Q4 2020 Northwest Pipe Co Earnings Call
Full year 2020 earnings Conference call. My name is Scott <unk> and I'm, the president and CEO of the company.
Im 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 March three 2021 and approximately four PM Eastern time. This call is being webcast and it is available for replay.
As we begin I would 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, 2020, and and our other SEC filings for a discussion of 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 today for joining our call.
To discuss our results I would like to begin with a review of the year and our 2020 performance. Aaron will then walk you through our fourth quarter and full year financials in greater detail.
2020 was a highly challenging year, given the ongoing COVID-19, pandemic and the significant impact and it has had on our employees their families. Our society and the economy at large that northwest pipe company, we've always taken safety very seriously the onset of the <unk>.
Demick solidified that even further as we went to great lengths to ensure the health and safety of all of our employees their families and our communities is our top priority.
During the past year, we've learned to be even more efficient while at the same time continuing to enable remote working arrangements and additional paid leave for many of our employees.
Throughout this trying period, we've experienced operational disruptions related to the virus at our plants and the United States. However, we've been able to work through these issues and continue to produce critical water infrastructure products and ship those products on time to our customers.
As you May recall, we also experienced a temporary government mandated closure at our water infrastructure manufacturing facility and similarly, Rio Colorado, Mexico for the majority of the second quarter due to the pandemic. However, since resuming operations in June we were able to quickly returned.
And two and then exceed pre COVID-19 production levels.
Now turning to our results.
As of December 31, our backlog, including confirmed orders for the northwest pipe legacy business was approximately $221 million compared to $231 million at the end of the third quarter of 2020 and $258 million at the end of the fourth quarter of 2019.
Our fourth quarter marks our 10th consecutive quarter with a backlog exceeding 200 million, which we believe is very strong by historical standards.
Over the past 10 quarters, our backlog has fluctuated between $201 million and $276 million.
Our backlog was impacted by the bidding delays that we experienced and the second half of 2020 related to the pandemic. These delays will have an effect on early 2021 and have been compounded by the adverse nationwide weather events. We've experienced in recent weeks, however, I would lie.
To reiterate these are not project cancellations, but simply delays. We view. These disruptions is temporary in nature as the current steel pressure pipe bidding schedule continues to look strong. In addition, our order book for precast concrete business has remained elevated even during the winter months.
Which is seasonally slower time of the year.
Despite the current complex environment and continued strong performance and the Geneva Precast business is self increase both our revenue and gross profit dollars.
We generated annual net sales of $285 9 million, which included a $44 $2 million contribution from Geneva. This represents only 11 months of Geneva revenue as we completed the acquisition on January 31 of 2020.
Solid legacy margins and positive contributions from Geneva helped drive a seven 1% year over year increase and our gross profit dollars to $50 5 million and a gross margin of 17, 7% up 80 basis points from 2019.
These positive results demonstrate a key element and our growth and diversification strategy, which I will elaborate on further momentarily.
Revenue from our legacy steel pressure pipe business was negatively impacted by decreased production volumes related to the shifting of job timing out further into 2021.
While steel pressure pipe jobs have momentum the process for permitting bidding and engineering projects has been taking longer due to the highly complex and fluid challenges inherent with the current macroeconomic environment.
With this as a background and we expect first quarter to be challenging due to volatility volatility and delivery disruptions and the steel market, resulting in production delays.
The impact of extreme weather conditions, and various parts of the country as well as period specific effects of bidding delays and the steel pressure pipe business.
However, we are currently seeing a strong 2021 bid and calendar for the steel pressure pipe business as well as a pre cast concrete order book that is strong even during the seasonally slow time of the year as a result, we expect market conditions to stabilize as we move through the early part of 2021.
Now I'd like to turn to a discussion of our two pronged growth strategy first we are focused on growth and the precast concrete market. We entered this market just over a year ago with the acquisition of Geneva. Since then the transactional nature of the precast concrete business has helped to offset slower periods and our legacy.
Steel pressure pipe business, which is exactly what the strategy was intended to do.
