Q4 2021 Northwest Pipe Co Earnings Call
[music].
Greetings and welcome to northwest Pipe Company fourth quarter 2021 earnings call.
At this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Scott Montross, President and Chief Executive Officer. Thank you you may begin.
Good morning, and welcome to northwest pipe company's fourth quarter and full year 2021 earnings Conference call. My name is Scott line draws and I am President and CEO of the company I.
I'm joined today by Aaron Wilkins, our Chief Financial Officer, but now all of you should have access to our earnings press release, which was issued yesterday March 15th 2022 at approximately four P. M. Eastern time. This call is being webcast and is available for replay as.
As we begin I'd like to remind everyone that the statements made on this call with leather and your 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 in our other SEC filings for a discussion of such risks.
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 before I begin I'd like to note that effective in the fourth quarter of 2021, we revised our reporting structure to better align with changes made in our internal management structure in the financial information used to assess our performance and allocate our resources.
As such we will be reporting on two operating segments moving forward.
<unk> steel pressure pipe or SPP for short in.
Pre cash infrastructure and engineered systems or pre cached for sure.
For those of you who may be newer to our story, our engineered steel pressure pipe segment involves the manufacturer of large diameter high pressure steel pipeline systems for use in water infrastructure applications, which are primarily related to drinking water systems. These products are also used for hydro electric power sit.
Wastewater systems and other applications.
Our precast infrastructure in engineered systems segment involves the manufacturer of high quality free cash and reinforced concrete products, including Manholes box culverts vaults catch basins oil water separators pump lift stations bio filtration and other environmental and <unk>.
Engineered solutions.
I'll now turn toward a review of the year and our 2021 performance. Aaron will then walk you through our fourth quarter and full year financials in greater detail.
We generated annual revenue of $333 3 million, which included an $18 million contribution from our acquisition of Park USA.
I'd also note that this represents less than three months of park USA revenue as we completed the acquisition on October 5th 2021.
Annual revenue from our SPP segment increased seven 5% year over year to $259 8 million, we attribute to increased primarily to record high steel pricing in 2021, which was partially offset by decreased production volumes as project bidding delays pushed.
<unk> out into 2022 and in some cases beyond and we experienced customer driven production delays of jobs already in backlog.
As of December 31, our backlog, including confirmed orders for the SPP segment was a record $290 million compared to our previous record of $276 million as of June 32019, and compared to $221 million as of December 31, 2012.
Yeah.
The significant number of project bidding delays, we experienced during 2021 resulted in one of the smallest tonnage water transmission steel pressure pipe bidding years, we've seen in a very long time.
However, we were successful in winning a high percentage of the project that did bid late in 2021, which helped improve our backlog in a small market environment.
Furthermore, we have been seeing bidding volume pick up substantially in the first quarter of 2022, partially related to projects that moved out of 2021.
We expect our backlog will continue to grow in terms of size and quality, which should lead to enhanced margin levels as we progress through the first half of 2022.
Annual revenue from our pre cash segment increased 66, 2% year over year to $73 $5 million driven.
Driven by a 26% increase in sales at our Geneva Operation, which we acquired in January of 2020. In addition, we benefited from the $18 million contribution from a partial fourth quarter of park, which was acquired on October 5th 2021.
The strength of our pre cash business was inherent in our margins, which remained strong throughout 2021 due to implementation of several price increases and higher production volumes throughout the year and our Geneva locations as well as the fourth quarter contribution from park.
Our free cash order book remains at all time highs and totaled $51 million as of December 31, 2021, compared to $24 million as of September 32021, and $11 million as of December 31, 2020, I'd also note that December .
31, 2021, which is the first period that included the order book for Park USA.
Our consolidated gross profit decreased 12, 4% year over year to $44 3 million, which resulted in a gross margin of 13, 3% down 530 basis points from 2020 due to a very small water transmission steel pressure pipe market in 2021, the process of <unk>.
Permitting bidding and engineering SPP projects took much longer throughout the year, given the highly complex and fluid challenges and the SPP market related in part to the pandemic, which resulted in reduced production volume at our SPP facilities and led to higher levels of under absorption.
In combination with a small market a volatile steel pricing environment with significant delivery disruptions and customer driven production delays of orders already in backlog and overall project bidding pressure due to such a small market resulted in downward pressure on our SPP margins for much of the year.
