Thank you for standing by. This is the conference operator. Welcome to the Northwest Pipe Company Second Quarter 2022 Earnings Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Scott Montross, President and CEO of the Northwest Pipe Company. Please go ahead, sir.

Good afternoon, and welcome to Northwest Pipe Company's second quarter 2022 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 today, August 8, 2022, 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, 2021, 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 second quarter performance. Aaron will then walk you through our financials in greater detail. Consolidated net sales were $118.5 million, which included $24.2 million contribution for our newest acquisition ParkUSA. Revenue from our Steel Pressure Pipe segment increased 31.2% year-over-year to $77.1 million. The increase was primarily due to higher project pricing, driven by strong bidding in early 2022, as well as higher steel prices. These factors were partially offset by lower production volumes, primary related to product mix, as well as incoming steel quality issues that held up production and shipment of orders that were already in backlog. That said, our production volume is expected to steadily improve throughout the second half of 2022. Our Steel Pressure Pipe sales have to benefit from the stronger bidding environment we've been experiencing this year…

Thank you, Scott and good afternoon, everyone. I'll begin with our second quarter's profitability. Consolidate net income was $9.7 million or $0.97 per diluted share compared to $2.1 million or $0.21 per diluted share in the second quarter of 2021. Our consolidated net income in the second quarter of 2022 included $0.8 million amortization expense and other transaction costs specific to ParkUSA. These items net of $0.2 million in associated tax expense resulted in adjusted net income of $10.3 million in the second quarter of 2022 or $1.04 per diluted share. This compares to $2.2 million or $0.22 per diluted share in the second quarter of 2021. Adjusted net income is provided for comparability purposes. Please refer to the reconciliation of non-GAAP financial measures in our earnings release for comprehensive schedule, detailing the adjustments for each period. Consolidated net sales increase 60.6% to $118.5 million compared to $73.8 million in the second quarter of 2021. Steel Pressure Pipe segment sales increased 31.2% to $77.1 million compared to $58.7 million in 2021, driven by a 35% increase in selling price per ton, resulting in increased steel costs along with changes in product mix, which were partially offset by a 3% decrease in tons produced resulting from changes in project timing. Precast segment sales increased 175.2% to $41.4 million compared to $15.1 million in the second quarter of 2021, primarily due to a $24.2 million contribution from the recently acquired ParkUSA operations. This is in addition to a 14% increase in sales that are preexisting Precast operations resulting from a 54% increase in selling prices on continued strong demand for our concrete products and increased raw material input costs, which were partially offset by a 26% decrease in volume shift due to a changes in product mix. Due to the unique nature…

Thank you. You will now begin the question-and-answer session. [Operator Instructions] Our first question is from David Wright with Henry Investment Trust. Please go ahead.

Hey, good afternoon, Scott and Aaron. It must be pretty gratifying for you and the team to see these results from the Precast acquisitions. My congratulations.

Well, thank you, David. Good to talk to you.

The -- let's talk about Steel Pressure Pipe margins. A couple years ago you were pulled some quarters with margins in the upper teens. The last several quarters, they've been fluctuating between 12% and 15%. You've indicated in the text today that they could be higher in the second half of the year. But is it possible under your current model of margin over volume to actually get back up to the upper teens?

Yeah. I think that that's kind of the direction we're heading. I would say that the quality of backlog that we have in Steel Pressure Pipe right now is pretty good. And I think as Aaron covered or we said in the script, we had some incoming steel that didn't fit the quality that we needed for some of the jobs that we had. So, it took probably 3,000 or 4,000 tons out of our production in the second quarter, which obviously affected our gross margin percentages with the overhead absorption you would get by the extra tons. So, we do think that we are in a position to begin moving up into those high teens, as long as the market stays strong. Now, like we said about the second quarter, unfortunately, the last couple weeks we've had some pretty significant weather events in different parts of the country. One of them was in St. Louis where we actually had a lot of water in our St. Louis plant, but they're back up and running some work centers right now and they started shipping. So, they should have everything operating by next week. But we've had to bring in like, trailers for administration buildings, because of some of the water damage that was done to the office building there. So, we're probably looking at a -- probably a couple weeks disruption for that. And that's relatively small volume. The bigger one that we were more concerned about was the Adelanto facility. And we had very heavy rains down there about a week ago, and actually a lot of flash flooding in the area. We had the plants and -- the plant -- and got some water in the plant -- in the process pits, but they did a good job of getting that cleaned out. And then we're only down a couple of days, so probably going to be minimal impact by the weather on the Adelanto plant. But we're always a little bit cautious when we've got events like this, David, because Adelanto plant is one of our major plants. And you never know what you're going to run into after a weather event like that with motors and the electronics and things like that. So, we're being a little bit cautious, but the team has gotten those plants up and running very quickly. And we're pretty happy about that. So that should bode well, hopefully for the margins as we go into the third quarter. We've only been able to update these as fast as we're getting information on these things. So -- and it's changing by the day. So, ultimately, I think, the Adelanto facility is going to be down less time than we originally thought, so that'll also be good for the margins as we go into the third quarter.

