Q1 2022 Northwest Pipe Co Earnings Call
[music].
Greetings and welcome to the northwest Pipe Company first quarter 2022 earnings call.
At this time all participants are in a listen only mode.
And answer session will follow the formal presentation if.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
And please note that this conference is being recorded.
I'd now like to turn the conference over to Scott Mantra CEO . Thank you Sir you may begin.
Good morning, and welcome to northwest pipe Company's first quarter 2020 key earnings Conference call. My name is Scott <unk>, President and CEO of the company.
I'm joined today by Aaron Wilkins, our Chief Financial Officer by now all of you should have access to our earnings press release, which was issued yesterday may four 2022 at approximately four P M Eastern time.
This call is being webcast and it is available for replay.
As we begin I'd like to remind everyone that the statements made on this call regarding our expectations for the future are forward looking statements and actual results could differ materially. Please refer to our most recent Form 10-K for the year ended December 31 2021.
In our other SEC filings for a discussion of such risk factors that could cause actual results to differ materially from our expectations and we undertake no obligation to update any forward looking statements.
Thank you all for joining us today I'll begin with a review of our first quarter performance, Eric will walk you through our financials in greater detail.
Consolidated net sales were $109 3 million, which included a $19 7 million contribution from our acquisition of Park USA.
Revenue from our steel pressure pipe segment increased 24, 4% year over year to $74 7 million.
The increase was primarily due to higher steel pricing that we saw throughout 2021, which drove higher project pricing. This was partially offset by decreased production volumes, resulting from the very small bidding year that we saw in 2021 related to bidding delays that we experienced throughout the year.
These delays put product getting out into 2022.
He is partially why we experienced such a significant amount of project.
In the first quarter of 2020 key leading to the substantial increase in our current backlog.
As of March 31st our backlog, including confirmed orders for the steel pressure pipe segment was an all time record of 341 million compared to our previous record of $290 million as of December 31, 2021.
This compares to $210 million as of March 31, 2021, I'd also like to highlight that our record backlog includes a 63% increase in tons versus the fourth quarter of 2021.
As anticipated the strength in our backlog was a direct result of robust steel pressure pipe bidding during the first quarter of 2022.
While we project the first quarter will be the largest bidding period of the year and therefore, the high watermark for our steel pressure pipe backlog in 2022, we expect getting should remain solid throughout the remainder of the year.
As such we expect that our backlog will remain elevated compared to recent historical levels and the improvement in the overall quality of our backlog should lead to steel pressure pipe margin expansion into the mid teens in the second quarter of 2022.
Sales from our pre cash segment increased 182, 5% year over year to $34 6 million driven by a 22% increase in sales at our Geneva operations, which we acquired in January of 2020. In addition, we benefited from the aforementioned 19.
7 million dollar contribution from our park USA operations, which we acquired on October five 2021.
Our free cash order book remains at all time highs and totaled $65 5 million as of March 31, 2022, compared to $51 million as of December 31, 2021, and $16 1 million as of March 31 2021.
I'd also note that our order book as of March 31st last year did not include Park USA.
Our consolidated gross profit increased 68, 5% year over year to $14 8 million, which resulted in gross margin of 13, 5% up 140 basis points from the first quarter of 2021.
Our steel pressure pipe margins remain muted in the first quarter as expected as we work through older backlog that was subject to the extremely small bidding market and associated bidding pressures we experienced in 2021.
The process of permitting bidding in engineering steel pressure pipe project took much longer than 2021, given the highly complex and fluid challenges in the steel pressure pipe market related in part to the pandemic.
The resulting reduced production volumes at our steel pressure pipe facilities led to higher levels of under absorption.
This was in addition to a volatile 2021 steel pricing environment with significant delivery disruptions and customer driven production delays of orders already in backlog, which have sense diminished. Additionally, we recorded a discrete charge for product liability settlement associated with the dispute.
<unk> back in 2015 that had a negative impact on our first quarter steel pressure pipe gross profit without the settlement charge, our first quarter steel pressure pipe gross margin would have been similar to both the first and fourth quarters of 2021.
