Good day, and welcome to the Northwest Pipe Company Second Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Scott Montross, President and CEO. Please go ahead.

Good morning, and welcome to Northwest Pipe Company's second quarter 2023 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, August 2, 2023, at approximately 4:00 p.m. Eastern Time. This call is being webcast, and it is available for replay. As I 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, 2022, 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 and outlook, and Aaron will then walk you through our financials in greater detail. We ended the year with a strong backlog, positioning us well for a solid 2023 despite the slow first quarter. Our second quarter results came in relatively in line with our expectations, with revenues of $116.4 million improving 17.4% over the first quarter and declining by only 1.8% compared to the prior year quarter. Revenue from our SPP segment rebounded to $77.3 million following a slow first quarter, which was up slightly from the prior year quarter due to higher selling prices, which were partially offset by a decrease in tons produced resulting primarily from changes in product mix. The SPP backlog, including confirmed orders, was $343 million at June 30, which remains strong by historical standards. This reflected a decline in our backlog from the near-record $370 million we saw at March 31, 2023, though it was up from $338 million as of June 30, 2022. While bidding activity is projected to be lower in 2023 versus last year's level, we are currently awaiting the potential award of multiple projects that have recently been bid and that could stabilize the near-term backlog. Prices of hot-rolled band steel moderated in the second quarter, remaining fairly high by historic standards, but were down 20% compared to the second quarter of 2022. In general, higher steel prices are a positive for our SPP business. Now turning to our precast segment. Precast revenue decreased 5.6% from the prior year quarter, to $39.1 million, primarily due to reduced shipments resulting from the current interest rate environment impacting the U.S. construction market, which were partially offset by higher selling prices given higher raw material input costs. As anticipated, our sales have continued to be impacted by the rising interest rate environment which has persisted for more than a year and just increased again last week. Our precast-related order book remains strong and totaled $58 million as of June 30, 2023, which was consistent with our order book as of March 31, 2023, and down from $75 million as of June 30, 2022. Our second quarter consolidated gross profit decreased 6.6% year-over-year to $22.5 million, resulting in a gross margin of 19.3%, down from 20.3% in the second quarter of 2022. Our SPP gross margin of 16.3% improved by approximately 190 basis points over the second quarter of 2022, primarily due to the strong project bidding environment we experienced in the second half of 2022 which resulted in improved project pricing and led to higher margin quality of projects that we have in backlog. Precast gross margin of 25.3% of precast sales in the second quarter of 2023 decreased by approximately 600 basis points from the record highs experienced in the second quarter of 2022. The decline was predominantly due to higher production costs related to lower levels of production and the associated underabsorption given the impact of rising interest rates on commercial construction and the residential housing markets. The lingering effect of higher raw material costs further contributed to the decline in our precast gross margin. Next, I would like to provide an update on our growth initiatives. While driving growth in the precast-related space remains our top strategic priority, we remain highly focused on maximizing our steel pressure pipe water transmission business to become as efficient as possible while retaining our market-leading position at 55% market share. As many of you are aware, the SPP market has significantly consolidated over the years, and acquisition opportunities remain very limited. As such, our priorities for the SPP business are centered on driving enhanced shareholder value through identifying opportunities for incremental cost reduction measures at the plant level and focusing on lean manufacturing as well as maximizing margin over volume. I'd also like to add that we remain encouraged by the amount of activity we're seeing in our current and upcoming water transmission projects. With our nationwide footprint and as an industry leader in this space, we are well positioned to participate in the increasing amount of water transmission grid infrastructure projects required to support the increasing United States population. For a more complete view of these projects, please review our Investor Presentation, which can be found on the Investors tab of our website within the Events and Presentations section. I'll now turn to a discussion on our precast strategy to further diversify our business with a goal of improving our resiliency through economic cycles and driving long-term consistently profitable growth. We've made tremendous strides in our progress to integrate the acquisition of ParkUSA, which remains ongoing. As part of that effort, we