Given our expansion and acquisition opportunities are fairly limited and the $450 to $600 million steel pressure pipe market, we've expanded our addressable market and the U S to include higher product margin opportunities and the pre cast concrete space, which for water related free cash products, specifically as an.
<unk> three $5 billion to $5 billion.
Market annually.
Our ideal acquisition candidates and the free cash concrete market would possess good organic growth potential straw.
Strong margin characteristics solid asset efficiency, and a strong cash flow profile.
We remain very active and evaluating opportunities with multiple potential targets.
As such we have been intently focused on building our cash on our balance sheet.
We ended the year with $37 9 million and cash exceeding the balance of 31 million on December 31 last year, which was just prior to the Geneva acquisition.
As you May recall, we financed the $49 $4 million acquisition of Geneva through a combination of cash on hand, and a $16 million term loan with our banking partner.
Our ability to essentially rebuild our cash reserves from scratch and highlights our strong management of current assets.
In addition, we are very pleased with how the integration of Geneva has trended over the course of the past year. We are currently and the process of commercializing new innovative RCP and manhole for Houston corrosive sewer applications, which we believe have significant organic growth potential.
The second prong of our strategy is to maximize our core steel pressure pipe water transmission business, which remains key.
Our goal is to continue to optimize this business in order to maximize shareholder value.
And over the last three years, we've made significant progress through cost reduction measures and lean manufacturing to drive further efficiencies and we are currently working with outside engineering resources to explore opportunities for creating additional efficiencies to drive further cost reductions.
I will now turn to look at current and upcoming water transmission projects.
And the Texas market the ongoing multiyear multi agency Houston surface water program is expected to bid multiple segments and 2021, representing 27000 tons of pipe for the West and North Harris County regional water authorities.
We anticipate both authorities, having additional projects representing 25000 tonnes beyond next year.
The next new reservoir to be built in Texas is Lake Ralph Hall for the Upper Trinity Regional Water District. This is another major program currently and design that includes a new dam and pipeline to move water under the Dallas Fort Worth Metroplex, the pipeline represents 17000 tons of.
Pipe construction is now expected to begin late 2022 early 2023. There is currently a bid package for the new dam construction phase.
The Alliance regional water authority program, and Central Texas, and with another multi agency regional water program.
This program includes a large pipeline pump stations and treatment facilities and represents 15000 tons of pipe.
Construction is expected to begin in 2021 and appears to be holding the forecasted timeline.
And the western market California's prop, one and seven 5 billion bond for water infrastructure has created much needed funding for projects within the state. According to the California and natural resources agency, 95% of those funds have been appropriated for various projects as of the two.
2021 fiscal year.
We expect requirements for these projects to stretch out over the next several years.
Water reuse programs have generated new opportunities and the California market on which we expect to see bidding activity continue for the next year. We've identified three sizable projects bidding in 2021, representing 6600 tons.
And WD is heading our regional reuse pilot project in conjunction with La Sanitation District. This reuse program would treat and recycle water from one of the largest reclamation facilities and southern California, and involve 60 plus miles of large diameter pipe.
And the current demonstration facility has been operating for six months and construction of the full scale treatment and conveyance facility could begin as early as 2025.
The PC CP rehabilitation program will result in about 5000 tons annually over the next two to three years, we have seen a slowdown and this work.
This year, which appears to be COVID-19 related so the timing of these projects has shifted to later this year.
The site's reservoir is a water storage project and has received funding from prop one.
It will involve over 30 miles of 144 inch pipeline. The project is forecasted to begin in 2024 25.
The southern Nevada water authority has begun moving forward in earnest with and expansion of the southern part of their water delivery system. This program, which has recently started preliminary design activity will include approximately 25 miles of 78 inch pipe with construction contingency tentatively scheduled for 2000.
24.
And North Dakota progress has been slow on the 140 mile 87000 ton Red River Valley water supply project. The two mile demonstration project bid in January of this year and was awarded and northwest pipe.
The bulk of this project is dependent upon a 2021 legislative session to commit to for funding. We are closely tracking the outcome of further budget approval now and discussion at the state Legislative Assembly.