Partially offsetting the decline in our consolidated gross margin was our pre cast related margins, which remained strong throughout the year. As a reminder, the precast operations serve as a stabilizer to both our topline and gross margins during slow periods for the water transmission business we.
We anticipate our first quarter water transmission margins will remain muted as we work through older backlog that was subject to the 2021 bidding pressures related to a very small market. However, the project bidding in early 2022 has been very strong in part due to orders from 2002.
One moving and sticking in 2022 as such we expect water transmission margins should begin to expand in the second quarter.
Further we believe that steel supply and delivery related issues have largely abated for the time being in addition, while steel prices have fallen from the highs. We saw in late 2021, they remain elevated by historical standards and we are seeing some upward pressure on steel pricing more reach.
<unk> again, given the current events that we're seeing in the world.
Next I'd like to turn to a discussion on our two pronged growth strategy first.
First we remain focused on our core objective of driving growth in the free cash related space, while at the same time continuing to maximize our steel pressure pipe water transmission business.
As we previously announced our acquisition of Clark USA and October helped to significantly increase our participation in the free cash related space through the addition of three Texas manufacturing facilities.
For those of you aren't familiar with park, it's a technology leader in water infrastructure market that develops manufactures and distributes engineered water and wastewater control products as well as other water related environmental solution products.
<unk> product portfolio serves both the commercial and residential construction markets, which helps better balance our product portfolio and offset periods available a variability in steel pressure pipe. In addition, park's portfolio is heavily heavily value outage, which is very beneficial to our margin profile.
We are very excited about park USA and what it means for our business moving forward given the expansion potential for parts products within our existing northwest pipe facilities. This is a process, we refer to as product spread which will be a key focus once the integration is complete.
The integration process has been going very well and is expected to last throughout the balance of the year.
We expect the business to be immediately accretive and create organic growth opportunities throughout throughout the company.
For additional details regarding the park USA acquisition. Please see the press release and supplemental presentation. We issued on October 5th as well as the conference call replay from October six all of which are available on the investor page of our company website.
In regards to our Geneva operations, we've been focused on expanding our capacity to further our growth strategy as part of this endeavor. We are committed to invest over $18 million in new capital improvement projects at the Geneva plants in the form of facility expansions automation equipment upgrades to meet.
The growing market demand for reinforced concrete pipe and other concrete products. In addition to manufacturing RCP utility storm water and sanitary sewer solutions. We also started manufacturing lined sanitary sewer products at the Geneva plants, which protect concrete from microbial induced.
Corrosion when exposed to municipal and industrial wastewater.
We believe these products have significant organic growth potential, especially as it pertains to our products spreading strategy to eventually produce and sell these types of products at our park USA locations.
The second prong of our growth strategy is to continue to maximize our core steel pressure pipe water transmission business to drive shareholder value.
We've continued to make progress in our efforts to focus on margin over volume lean manufacturing and cost reductions to drive efficiencies at all levels of the company.
Through our lean processes. This past year, we reduced the number of man hours per job by approximately 175% versus the prior year. Unlike projects further we expect to realize additional cost savings ranging between 200 $300000 annually by upgrading and Reconfiguring hydro testing equipment.
Allowing us to reduce cycle time and change over time.
In addition, we have been using lean manufacturing tools to reduce our cost of energy by working with the energy Trust of Oregon, which resulted in an 11% reduction in kilowatt hours used and annualized savings nearing $50000.
We're in the process of evaluating work that has been done by outside engineering resources to explore additional opportunities for realizing longer term cost reductions and.
In regard to our SPP products, we introduced infer shield during the fourth quarter, which is patent pending seismic resilient joint system for use in Geo hazard, an earthquake zones, and a substantially lower cost of lifetime ownership versus other offerings.
The shield helps improve the resilience and longevity of our steel water transmission pipelines and represents a Prime example of our R&D efforts to continually improve livability and communities in which we live and work, particularly enacting seismic zones.
I will now turn to look at current and upcoming water transmission projects.
At general market updates to HR $36 80 for infrastructure investment and jobs Act has signed into law, adding 55 billion in federal funding for relevant water infrastructure projects over the next five years.
In the eastern markets the ongoing multiyear multi agency Houston surface water program is expected to bid multiple segments in 2022, representing 39000 tons of pipe for the West and North Harris County regional water authorities we.
We anticipate both authorities, having additional projects representing 3400 tons through 2023. The next new reservoir to be built in Texas as the Lake Ralph Hall for the Upper Trinity Regional Water District. This is another major program. Currently in design that includes a new dam and pipeline to move water.