have been continuing to execute on our organic growth product spread strategy. As a reminder, our Level 1 product spread effort is geared toward building out capacity utilization at our Texas-based ParkUSA plants to maximize efficiency and production. Through the second quarter of 2023, the Park team bid on over $27 million worth of projects outside of the State of Texas, predominantly in the Western region of the United States. Of that, the team has booked approximately $4.5 million worth of orders outside of Texas, up from $2 million in the first quarter. Over the last 12 months, we've successfully booked over $8 million in projects. Our objective remains to continue growing the Level 1 product spread throughout the remainder of the year and beyond. Which leads us to Level 2 product spread, aimed at producing and shipping Park products at our legacy Northwest Pipe plants. As previously discussed, the preexisting Geneva precast locations have been serving as the pilot location for Level 2 product spread activity, which has been progressing quite well as we continue to bid and produce new projects. Year-to-date in 2023, as of June 30, 2023, we've produced several projects at Geneva. We are currently in production on six Park product orders at Geneva, with more scheduled to come. We plan to expand on this strategy once Park products are more comfortably established at the Geneva locations, at which point we'll begin to produce the Park products at additional Northwest Pipe legacy locations. In addition, we have dedicated resources to reinvest in our precast locations to drive increased production capabilities and capacity improvements. An example of this is our $16 million new RCP manhole facility at our Salt Lake City, Utah, plant. Despite the short-term challenges affecting the precast business, we believe in the long-term value proposition of this business and the investments we are making to drive profitable growth. Before I conclude, I'd like to summarize our outlook for the remainder of the year. Aside from some of the shorter-term challenges we are working through, such as our ERP implementation, in addition to the continued pressure we're seeing in the interest rate environment, our outlook for the second half of 2023 remains positive. We entered 2023 with a robust SPP backlog near record territory, which we believe will carry us through into 2024 and lead to a strong finish to 2023, despite the lower level of project bidding in 2023. For the third quarter of 2023, in our SPP business we anticipate similar revenue levels compared to the third quarter of last year, driven by continued strength in our backlog, even when considering an expected downward moderation in bidding volume and the resulting backlog in the second half of 2023. We expect SPP revenue to remain at a higher level, similar to 2022 levels, but with improved gross margins. In our precast business, we anticipate macroeconomic factors to continue to weigh on our volume and associated revenue in the third quarter, which could result in some additional downward pressure on our margins in the quarter. Aside from these challenges, we remain cautiously optimistic demand will remain solid for the remainder of the year, with 2023 off only modestly from what many consider to be a record year in 2022. We continue to believe we are well positioned to benefit longer term given the significant level of pent-up demand specifically for residential housing, a growing need for infrastructure spending in the United States and our strong market position and our presence in key areas such as Utah and Texas, which are among the top five fastest growing markets in the U.S. In summary, we are very pleased with the strides we have made to execute our strategy to drive enhanced shareholder value and long-term profitable growth. We remain bullish on our goal for our precast-related business to grow to a similar size as our SPP business, supported by the strength we've been maintaining in our SPP bidding activity. Looking ahead, we remain focused on: one, finalizing the integration of ParkUSA as quickly and efficiently as possible; two, persistently focused on margin over volume; three, continuing to implement cost reductions and efficiencies at all levels of the company; and number four, continuing to identify strategic opportunities to grow the company once we have completed the integration work with ParkUSA. Thank you to our dedicated team at Northwest Pipe for your continued persistence and execution against our growth strategy and for operational safety. 