Yeah.
Positively benefiting our consolidated gross margin in the first quarter was our pre cash related margins, which remained strong throughout the quarter.
As a reminder, our growing free cash business serves as a stabilizer to both our top line and gross margin during slow periods for the water transmission business.
We expect our precast order book will continue to remain strong in the near term, which should facilitate further margin expansion as we progressed through what appears to be a very strong free cash market in 2022.
In general the steel pressure pipe project bidding environment has been very robust, which should bode well for the remainder of the year.
In part due to orders from 2021, moving in shipping in 2022, and since steel supply and delivery related issues have largely abated for our business since the beginning of the year.
Steel prices have fallen from the highs we saw late in 2021, however over the last couple of months they've recovered a substantial amount of amount of what they lost.
Especially given the conflict in Ukraine, which has put upward pressure on steel pricing this year.
New North American capacity coming online currently appears to be stabilizing hot rolled band pricing, which is our primary steel pressure pipe raw materials, but steel prices still remain elevated by historical standards and in general elevated steel prices are good for our steel pressure pipe business.
Next I would like to turn to a discussion on our two pronged growth strategy first.
First we remain focused on our core objective of driving growth in the pre cast related space. The integration of <unk> USA as our top priority and it remains on schedule pork USA operating and commercial structures are in place and we've aligned our human resource resources sales and operating teams.
We have implemented and continue to refine both operational and commercial kpis as.
As we've discussed previously we are in the initial stages of implementing our organic growth product spread strategy, which focuses on adding the production of pork products and our legacy northwest pipe plants and in some cases products for the existing northwest pipe facilities may be added to the production of the park facilities we.
Continue to be very excited about the future growth prospects of this business.
Another key.
<unk> of ours includes the expansion of our Geneva operations to increase our production capabilities and capacity.
As previously announced we committed over $18 million in new capital improvement projects of which $4 million was already spent.
The projects are scheduled for completion in the first quarter of 2023 at the Geneva plants and will include facility expansions automation and equipment upgrades to meet the growing market demand for reinforced concrete pipe and other concrete products. We believe these investments will be beneficial for both our topline and margin profile.
While over time.
Following the successful integration of pork USA, our goal remains below pre cash related business to grow to a similar size as our steel pressure pipe business within three years supported by the increasing infrastructure needs in the United States.
The second prong of our growth strategy is focused on continuing to maximize our steel pressure pipe water transmission business to drive shareholder value. We remain intensely focused on margin over volume lean manufacturing and cost reductions to drive efficiencies at all levels of the company and we will continue to explore investment.
Projects that help us reduce costs and maximize margins.
I will now turn to look at current and upcoming water transmission projects.
This is typically the point in the call where I discuss upcoming projects that are bidding in the steel pressure pipe market.
The program work that we continue to talk about is fairly similar on each call because many of them are multiyear programs. Therefore, we're going to be very abbreviated more earnings call moving forward and are providing a different avenue by which you can review the jobs.
In the West we expect gearing to be healthy as California's proposition $175 billion bond is expected to fund projects for the next several years there are multiple ongoing programs in California, such as San Diego Pure water program in the PCP rehabilitation program.
Reservoir water storage is a major project scheduled to start in 2024 and the state of California.
There are also other active programs in the west such as Navajo Gallup supply program in New Mexico.
In the Central region, which includes Texas and the central part of the country. We expect bidding to remain active with programs like the Houston surface water program. The alliance regional water Authority program and the ongoing Red River water supply program in the Dakotas, and which we were awarded the contract for the first section to match.
Factual over 7500 tons or eight miles of engineered steel pipeline system to be delivered to the job site. This summer.
For more information on our current and upcoming water transmission projects. Please review, our investor presentation, which can be found on the investor tab of our website within the events and presentations section.
Before I conclude I'd like to highlight some of the recent executive leadership changes.
