Greetings. Welcome to the Northwest Pipe Company First Quarter 2022 Earnings Call. Please note that this conference is being recorded. I would now like to turn the conference over to Scott Montross, CEO. Thank you, sir. You may begin.

Good morning, and welcome to Northwest Pipe Company's First 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 yesterday, May 4, 2022, at approximately 4 p.m. Eastern Time. This call is being webcast and 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 risk factors that could cause actual results to differ 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 first quarter performance, and Aaron will walk you through our financials in greater detail. Consolidated net sales were $109.3 million which included a $19.7 million contribution from our acquisition of ParkUSA. Revenue from our steel pressure pipe segment increased 24.4% year-over-year to $74.7 million. The increase was primarily due to higher steel pricing that we saw throughout 2021, which drove higher project pricing. This was partially offset by decreased production volumes resulting from the very small bidding year that we saw in 2021 related to bidding delays that we experienced throughout the year. These delays pushed product bidding out into 2022, which is partially why we experienced such a significant amount of project bidding in the first quarter of 2022, leading to the substantial increase in our current backlog. As of March 31, our backlog, including confirmed orders for the steel pressure pipe segment, was an all-time record of $341 million compared to our previous record of $290 million as of December 31, 2021. This compares to $210 million as of March 31, 2021. I'd also like to highlight that our record backlog includes a 63% increase in tons versus the fourth quarter of 2021. As anticipated, the strength in our backlog was a direct result of robust steel pressure pipe bidding during the first quarter of 2022. While we project the first quarter will be the largest bidding period of the year and, therefore, the high watermark for our steel pressure pipe backlog in 2022, we expect bidding should remain solid throughout the remainder of the year. As such, we expect that our backlog will remain elevated compared to recent historical levels. The improvement in the overall quality of our backlog should lead to steel pressure pipe margin expansion into the mid-teens in the second quarter of 2022. Sales from our precast segment increased 182.5% year-over-year to $34.6 million, driven by a 22% increase in sales at our Geneva operations which we acquired in January of 2020. Additionally, we benefited from the aforementioned $19.7 million contribution from our ParkUSA operations which we acquired on October 5, 2021. Our precast order book remains at all-time highs and totaled $65.5 million as of March 31, 2022, compared to $51 million as of December 31, 2021, and $16.1 million as of March 31, 2021. I'd also note that our order book as of March 31 last year did not include ParkUSA. Our consolidated gross profit increased 68.5% year-over-year to $14.8 million, resulting in a gross margin of 13.5%, up 140 basis points from the first quarter of 2021. Our steel pressure pipe margins remained muted in the first quarter as expected as we work through older backlog that was subject to the extremely small bidding market and associated bidding pressures we experienced in 2021. The process of permitting, bidding, and engineering steel pressure pipe projects took much longer in 2021 given the highly complex and fluid challenges in the steel pressure pipe market related in part to the pandemic. The reduced production volumes at our steel pressure pipe facilities led to higher levels of under-absorption. Additionally, we recorded a discrete charge for a product liability settlement associated with a dispute originating back in 2015 that negatively impacted our first quarter steel pressure pipe gross profit. Without the settlement charge, our first quarter steel pressure pipe gross margin would have been similar to both the first and fourth quarters of 2021. Positively benefiting our consolidated gross margin in the first quarter was our precast-related margins which remained strong throughout the quarter. As a reminder, our growing Precast business serves as a stabilizer to both our top line and gross margin during slow periods for the water transmission business. We expect our precast order book will continue to remain strong in the near term, facilitating further margin expansion as we progress through what appears to be a very strong precast market in 2022. In general, the steel pressure pipe project bidding environment has been very robust, which should bode well for the remainder of the year, partly due to orders from 2021 moving and sticking in 2022. Since steel supply and delivery-related issues have largely abated for our business since the beginning of the year, steel prices have fallen from the highs we saw late in 2021. However, over the last couple of months, they've recovered a substantial amount of what they lost, especially given the conflict in Ukraine, which has put upward pressure on steel pricing this year. New North American capacity coming online currently appears to be stabilizing hot-rolled band pricing which is our primary steel pressure pipe raw material. But steel prices still remain elevated by historical standards, and in general, elevated steel prices are good for our steel pressure pipe business. Next, I would like to turn to a discussion on our two-pronged growth strategy. First, we remain focused on our core objective of driving growth in the precast-related space. The integration of ParkUSA is our top priority, and it remains on schedule. ParkUSA's operating and commercial structures are in place, and we've aligned our human resources, sales and operating teams and have implemented and continue to refine both operational and commercial KPIs. As we've discussed previously, we are in the initial stages of implementing our organic growth product spread strategy which focuses on adding the production of Park products at our legacy Northwest pipe plants. In some cases, products for the existing Northwest pipe facilities may be added to the production at Park facilities. We continue to be very excited about the future growth prospects of this business. Another key focus of ours includes the expansion of our Geneva operations to increase