Q3 2022 Northwest Pipe Co Earnings Call
Yes.
[music].
Greetings and welcome to northwest pipe company's third quarter 2022 earnings call.
This time, all participants will be in listen only mode.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero from your telephone keypad.
Please note this conference is being recorded.
At this time I will now turn the conference over to Scott Mantra CEO Mr.
Mr. <unk> you may now begin.
Good morning, and welcome to northwest pipe Company's third quarter 2022 earnings Conference call. My name is Scott months' Ross and I'm, the 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 November the eight 2022 at approximately four P. M. Eastern time. This call is being webcast and is available for replay.
As we begin I'd like to remind everyone that statements made on this call regarding our expectations for the future are forward looking statements and actual results could differ materially. Please refer to our most recent Form 10-K for the year ended December 31, 2021, and in our other SEC filings for a.
A discussion of such risk factors that could cause actual results to differ materially from our expectations.
We undertake no obligation to update any forward looking statements.
Thank you all for joining us today I'll begin with a review of our third quarter performance and will then walk you through our financials in greater detail.
Consolidated net sales were 123 million, which included $25 million contribution from park USA.
The revenue from our steel pressure pipe segment increased 25% year over year to a very strong 83 7 million the.
The increase was primarily due to higher production volumes and higher price levels on projects that we have in backlog given the elevated material costs that we experienced late last year and early in 2022.
Compared to the prior quarter steel pressure pipe revenue increased eight 6%, which exceeded our expectations given the less than expected impact from the flooding events that occurred in two of our main steel pressure pipe plants at the beginning of the third quarter.
Our steel pressure pipe sales continued to benefit from the stronger bidding environment, we've been experiencing in 2022 as compared to last year.
And as a result, our backlog has remained in or near record territory throughout 2022.
At the end of the third quarter, our backlog, including confirmed orders for steel pressure pipe segment reached an all time high of 347 million. This was up from $338 million as of June 32022, and $273 million as of September 32021.
We continue to expect the bidding environment to remain healthy throughout the duration of the year with a resulting backlog projected to remain high compared to historical standards.
In regards to steel pricing levels hot rolled band prices steadily declined throughout the quarter dropping to the low $700 per ton range.
While this price level remains slightly elevated by historical standards steel prices are still are still far below the 19 $250 per ton. We saw late in 2021 and general elevated steel prices are a positive for our steel pressure pipe business.
Now turning to our pre Cas segment.
Free cash sales increased 158, 6% year over year to $39 3 million.
Due primarily to the $25 million contribution from park USA, along with another record revenue quarter from our preexisting precast operations at the Geneva locations.
Geneva is third quarter net sales of $18 8 million increased 24% year over year, driven by higher selling prices due to a very strong demand for our precast products as well as increased raw material input costs.
While the overwhelming demand has led to continued tight conditions for cement, we believe the bulk of the supply chain challenges are now behind us.
Our free cash related order book also remained near all time highs totaling $74 million as of September 32022, and down only slightly from $75 million as of June 32022, and up significantly from $24 million as of September 32002.
101, which did not include park USA.
We continue to believe our precast order book will remain fairly strong for the remainder of the year.
Our consolidated gross profit increased 103, 2% year over year to $25 1 million, which resulted in gross margin of 24% up approximately 580 basis points from the third quarter of 2021.
Which as a reminder was negatively impacted by COVID-19 related production delays and associated bidding pressures.
Our steel pressure pipe margins exceeded our expectations by improving 260 basis points over the prior quarter driven by solid 2022 project bidding levels, which resulted in improvements to the overall quality of our backlog and thereby contributed to the sequential gross margin increase we saw in the third.
Quarter from higher production levels, leading to better overhead absorption all of which offset the impact of the severe weather events in July that forced temporary shutdowns of two of our steel pressure pipe facilities.
Compared to the prior year, our steel pressure pipe margins benefited from the stronger bidding environment as well as better overhead absorption.
Our third quarter pre cash gross margin was once again positive which supported by contribution from the acquisition of park USA locations.
Despite some of the challenges we experienced with the ongoing ERP implementation and I will discuss in a moment.
Further we continue to benefit from improved project pricing at our preexisting free cash in operations as we implemented price increases to outpace inflationary pressures, which have driven increased cost for raw materials and transportation.
Despite current economic headwinds, including rising interest rates and the potential impact of commercial and residential construction. We are cautiously optimistic of pre cash business will remain fairly strong for the near term.