And to the DFW metroplex.
Project represents 17000 tons of pipe construction on the dam began in 2021 and the pipeline is expected to begin in early 2023.
The alliance reasonable Wajid water authority program in Central Texas is another multi agency regional water program.
This project includes a large pipeline pump stations and treatment facilities with a few parts already bid construction started in 2021 and appears to be holding to the forecasted timeline with 8500 tons remaining debate.
In North Dakota progress is being made on the 140 mile 87000 ton Red River Valley water supply project, we completed a one five mile demonstration project in November and secured an additional nine mile segment in January for construction commencing this summer.
Significant drought is now with both the state and a special Legislative session held in November made some funding available, including federal funds received under the American Rescue Plan Act acceleration of the Red River Valley Water project is still being considered but no significant action is expected until next regular.
<unk> session commences in January of 2023.
In Colorado, we are tracking as expected record of decision by the U S. Army Corps of engineers for the Northern integrated supply project. The record of decision is now expected in 2022 and has been delayed by administrative backlog if favorable construction of up to 150 miles of pipeline is expected to.
Start in 2020 for the project is located 60 miles north of Denver, and the Fort Collins area.
In the Western markets California's prop 175 billion bond for water infrastructure has created the much needed funding for projects within the state.
According to the California Natural resources agency, 97% of those funds have been appropriated for various projects as of 2021 fiscal year, we expect requirements for these projects to stretch out over the next several years.
Water reuse programs have generated new opportunities in the California market in which we expect to see bidding activity continue for the next year.
The city of San Diego anticipates bidding the three three major remaining phases of the pure water program in the next 12 months. These phases include 8600 tonnes of steel pipe.
<unk> 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 <unk>.
Reclamation facilities in southern California, and involve 60, plus miles of large diameter pipe.
The current demonstration facility has been operating for almost two years and WD is currently soliciting preliminary design and permitting services and construction of full scale treatment and conveyance facilities could begin as early as 2025.
<unk> secured a $224 million weaker loan in October of 2021, and which funding which will be funding nearly 50% of the anticipated construction cost.
<unk> rehabilitation program will result in about 5000 tons annually over the next 10 to 15 years.
<unk> seen a slowdown in 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 that has received funding from prop one it will involve over 30 miles of 144 inch pipeline. The project is forecast to begin 2024 or 25.
Southern Nevada water authority has begun moving forward in earnest with an expansion of the southern part of their water delivery system. This program, which has recently started preliminary design activity will include 25 miles of 78 inch pipe with construction tentatively.
Scheduled for 2024.
In Utah design and permitting continues on the 150 miles 69 inch Lake Powell pipeline. This pipeline will provide an alternative source of water for southern Utah construction is proceeding in earnest in new Mexico on the U S Bureau of reclamation, Navajo Gallup supply program the final major.
Phase of pipeline construction for this program is expected to bid mid 2022 and includes 4700 tons of steel pipe.
In summary, we are very pleased with record level strength, we experienced in both our SPP backlog in our pre cast order book, despite the seasonally slower time of the year as well as the ongoing pandemic related issues that occurred throughout 2021, we.
We entered 2022 with a considerable amount of momentum and we expect SPP bidding will remain fairly strong for the balance of 2022, which should lead to SPP margin expansion beginning in the second quarter and the precast order book strength that we saw in 2021 is expected to continue throughout 2002.
To the.
The addition of park positions us well for future growth and as we have said within three years. Our goal is to have our free cash related business ROE to a similar size as our FPP business supported by the increasing infrastructure needs in the United States.
Looking ahead, we will remain focused on our top priority of taking every precaution to keep our employees safe through the ongoing pandemic.
Integrating park USA as quickly and efficiently as possible.
Having a persistent focus on margin over volume.
Continuing to implement cost reductions and efficiencies at all levels of the company.
And continuing to identify strategic opportunities to grow the company. Once we've completed the integration work with park USA.
I'd like to thank all of our northwest pipe employees for their ongoing commitment to solid operational execution and maintaining a safe work environment for all I look forward to a productive 2022, 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.
As Scott highlighted we have revised our historical segment reporting practices to now reflect two reportable segments engineered steel pressure pipe and precast infrastructure in engineered systems.
On a historical period financial information discussed today has been restated to reflect our current segmentation.
