side. And then I would just say, again, reiterating what the guys on the Tubular Products side have done on cost, they've done a fantastic job, I think, of getting their uptime up. There's been -- obviously, we've put some capital in this business to be able to improve our uptime, but our uptime has improved at, for example, at our Atchison facilities by an excess of 40%, okay? So you can imagine what that does to what the conversion costs are. And even in our Bossier City, Louisiana and Houston plants, by things that we've done on the maintenance side with the predictive maintenance program that we have right now has really increased those uptimes, even without making capital expenditures. So that really reduces costs and, hopefully, continues to spread the margins out. But again, that's kind of a long answer, but I think the biggest thing to add value, really, is the heat treat relationships that we have going forward and what that does for our costs.

Got it. And then just back to real quick on spot. How much do you sell into the spot market versus contract?

At this -- it used to be our agreements, our longer-term agreements, were less than 5% with what the -- of the total. Now they're -- I don't want to say exactly how high, but they're a little bit higher than that now, based on what we've started to put together. And as you know, with the amount of competitive activity that's going on in this current marketplace, being able to put longer-term agreements together is kind of a tough business because customers look at this and say, "Well, why would I want to do something for putting a longer-term agreement together when the price will be lower next week based on what we're seeing supply-side?" So it's been a little tough. The going's been a little bit slower, but we've probably doubled what we have in longer-term agreements versus what we had previous.

And our next question comes from Diane Daggatt.

Most of my questions have been answered. But with capacity in Tubular Products going to 500,000 tons and the uptime at Atchison now around 65%, where do you think the uptime can go for the other facilities, as well as Atchison, higher than 65%?

Well, we like to think that the uptime could be over 70% at all of our facilities. Obviously, it takes some time to get there. It takes training. A big part of that, Diane, is the implementation of Lean manufacturing that we're doing and having the guys understand and be able to do quicker changeovers and understand being able to do root cause analysis on why we have downtime. So we think all of our facilities can get above 70%, Diane. Obviously, the Atchison facility is moving there very quickly, and the movement is a little bit slower at Houston and Bossier, but I think what's going on, not only from a Lean manufacturing perspective, but also what work has been done on a predictive maintenance perspective and the programs that we have going on there now should be able to get us there at Bossier and Houston at some point in the relatively near future.

Okay. And where are you in rolling out the Lean manufacturing?

We have Phase 1, Phase 2 being completed at Bossier City and Houston right now on Tubular Products. Phase 1 going in at Denver in our Water Transmission. And Phase 1, I think, is going to be scheduled for Adelanto sometime later this year. We've tried to put the appropriate cadence in so that, as we roll out these phases, that the improvements that we've made and the change in how the people approach things is kept instead of reverting back to what's gone on previously. So this is really an ongoing process. Lean manufacturing really never ends. But it probably takes us a good year to get Phase 1 and Phase 2 rolled out to all the plants. So we are at the very beginning stages, but definitely seeing benefits.

[Operator Instructions] And I have no further questions at this time.

Okay. Well, thanks, everybody, for attending the call. When's the next...

November.

November? The next call is in November and, obviously, we'll expect to see everybody then. Until then, see everybody later.

Thank you.

Thanks.

And this concludes today's conference. Thank you for participating. You may disconnect at this time.