our production capabilities and capacity. As previously announced, we committed over $18 million in new capital improvement projects, of which $4 million was already spent. The projects are scheduled for completion in the first quarter of 2023 at the Geneva plants and will include facility expansions, automation and equipment upgrades to meet the growing market demand for reinforced concrete pipe and other concrete products. We believe these investments will be beneficial for both our top line and margin profile over time. Following the successful integration of ParkUSA, our goal remains for our precast-related business to grow to a similar size as our steel pressure pipe business within three years, supported by the increasing infrastructure needs in the United States. The second prong of our growth strategy is focused on continuing to maximize our steel pressure pipe water transmission business to drive shareholder value. We remain intensely focused on margin over volume, lean manufacturing, and cost reductions to drive efficiencies at all levels of the company. We will continue to explore investment projects that help us reduce costs and maximize margins. I will now turn to a look at current and upcoming water transmission projects. This is typically the point in the call where I discuss upcoming projects that are bidding in the steel pressure pipe market. The program work that we continue to talk about is fairly similar on each call because many of them are multiyear programs. Therefore, we're going to be very abbreviated in our earnings call moving forward and are providing a different avenue by which you can review the jobs. In the West, we expect bidding to be healthy as California's Proposition 1 $7.5 billion bond is expected to fund projects for the next several years. There are multiple ongoing programs in California, such as the San Diego Pure Water Program and the PCCP rehabilitation program. The site's reservoir water storage is a major project scheduled to start in 2024 in the state of California. There are also other active programs in the West, such as the Navajo-Gallup supply program in New Mexico. In the Central region, which includes Texas and the central part of the country, we expect bidding to remain active with programs like the Houston Surface Water program, the Alliance Regional Water Authority program, and the ongoing Red River water supply program in the Dakotas, in which we were awarded the contract for the first section to manufacture over 7,500 tons or eight miles of engineered steel pipeline system to be delivered to the job site this summer. For more information on our current and upcoming water transmission projects, please review our investor presentation which can be found on the Investor tab of our website within the Events and Presentations section. Before I conclude, I'd like to highlight some of the recent executive leadership changes. Most recently, we appointed Mike Wray, our Senior Vice President and General Manager of our Precast Infrastructure and Engineered Systems business, as a corporate officer just last month. Mike has led the Precast business since we acquired Geneva in January of 2020 and has been instrumental in leading the integration efforts of our most recent acquisition of ParkUSA which was acquired on October 5, 2021. Additionally, Eric Stokes was appointed to the position of Senior Vice President and General Manager of Engineered Steel Pressure Pipe and became a corporate officer in March of 2020. Prior to his appointment, Eric served as our Senior Vice President of Sales and Marketing for our Engineered Steel Pressure Pipe business. He is now responsible for all commercial and operating activity for our Engineered Steel Pressure Pipe group and has been involved in securing several of the largest orders in our company's history. In addition, we appointed Megan Kendrick, our Vice President of Human Resources and Corporate Officer in 2021. Megan has held a variety of positions with increasing responsibility in both accounting and human resources since joining our company in 2008 and has been instrumental in developing the organization as our company has continued to grow. Last but not least, I'd like to congratulate Bill Smith, our former Executive Vice President of engineered steel pressure pipe on his retirement last month after 12 years of service with Northwest Pipe, over 14 years with Ameron, a company that we acquired in 2018, and more than 40 years in the business. I'd like to thank Bill for his many contributions and dedication to the company as a key part of our management team, which will continue even into his retirement as he stays on as an independent consultant. Bill is succeeded by Miles Brittain, who has been with our company since 2013 and spent the last year working very closely with Bill as Executive Vice President. I've worked with Miles for the better part of 35 years, and we are confident that Miles will help continue to position our steel pressure pipe and precast businesses for continued future growth and success moving forward. In summary, we're very pleased to see the record-level strength we experienced in both our steel pressure pipe backlog and our precast order book continue into 2022. We are maintaining a very positive outlook for the remainder of the year based on robust bidding activity that we experienced in the first quarter, which should position us well for steel pressure pipe margin expansion into the mid-teens in the second quarter. We currently estimate bidding activity could be approximately 50% higher for 2022 compared to 2021 levels. Further, we believe the strength of our precast order book will continue throughout the year. Looking ahead, we will remain focused on our top priority of taking every precaution to keep our employees safe through the ongoing pandemic; number two, integrating ParkUSA quickly and efficiently; number three, a persistent focus on margin over volume; number four, continuing to implement cost reductions and efficiencies at all levels of the company; and lastly, continuing to identify strategic opportunities to grow the company once we have completed the integration work with ParkUSA. Thank you to all of our Northwest Pipe employees for your dedication to strong operational execution and your commitment to working safely. I will now turn the call over to Aaron who will walk through our financial results in greater detail.