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 begin today with an overview of our second quarter profitability. Consolidated net income for the second quarter was $7.4 million, or $0.74 per diluted share, compared to $9.7 million, or $0.97 per diluted share, in the second quarter of 2022. Consolidated net sales decreased 1.8% to $116.4 million, compared to $118.5 million in the year-ago quarter. SPP segment sales were relatively flat at $77.3 million, compared to $77.1 million in the second quarter of 2022, resulting primarily from a 7% increase in selling price per ton due to product mix, which was almost entirely offset by a 6% decrease in tons produced resulting primarily from changes in project timing. Precast segment sales decreased 5.6% to $39.1 million, compared to $41.5 million in the second quarter of 2022, primarily due to a 13% decrease in volume shipped due to lower demand, partially offset by an 8% increase in selling prices due to increased raw material input costs. Consolidated gross profit decreased 6.6% to $22.5 million, or 19.3% of sales, compared to $24.1 million, or 20.3% of sales, in the second quarter of 2022. Steel pressure pipe gross profit increased 13.2% to $12.6 million, or 16.3% of segment sales. This compared to gross profit of $11.1 million, or 14.4% of segment sales, in the second quarter of 2022, primarily due to changes in product mix. Precast gross profit decreased 23.6% to $9.9 million, or 25.3% of precast sales, from $13 million, or 31.3% of segment sales, in the second quarter of 2022, primarily due to increased production costs. Selling, general and administrative expenses increased 8.8% to $11 million, or 9.5% of sales, compared to $10.1 million in the second quarter of 2022, or 8.5% of sales. The increase was primarily due to $0.6 million in higher salaries and associated benefits expense and $0.3 million in higher administrative expense. Further, as many of you are aware, we committed to a large project to improve our ERP platform to integrate our ParkUSA business, which contributed to an increase in professional fees compared to the year-ago quarter. In addition to some smaller increases for travel and advertising, all of the aforementioned were partially offset by $0.5 million in lower incentive compensation expense. For the full-year 2023, we expect consolidated selling, general and administrative expenses to be in the range of $44 million to $46 million. Depreciation and amortization expense in the second quarter of 2023 was $3.9 million, compared to $4.2 million in the year-ago quarter. For the full-year 2023, we expect depreciation and amortization to be in the range of $16 million to $18 million. Our non-cash incentive compensation expenses were $1.3 million and $0.7 million in the second quarters of 2023 and 2022, respectively. Interest expense increased to $1.2 million in the second quarter of 2023, compared to $0.9 million in the year ago quarter. We expect interest expense of approximately $5 million for the full year 2023. Our second quarter income tax expense was $2.7 million, resulting in an effective income tax rate of 26.5%, compared to $3.4 million in the prior year quarter for an expected income tax rate of 26.1%. Our tax rates for the second quarters of 2023 and 2022 were impacted by nondeductible permanent differences. We continue to expect our income tax rate for full year 2023 to range between 24% and 26%. Now I'll transition to our financial condition. We generated net cash provided by operating activities of $1.2 million in the second quarter of 2023, compared to $8.5 million in the second quarter of 2022, due primarily to changes in working capital and lower profitability. Our capital expenditures totaled $4 million in the second quarter of 2023, which was flat with the prior year quarter. We continue to anticipate total CapEx to be in the range of $24 million to $28 million for full year 2023. As of June 30, 2023, we had $70.1 million of outstanding borrowing on our credit facility, leaving approximately $54 million in additional borrowing capacity on our credit line. We amended our credit facility during the quarter, providing for a five-year term ending in June 2028. The $125 million facility provides an option to upsize the credit up to $50 million and also loosened the senior leverage ratio covenant required from 2.5x EBITDA to 3x EBITDA. Other modifications and terms were relatively minor and can be read in their entirety within the Form 8-K filed on July 3. We appreciate the continued support from our financing partner, Wells Fargo. Before I conclude, I'd like to provide an update on our progress on the ongoing ERP implementation and material weakness remediation projects. In relation to the former, we have evaluated and have committed to certain business process changes that we are now working to push into the system architecture in addition to the corresponding change management with our employees involved in the day-to-day transacting at Park. These third quarter activities, coupled with robust training, will set the table for materials requirements planning automation, which we expect to be initially deployed at the end of the year. Remediating the material weakness continues to be a priority of management and our Audit Committee. We are currently working to institute more robust internal monitoring of the manual controls that failed at Park surrounding revenue and cost of sales. We will also complete more frequent testing to gain additional comfort that the internal controls are executing as designed. While this project will continue through this year's audit, it is important to reiterate that the internal control deficiencies identified have not impacted the accuracy of our current or historical financial results. In closing, I'm very pleased with the progress our entire team has made to position us well for another strong year in 2023. I would also like to thank our employees for their continued prioritization of our safety program and to all our stakeholders for their continued confidence in Northwest Pipe.