I'll start with our fourth quarter financial results.
Consolidated net income was $2 3 million or <unk> 23 per diluted share.
$5 2 million or <unk> 53 per diluted share in the fourth quarter of 2020.
Our consolidated net income in the fourth quarter of 2021 included $2 6 million of acquisition related transaction costs, $2 3 million of acquisition related inventory charges.
And <unk> 9 million of amortization of acquired intangible assets specific to park, USA, which were all partially offset by $1 4 million related to the tax expense associated with the aforementioned items.
For comparability purposes, we also reported adjusted net income, which excludes these unique and unusual items.
Fourth quarter adjusted net income was $6 6 million or <unk> 67 per diluted share compared to $5 4 million or <unk> 54 per diluted share in the fourth quarter of 2020.
Please refer to the reconciliation of non-GAAP financial measures in our earnings release, our comprehensive schedule detailing the adjustments for each period.
Consolidated net sales increased 47, 8% to $102 5 million compared to $69 4 million in the fourth quarter of 2020.
S. P. P segment sales increased 23, 2% to $71 6 million compared to $58 1 million in 2020 due to a 45% increase in selling price per ton, primarily due to the increased steel costs, along with changes in product mix, which were partially offset by a 15% decrease in tons.
Produce resulting from changes in project timing.
<unk> segment sales increased 174, 2% to $31 million compared to $11 3 million in 2020, primarily due to the $18 million contribution from park USA operations, which as Scott discussed earlier.
This is in addition to a 15% increase in sales at our Geneva operations, resulting from a 6% increase in shipments an 8% increase in selling prices.
Consolidated gross profit increased nine 8% to $14 6 million or 13, 2% of sales compared to $12 4 million or 17, 8% of sales in the fourth quarter of 2020.
SPP gross profit decreased 25% to $8 7 million or 12, 1% of segment sales.
$10 9 million or 18, 8% of sales in 2020.
Primarily due to lower production volumes and pressure on input pricing, partially offset by increased selling prices.
Free cash gross profit increased 237, 5% to $4 9 million or 15, 9% of pre cap sales of $1 5 million or 12, 9% of sales in 2020.
Primarily due to the contribution from park USA as well as higher prices and shipment volumes at our Geneva operations.
Included in free cash gross profit for the quarter was $2 4 million in acquisition related charges.
Excluding this item the precast segment's gross margin would have been 23, 8% for the fourth quarter of 2021.
Looking forward, we do not expect significant impact from park USA acquisition related charges on our gross margins.
Selling general and administrative expenses increased 81, 9% to $10 5 million compared to $5 $8 million in the fourth quarter of 2020.
The increase was almost entirely due to the addition of park USA, which included $2 6 million of period specific transaction costs and zero point $8 million of new amortization associated with the acquired intangible assets.
In addition to the aforementioned noncash amortization expense.
Additionally, <unk> USA has added approximately $1 5 million to a quarterly SG&A run rate for costs that are primarily personnel related in nature.
Now turning to our full year results.
Consolidated adjusted net income was $16 5 million or $1 66 per diluted share compared to $19 6 million or $1 99 per diluted share in 2020.
Our 2021, adjusted net income excludes $5 million in unique and one time items associated with the acquisition of park USA net of respective taxes.
This compared to two or 2020, adjusted net income, which excluded <unk> $6 million again net of taxes, which consisted of $2 4 million of acquisition related expenses associated with our 2020 acquisition of Geneva, partially offset by $1 8 million of Saginaw fire insurance recoveries.
Consolidated net sales increased 16, 6% to $333 3 million in 2021 compared to $285 9 million in 2020.
<unk> segment sales increased seven 5% to $259 8 million compared to $241 7 million in 2020, driven by a 15% increase in selling price per ton due to an increased material costs as well as changes in product mix, partially offset by a 6% decrease.
And tons produced which resulted from changes in project timing.
Precast segment sales increased 66, 2% to $73 5 million in 2021.
The $44 2 million in 2020, largely due to the addition of park USA in October 2021, as well as a 26% increase in sales of the Geneva due to an 18% increase in shipments as well as a 6% increase in selling prices.
Recall that 2021 includes an additional month of Geneva shipments compared to 2020 due to the timing of the acquisition within the year.
Consolidated gross profit decreased 12, 4% to $44 3 million or 13, 3% of net sales in 2021 compared to $50 5 million or 17, 7% of net sales in 2020.