Most recently, we appointed Mike <unk>, our senior Vice President and General manager of our free cash infrastructure in engineered systems business as a corporate officer just last month.
Mike has led the precast business since we acquired Geneva in January of 2020 and has been instrumental in leading the integration efforts of our most recent acquisition of Park USA, which was acquired on October five 2021.
Additionally, Eric Stokes was appointed to the position of senior Vice President and General manager of engineered steel pressure pipe and became a corporate officer in March of 2020.
Prior to his appointment Eric served as our senior Vice President of sales and marketing for engineered steel pressure pipe business. He is now responsible for all commercial and operating activity for our engineered steel Petrified group and has been involved in securing several of the largest orders in our company's history.
In addition, we appointed Megan Kendrick, our vice President in Human resources Corporate officer in 2021.
Megan has held a variety of positions with increasing responsibility in both accounting and human resources since joining our company in 2008 and has been instrumental in developing the organization as our company has continued to grow.
And last but not least I'd like to congratulate Bill Smith, our former executive Vice President of engineered steel pressure pipe on his retirement last month. After 12 years of service with northwest pipe over 14 years with Amazon in the company that we acquired in 2018 and more than 40 years in the business.
I'd like to thank bill for his many contributions and dedication to the company as a key part of our management team, which will continue even into his retirement as he stays on as an independent consultant.
Bill has succeeded by miles Britain, who has been with our company since 2013 and spent the last year working very closely with Bill as executive Vice President I've worked with miles for the better part of 35 years and we are confident that miles will help continue to position our steel pressure pipe and precast businesses.
For continued future growth and success moving forward.
In summary, we're very pleased to see the record level strength, we experienced in both our steel pressure pipe backlog in our pre cast order book continue into 2022.
We are maintaining a very positive outlook for the remainder of the year based on the robust bidding activity that we experienced in the first quarter, which should position us well for steel pressure pipe margin expansion into the mid teens in the second quarter. We currently estimate bidding activity could be approximately 50% higher for 2022.
Compared to 2021 levels.
Further we believe the strength of our precast order book will continue throughout the year.
Looking ahead, we will remain focused on our top priority of taking every precaution to keep our employees safe through the ongoing pandemic.
Number two integrating park USA as quickly and efficiently as possible.
Number three a persistent focus on margin over volume.
Number four continuing to implement cost reductions and efficiencies at all levels of the company.
And lastly, continuing to identify strategic opportunities to grow the company. Once we have completed the integration work with pork USA.
Thank you to all of our northwest pipe employees for your dedication to strong operational execution and your commitment to working safely I will now turn the call over to Aaron who will walk through our financial results in greater detail.
Thank you Scott and good morning, everyone.
I'll start with our financial results.
Consolidated net income was $3 6 million or <unk> 36 per diluted share compared to $2 2 million or 22 per diluted share in the first quarter of 2021.
Our consolidated net income in the first quarter of 2022 included <unk> 9 million and amortization and other transaction costs specific to park, USA, which were partially offset by <unk> 2 million and associated tax expenses for these items.
Adjusted net income excluding the aforementioned items was $4 2 million in the first quarter of 2022 or 42 cents per diluted share compared to $2 3 million or <unk> 23 cents per diluted share in the first quarter of 2021.
Adjusted net income is provided for comparability purposes. Please refer to the reconciliation of non-GAAP financial measures in our earnings release for a comprehensive schedule curtailing the adjustments for each period.
Consolidated net sales increased 51, 2% to $109 3 million compared to $72 3 million in the first quarter of 2021.
Steel pressure pipe segment sales increased 24, 4% to $74 7 million compared to $60 1 million in 2021.
85% increase in selling price per ton, resulting from increased steel costs, along with changes in product mix, which was partially offset by a 33% decrease in tons produced resulting from changes in project timing.
Pre tax segment sales increased 182, 5% to $34 6 million compared to $12 3 million in the first quarter of 2021, primarily due to $19 7 million contribution from the recently acquired parks USA operations, which as Scott discussed earlier.