Okay. Do you -- you've indicated third quarter can be similar to second quarter. Do you have that kind of visibility into the fourth quarter as well?

Yeah. We do. I mean, it gets a little bit fuzzier, but our backlog on Steel Pressure Pipe is, we're sitting at it relatively at all-time high. We're at $338 million worth of backlog. So, everything that we're going to produce pretty much is already in backlog. So, it's just a matter of getting that produced. And like I said, the quality of that backlog is really good from the bookings and the strength of the bookings early this year. So that looks like to be a -- an area of we're going to be gaining strength as we go from the third quarter into the fourth quarter. But it is generally the slower time of the year where you can actually run into weather events still. But barring any of that sort of thing, the backlog is really a good backlog on the Steel Pressure Pipe side. On the Precast side, we've got $75 million worth of order book on the Precast side. And that really is a half a year or better of backlog for the Precast side. And again, that backlog, like the Steel Pressure Pipe backlog is a really high-quality backlog. I think, the group has done a great job on the costs on the Precast side, and on the operating guys have done a great job on the costs on the Precast side, and the sales guys have done a really good job of staying ahead of the raw material cost and making sure that we're getting that -- those price increases into the market in front of the raw material costs, so the margins aren't affected by that. So, I think as we go into the fourth quarter, the third and the fourth quarter Precast is going to remain pretty strong based on the way that the back or the order book looks right now. But also, when you get into the fourth quarter of the year for Precast, that's the slower time of the year, but I would say in both cases on Steel Pressure Pipe and on the Precast side with the strength of the backlog, things look pretty solid in the second half of the year.

Great. Let me sneak one more in here. You mentioned the product spread strategy, which in past calls you've spoken with, it is something kind of out into the future once you complete all of the integration. But in your comments today, you sort of infer that maybe a little bit of that is starting. Can you elaborate?

Yeah. There's really -- there's three phases to that, David. The first phase was taking what we acquired with the park facilities and making sure that we build out the facility usage there, especially in the San Antonio plant and the Ferris plant. The Houston plant is the big park plan. So, if you look at what the team's done with the bookings wise this year in Houston and San Antonio, they're up 15% over where they were -- actually more than 15% over where they were last year, which was the phase -- which was the first phase. The second phase was us for us to start booking business outside of the state of Texas, and that's up about 40% versus where we were last year. And we're doing that in readying to start the second phase, which is the training at our Geneva facilities to be able to install the equipment in the precast vaults, that park installs down in Texas to have Geneva produce the vaults and install them in Utah and ship them into the Utah area and surrounding areas, Idaho, in Nevada. So that's something that we're quickly running into right now, because we're in the process of looking at orders for the Utah facility right now -- the Utah facilities right now to get that going. So that's moving a little bit more quickly than we thought that would at this point, because I think the team is doing a good job on that. And the product development people are doing a really good job on that. And the third phase is ultimately being able to spread the park products to other locations, such as the steel pressure pipe plants in different locations and getting set up to do that. I think that's more of the longer term thing. But we're making -- we're definitely making progress on phase one and phase two right now. So good progress.

All right. Well, that's a nice update. Thanks for taking my questions and best of luck.

Always good to talk to you, David. Thanks.

The next question is from Jean Ramirez with D.A. Davidson. Please go ahead. Mr. Ramirez, your line is open. Mr. Ramirez, your line is open.

Sorry for that. I'm not sure what was happening. Good afternoon. This is Jean Ramirez for Brent Thielman, D.A. Davidson. How are you?