Next I'd like to turn to a discussion on our two pronged growth strategy, which is aimed at diversifying our business to be more resilient through economic cycles.
Our primary focus is on driving growth and free cash related space. Just last month, we passed the one year Mark of our acquisition of Park USA on October five 2021, we have made tremendous strides that we continue to integrate the company into our culture and operations.
The last major piece of our integration effort is the ERP implementation, which has been a large undertaking given the complex nature of parks products and the sheer volume of transactions relative to our existing operations, which presented us with some challenges during the third quarter.
The complexities ultimately led to some unplanned downtime, which resulted in reduced production levels and shipments that had a muting effect on both our free cash revenues and gross margins for the third quarter.
That said, we've continued to make good progress toward achieving full functionality of the park ERP system. However, it is possible we may experience additional downtime in the fourth quarter as we work to achieve full system functionality.
Fundamentally the business at park remains strong what we're experiencing currently are systems related growing pains that are necessary to achieve our strategic growth initiatives.
For instance, the completion of the ERP implementation will lay the foundation for our organic growth product spreads strategy.
As a reminder by product spread we are referring to our initiative to add the production of pork products to our legacy northwest pipe plants and in some cases ads products from existing northwest pipe facilities to park facilities in order to expand our production and maximize overall efficiencies.
During the third quarter, we made our first sales and shipments of pork products out of our Geneva locations in Utah.
At the end of the quarter, our bookings outside of Texas were up 27% year over year over year.
We remain very excited about the growth potential for the park business alongside the Clark integration work. We also are focused on expanding automating, our Geneva operations to increase production capabilities and capacity to satisfy the growing market demand for our concrete products.
We have committed approximately $15 million for our new RCP manhole facility at our Salt Lake City, Utah.
The original construction timeline for this project has been extended as a result of building construction delays and extended lead times.
We currently expect the project to be completed in the second half of 2023.
The second prong of our growth strategy is to continue maximizing our steel pressure pipe water transmission business to drive enhanced shareholder value. Our third quarter results demonstrate our continued effort towards maximizing steel pressure pipe business keys to this effort our cost reductions and lean manufacturing.
And our focus on margin over volume. In addition, we are continuing to explore other opportunities to further reduce costs maximize margins and to become as efficient as possible before I conclude I would like to discuss progress on some current and upcoming water transmission projects that are bidding in the steel pressure pipe market.
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Money from the HR 36, 84 infrastructure investment and jobs Act II.
Signed into law in November 2021 has met its made its way down to the project level and is helping to provide a reliable stream of bidding activity.
All included 55 billion in federal funding for relevant water transmission infrastructure projects over the next five years.
In the eastern markets the ongoing multiyear multi agency Houston surface water program is bidding 12000 tons of pipe. This month is expected to bid multiple segments in 2023, representing 4100 tons for the west and North Harris County regional water authorities.
The next new reservoir being built in Texas is Lake Ralph Hall for the Upper Trinity Regional Water District. This is another major program. Currently in construction that includes a new dam and pipeline to move water into the Dallas Fort Worth Metroplex. The pipeline is currently bidding and includes 17000.
Onto pipe construction on the pipeline will begin in 2023.
The Alliance regional water Authority program in Central Texas is another multi agency regional water program. The program includes a large pipeline pump stations and treatment facilities and is currently bidding 2700 tons of pipe with an additional 2000 tons remaining on future segment.
In North Dakota progress continues on the 140 mile 87000 ton Red River Valley water supply project.
The first two segments were awarded the northwest pipe and installation is currently underway.
We are closely tracking the outcome of further budget approval for future segment construction.
In the Western markets California's prop 175 billion bond for water infrastructure has created the much needed funding for projects within the state.
The following four prop one projects are expected to start construction in the next five years first 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. Additionally, site's reservoir received $30 million.
J a funding this past quarter.
Second harvest water as a program intended to provide recycled wastewater for agricultural Houston Sacramento.
This progress program includes nearly 25 miles of 30 to 66 inch pipeline.
Third rocks Vaccaro reservoir expansion program provides a substantial capacity improvement to the existing reservoir and conveyance facilities in Northern California. The program includes approximately 22 miles of $48 96 inch pipe and.
And fourth Willow Springs water Bank will create 500 acre feet of underground water storage and the Antelope Valley. The project includes approximately 16 miles of 30 inch to 84 inch pipe.