This is in addition to a 22% increase in sales at our preexisting precast operations, resulting from a 35% increase in selling prices, partially offset by a 10% decrease in shipments.
Consolidated gross profit increased 68, 5% to $14 8 million or 13, 5% of sales compared to $8 8 million or 12, 1% of sales in the first quarter of 2021.
SPP gross profit remained relatively flat at $7 2 million between the first quarter of 2022 in the corresponding quarter of 2021.
Resulting gross margin was nine 6% of segment sales in the first quarter of 2022 compared to 11, 9% in the first quarter of 2021.
In the first quarter of 2022, we recorded a reserve for product liability claim, which Scott discussed earlier.
Given the settlement process is not quite complete we are not in a position to go into detail surrounding the pending legal matter at this time.
Excluding this reserve.
Spp's segment's gross margin would have approximated the margins realized in the first quarter of 2021 as well as those that were realized in the preceding quarter.
I would also note that product claims of this magnitude are unusual and infrequent.
Free cash gross profit increased 368, 7% to $7 6 million or 21, 9% of pre cash sales from $1 6 million or 13, 2% of segment sales in the first quarter of 2021, primarily due to the contribution from park USA as well as higher <unk>.
Prices at our preexisting precast operations.
Selling general and administrative expenses increased 67% to $9 4 million compared to $5 8 million in the first quarter of 2021.
The increase was primarily due to the addition of park USA, which added $1 5 million in costs that are primarily compensation related in nature, along with zero point $8 million in higher amortization expense.
We also realized higher labor expenses and professional fees compared to the year ago quarter.
For the full year of 2022, we expect our consolidated selling general and administrative expenses to be in the range of $36 million to $39 million.
Companywide depreciation and amortization expense was $4 1 million in the first quarter of 2022 compared to $3 million in the first quarter of 2021.
We expect depreciation and amortization to be in the range of 16 and $19 million for full year 2022.
Interest expense increased <unk> 6 million in the first quarter of 2022 compared to <unk> 2 million in the first quarter of 2021.
As we move through 2022, we expect our interest cost to vary with working capital needs for the steel pressure pipe business and with tightening to the current rate environment.
In addition, we have limited nearly half of our current exposure to variable interest rates with an interest rate swap contract initiated in April .
Our 2022 first quarter income tax expense was $1 3 million, resulting in an effective income tax rate of 27, 4% compared to <unk> 6 million in the first quarter of 2021 for an effective income tax rate of 21, 7%.
The effective income tax rate for the first quarter of 2022 was impacted by non deductible permanent differences, while the rate for the first quarter of 2021 was impacted by tax windfalls recognized upon the vesting of equity awards.
We believe our full year 2022 tax rate will approximate 2021% effective income tax rate.
Now transitioning to our financial condition.
Net cash provided by operating activities in the first quarter of 2022 was $1 6 million compared to cash used in operating activities of <unk> 6 million in the first quarter of 2021.
Primarily due to improved profitability net of higher noncash amortization expense in the first quarter of 2022.
As of March 31, 2022, we had approximately $90 million of outstanding borrowings on our credit facility, leaving approximately $34 million and additional borrowing capacity.
We are diligently managing our working capital and believe our available borrowing capacity is sufficient to meet our near term liquidity needs.
Our capital expenditures for the first quarter totaled $4 4 million compared to $1 9 million in the first quarter of 2021.
We continue to project, our total capex to be in the range of 26 and $30 million for full year 2022, which includes approximately $13 million in investment Capex for the new reinforced concrete pipe mill with the remainder to be used primarily for standard capital replacement projects.
We expect the timing of our 2022 Capex spending will continue to depend on broader economic forces.
In summary, we are very pleased with our first quarter results and the prospects for the balance of the year.
Thank you to all our employees for your hard work so far this year and most importantly for your ongoing focus on safety.
I will now turn it over to the operator to begin the question and answer session.
Thank you Sir at this time, we will begin a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad.
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One moment, please when we poll for any questions.