And Colorado, we are tracking a late 2020 record of decision by the U S. Army Corps of engineers for the Northern integrated supply project, if favorable construction of up to 150 miles of pipeline is expected to start in 2023. The project is located 60 miles north of debt.
And the Fort Collins area.
In summary, our employees have continued to do an excellent job of executing our strategy and doing so as safely as possible throughout a highly challenging year. The structure of our business continues to be strong. The current steel pressure pipe bidding calendar remains healthy despite delays due to the broad.
And economic uncertainty as such we are cautiously optimistic for 2021 will be a solid year lastly, we remain well positioned to continue to execute our two pronged growth strategy, given our strong balance sheet and liquidity position.
As we move forward, we will remain focused on on.
Our number one priority of taking every precaution to keep our employees safe through the ongoing COVID-19 pandemic number two our persistent focus on margin over volume.
Number three identifying strategic growth opportunities for the company and number for continuing to implement cost reductions and efficiencies at all levels of the company.
I will now turn the call over to Aaron who will walk through our fourth quarter and full year financial results in greater detail.
Thank you Scott and good morning, everyone. I Hope you are all staying safe and healthy I'll begin today with our fourth quarter results.
Adjusted net income for the fourth quarter of 2020 was $5 6 million or <unk> 57 per diluted share compared to adjusted net income of $10 2 million or $1 <unk> per diluted share and the fourth quarter of 2019.
Adjusted net income excludes unique and unusual items and is provided for comparability purposes.
The fourth quarter of 2020 excludes <unk> 4 million and amortization expense of intangible assets acquired with Geneva pipe and precast net of applicable taxes.
And this compares to $1 9 million of favorable insurance recoveries associated with the Saginaw fire net of taxes and the fourth quarter of 2019.
Please refer to the reconciliation of non-GAAP financial measures and our earnings release for a comprehensive accounting of the fourth quarter and full year adjustments.
Our fourth quarter net sales decreased 4% to $69 4 million compared to $72 2 million and the fourth quarter of 2019.
Geneva sales were $11 3 million and the fourth quarter of 2020.
Legacy revenues decreased $14 1 million for from the year ago quarter due to a 31% decrease and tons produced due to changes and product project timing.
This was partially offset by a 17% increase and selling price per ton due to product mix.
Gross profit decreased to $12 4 million or 17, 8% of sales compared to $16 9 million or 23, 4% of sales and the fourth quarter of 2019.
For comparison purposes gross profit and the fourth quarter of 2019 was elevated by $1 4 million and net insurance recoveries.
Excluding this benefit our gross profit margin for the fourth quarter of 2019 would have been 21, 5%.
Selling general and administrative expenses were $5 $8 million and the fourth quarter of 2020 compared to $4 6 billion and the fourth quarter of 2019.
The quarterly increase was primarily due to amortization and other costs from the addition of Geneva, including costs. We are selectively incurring to further develop our precast business to support future growth.
Now turning to our full year results.
Adjusted net income was $20 9 million or $2 12 per diluted share and 2020 compared to $26 6 million or $2 72 per diluted share in 2019.
2020, adjusted net income excludes the following one time items.
$2 6 million of acquisition related transaction costs too.
And $2 4 million and insurance recoveries, resulting from the Saginaw fire.
$2 2 million and amortization and other acquisition related accounting adjustments associated with Geneva, and the associated tax impact of the aforementioned items.
This compares to adjusted net income and 2019, which excluded the following.
$2 3 million and proceeds related to the favorable legal settlement associated with our former tubular products business.
<unk> 6 million of acquisition related transaction costs as well as the corresponding tax impact for these adjustments.
Net sales increased two 4% to $285 9.002 million 20, compared to $279 3.002 million 19 debt.
And the Geneva operations contributed $44 2 million and net sales in 2020.
Net sales decreased at legacy facilities, primarily due to a 28% decrease and tons produced which were partially offset by a 20% increase and signed price per ton and the.
The decrease in tons produced.
And with due primarily to project timing and mix and addition to a mandatory government shutdown of our SLR C facility due to the pandemic and the second quarter of 2020.