Other water reuse programs have generated new opportunities in the California market on which we expect to see bidding activity continue for the foreseeable future.
M. WD is heading a regional reuse pilot project in conjunction with the La Sanitation District. This reuse program would treat and recycle water from one largest reclamation facilities in southern California, and involve 60 plus miles of large diameter pipe the current demonstration facility.
Has been operating for two years preliminary design and permitting is ongoing and construction of the full scale treatment and conveyance facilities could begin as early as 2025.
<unk> secured a 224 million dollar we felt alone in October of 2021, which will fund nearly 50% of the anticipated construction cost.
Southern Nevada water authority as a Las Vegas water wholesaler in Colorado River water user that has also pledged funding significant financial support for this program.
The MW D. <unk> rehabilitation program will result in about 5000 tons annually over the next 10 to 15 years. This program includes 81 miles of pipe from 75 to 120 inches in diameter.
Southern Nevada water authority has begun moving forward in earnest with 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 steel pipe with construction tentatively scheduled for 2024.
In Utah design.
Design and permitting continues on the 150 mile 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 the pipeline construction for this program is advertised to bid. This December and includes 3800 tons of steel price.
In New Mexico, Governor Grisham recently announced $160 million.
Funding for the Eastern New Mexico Rural water system. This 20000 ton program would convey water via steel pipe from the reservoir and northern New Mexico, South to water users in the greater Clovis area.
In summary, we're very pleased with our teamwork and operational execution against our strategic plan in the third quarter, which resulted in a strong financial performance supported by the strength that we've seen in the steel pressure pipe bidding activity as well as continued strong demand for our high quality pre cast concrete products.
Our outlook for the remainder of 2022 remains positive aside from the typical fourth quarter seasonality, we experienced due to weather and holiday related closures underlying demand is projected to remain fairly strong for the near term.
As such we expect fourth quarter steel pressure pipe margins to be relatively in line with the third quarter of 2022, and our fourth quarter pre tax margins to be directionally flat to slightly down from the third quarter levels as we enter into the traditionally slower time of the year for free cash infrastructure products at Geneva.
We continue to anticipate steel pressure pipe bidding activity should be approximately 50% higher for 2022 compared to 2021 levels.
Looking ahead, we will remain focused on finalizing the integration of pork USA.
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Persistently focusing on margin over volume.
Continuing to implement cost reductions and efficiencies at all levels of the company.
And continuing to indemnify strategic opportunities to grow the company. Once we have completed the integration work with cloth USA.
Thank you to all of our northwest pipe employees for your strong performance during the quarter and your commitment to work 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 begin with our third quarter profitability.
Consolidated net income was $10 million or <unk> 99 per diluted share compared to $4 9 million or <unk> 50 per diluted share in the third quarter of 2021.
Our consolidated net income in the third quarter of 2022 include <unk> 8 million amortization expense specific to park, USA, which added <unk> $2 million associated tax expense resulted in adjusted net income of $10 5 million in the third quarter of 2022 or $1 <unk> per diluted.
Sure compared to $5 4 million or <unk> 54 per diluted share in the third quarter of 2021.
Adjusted net income is provided for comparability purposes.
Please refer to the reconciliation of non-GAAP financial measures in our earnings release for a comprehensive schedule detailing the adjustments for each period.
Consolidated net sales increased 45, 3% to $123 million compared to $84 6 million in the third quarter of 2021.
Steel pressure pipe segment sales increased 25% to $83 7 million compared to $69 4 million in 2021, driven primarily by a 17% increase in our tons produced mainly due to changes in project timing as well as a 3% increase in our selling price per ton.
Resulting from changes in product mix.
Retail segment sales increased 158, 6% to $39 3 million compared to $15 2 million in the third quarter of 2021, primarily due to $25 million contribution from park USA operations.
In addition segment sales benefited from a 24% increase in sales at our preexisting precast operations, resulting from a 49% increase in selling prices on continued strong demand for our concrete products, coupled with increased raw material input costs, which were partially offset by a seven.
Percent decrease in volume shipped due to changes in product mix.
Due to the unique nature of the precast products, we manufacture shipment volumes and corresponding sales prices do not always provide comparable metrics between periods as they are highly dependent on the composition of the mix of products shipped.
Consolidated gross profit increased 103, 2% to $25 1 million or 24% of sales compared to $12 4 million or 14, 6% of sales in the third quarter of 2021.