Thank you. We will now begin the question-and-answer session. Our first question today will come from Julio Romero, of Sidoti & Company. Please go ahead.

Great. Thanks. Hey, good morning, everybody.

Good morning.

Good morning.

Can you maybe start on SPP, at the bidding volume for the steel pressure pipe segment you saw during the second quarter? And can you maybe expand on the potential award of multiple projects that you recently bid that you mentioned in the prepared remarks and any sense of the type of projects you bid and the bid margins, et cetera?

Well, the second quarter of this year was relatively large bidding because there's a couple of major projects that bid in the second quarter. One of the major projects was Bull Run Reservoir here in the Portland area. And that, I'm just going to give a range, otherwise, it gets a little bit too specific, probably somewhere between $20 million and $25 million for that job. And there are a couple of other ones that bid that are not quite that large, Julio, that we're waiting for what's going to happen on those. And I would tell you that the margins on those products are pretty consistent with the kind of margins that we're seeing right now in the SPP business. So in line, maybe a little better, but pretty much in line.

Okay. That's very helpful. And then I think you might have touched on it in the prepared remarks, but can you talk about the trend of steel prices and how that may impact the steel pressure pipe business, if at all?

We've seen, obviously, steel prices have come down a bit through this part of the year, into the middle of the year. We're seeing prices in hot-rolled bands now that are probably somewhere between $850 and $900 a ton. There's a couple of things that are going to impact this as we go through the rest of this year. One is capacity coming online at various places, which obviously adds to the supply in the marketplace. But generally, what you see in the back half of the year, especially as you get to the fourth quarter, are outages at the steel mills that start to tighten up supply a little bit and have a tendency to push the prices up. So we're going to have to see what happens. I think in a lot of people's views, it looks like it's going to be where it is right now and stay kind of stable for a while through the end of the year. But I think what we've seen in the past several years is the steel price is never really stable. It's either going up or coming down. So I think, Julio, the biggest thing is how do the outages play against the extra capacity coming online and what do the lead times do? Because ultimately, my view on it is it could have some upward pressure as we get through the back part of the year. But that remains to be seen. There's a lot of different forces at work in this right now.

Okay. Understood. And then I just have a broader kind of big-picture question. The recent flooding in the Northeastern U.S. kind of highlighted a need for greater infrastructure for drainage and sewer systems, and Northwest produces products that could be part of the solution for that. Just talk about if the recent headlines are focused on the floods could help kind of unlock the pipeline for water infrastructure spend and drainage spend needed at all.

Well, just to address both of the things that you said, sewage or dirty water type stuff. When you look at our SPP business, it's a relatively small part of that business. It's mostly potable water. In the Eastern United States with the flooding, when you look at drainage type stuff, I think you're looking at probably more of a localized product if you're talking about the precast business. Where we could play in a big way in that business is the environmental systems and solutions that we make at ParkUSA with being part of those systems, which we can ship all over the country. So I think as far as the Eastern United States, Julio, the Park products are the ones that probably would play the best out there with that kind of situation, at least at this point. Because when you talk about precast products, I mean, you're talking about products that generally ship 150, maybe 200 miles radius around the plants, and our precast infrastructure plants are all in Utah. So it would probably be difficult to get out there. But I think the Park products could play into environmental solutions and taking hydrocarbons and cleaning the water in those projects out in the Northeastern United States. So that's really probably what we would focus on for there.