The increase and selling price per ton is due to changes and product mix.
Gross profit increased seven 1% to $50 5 million or 17, 7% of net sales in 2020 compared to $47 2 million or 16, 9% of net sales in 2019 to.
The increase in gross profit was primarily due to the addition of acquired <unk> operations, which was partially offset by a lower contribution from our legacy business.
Our 2019 gross profit was reduced by $1 6 million of incremental production costs incurred with the business interruption portion of our insurance claim.
Excluding this timing difference our gross profit margin in 2019 would've been 17, 5%.
Selling general and administrative expenses increased 34, 9% to $25 million or eight 7% of net sales and 2020 compared to $18 5 million or 6% of net sales in 2019.
The increase in SG&A was primarily due to the addition of Geneva, including higher acquisition related transaction costs.
<unk> related from the extended workforce and amortization expense from acquired intangible assets and.
In addition, we incurred higher incentive compensation expenses and 2020.
For the full year of 2020, we had and income tax rate of 25, 7%.
Our 2019 tax rate of 14, 5% was unusually low due to changes to our valuation allowance.
Based on existing tax regulations, we are expecting a 2021 tax rate between 26 and 27%.
Now transitioning to our financial condition.
Our balance sheet remains very strong.
At December 31, total available liquidity exceeded $90 million consisting.
Consistent with $37 9 million and cash and cash equivalents and approximately $53 million from our line of credit.
We had $13 8 million and debt outstanding at the end of 2020.
We generated cash flows from operations of $56 1.002 million 20, compared to $42 9.002 million 19 dip.
Depreciation and amortization expense was $14 6 million for the year.
Our 2020 capital expenditures totaled $14 million.
We currently expect our for full year 2021 capital expenditures to be and the range of $12 million to $15 million consisting entirely of maintenance capex.
In summary, we are very pleased with our 2020 financial results, especially considering the circumstances in which they were achieved.
As Scott highlighted we have cautious optimism about 2020 one's prospects. Despite some headwinds we are anticipating and in the first quarter related to the recent and weather events, the volatility and steel markets and project delays.
Like to extend my thanks to all of our employees for their many contributions for the company's 2020 achievements.
One more important and their continued commitment to safety.
I'd also like to thank our shareholders for their ongoing support of northwest pipe.
I will now turn it over to the operator to begin the question and answer session.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
And using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question is from Brent Thielman from D. A Davidson. Please go ahead.
Hey, good morning, Scott and therein.
Hey, Brian and Brian.
Hey.
The first question pretty.
Pretty extraordinary moods and steel prices.
Lately I guess first part of the question do you feel your margins are pretty well protected for that and then the second part of the question.
Scott.
And assuming your Eric sorry, and prices are probably gone way up to offset that.
And that offset a large portion of some of the volume declines you're expecting here early in the year.
Well when you look at what's going on with steel pricing Brent.
And really it started mainly in the fourth quarter of 2020.
And actually what you have is a situation in 2020 versus 2019.
On the steel price wasn't much different when you average for the year. It was just the fourth quarter and that really started to have the impacts so that steel price and the steel that you are buying and the fourth quarter likely affect the revenue as you more get into the the late first quarter early second quarter of the year.
And that starts to come and then obviously after that the longer the steel prices stay up the the higher the.
And the.
And it pushes the selling price simply because of what the.
And the piece of the steel cost is so on the on the margin side when Youre looking at it were when we bid our jobs, we go out and get a steel price and use that to go out with.
For the customer generally that works pretty good we have seen some cases with the.
The volatility and steel and.
How overloaded the steel order books appear to be appear to be that we've gone back and then there may not be steel available or we have to get it from somebody else, which has a little bit of and impact, but we have.
And several people here that have been and the steel business for for a lot of years. So we're kind of used to seeing this the same thing really happened in 2008. So.
It's not something that we haven't seen before it's just really managing your way through it but certainly we'll have the steel price stays high for an extended period of time, which it appears that it will.
Leased for at least another few months and that certainly pushes the selling price up and what was the what was the second part of the question Brent.