Our first question comes from the line of Brent Thielman with D. A Davidson. Please proceed with your question.
Hey, guys good morning.
Hey, Brian Good morning.
Eight.
Got maybe unlike a lot of other public companies right now I haven't really heard you talk about.
Challenges in margins with respect to kind of supply chain constraints.
Inefficiently Majestic and it seems like you all are working to do that pretty well maybe.
Maybe there is something on the coverage there and you can't see but can you just talk a little bit more about how that <unk>.
Impacting the profitability within the business today.
Yes, sure when you look at the steel pressure pipe side Brent.
On the steel.
Like we mentioned in the script, obviously steel fell off quite a bit towards the end of the year into the first quarter and then starting to come back up pricing wise.
And we've got some additional capacity come excuse.
Excuse me online in the steel business and I think it's kind of stabilizing the supply right now so we're not seeing really that much on the steel side I think when you look at other parts of our business though.
For example on the park USA side, we're seeing.
Delivery issues with mainly the components right.
The pumps, the valves and things like that which we're seeing extended deliveries on it's not that we can't get them. It's just that the deliveries get a little bit extended which quite frankly has caused us to carry a little bit more inventory at park at this point just to make sure that we have the components, we need to make on time deliveries and with with the <unk>.
Free cash infrastructure, the Geneva business really it's we haven't seen as much where we've seen a little bit with.
With cement deliveries and obviously pricing on cement and all of those components are moving up at the same kind of rate, but I think it's right. It's mainly around the component side right now and a little bit on the cement side and maybe a little bit on aggregates in.
In the pre cast infrastructure side, which again is Geneva.
But right now we're working our way through those and generally not having many issues with them at this point.
Yes.
Yeah, that's great and then the pre gas margins it looks like a great start here altogether I mean can it get better from here as we can.
Any kind of a seasonally stronger periods of the year.
Yes, I think when you look at the first quarter generally on the precast side, its generally the slower quarter, especially on the pre cast infrastructure, the Geneva type big business, because you've got colder weather, where they're located so it starts to slow things down a little bit.
And then on the on the park side, we haven't seen anything slow down anywhere on park.
It continues to be really strong and I think when we look at margins.
We've talked a little bit about this on the past I think a good a good measuring stick for like what you see with the pre cast infrastructure Geneva margins is probably theyre very high side of what we can get in the water transmission. When things are really really strong and then when you look at the park margins Youre looking at probably five or six.
<unk> hundred basis points above that.
And I think as we go through time and continue to get efficiencies in those facilities and cost reductions that those margins will continue to improve as long as the market sticks, because I can tell you right now the the precast and free cash related markets that we're in.
Have been very strong and appear to be setting up for a really strong 2022 full year. So it's it's looking pretty good.
Scott I mean to that point, you know it looks like GE event itself was up over 20%.
Again this period.
I mean, what do you think is driving all this demand on the precast side. There can you select market you can point to.
I think the the thing the business drivers.
Pre cash because park in Geneva, a little bit different right Park is only about 15% residential so it's more population growth urbanization and interest rates.
That our business drivers to that business, but like I said, we have not seen the order book slow down at all.
At Park and obviously they are in Texas and when you start looking at what the the conflict in Ukraine is doing with with the oil distribution around the world. Obviously, there's there is theres going to be a lot of money being spent in the Texas economy. So the Texas economy is really really strong and I think.
The things that we've worried about more Brent or like obviously, the fed increases in the interest rates and the effect that those youre going to have but even when you are looking at where we have our park facilities right now.
It's interest rates start to slowdown single family residential housing people are still going to need places to live in Texas, So you're probably looking at potential growth in multifamily apartments and things like that so I think that is is really a.
A big piece of the park site on the Geneva side, a little bit different drivers a little bit different because it's mostly.
Related to residential Youre looking at population growth housing starts and interest rates.
The worry there obviously is the interest rates are going to slow down the residential market and.
I think what's happened and you mentioned it before about supply chain the supply chain issues that are through the system have caught it caused a little bit of a buildup in in construction starts on residential housing so.