Steel pressure pipe gross profit increased 65% to $14 2 million or 17% of segment sales largely due to increased production volume as well as higher selling prices.
This compared to gross profit of $8 8 million or 12, 7% of SPT sales in the third quarter of 2021.
<unk> gross profit increased 210, 4% to $10 9 million or 27, 8% of free cash sales from $3 5 million or 23, 1% of segment sales in the third quarter of 2021, primarily due to the contribution from park USA as well as higher selling prices.
<unk> realized at our preexisting precast operations.
As Scott mentioned, our park USA business was negatively impacted during the quarter by the ongoing ERP system implementation project.
As the implementation continues to improve we expect to see a lesser degree of inefficiencies, resulting from this project in the fourth quarter.
Selling general and administrative expenses increased 91, 5% to $10 7 million eight 7% of sales compared to $5 6 million or six 6% of sales in the third quarter of 2021.
The increase was primarily due to the addition of park USA, which added $1 5 million and primarily compensation related costs, along with 048 million higher amortization expense.
We also incurred an additional $3 1 million other companywide compensation related expense as well as zero point $2 million higher travel costs, which were partially offset by zero point $5 million and lower professional fees compared to the third quarter of 2021.
For the full year 2022, we now expect our consolidated selling general and administrative expenses will be in the range of $41 million to $42 million.
Companywide depreciation and amortization expense was $4 3 million in the third quarter of 2022 compared to $2 9 million in the year ago quarter.
We expect depreciation and amortization will be in the range of 17% to $18 million for full year 2022.
Interest expense increased to $1 million in the third quarter of 2022 compared to zero point $1 million in third quarter of 2021.
As of September 32020 to approximately 57% of total debt less susceptible to variable interest rate risk.
Our 2022 third quarter income tax expense was $3 6 million, resulting in an effective income tax rate of 26, 3% compared to $1 9 million in the third quarter of 2021 for an income tax rate of 27, 9%.
The effective income tax rate for both quarters were primarily impacted by nondeductible permanent differences.
We expect our full year 2022 tax rate will approximate 26%.
Now transition to our financial condition our.
Our improved profitability helped us generate net cash provided by operating activities of $15 3 million during the quarter compared to net cash used in operating activities of $18 7 million in the third quarter of 2021.
Capital expenditures totaled $3 3 million in both the third quarter of 2022 and 2021.
We currently anticipate our total capex to be in the range of 25% to $26 million for full year 2022, which includes approximately $10 million and investment capex for new reinforced concrete pipe mill as well as other standard capital replacement projects.
As of September 32022, we had $71 $8 million of outstanding borrowings on our credit facility, leaving approximately $52 million in additional borrowing capacity.
We also initiated $3 5 million of new borrowings in August on an interim funding agreement.
The interim funding is anticipated to convert to a term loan upon the final delivery and commissioning of our new reinforced concrete pipe mill.
The debt is currently classified as a short term liability. However, the balance sheet classification will be reevaluated upon final loan funding.
In summary, I am very pleased with our recent financial results specifically what has been achieved over the last two quarters.
Regardless of a slower start to 2022, we have not had a year like this one since 2008.
We were a significantly different company than I would like to thank all of our employees, who have seen the company through that dramatic transformation.
I'd also like to thank our shareholders for their continued support.
We remain committed to driving long term growth and enhance shareholder value for the remainder of this year and beyond.
I will now turn it over to the operator to begin the question and answer session.
Thank you we will now be conducting a question and answer session.
Wanted to ask a question today. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.
You May press Star two if you relate to move your question from the queue.
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Please poll for questions once again Thats star one thank you.
Okay.
Thank you and our first question is from the line of Brent Thielman with D. A Davidson. Please proceed with your question.
Hey, Thanks, good morning.
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Hey, Scott on the.
Pressure pipe.
Pressure pipe business I think there was some anticipation that yes, the backlog might shrink.
Shrink here into the second half as you start to ramp up production.
Encouragingly.
That gap.
Just wondering maybe what what's been the surprise there whether that was yes selection on a major program yet maybe you didnt anticipate maybe some pull in of beds.
Thank you Mike.
That might come in later than ultimately fell into the quarter.
It's around that maybe Directionally, where you see ahead in the near term.
Yes, I think Thats a good question Brent because as we as we originally talked about the backlog at the beginning of the year, we thought that the first quarter was going to end up being the high point in the backlog right, but we've we've see that backlog stay in a relatively tight range for steel pressure pipe. We've had some projects pull on the 2000.