Well, Scott it yet and I assume that current prices would move higher and I, yes.
Trying to think about that and the context that youre going to have some volume pressure it sounds like here and the early part of the year at least and could that be up to us.
Big portion of that yes, I think that.
That's the key the yearly and the first quarter were really seeing.
Multiple things one is the amount of work that we actually saw a slide out of 2020 and into 2021, maybe a little bit and into 2022, but if you look at what really split out of the second half for the year.
By our calculations it was well in excess of $100 million worth of work. Okay. So so it was a it was a big piece of work. So right now what we're seeing is day pretty solid bidding schedule in 2021, it's just a matter of really getting ourselves through the early.
Part of the year and some of the weather and the steel disruptions that we saw on the early part of the year, but what I would say is and I.
Look at the bid log and big calendar every week and have a big meeting with our head of sales and our heads of operations and that bid calendar as we go out.
Especially over the next several weeks looks as good as I've seen it in a while.
In fact, we've actually seen some jobs inserted into the bid calendar and other jobs actually pulled up and the big calendar. So that's why we've got some cautious optimism about 2021.
Okay and Scott.
Sounds like part of the slide was in fact, some of the weather and that you've seen.
In terms of the impact and the big calendar.
Yes.
A little bit, but I think Brent and most of <unk>.
Most of the impact that we saw with jobs sliding and theres still a little bit of that going on with jobs sliding around but most of the impact it pushed jobs out of 2000 and 'twenty into 'twenty. One was really was really COVID-19 related when you. When you look at the first part of the year when and when this COVID-19 virus really started to kick in.
And the early second quarter you had.
Period of time, it may have been a month and a half or so where everything kind of stopped because people are trying to figure out how to actually do things remotely and and.
<unk> work and business going so you had stuff pushed out into the second part of the year, but what you had once you got into the second part of the year as you had a situation where.
You have people working remotely and they're able to do the work with the permitting the bidding on jobs. The engineering of jobs started to take longer and longer which is why youre starting to see as much light out into 2021 and it could be as high as 130 million debt actually sit it split out into two.
'twenty one early 'twenty two.
So when you think about that.
Just taking a look at that looking at like 2019, which was relatively close to a record year on the water transmission and steel pressure pipe side and looking at 2020, obviously some of that stuff that slipped out of 2020 will have ended up being revenue and 2000.
'twenty and then additional revenue and and 2021 earlier and a year. So just looking at that for 2020. When you look at that much work sliding that certainly makes the steel pressure pipe.
Business, a little bit larger and 2020 that and actually ended up being so you could actually put some numbers together and kind of look at debt and say well there was a significant amount of more potential there its actually sit on slid out into 2021.
And Scott for that either a dollar or a tons perspective are you able to give us maybe a little more context on how much the market could be up this year.
At the Cowen and plays out as planned and I know, it's not always the case, but well you know.
What I can tell you Brett is looking at the number of jobs that we have.
We have forecasted to do in 2019.
19 debt we have.
Add about 242 jobs. The bid now that was that's a really big bidding year, which obviously resulted in a pretty large near record year and in 2019 and.
And in 2020, we had about 209 jobs that were that were bidding during that time and that probably leaked down a little bit more because some were actually leaked out of the end of the year. We're actually looking at a number right now for 2021 and the amount of jobs that are between two.
2020, and 2019 somewhere and about 220 job range.
So.
So pretty strong and.
And solid bidding debt.
We are currently seeing this year for the 2021 big calendar.
Okay. That's helpful.
Last one for me is just on Geneva.
Any context on how much higher that order book is there I think I mean, when you bought it and we're sort of entering this pandemic and I don't know if thats a fair comparison.
Last year, just trying to think about how much the business.
And grow off net.
If you look at.
Yes, if you look at the.
Our results were a revenue for Geneva for two.
2020, and we were we were weighted about $44 2 million well that didn't include about $3 million.
And at Geneva had and January prior to what we owned them. So total Geneva business was was likely in the area of about between somewhere between 47 and $47 5 million, we're expecting based on whats going on and the pre cash business that that to continue to grow the order book right.