There's been a lot of delays in getting construction started in completion. So I think there is some momentum behind that market and that momentum just as a continuation of what we've seen really for the last probably year and a half in both of those businesses. So.
Yes, good day.
Here.
I guess last one I'll turn it over how much how much said that $341 million in backlog do you think you could get for this year.
Oh geez.
Backlog some of the backlog is always longer lead time, I mean, theres, obviously stuff in that backlog that stretches out into 2023, and maybe even a little bit.
Into 2024, I think we ended 2021, it would kind of which ones are too.
So 80% ish of the steel pressure pipe business I think obviously the backlog would would foretell the revenue in that business should continue to climb.
Over this period, just just because there's more work in backlog and it's not a it's not even related to a steel price thing now Brent because what.
We're dealing with is we saw steel prices fall a bit at the beginning of the year. So the steel prices aren't as big of an effect of what we're seeing is way more tons in backlog. There is like 63% more tons in backlog now versus where there was in the fourth quarter and actually a bug.
More than that when you look at the first quarter of 2021, it's even higher than 63% and the amount of tons in backlog. So I think that theres a good chance that the.
That revenue, while I don't want to throw out a specific number out continues to grow from where we were in 2021.
Okay, alright, well I figured that but I thought I'd ask anyway.
Thanks Scott.
Thanks, Brett.
Our next question comes from the line of Gus Richard with Northland. Please proceed with your question.
Yes, thanks for taking my question.
Yeah.
On the pressure pipe business.
In the past there has been some.
Shipment delays from the steel companies have are you still experiencing that or are they are the deliveries more predictable now.
Well, what I would tell you is the you always experienced some delays from from the steel guys. Right. There is there is always delays depending on the different mills that youre dealing with but certainly where we are right now we're not seeing nearly what we saw in 2021 and I think.
And a couple of words, it's definitely becoming it's become more predictable.
And then we've seen so so that has been a pretty good plus especially since we saw last year delays in projects that we already had and in backlog already produce and we're waiting on steel for some of those projects were not seeing nearly as much of that now so thats kind of leveled out and really I think it's.
You've still got.
Some of the some of the markets in that or steel related markets like the automotive guys are still a little bit down obviously, the chip shortages is creating issues there, but we're also seeing additional.
Capacity coming online, which is which is making more steel available. So I think those things are all helping.
Got it.
That's helpful and then.
Just thinking about the margins.
Pipe business in the past <unk> been able to get to.
20%.
Do you see a path to getting their orders.
So how do you see those margins trending.
Based on the better backlog.
Yes, we see you know obviously, we're going to be able to run more tons in the first quarter was relatively small tonnes of production right. I mean, when you look when you look at overall capacity utilization.
The first quarter and look at the practical practical that capacity of the facilities, we are probably somewhere in the area of about 35% capacity utilization, while we're going to be running more in the second quarter of the year, and obviously with running where you get better overhead absorption rates. So that's why we're kind of focused on those things get.
Into the mid teens, we think that as we go through the year. There is a chance that they could continue up but I think when we get into the 20% range. A few things that have to happen. One obviously you need a really strong good extended market because the key four four for March.
<unk> over 20%, our strong industry wide backlogs and that only comes with strong demand in the market.
It creates a much more stable environment.
And I think that Thats, what youre looking for and I can't say that we're we're there yet obviously, we had a really big first quarter bidding.
In 2020, 'twenty, two and that's that's kind of set things up for the rest of the year, but I think the rest of the year I would I would kind of deem is just solid bidding and I think that that backlog is.
$340 million or $341 million backlog is a good carryforward since it was.
And 'twenty two.
Think the other thing is as we mentioned.
That's going to be the high watermark because of what we see for the rest of the year, but we still think it's going to remain up ways. So as long as backlogs remain up industry wide.
There is there is no reason you can't start moving up at least toward that 20% to 20% number.
But they've got to remain strong for a period of time to get there. So I think people have to have or competitors have to have a longer term.