Steel pressure pipe gross profit decreased 29, 4% to $31 3 million or 12% of segment sales in 2021 compared to $44 3 million or 18, 3% of sales in 2020 due to the combination of changes in product mix and pressure on project pricing.
Additionally, as a result of the fire at our second facility in April 2019, $1 4 million of business interruption insurance recovery was recorded in 2020 net of incremental production costs, resulting in an adjusted segment gross margin of 17, 7%.
Free cash gross profit increased to 108, 4% to $13 million or 17, 7% of pre cash sales in 2021 compared to $6 2 million or 14, 1% of sales in 2020 due to the fourth quarter's contribution from park USA as well as higher prices and production volume at the Geneva Opera.
<unk>.
Free cash gross profit in 2021 included $2 2 million of increased acquisition related inventory charges.
After considering the separate acquisition related charges in 2021 and 2020.
Adjusted gross margins for the segment were 21% and 14, 7% respectively.
Selling general and administrative expense increased 13, 1% $28 2 million or eight 5% of consolidated net sales in 2021 compared to 25 million eight 7% of sales in 2020.
The increase in SG&A expense was largely due to the additional park USA and primarily consisted of $1 8 million.
Higher compensation related expenses.
$6 million and higher acquisition related transaction costs, and <unk> $7 million in higher amortization expense associated with recently acquired intangible assets.
For the full year of 2022, we estimate our consolidated selling general and administrative expenses to be in the range of $36 million to $38 million.
Companywide depreciation and amortization expense of $13 6 million in 2021.
Compared to $14 6 million in 2020.
We expect depreciation and amortization to be in the range of $16 million to $18 million for 2022.
Interest expense increased to $1 2 million in 2021.
<unk> 9 million in 2020.
As we move through 2022, I expect our interest cost to vary with the working capital needs of our SPP business and with tightening to the current rate environment.
Our 2021 income tax expense was $3 6 million resulted in an effective income tax rate of 24%.
Compared to $6 6 million in 2020.
Or an effective tax rate of 25, 7%.
The effective income tax rate 2021 was primarily impacted by estimated changes in our valuation allowance while the income tax rate for 2020 was primarily impacted by costs associated with the acquisition of Geneva that was non deductible for tax purposes.
Now transitioning to our financial condition.
We used $5 8 million in net cash from operating activities in 2021.
This compared to $56 1 million of net cash provided by operating activities in 2020.
Net income adjusted for noncash items generated $28 7 million of operating cash flow in 2021 compared to $43 million of operating cash flow in 2020.
As of December 31, 2021, we had $86 8 million of outstanding borrowings on our credit facility and $37 million in additional borrowing capacity.
We are continuing to diligently manage our working capital and believe our available borrowing capacity is sufficient to meet our near term liquidity needs.
Our capital expenditures for the year totaled $13 3 million.
Ongoing labor and supply chain constraints resulted in a slower capital spends and desire in 2021. However, we were able to make a $1 8 million downpayment on a reinforced concrete pipe mill ordered late in the fourth quarter as part of our expansion efforts Scott highlighted earlier.
We are currently projecting between 26 and $30 million in Capex for 2022, including approximately $13 million in additional investment for the new pipe mill with the remainder to be used primarily for stendal standard capital replacement projects.
I expect the timing of our 2022 Capex spending will continue to depend on broader economic forces.
In summary, we are pleased with the progress made in 2021 to advance our two pronged growth strategy.
I'd like to take a moment to acknowledge those team members involved and the continued integration efforts, which are a critical component to making our recent acquisitions of success.
Your extra efforts are truly appreciate it.
I'd also like to Echo Scott's sentiment I'm thinking all of our employees for their efforts in 2021 and encourage continued engagement and focus on our safety programs.
Finally, I'd like to thank our stockholders customers and suppliers for their ongoing support of northwest pipe company.
I will now turn it over to the operator to begin the question and answer session.
Thank you, ladies and gentlemen at this time well be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is that the question queue. You May press star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of Brent Thielman with D. A Davidson. Please proceed with your question.
Hey, Thank you good morning.
Good morning, good morning.
[laughter].
I guess first question Scott.
Again, it sounds like at the end of the first quarter, presumably you could be over $2 million to $300 million in backlog potentially just based on your commentary.
How much of that do you think you can convert to revenue here in 2022.
Oh geez.