Now that we have for Geneva has is in a similar territory to what we saw last year, when we were transacting for Geneva and <unk>.
The thing that we have going on for the free cash businesses.
A lot of the drivers related to population growth and and.
And housing starts and when you look at single family construction starts in 2020 that was one of the areas and the construction market that actually grew in 2020 and it is expected to continue to grow in 2021, I think we're seeing that.
And I know, we're seeing it and the specific the Pacific northwest with how little housing inventory.
<unk> is and the market right now and the building thats going on than the low interest rates support that in June and with Geneva specific and really and Utah, We're seeing housing starts.
<unk> claim and the area of the National range, if not a little bit higher.
And because there is a strong net migration into into Utah and the forecast is pretty robust for <unk> going forward. So I think when your when Youre looking at Geneva could be for for 2021 thinking back to when we talk to the market's about Geneva when we.
Wired, we're saying hey.
And it makes sense to look at a growth rate, that's probably somewhere between three and 4% and that probably works in this case I do think that the.
The wind products that are starting to be commercialized and sold into the marketplace may cause a little bit of upward potential on that also.
Okay very helpful. Thanks for taking the questions guys.
Absolutely.
The next question is from Gus Richard from Northland. Please go ahead.
Yes, thanks for taking the questions.
Real quick in terms of the steel market and and your ability to get.
The raw material are there any disruption in terms of supply.
I would I would say that you can get supply.
It's where it's being delivered gas when its being delivered because there's.
A few things that have gone on and.
On the steel business over the last year, one you've had a couple of major mergers and steel right U S Steel acquired Big River River and cliffs, a mining company acquired substantially all of the assets and North America of Middle steel, except I believe the one and Calvert, Alabama and previous to that at the end of 2019.
The acquired AK steel. So what you had is a situation you've got those major mergers going on and then what we saw later in 2020, we started to see some downtime is being scheduled normally for normal maintenance it really tightened the steel supply.
During that period of time as a result, we saw lead times jump out and with.
And with the existing trade cases that are actually in place supply got very tight so getting it exactly when you want it has been a little bit difficult over the last probably three or four months.
And when you look at pricing since July of 2020 to steel prices kind of actually almost tripled and I think.
It was somewhere in the area of and for Hot rolled band about for 65 last July and right now, we're bumping and the $200 a ton fob the mill for steel so when that price started going up it created a little bit of buying panic. The production schedules got overloaded at steel.
Mills, and and the availability got a little bit sporadic. So it led delays on deliveries and what that causes for US is if we had projects scheduled to run we may have to pull that.
Production plan and schedule and put another product and its place. So you have more changeovers and not running what you thought you were going to run so things got a little bit disruptive and steel for a while but.
And we're fine and.
Good with high steel prices higher steel prices higher pipe prices, even at the same gross margins higher gross profit dollars. So we're fine with that but what we have a little bit of an issue with is the volatility.
When it causes the availability and delivery issues, but as we go out through this period of time, we think it still is going to start to stabilize.
Have the integrated the integration of the mergers that continues to get more traction and then the higher steel prices.
Attract more imports and and ultimately that starts to balance off where the pricing is and then we have a bunch of additional domestic capacity starting out and starting up sometime mid to late this year. So we think things are going to moderate and stabilize here probably over the next few months, but it's been a little bit challenging.
Got it that's very helpful and then.
In terms of the first quarter, I mean, where we are.
Pretty parts for the quarter, and obviously thats been bad weather.
Are you through those weather delays are those still impacting you and do you expect them to be and impact going into the to the second quarter.
And as far as the weather delays, we were through the weather delays and lessors anymore.
Extreme weather I mean, we had.
Three of our plants affected obviously, the one near Dallas, Texas was affected the most where there was no power for <unk>.
And for five days and no power down there based on normal weather patterns, they have and the.
The installation levels of water pipe.
And within the plants you have you obviously have pipe freeze and problems. We have some pipe rate problems, but we were actually up and they've been able to start running again.