Good. How are you? Good to talk to you.

Good. So, for my first question, just wanted to know, with all the release work and industry capacity timing, are you seeing any improved bid margins for the second half?

Yeah. I think that the -- the one thing about the backlog and the margins and obviously, the backlog is large right now. So, early in the year, you have the holdover on the margins, like in the first quarter of margins were -- I can't remember exactly what they were, like 11% in that area. Well, you were dealing with some holdover work from 2021, which had a very small bidding year and a lot of bidding pressure on every job. The beginning of 2022, we had a huge bidding market in really the first four months of the year -- actually three and a half months of the year, over 50,000 tons of projects bid during that time period. So, when you get that much stuff betting at one time, these projects all overlap. So, if somebody's getting one project, they're not going to be able to continue to take more projects because a lot of these projects are being produced at the same time. And as a result, the bidding pressure on these jobs get relieved and ultimately the margins on those jobs will improve. So, we are definitely seeing that in our backlog as we go through the second quarter and into the third quarter of the year, definitely the last half of the year with what we have in our backlog right now. So yes, the quality of backlog that we have now right now is continuing to improve as we go into the second half of the year.

Thank you. And if I could do a follow-up. Could you provide some color in-house cement capacity constraints that impacted your Precast business? Just a little more? I would like -- we would like to know.

Yeah. We -- in the second quarter, in the Utah or the Geneva facilities in the state of Utah, we had one of our major cement suppliers have a big equipment issue during that quarter. So, the cement supply was limited in the quarter, especially at Geneva. We are also seeing similar situations in the state of Texas. Obviously, we buy cement to make the precast vaults at the park facilities where there's cement suppliers that are putting people on allocation, just because the precast market has been so strong, that the demand for cement is so high. But I think our biggest impact probably in the second quarter was the impact that it had on the Geneva locations when we had the issue at our major supplier, and it probably affected our revenue at the Geneva facilities, probably between $1.2 million and $1.5 million for the quarter, I would say, that's pretty good. Guess, we were looking at that the other day, just to make sure that we had that straight. But it did have an impact, the cement suppliers back to normal production and shipment levels now, so it's not occurring. But as we said in the script, we've been pretty busy looking at alternative suppliers just to make sure if it happens again, that we have different and more avenues to go down to fill the supply up.

Great. Thank you so much. I appreciate the responses and all the color. I'll jump back into the queue.

Thank you.

[Operator Instructions] As there appear to be no further questions, I'd like to turn the conference back over to Scott Montross for any closing remarks.

Yes. I'd like to thank everyone for joining the call today, and just leave you with a few key takeaways. Obviously, the backlog that we have in our Steel Pressure Pipe business is some of the highest backlog that we've seen both from a dollar perspective and a ton perspective. And like I said, in -- during the script, we expect that backlog with the betting that we have throughout the year to remain relatively high by historical standards. We still think the first half of the year is the high watermark, but by historical standards, that backlog is going to remain pretty strong. And when you look at the infrastructure bill that was signed, the infrastructure investment in Jobs Act, it's putting forth another $55 billion for water related. And we've seen some of that already start in the job in New Mexico that we talked about the script -- in the script, and there's another $50 billion out there for resiliency, which handles drought situations and infrastructure build out, in this case directed toward the Western United States. So, we think that's going to create some additional strength in our market going forward on the Steel Pressure Pipe site. On the Precast side, again, the order book is very, very strong. And I guess, the -- we can -- we worry about the inflationary pressures that we see and the Fed's action and raising the interest rates. And obviously, if they continue to raise the interest rates that will slow the business down. But what we're seeing right now is a very, very strong market in Texas, with our park facilities, that has remained strong and actually is continuing to get stronger. And we're continuing to see strength in our Geneva infrastructure, precast order book in and around Utah. And I think that's generally related more toward the supply chain buildup that happened during the pandemic and the likening of the supply chain and delays of getting houses built and things like that. So, there's a lot of backlog of houses to be built in Utah. And I think, ultimately, I'd like to say, finally, we're really excited about the future potential of the park business. As we continue to make progress on the integration front, we look forward to continuing what we're doing in the product spread business. So, I think, we've got a lot of good runway in front of us. I'd like to thank everybody for their time and attention today. And we look forward to speaking with you again on our third quarter call in November. So, thank you very much.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.