Thank you, Scott, and good morning, everyone. I'll start with our financial results. Consolidated net income was $3.6 million or $0.36 per diluted share compared to $2.2 million or $0.22 per diluted share in the first quarter of 2021. Our consolidated net income in the first quarter of 2022 included $0.9 million in amortization and other transaction costs specific to ParkUSA, which were partially offset by $0.2 million in associated tax expenses for these items. Adjusted net income, excluding the aforementioned items, was $4.2 million in the first quarter of 2022 or $0.42 per diluted share compared to $2.3 million or $0.23 per diluted share in the first 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 a comprehensive schedule detailing the adjustments for each period. Consolidated net sales increased 51.2% to $109.3 million compared to $72.3 million in the first quarter of 2021. Steel pressure pipe segment sales increased 24.4% to $74.7 million compared to $60.1 million in 2021 due to an 85% increase in selling price per ton, resulting from increased steel costs along with changes in product mix, which was partially offset by a 33% decrease in tons produced, resulting from changes in project timing. Precast segment sales increased 182.5% to $34.6 million compared to $12.3 million in the first quarter of 2021, primarily due to the $19.7 million contribution from the recently acquired ParkUSA operations which Scott discussed earlier. This is in addition to a 22% increase in sales at our pre-existing precast operations resulting from a 35% increase in selling prices, partially offset by a 10% decrease in shipments. Consolidated gross profit increased 68.5% to $14.8 million or 13.5% of sales compared to $8.8 million or 12.1% of sales in the first quarter of 2021. SPP gross profit remained relatively flat at $7.2 million between the first quarter of 2022 and the corresponding quarter of 2021. Resulting gross margin was 9.6% of segment sales in the first quarter of 2022 compared to 11.9% in the first quarter of 2021. In the first quarter of 2022, we recorded a reserve for a product liability claim, which Scott discussed earlier. Given the settlement process is not quite complete, we are not in a position to go into details surrounding this pending legal matter at this time. Excluding this reserve, the SPP segment's gross margin would have approximated the margins realized in the first quarter of 2021 as well as those realized in the preceding quarter. I would also note that product claims of this magnitude are unusual and infrequent. Precast gross profit increased 368.7% to $7.6 million or 21.9% of precast sales from $1.6 million or 13.2% of segment sales in the first quarter of 2021, primarily due to the contribution from ParkUSA as well as higher prices at our pre-existing precast operations. Selling, general and administrative expenses increased 60.7% to $9.4 million compared to $5.8 million in the first quarter of 2021. The increase was primarily due to the addition of ParkUSA, which added $1.5 million costs that are primarily compensation-related in nature along with $0.8 million in higher amortization expense. We also realized higher labor expenses and professional fees compared to the year-ago quarter. For the full year of 2022, we expect our consolidated selling, general and administrative expenses to be in the range of $36 million to $39 million. Company-wide depreciation and amortization expense was $4.1 million in the first quarter of 2022 compared to $3 million in the first quarter of 2021. We expect depreciation and amortization to be in the range of $16 million and $19 million for the full year of 2022. Interest expense increased to $0.6 million in the first quarter of 2022 compared to $0.2 million in the first quarter of 2021. As we move through 2022, we expect our interest costs to vary with working capital needs for the steel pressure pipe business and with tightening to the current rate environment. In addition, we have limited nearly half of our current exposure to variable interest rates with an interest rate swap contract initiated in April. Our 2022 first quarter income tax expense was $1.3 million, resulting in an effective income tax rate of 27.4% compared to $0.6 million in the first quarter of 2021 for an effective income tax rate of 21.7%. The effective income tax rate for the first quarter of 2022 was impacted by non-deductible permanent differences while the rate for the first quarter of 2021 was impacted by tax windfalls recognized upon the vesting of equity awards. We believe our full year 2022 tax rate will approximate 2021's effective income tax rate. Now transitioning to our financial condition. Net cash provided by operating activities in the first quarter of 2022 was $1.6 million compared to cash used in operating activities of $0.6 million in the first quarter of 2021, primarily due to improved profitability, net of higher noncash amortization expense in the first quarter of 2022. As of March 31, 2022, we had approximately $90 million of outstanding borrowings on our credit facility, leaving approximately $34 million in additional borrowing capacity. We are diligently managing our working capital and believe our available borrowing capacity is sufficient to meet our near-term liquidity needs. Our capital expenditures for the first quarter totaled $4.4 million compared to $1.9 million in the first quarter of 2021. We continue to project our total CapEx to be in the range of $26 million and $30 million for the full year of 2022, which includes approximately $13 million in investment CapEx for the new reinforced concrete pipe mill, with the remainder primarily for standard capital replacement projects. We expect the timing of our 2022 CapEx spending will continue to depend on broader economic forces. In summary, we are very pleased with our first quarter results and the prospects for the balance of the year. Thank you to all our employees for your hard work so far this year and, most importantly, for your ongoing focus on safety.