After the fifth day right. After the power came back up but it did disrupt this for a number of days, we had heavy icing in west Virginia that had a part of the plant down for for a couple of days and in Portland.
Had up to 15 inches of heavy snow here, which is not a snow event that we're used to here. So we had.
And we had issues with getting people to work, we had a little bit of roof damage to one of our buildings, which has been taken care of and so we were down for a couple of days.
One of our <unk> plant and Portland, now everything is back up and moving and it's been back up and moving for just right. After the storm.
But it definitely caused some disruption and the other thing guesses what it does is it also disrupts deliveries of raw materials, a little bit more especially steel depending on where it's coming from because over the road truck drivers or rail into certain areas was delayed for a couple of day, so a little bit more.
And <unk>.
Disruption to the delivery schedule, but everything right now is starting to get back to a little bit normal footing.
Got it and then.
So.
Things have been slowed down a bit bidding process and slow down a little bit.
But clearly there is demand and these projects for moving forward.
Is there an opportunity for.
You guys to increase your output and in the coming months and quarters as.
Things sort of progressed towards normal and is it are the projects and a position where if you could produce more they can use more.
Yes.
Yes, we will definitely have the ability to to ramp up to take on projects I think a little bit on what we're seeing right now.
And obviously you can always change and things can move, but we're seeing a little bit of projects stacking up.
And the bid log because of things that have moved out we still have some stuff moving down the calendar a little bit with things are stacking up and as we go through this year.
Currently things look pretty positive.
And it's it's.
It's kind of in line with the way it looked last year, but before things started moving around and moving out. So we are still costs pretty cautiously optimistic on this year.
Got it got it and.
And just basically roll.
And all that stuff.
Q1 will be very challenging you will start to recover and cute Q.
Two Q3 will be the big ramp quarter, and then the seasonal softness in Q4 is that sort of trajectory you guys are thinking about.
That's kind of the normal trajectory of the of the debt.
Both the steel pressure pipe business and the free cash business I think what you have now is the potential at least as it sits right now and again this could change, but you have the potential of <unk>.
Of things continuing to ramp through the year, even through the fourth quarter.
And with what we see in front of us.
Okay got it thank you for the clarity.
Absolutely.
Again, if you have a question.
Please press Star then one.
The next question is from Mike Morales from.
Housing and company. Please go ahead.
Hey, good morning, Scott and Eric.
And well.
Hey, Mike how are you.
Doing well, thanks, Hey, folks I appreciate the color that you guys gave just on your thoughts as we're thinking about the precast market and moving forward with growth in that area.
It indulging I'd like to dig a little bit deeper into that and kind of pick your brain on what youre seeing I guess out and the acquisition market currently and if we think back to when the Geneva acquisition was announced and kind of the financial characteristics of the acquisition.
Obviously, it's played out pretty well relative to your expectations.
Are there other Geneva is out there what are the multiples and understand what you are seeing.
Yes.
<unk>.
The M&A market for free cash and obviously, that's our growth area that we're focused on.
People that are interested in talking to companies that are interested in talking it's been it's been pretty positive.
One other things about the pre cash business with everything that we talked about earlier is a lot of these companies had really good 2000 twenty's and.
And in our forecasting really good 2020 ones, but there's there's definitely availability out there.
And a lot of availability, we're seeing it.
For Geneva, plus size maybe.
Potentially a bit bigger than Geneva, and some quite frankly that could be could be a lot bigger so those are out there.
Same thing with the margin profile of these businesses.
We've looked at the margin profile is strong.
It's product mix is a little bit different than than maybe what we see at Geneva, you have the water piece of that which.
Centers upon RCP and <unk>.
Kovar, and Manholes and things like that but some of these guys also have a little bit of the pre cash maybe non water like different volts for utilities and things like that those margins all look very strong through 2020.
And it looks strong going into 2021.
The big thing on the multiples of what we see we're seeing multiples still right now that are probably similar to what we saw with Geneva and I think when we finished off on Geneva. The multiple was about seven four times is that right and if necessary if I can because I remember that correctly. So there are similar to that.
The interesting thing is if you if you saw some of the news debt.