Understood. Well, appreciate you taking the question. And I’ll hop back into the queue.

Absolutely. Thank you.

Our next question is from Jean Ramirez of D.A. Davidson. Please go ahead.

Hi. This is Jean, for Brent Thielman. How are you?

Good. How are you?

Good. With precast orders down over 20% in the second quarter, do we expect to see that sort of pressure on precast revenue in the third quarter or the second half? And what would help offset that?

I think that when you look at the precast order book that we have right now, if you look at it from the first quarter of 2023 to what it ended at the second quarter of 2023, it was pretty flat, right? If you compare it to the second quarter of 2022, it really was pretty much an all-time record market. So the order book was up significantly at that point. I think what you're seeing right now is a more normalized order book. And I think the thing that weighs on that, obviously, is the interest rate environment. Because the interest rate environment puts pressure on just about everything precast-related; obviously, residential housing and even, to some extent, the nonresidential housing. I think one of the interesting things right now is we're starting to see what I would call a little bit of maybe upward movement in the Geneva order book, which is precast infrastructure, which is obviously mostly related to residential housing. So that's an interesting scenario as we go forward. The other thing that I think affects that precast side of the business is also the pent-up demand for housing. Even though we see the interest rates going where they are and they've been the highest in many, many years, you still see a shortage of inventory in the marketplace and people still buying houses where they're available. So when we're looking at the precast market and looking at both sides of it, residential and nonresidential, it doesn't look like either side of it has a significant falloff through this year, and that's why we said only modestly off versus last year. Because certainly, it looks like it still has some strength. What you do see is a little bit less demand than we saw in the all-time record year, which is probably bringing margins to what I'd call probably a more normal range than what you would see in precast. I mean, the margins that we saw in the second quarter of 2022 of 31% were obviously astronomical margins. What we're seeing now, around 25% or 26%, are probably more normalized margins. And I'm not sure if I hit all the pieces of that question you asked. So if there's another piece of that, fire away.

No. I think that's pretty much it. And on SPP, you gave us an idea how to think about third quarter. Do you mind repeating how you're looking at margins for the third quarter for SPP?

I think, like as we've gone through the last couple of calls, we've talked about that the SPP business was going to get on a pretty similar trajectory revenue-wise as what we saw in 2022. But margin-wise, there were going to be better margins. And we obviously saw that in the second quarter, with a 16.3% margin, which I think was 190 basis points over where we were last year. I think that kind of trend continues. I think you may see a little bit more upward movement in the margin in SPP as we go through the year and we have a little bit higher production volumes and better overhead absorption, but it's probably going to be in that normalized range between probably 16% and 18%.

Great. Thank you. I’ll hop back into the queue. Thank you.

Sure. No problem.

At this time, we will conclude our question-and-answer session. I would like to turn the conference back over to Scott Montross for any closing remarks.

Thank you. Again, thanks, everybody, for joining the call today. And as we've said throughout the script, we started the year with a record backlog or close to a record backlog in SPP, and we're really riding a pretty strong wave of backlog through 2023, even with a little bit lower bidding environment that we're seeing in the year. So we're pretty well positioned to do well on the steel pressure pipe side in 2023. And on the precast side, even with the elevated interest rates and the impact on both commercial and residential, we're only seeing the segment off just modestly versus where we were last year. At least at this point, things look still to be strong. So I think our long-term view and focus on the precast business remains unchanged. And as we've said many, many times, our goal is to get the precast business to a similar size as the steel pressure pipe business in the next few years, and that's really what we're focused on doing. So I'd like to thank everybody for their time and attention today, and we'll look forward to speaking to you again in November. So thank you.

The conference has now concluded. We thank you for attending today's presentation. You may now disconnect.