Our first question comes from Brent Thielman with D.A. Davidson.

Scott, maybe unlike a lot of other public companies right now, I haven't really heard you talk about challenges in margins with respect to kind of supply chain constraints or inefficiencies, logistics. I mean, it seems like you all are working through that pretty well. Maybe there's something on the cover there that we can't see. But can you just talk a little bit more about how that's impacting the profitability you see in the business today?

Certainly. When we examine the steel pressure pipe sector, as we noted earlier, steel prices declined significantly towards the end of the year and into the first quarter before showing signs of recovery. We've added some new capacity in our steel operations, which appears to be stabilizing supply at the moment. Thus, we aren't experiencing major issues within the steel segment. However, looking at other areas of our business, such as ParkUSA, we are encountering challenges with the delivery of components like pumps and valves, resulting in extended lead times. While we can still acquire these items, the delivery process is slower than usual. This situation has necessitated holding more inventory at Park to ensure we have the necessary components for timely deliveries. In terms of our precast infrastructure, specifically the Geneva business, we have experienced some delays with cement deliveries, and the prices of cement and associated materials are rising at a similar pace. Nonetheless, the primary concern right now relates to components, along with some factors impacting cement and aggregates in the precast segment. We are currently addressing these issues and, overall, are not facing significant problems at this time.

Yes, that's great. The precast margins look promising at the moment. Can they improve from here as we enter the stronger seasonal periods of the year?