Look at stronger backlog and Thats really what starts to drive that higher production levels, which creates better absorption rates in the plants and then the better backlogs what create that creates a more stable bidding environment.
So I think it will.
We're not quite there yet, but I think we're starting to move in that direction.
And then the sequential decline in <unk>.
Bidding activity is just a function of.
The differed on bidding.
In 'twenty, one just being taken care of in the first quarter and that pretty much is cleaned out am I getting that correct.
Yes, I think we can still see a little bit of that in the later part of the year, but a lot of it was in 2000 22022 first quarter I think some of that work actually move down into 2023, but but in general what you are saying is correct.
Got it.
Then.
Geneva with this or is this capex, you're putting into it cannot Geneva margins migrate up towards park USA or.
Is that.
Just generically lower lower margin.
Part of the precast.
Yes, because youre dealing with more of a I don't want to say commodity product, but it's more of a commodity type product than what.
And what we see at park.
It's more the RCP piping and Manholes and things like that so I think that there is room for improvement in Geneva margins, but I think the bigger question is how high can park margins kick right I think the Geneva margins have developed quite nicely over the last year and a half.
But the question starts to come down to where were in the park margins get too right because like I said. They are they are five or 600 basis points above the Geneva margins, which which we think is okay. At this point, but I think that there is some there is some room to move up in those two.
Got it got it got it.
Okay.
I think thats it for me thank you.
No Brian Thanks Gus.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next question comes from the line of David Wright with Henry Investment Trust. Please proceed with your question.
Hi, good morning.
And again the press release, you talk about the.
At Geneva, 35% increase in selling prices, that's pretty stomach on can you put any context on that.
Yes.
I would say David is the selling price is reacting to the increase in raw materials, because when you look at when you look at the raw materials on the pre cash business you saw.
<unk> seen a lot of them move up like whether it's reinforcing rod or wire or the sand and aggregates a lot of those are up 15, or so percent in some cases, even a little bit higher. So obviously, what we're trying to do is is trying to make sure that we are.
We are covering the increased costs, but I think the other piece is the demand on the.
And the Geneva business has been has been so strong it's just.
Frankly, we're actually trying to slow down the order book right. Because you don't want to get the order book too far extended otherwise the lead time gets extended and what it means is it takes longer to get the price increases into the market. So we've continued to work price increases in the market to stay out in front of these.
Cost increases, we see in Geneva, and I think the guys on the precast side.
Mike Ray and his team of guys have done a really good job of that so it same thing with park, we're seeing the same kind of increases.
With park.
The raw materials side, which again youre dealing with a lot of the same that Geneva has for the for the pre cast concrete vaults, but also the components I think they're doing a pretty good job of keeping out in front of those things at this point. So hopefully that answers. Your question, let me get off on too much of a tangent.
Oh, no I'm, just thinking like a utility Walter pretty generic.
Free cash item.
For the price of that to go up so much and have the market tolerated.
It's interesting to think about.
I will tell you I will tell you David the order book is has been really strong.
Was it continued to grow through the through the back half of the year and it's continued to grow in the first quarter and into the second quarter. So the key is to make sure that we're managing the order book. So we don't get too far extended so so we ended with about I guess it was about <unk>.
$66 million in backlog.
Backlog, it's actually order book for the for the precast and pre cash related business ideally, we'd like that to be a little bit closer in.
Maybe in the mid <unk> high <unk>.
We're getting out that far it just takes longer to get the prices into the market to keep up with the cost increases. So so the guys are doing a good job, but the demand on pre cast as Ben.
But it has been pretty stunning at this point.
Well that's been.
A good move to.
The company made.
To expand in the precast and.
Yeah.
Do you.
You have hit the beginning of the cycle and are benefiting from from the improvements. So that's that's a really great move.
And then my other question is with.
With possible further expansion on the precast side is is there any kind of a debt metric that management and the board are kind of comfortable.
With getting too but not exceeding.