What I would what I would say is this as you can see the backlog has continued to grow right, finishing the year at 290 million, but I think the the biggest part of this brand as we have 51000 tons of project projects that are bidding in the first quarter. Okay. So this first quarter.
Is is one of the larger first quarters, we've seen in a long time and a lot of this stuff is relatively near term.
No.
The backlog that we have now generally spreads out of a over a relatively long period of time, but I think that yeah.
Youre going to see some some pretty strong revenue numbers, if everything proceeds the way that we think is going to proceed this year very strong first quarter bidding.
On the steel pressure pipe side.
The work that we have bids in that we're getting to it in the backlog.
That is I guess better quality margin work starting to run in the first and second quarter and all of those things are things that are going to build into a pretty strong steel pressure pipe year. If everything remains the way it is right now.
Okay great.
And then maybe your thoughts on the current pre cast margins Aaron I think you said closer to 20% stripping out some of the onetime items. This quarter, but is there is there sort of a catch up opportunity there as well just because <unk> been implementing price increases and absorbing higher costs there.
I guess, just your thoughts around those gross margins as we progress through the year.
Yes, the gross margins on free cash so really the way we've always tried to characterize them breath as the utility piece, which is which is more of the the Geneva type applications are probably.
It gets to the very high side of what water transmission can get too. So when you when youre looking at those kind of margins I think the margin potential is there the low twenty's.
Go forward.
We've had probably five or six price increases in the precast side this year and actually we just got another one going in because.
The raw material prices continue to move on us not only the the cement, but the aggregate some things like that so we're keeping up with the raw material prices, but that margin looks like it has the potential to continue to build when you look at the park margins in that part of our pre cash business with pre cast in the pre cast equipment. They are generally a little bit.
Higher maybe maybe moving more toward the mid <unk> is the way it looks right now so I think that's probably as we sit right now and as we move through this free cash business, it's probably a relatively good bellwether and I think we said in the script the precast order book.
Is is really strong at the end of the year at $51 million.
That also continues to gain strength in the first quarter similar to what's happening in the steel pressure pipe side.
I think we've.
We've got a good bit of momentum behind this as we stand right now.
Okay.
Yes, that's good to hear yes.
Yes, and then to that point, Scott I mean, it looks like Geneva still growing it.
Very healthy sort of double digit clip here I mean, any reason why that should moderate this year.
Yeah.
Geneva is pretty a pretty regional.
<unk>.
Setup right were in Utah, and I think what we're seeing in Utah is a really strong economy unemployment rate below 2% in Utah the housing.
The housing rate and the number of put in place residential housing units that are putting in continues to grow.
Theres continued net migration.
<unk> into Utah, So I think what we see in front of us at least for the near term looks to continue to be really strong in Utah, obviously, the fed with the interest rates.
Can eventually affect this.
Right now what we're seeing is continued strength in.
And like I said, a order book on the free cash that continues to grow.
So.
It looks to be.
Strong.
On the free cash side.
Whether it's Parker the Geneva side, all the way through this year as we sit right now.
Yeah.
Okay great.
Thanks, Paul.
Alright. Thanks.
As a reminder, it is star one to ask a question. Our next question comes from the line of Gus Richard with Northland. Please proceed with your question.
Yes, Thanks for taking my question nice quarter guys.
Hey, guys.
Hey, real quick on the precast business.
How much of that is tied to housing starts and how much of it is tied or other activities.
I would I would say that when you look at the utility side, which is more of kind of the free cash side of what.
Park with Geneva does a big piece of that is tied to the residential side. When you look at when you look at the precast piece of the business that that part does its relatively small to the residential side, maybe 15% or less of that.
A lot of the park stuff ends up in more relatively large industrial commercial applications, whether they are pump stations are a water meter vaults are gigantic backflow preventer or things like that that's that's significantly more commercial driven and away from the residential piece.
Okay. So you think about a blended it sounds like roughly 50 50, when you blend Geneva with arc.
Yes, that's probably that's probably relatively close.
Yes.
Okay, and then given.
Given the low trading activity last year I think you have some lower margin stuff on the books you got to work through.
Can you sort of talk about the profile of working through that backlog.
Yes, I think it's it's.
When we started talking about the fall off I think it's when it originally started it was really the second half of 2020 that was we're starting to fall off and then the first half was rough and of 2021 and we expected the second half to be really strong with the bidding in the second half like well over 100000 tons.