Yes. I think when you look at the first quarter, generally, on the precast side, it's usually the slower quarter, particularly for the precast infrastructure or Geneva-type business because you've got colder weather where they're located. So it tends to slow things down a little bit. On the Park side, we haven't seen anything slow down anywhere, and it continues to be really strong. When we look at margins, a good measuring stick for what you see with the precast infrastructure or Geneva margins is probably on the very high side of what we can get in the water transmission when things are really strong. For the Park margins, you're looking at probably 500 to 600 basis points above that. As we go through time and continue to achieve efficiencies in those facilities and cost reductions, I believe those margins will continue to improve as long as the market remains stable because I can tell you right now, the precast and precast-related markets have been very strong and appear to be setting up for a strong 2022.

Scott, regarding Geneva, which was up over 20% this period. What do you think is driving all this demand on the precast side? Are there a few select markets you can point to?

Yes. The business drivers for the precast segment are somewhat different for Park and Geneva. Park has only about 15% of its work related to residential projects and is more influenced by factors such as population growth, urbanization, and interest rates. Nevertheless, the order book at Park has not shown any signs of slowing down. Located in Texas, Park is benefiting from the economic impact of the ongoing conflict in Ukraine on global oil distribution, which translates into significant spending in the Texas economy, which is quite strong. Our primary concern lies with the effects of the Federal Reserve's interest rate increases. Even though rising rates may impact the single-family residential market, the demand for housing in Texas will persist, likely driving growth in multifamily apartments and housing projects. In contrast, the drivers for Geneva are different, focusing mainly on residential projects. Here, population growth, new housing starts, and interest rates are key factors. The worry is that higher interest rates might dampen the residential market. Additionally, recent supply chain disruptions have led to a backlog in residential construction starts, creating some momentum in that market and continuing the trends we've observed in both business segments over the past year and a half.

Yes. Good to hear. How much of the $341 million in backlog do you think you could convert this year?

So some of the backlog includes items with longer lead times. There are certainly items in that backlog that may extend into 2023 and even a bit into 2024. We ended 2021 with about $280 million in the steel pressure pipe business. The backlog indicates that revenue in this sector should continue to rise during this time, as there is more work available. It is less affected by steel price changes now, as we noted a slight decrease in steel prices at the start of the year, and those prices are not the primary concern anymore. We're seeing a significant increase in tons in backlog, with over a 63% rise in tons compared to the fourth quarter of 2021 and much higher than in the first quarter of 2021. Therefore, it seems likely that revenue will keep growing from the levels we recorded in 2021.

Our next question comes from the line of Gus Richard with Northland.

Just on the pressure pipe business, in the past, there have been shipment delays from the steel companies. Have you experienced similar issues, or have deliveries become more predictable now?

What I would tell you, Gus, is you always experience some delays from the steel companies, right? There's usually variability depending on the different mills you're dealing with. However, at this point, we're not seeing nearly as many delays as we did in 2021. In short, it has definitely become more predictable. This is a significant improvement, especially since last year we experienced delays in projects where we had already produced and were waiting for steel. While we still have some markets within the steel industry dealing with challenges, such as automotive, which is still affected by the chip shortage, we're also observing additional capacity coming online, increasing steel availability, which is beneficial.

Got it. That's helpful. And then just considering the margins in the pressure pipe business. In the past, you've been able to achieve 20% margins. Do you see a path to getting back there, or how do you see those margins trending based on the better backlog?

Yes, we can definitely improve our capacity utilization. The first quarter had relatively small tons of production when considering overall capacity utilization; we were probably around 35% capacity. However, we expect to ramp up production in the second quarter. With higher production levels, we expect better overhead absorption rates. Thus, we're targeting mid-teens margins in the near term. As we progress through the year, there’s potential for margins to rise further. However, it is essential to note that to breach the 20% margins, we need a robust, stable market with a solid industry-wide backlog. Otherwise, the demand and supply environment needs to remain strong for a sustained period to support this level of margin. Therefore, we're not quite there yet, but we're starting to move in the right direction.

The sequential decline in bidding activity is just a function of the deferred bidding in 2021 being processed in the first quarter, which is largely cleaned out, correct?

Yes. We can still anticipate a bit of that later in the year, but much of it was in the first quarter of 2022. Some work will likely extend into 2023. In general, your understanding is correct.