Yes, that's been a big level of discussion, specifically with Aaron and I, because obviously the the big thing is where we are now we'd like to get the.
Our credit facility down into a region within a reasonable range. So I mean, that's that's going to be the first order of business I.
I think before we get any more expansion going on it could be a little bit of a while before that happens because we're still integrating park, but I would say at this point.
To us in both Aaron and I are pretty pretty that light I don't like to have a lot of that so I would like to keep working things down.
At this point I would say.
These are just kind of round numbers.
Feeling more comfortable with that with a credit facility of its kind of in the <unk> range, you know what I'm, saying at this point because we've got a we've got some integration to do and obviously, we'd like to we'd like to do things off the balance sheet. If we can.
And that's going to we're going to continue looking at that as we go forward, but we're pretty we're pretty that conscious when you look at what we're how we run the business. So yes credit facility allows for three times EBITDA right now David.
Due to the acquisition that acquisition holiday kind of engine.
In the fourth quarter.
So.
The dropdown to 225, I mean, Scott typically been comfortable at two and not not carrying too much stress it too.
But like Scott said, we naturally wanted it as low as we can and they are pretty conscious on.
Going down so something we're very focused on I haven't focused on forever I mean, Scott Scott really kind of brings that to the culture and something that he does during his meeting with the executive team, where we really start a lot of meetings with discussion around our current assets and receivable collections and cash so something something we pay attention to all.
Yeah, and I think that's been a big piece of activities in our receivables and working those those those percent on times.
Much higher, especially in the steel pressure pipe business.
So it sounds like on the <unk>.
Debt to equity ratio for example that you wouldn't be comfortable going back further than you are right now.
Yeah, you know it would it would have to be something that was really transformative I think that the obviously there is variability in the steel pressure pipe business and we're conscious of variability just like when we talked about 2021, we thought the back half of 2021 was going.
To be really large bidding back half of the year and as we got through the back half of 2021 have deteriorated and things pushed out into 2022, so I am more and more comfortable with a little bit less leverage unless there's something out there that.
Really made sense, so and it's really.
That's the focus on alright, well, we've got to continue to grow the precast business to continue to balance off the variability that we see in steel pressure pipe because when the steel pressure pipe business is good I mean, it's pretty good but when it's slow obviously, you've seen some really really slow years worse on the steel pressure pipe.
And the key I think is is getting something to balance that out and that was the reason for the free cash growth strategy and continuing down the road and the free cash flow strategy into a market that is.
As we see it now has.
Much faster cash cycle.
Better margins and is more consistent but.
We're still in the base of the company is still the steel pressure pipe water transmission business and we've got to pay attention to the variables that we see in that based on how jobs lineup. Because you start the beginning of the year. When you think youre going to have a certain amount of jobs bidding throughout the year and you build your plant base.
On those number of jobs and as we saw in 2021, which obviously had some unusual events like the continuation of the pandemic.
It can change relatively quickly so we're pretty conscious of that and that affects how we look at.
How we look at comfortably being in a certain debt level. So.
Well, that's great because sometimes when management start making acquisitions and they are successful they say all right, let's do some more so Europe youre disciplined very comforting so thats great.
Great quarter, and thanks for taking my questions.
Thanks, David.
At this time, we have reached the end of the question answer session and I will now turn the call back over to Scott Montross for any closing remarks.
Yes, I'd just like to say thank you. Thank you again for joining our call and before the call just to leave you with just a couple of takeaways are first quarter backlog for steel pressure pipe should position us well for improved margins in the second quarter and at the same time, our precast business has remained strong with record order book, which.
Would facilitate the potential of margin expansion as we progressed through what appears to be as I said before pretty strong 2022 free cash market and finally, we're pleased with the integration of pork USA. It's on schedule and we continue to be very excited about the future growth prospects of the business.
Again say, thank you for all your time and attention today and we look forward to speaking with you again on our second quarter call in August so thank you very much.
This concludes today's conference call you may disconnect. Your lines at this time. Thank you all for your participation and have a great day.
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