Of work bidding and that that started to deteriorate a lot of it was COVID-19 related jobs pushed around actually a lot of that.
Being sent out into 2022, so so with that it's really small market you get a lot of market bidding pressure right during that period of time.
So what we're seeing right now really fourth quarter, we expect to see in the first quarter has been subjected to a lot of that bidding pressure that we saw during that period of time as we got later in 2021, the bidding very late in the year has started to pick up and what I would say is the quad.
City of the work that was going into the backlog as far as margin concern started to really improve and what we've seen in the early part of 2022 continues to improve margin wise. So so certainly we expect like we said to see some expansion in that margin, but I think it's going to be until the second quarter.
There are two really get there, but we've got some pretty good quality work in backlog coming forward.
And quite frankly the the.
The amount of that work as we progress through the first quarter. That's in backlog continues to grow based on whats did it.
So it's.
It's pretty pretty substantial.
Yes.
And then do you think you can get back to historic.
The high end of your gross margin range, but exiting the year.
You know it really depends on it depends on how stable the marketplaces Gus.
If we get a a market that has good extended demand.
That we see right now.
And we see industry wide backlogs with competitors that are are are solid.
We're in good shape and you get a stable bidding environment, you can start getting up to the higher end of that range again.
The issue we all we see is there is always some period of disruption that happens that once we get through that period, we will have a bit of disruption in the market falls off for a period of time and then we have declining all the way back up there. So that's.
I would say that we are heading in that direction right now.
Okay, and then last one for me.
You mentioned that skills delivery has gotten gotten a little bit better and net pricing has eased a bit but seems to be stabilized except for recent events and I was just wondering if you could talk about what has happened, particularly with delivery.
And and project delays.
Going forward.
Well, we've we really saw most of the delivery and project delay issues probably starting.
As we got toward the beginning of the second quarter in 2021, and steel got really tight and we are.
All of the restrictions were $2 32 to bringing.
Imported steel into the country and you Couldnt, there really wasn't enough supply to fit the demand profile that we had in the company or the excuse me, the country, which which caused which caused tightness throughout the industry.
That caused prices to go up to almost $2000 a ton on op ends during that period of time. It also caused lead times to go out to 810 12 weeks to get a hot rolled band deliver if you could get in.
Into somebody's order book at that point in time, well that kind of that kind of continued really into the third quarter and it started to abate as we got out a little bit later into 2021, we're not seeing that now it started to really kind of crested falloff.
Got really late in 2021, we saw steel prices start to fall pretty significantly to where they fell down to probably a thousand 50 to a 100 Bucks a tonne all the way down from almost $2000 a tonne lead times started to come back in and that's kind of what we're seeing.
Up to this point, but what we've seen.
In the last couple of weeks gas is that based on recent world events, we've actually seen steel prices start to move back up again and now they are kind of 11 $200 range, we're still able to get steel.
What is the effect on the conflict in the Ukraine and other issues going to have on steel how does the transportation transportation costs affect that as we go forward. So those are things that we're going to have to pay close attention to and make sure that we're passing that through the system, but.
Right now things look to be pretty stable with lead times in the general probably four to five week range for hot rolled band, which is pretty manageable, but we're keeping our eye on it with what's going on in the world now and see what happens, but I think that there is a little bit of upward pressure on steel again, and we'll see what happens.
It could move up.
Could move up.
Quite a bit again, I think and we're not opposed to high steel prices were just opposed to the volatility in prices.
It causes us problems with deliveries and things like that.
We are definitely in favor of high steel prices just not volatility.
Got it very helpful. Thanks, so much.
Absolutely.
There are no further questions in the queue I'd like to hand, the call back over to Scott Montross for closing remarks.
Okay. Thank you and thanks again for everybody joining our call today and before we close out the call I just wanted to leave you with.
A couple of key.
Key takeaways rec.
Our record backlog achieved in 2021 bodes pretty well for both our STP business and our precast business as we move into 2022, both on the revenue and margin side. So we are we are very pleased.
With the way that the park acquisition is progressing and the integration of park and all the things that we're doing there and the the business that it's getting us into we're very excited about the idea of product spread which we've talked about we'll be talking way more about as we go into the future and the kind of organic growth that it can provide for the company. So.
Pretty excited about all of that stuff.
I think we've got some really good solid momentum going into 2022 I'd like to thank everybody for your time and attention today and we look forward to speaking with you again very soon.
First quarter call in May so thank you.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.