And that quick create just announced the impending acquisition of for Tara.
And for Terra is.
One of the big three and the precast concrete market and the other two of the big three our rinker and old Castle, well quick credit already owned.
Rinker, so now they have both.
For Tara.
And Richard is they will have for sure it's not scheduled to close until until the fourth quarter.
They must have to go through some regulatory things to close but the interesting thing was looking at debt.
And the size of the multiple that they were looking at which.
Is significantly larger than what we that we've actually seen so Aaron and I are looking at debt on me and that is a really that's a really big multiple the St.
I don't see from for mature on sitting in and it's what are they going to look at as far as synergy synergies for the company and what are they going to realize for the synergies for the company, which could be really interesting. When you put the two big guys together and what synergies they create so it may drive that that higher multiples.
So it's a little bit it's a little bit of a range right now I would say with the things that we're seeing multiple wise, depending on the size and you're seeing companies that are ranging anywhere from about six or six five times up to over 10 times, but the stuff that we're looking at is more on the <unk>.
<unk> seven or so range.
That's really helpful.
Especially the discussion about the <unk>.
Synergies coming from.
The acquisition that you had just mentioned about.
Taking that on.
And with the help of a higher multiple for you guys on thinking about acquisition for you got what you guys.
With regard to that and looking to would.
Would you guys be looking to do acquisitions and.
Free cash market and a geographic.
And maybe another way GAAP and that should.
Should I expect you guys to grow outwards from your existing footprint and in order to capture synergies that you might be able to get there just knowing how.
Geographically Lockheed and F&B.
And best case scenario, you try to grow out geographically from the market.
And we're already in.
You saw for us and.
That's best case scenario.
The issue is is theres not always.
Willing buyers that are in those markets that are and geographic locales that are close to what you have right now so.
Centrally and up looking net.
Stuff and different areas.
And ultimately trying to figure out how you piece that together and get the synergies out of it I think from the synergy side as you put stuff together.
It's really and overall management piece, it's a back office piece of it.
ERP systems, it's things like that where you really start to drive the synergies as you continue to put these pieces together, but we would love to be able to grow out.
And like from a bullseye geographically from where we are but it's not always available and even the stuff that's available and it maybe.
Significantly smaller in size and there may be other things and other geographic locations that may might make more sense.
Right understood and maybe just hearing that it strikes me that the learnings that you guys have taken from the Geneva acquisition and the integration.
Synergies are truly just coming from the back office functions and you can consolidate.
And we lose it.
And do we know for Mike.
Sorry about that can you hear me now.
It sounds like some of the.
And improvement that you can make a really very repeatable and.
And kind of creates almost like a formula that you guys can have here as you look to grow that business if integrate the ERP consolidated back office.
Synergies and margin expansion and multiple expansion.
And how you guys are thinking about it.
Absolutely that's that's.
And a very consistent topic of discussion.
Both the senior management and the board of directors level right now that those are those are the absolute kind of things that we're looking at.
Got it.
I appreciate all the color exciting stuff to come and keep.
Keep up the good work.
Thanks, Mike good to talk to you.
This concludes our question and answer session I would like to turn the conference back over to Scott mantra for any closing remarks.
And thank you and thanks again for joining the call today I'd like to conclude by reiterating that as we look at the structure of our business. It continues to remain strong I think some of the programs that we see as potential infrastructure programs that are out there that are being worked on like the.
And the water affordability and transparency equity and reliability build that theyre working on could also add to bolstering this business for a long long period of time and despite the near term delays that we've had into 2021 the demand remains healthy.
Evidenced by our backlog, which has been over $200 million for the last 10 quarters and was still over.
Still over $220 million, even after all the work moving out of 2020 and as we look further out for 2021, the biddings projected to remain very solid our pre cast order book remains elevated even though we're in a slower time of the year.
And we are in a very good position based on our liquidity and our continued cash generation to continue to execute on our strategy.
And to continue to support the water infrastructure needs and the U S well into the future. So thank you and all of our employees again for their exceptional work. During this very difficult year, and we look forward to speaking with everybody again on the first quarter call in early may so thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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