'twenty two.
And due to some of the project timing and specifications and the capabilities that we have.
We've had a few more projects that we've won.
During that time period, and therefore, the backlog has been pretty consistent.
We think that through the end of the year to the travel really in a relatively tight range and sets us up to come into 2023 real strong on our steel pressure pipe side.
So I mean it.
It was and I keep looking at that going <unk> I said, we were going to be high point at the end of the first quarter, but it is just plain.
Just kind of continued on so we're pretty pleased with the situation on steel pressure pipe.
Yes, good to see.
And then.
Looks like you're still recognizing pod positive pricing in pressure pipe.
In the third quarter.
When do you when do you think we start to see that flow through.
Lower pricing just sort of related to that scale cost declines you talked about and I guess Scott. The next question would be.
I think about the share volume of bids.
Opportunities that are out there is that enough.
To offset.
What I would anticipate some pressure on the pricing side of pressure pipe.
Okay. So.
What I would say is when you look at the backlog we're already we're already seeing some of that debt still steel price drop in the backlog. It's already it's already in there, but what we have on steel pressure pipe as a backlog right now that's about 23% higher than it was at the end of the second.
Quarter in tons. So we've got a significant amount of tons in the backlog and incidentally. We also got a relatively large reinforced concrete pipe job at our Tracy plant as you remember, we which is which is in our backlog to have Tracy does some reinforced.
Concrete placement.
They just got another major project there. So that's also adding to backlog.
It's.
I think that the tons in backlog production levels are improving we're seeing the prices on steel coming down so project prices are moderating down.
I think the volume the sheer volume, it's being run it's starting to offset that a bit plus because of the bidding some of the bidding has some pretty good margins and it's just because so much stuff has been bidding.
As far as the steel price flowing through.
What we see ultimately is is not not really an impact on the gross margins, but more of an impact on the gross profit dollars because you're really dealing with.
Small maybe smaller revenue numbers, but right now I think thats it.
All looks really positive I think the volumes offsetting some of the price decline.
We're expecting a pretty good fourth quarter on steel pressure pipe two and normally it gets a little dicey in the fourth quarter because of the weather and the holidays, but.
It's looking pretty solid right now.
That's great.
Just one more.
I mean.
Takeouts contribution notwithstanding.
T challenges are still fantastic.
I guess just sort of a two part question for me Scott.
It looks like.
I guess, just understanding park USA, a little better I mean would you or would you have expected that.
That business to see a pick up on.
The second quarter to the third quarter from a revenue perspective, just to get a sample of this year impact that.
Implementation of Basel.
Yeah.
When we've looked at it when they are and I have looked at it we think that probably the second and third quarters without any impact of the implementation of the ERP system would have probably been pretty similar.
So I mean, you can see I think what we figured out is it probably affected the revenue somewhere in the area of about $4 million and maybe five.
500 basis points on the margin. So so there there was that impact but it.
Excellent and one of those things were kind of going through the growing pains with with a company. In this this stuff was pretty systems related. So we've got to go through this and get the thing done, but I think the impact was there and we wanted to call it out.
But certainly the park business is still very strong.
Yes, okay, well I appreciate the color I'll get back in queue.
Okay.
As a reminder, you May press star one at this time to ask a question.
Our next question is from the line of David Wright with Henry Investment Trust. Please proceed with your question.
Hey, good morning.
Hey, David how are you.
I'm fine thanks, very much Hey, Scott Erin look at.
One of the things that you were striving for was to have.
Some.
Continuity and quarter to quarter results.
Note that Q2, and Q3 are almost identical into results stock that's not suggesting you could do that every quarter, but.
That's per quarter, so congratulations there.
That's what we strive for though David.
Yes.
Okay I wanted to ask a question about the press release that came out last week.
Yeah on the San Diego job.
So in the press release, your manufacturing 4800 tons of engineered steel pipe.
Or a project Thats, primarily six five miles a parallel 30 and 48 inch pipeline.
Is that 4800 tons in April to translate into six five miles a parallel pipeline.
Yes, roughly yes, yes, okay.
And then.
The other thing I wanted to ask was when you say, it's engineered steel pipe with cement mortar binding tape RAF coding cement mortar overcoat as that sort of like the deluxe package or can you do much more to solid waterpark.