Got it. Regarding Geneva, with the CapEx investment you're making, can the Geneva margins move up toward ParkUSA? Or is that just a lower-margin segment compared to precast?

Certainly, because you're dealing with a product that is more commodity-like compared to what we see at Park. The main drivers are the RCP pipe and manholes. I believe there is potential for improvement in Geneva margins, but the more significant question is how much Park margins could potentially increase. Geneva margins have developed well over the past 1.5 years, but the focus is really on where Park margins could go next. The margins at Park are 500 to 600 basis points higher than those at Geneva, and we see potential for upward movement there as well.

Our next question comes from David Wright with Henry Investment Trust.

In the press release, you mentioned a 35% increase in selling prices at Geneva. Can you provide some context on that?

What I would say, David, is the selling price is responding to the increase in raw materials, as we've seen significant movement in raw materials across the precast business. Many materials, such as reinforcing rods or wire or aggregates, have increased by 15% or more, in some instances even higher. Therefore, our goal is to ensure we're covering those increased costs with higher prices. Furthermore, the demand for the Geneva business has also been very strong, and we've been attempting to control the order book to avoid extending lead times. Otherwise, the longer the lead times, the slower we can implement price increases to account for rising costs. Our teams at Geneva and Park have been doing a commendable job of keeping ahead of these trends.

Considering the utility vaults, which are fairly generic, for the price to increase so significantly and for the market to absorb it is quite intriguing.

The order book has remained incredibly strong, growing through the back half of the year and into the first quarter of 2022. Thus, it's crucial that we manage the order book effectively to avoid extending it too far. We concluded with approximately $66 million in backlog for the precast business, and ideally, we'd prefer a figure closer to mid-50s or high-50s. The further out we extend, the longer it takes to incorporate price increases into the market as costs rise. Our teams are responding well, but the demand in precast is indeed quite astounding.

It's been a great move for the company to expand into precast. You appear to have timed the cycle beautifully, hence the improvement.

Yes. This has been a significant point of discussion, especially with Aaron and me, as we would like to maintain the credit facility within a reasonable range. The primary goal is to reduce the credit facility. We're embracing a debt-light approach, so I personally prefer minimizing debt. We're continuing to reduce our leverage while integrating Park. I would say, generally, I'm looking to feel more comfortable with a credit facility in the $40 million range. We want to ensure we manage our finances responsibly, especially as we proceed with this integration.

Yes, David. The credit facility allows for 3x EBITDA right now, primarily due to the acquisition, but that will adjust to 2.5x in the fourth quarter. Scott and I are usually more comfortable around the 2x range, without much stress. However, we aim to reduce debt further. It's a principle embedded in our culture, and we prioritize it during our executive meetings while discussing cash flow and collections.

Indeed, the stability of receivables in the steel pressure pipe business has significantly improved.

It sounds like you are keeping a tight control on the debt-to-equity ratio and won't exceed your comfort levels.

Yes. Any further expansion will necessarily require transformative opportunities. Given the variability in the steel pressure pipe business, we need to be prudent with our finances. Past experiences with market fluctuations have made us cautious. Maintaining a balanced approach, especially with our goal to grow the precast business, is essential for mitigating market variability. When the steel pressure pipe business performs well, it does extraordinarily well, but it is known to have its slower years as well. Hence, we're vigilant about finding ways to balance our debt within the organization.

At this time, we have reached the end of the question-and-answer session, and I will now turn the call back over to Scott Montross for any closing remarks.

I'd just like to say thank you again for joining our call. Just to leave you with a couple of takeaways. Our first quarter backlog for steel pressure pipe should position us well for improved margins in the second quarter. Our precast business has remained strong with record order book, which should facilitate the potential for margin expansion as we progress through what appears to be, as I said before, a strong 2022 precast market. Finally, we're pleased with the integration of ParkUSA; it's on schedule, and we continue to be excited about the future growth prospects of the business. Again, I'd like to thank you for your time and attention today. We look forward to speaking with you again on our second quarter call in August. Thank you very much.

This concludes today's conference call. You may disconnect your lines at this time. Thank you all for your participation, and have a great day.