It's all based on this fact that the that the owner has right cement mortar lining obviously is it's pretty common lining for our steel pressure pipe, probably 70 or 75% of all the jobs. We do has to has that but when you put.
The tape clothing over at what they do is put cement mortar coating over it really to to protect the tape.
The corrosion.
The responsibility of the chain. So they are they have been very cautious with that spec in.
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Here to tell you, they're getting a good product.
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And Thats.
Results in a little better pricing as well, but those extra features Oh, yeah, Oh, yeah. Those those things obviously, there when youre building up.
Estimate on a job like that job and these are these are large estimates you you go through not only the bearish cylinder, making but the cost and relevant pricing for per square foot of coding per square foot of lining and in this case, you really have two closings under things so so.
Yes, or additive to all of that.
Okay, well listen you guys are doing a great job.
During the company in this new direction and the results are showing that.
Good luck with your ERP conversion there in Q4.
Talk to you next time.
Thanks, David always good to talk to you. Thanks, David.
Our next question a follow up from the line of Brent Thielman with D. A Davidson. Please proceed with your question.
Okay. Thanks, guys come back.
Okay.
Aaron.
Is there any way to give us a feel for it.
Yeah.
The portion of the clock related with the ERP implementation.
Don't repeat as we go into next year I know, that's showing up in SG&A I'm.
I'm, just trying to get a sense it.
It's going to be the norm for SG&A as we move into 2023% on a run rate basis is that yes that cost base.
Yes that there is a little bit of incremental cost obviously with some some extra bodies as we try to to do most of those are kind of more on the operational side. We don't have a whole lot of consulting costs going through a little bit a little bit more whats was.
<unk> expense actually in the year prior.
And we're doing some planning for the project.
Really what you see with the SG&A Brent is.
Just to pick up.
And incentive compensation. In addition to all the stuff we brought on with with park, which is human human capital related.
We have some incentive compensation that fluctuates with the company's profitability. So that's a lot of the story and made a little bit of a catch up on that expense level.
In Q3.
Compared to compared to the prior quarter.
Okay. It sounds like this year has run out.
Something to build off of them in subsequent years here.
Okay.
Yes, I think so I mean I think.
Right right now there's nothing that we see as a real synergy and cost I mean, the amortization is going to stick around obviously.
There'll be some some ebbs and flows but at this point I think what youre seeing for our SG&A at the current profitability levels are pretty good.
Level for what you see in the future.
Okay, and then I mean, it does look like you're able to buy down a little bit of that.
This quarter.
Seems like productions.
Pretty high level here over the near term.
Just wondering if you think.
They'll be in a position to see some lift.
You may not been working capital in the fourth quarter attendance.
You tend to see.
Ultimately bring in some more cash to lower debt just curious can I see that playing out over the next three six months.
Yes, I think I see some in the fourth quarter less than what we were able to realize in the third quarter of a free cash flow of about $12 million.
I think we'll see a little bit in the fourth quarter I think I think it does kind of come through in a little bit of a bigger wave in the first quarter.
What we're looking at right now is a little bit of a counterbalance.
Steel prices are starting to come down or not really coming into the numbers that we've seen for the third quarter, yet they will come in as we progress into the fourth quarter and the first quarter of next year.
But then we're also ramping up production levels right. So there's a little bit of a counterbalance there that we're we're not quite getting the benefits of through working capital net debt.
Release of the really big buildup that really occurred back in 2021. So some of Thats release this year, but we should see it still see a little bit more of that into 2023, especially price prices for steel come down to the level that they were.
Early 2021, or 'twenty, one against right, which is driving that.
Six $700 range so.
Okay, Okay, and just one more on the on the.
Pre cap side, I think Geneva wants to add.
A little more exposure to new new housing construction and others of them.
<unk> not occurred.
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And then the precast order book still looks optically.
Lastly, healthy I assume that includes looks like that includes Geneva.
I don't know any feedback from the field in terms of.
Impacts from that market on the data.
These are we're having some pretty interesting discussions around the impacts on the obviously the residential market, which is is that's where Geneva squarely centered when you start looking at what some of the publications are saying like the National Association of Homebuilders.
Housing market index, obviously, they've turned pretty negative sentiment sentiment over over the last several months here, but the customers that we're talking to arent really doom and gloom there Brett.
They're being cautious, but we're still seeing really really low unemployment rates.
Especially in the markets that we serve and labor is not getting any easier to get into those markets and those markets and I think one of the things that we are starting to recognize is that there is there is this massive bubble of of people that have visited 20 somethings are 30 years old, but theyre going to be looking for.
Over the next two to three years and I think what you start to see maybe is a little bit of a transition and how the builders are looking at things. They may have to start looking at hey, we may have to take lower margins to offset some of the interest the interest rate increases are actually focus on building houses that are fortune 500.
Dollar houses versus eight $900000. So I think what you were looking at going out into the future, we're probably going to see a slowdown for a fee.
Period of time related to all of us.
People are still going to need a place to look is what the sentiment is and maybe maybe because of that.
The interest rates the multifamily housing are apartments become more prevalent during that period of time for example in Utah, Utah has like the highest the third highest metro rent rental rate in the country. So so I think that.
There's there's kind of a maybe a little bit of an evolution that goes on here short term, but that being said I think you started out at the beginning our third quarter Geneva Order book is still $5 million at the end of the quarter higher than it was last year.
And currently as we're moving through the fourth quarter, it's consistent with where we were last year. So I mean, we feel pretty good about the order book and the momentum of the order book.
For the near term and for US we've been running such long lead times on the Geneva business that instead of maybe 10 or 12 week lead times, we have like three or four or five week lead times for a period of time, which which is a little easier for us to manage but I think.
We may have a little bit of a slowdown in the near term, but as we get past that probably more of a short term because I think near term, we're pretty we're pretty solid with the order book, but as we get past that and we think that the.
The opinion is out of everybody's you better keep your people because youre going to need it because it's going to get busy again pretty quickly. That's all that's on the Geneva business Thats part residential related on the park side because it is nonresidential.
We're seeing if you look at like the momentum indexes actual growth in the residential construction.
Through September of about five 7% and its stuff on the commercial side by data centers and things like that and institutional side. There has been growth education health care.
<unk> things of that nature, so even despite the feds <unk>.
Aggressive stance on trying to curb the inflation.
We've had we've seen.
The tendency for the owners and developers to continue to move forward to meet the demand, which may mean, the the overall I guess profitability on those kind of projects are still offsetting the increase in the interest rates. So I think park looks good I think Geneva is a little bit.
Could run into a little bit of a period of slowness, but right now I don't know I don't were not seeing anything significant.
I know thats, a really long winded answer, but it's kind of a.
Unfortunately, there is a lot of pieces to it.
Yep Yep, Nobody really helpful. I appreciate it Scott.
Yes, no problem.
Thank you at this time, we've reached the end of the question and answer session I will now turn the call over to Scott Montross for closing remarks.
Yes, I think the I think.
Just a couple of points to be made.
We were just talking about with <unk> questions I think that the pre cast infrastructure. The residential side of the business has some short term challenges because of the interest rate impacts.
On the residential housing, but I think as we get out past that short term.
There's still the fundamentals remain strong in that business and we expect on the parts side, which is the control system. It looks like it's going to remain strong with the growth in the nonresidential side, especially.
A lot of the park right now was based in Texas.
We're looking at oil prices that are starting to the.
The 80 595 to $85 $9, a barrel so that that looks pretty solid going forward and I think steel pressure pipe with the backlog at record levels and strong bidding activity that were actually even seen.
As we go through the last part of this year, we've got all kinds of stuff getting between now and the end of the year, we expect to carry a strong backlog into 2023.
Ultimately, if we do see a little bit of.
A little bit of a slowdown in the residential and impact on Geneva.
We believe that we can absorb a little bit of that with the strengthening of steel pressure pipe business, which is a little bit of.
A reversal of what we've been seeing.
So just to leave you with those things, but I'd like to thank everybody again by joining the call today.
Obviously, it's there's a lot of things going on I think there is a lot of great things going on for the company.
It can be said that despite macro economic headwinds, we expect the free cash business to remain fairly strong for the near term.
And despite the ERP challenges park is continuing to be strong and it's really kind of setting up with the product spread for the future. We see really good growth of organic growth opportunities. There. So we just talked about steel pressure pipe, that's probably as solid as I've seen it.
As a positioning going into the next year since I've been here and it's been 12 years. So a lot of good things going on for the company and I think it's a lot of positives and I'd just like to thank everybody for their for their time and attention today and look forward to speaking to you again.
Early next year about the fourth quarter. So thanks, very much and we appreciate your time.
This will conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Yeah.