Q4 2022 Northwest Pipe Co Earnings Call
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Speaker 2: Greetings. Welcome to the Northwest Pipe Company Fourth Quarter 2022 Orange Call. At this time, participants are not listening only once.
Speaker 2: A question and answer session will follow the formal presentation.
Speaker 2: If anyone should require operator assistance during a conference, please press star 0 on your telephone keypad.
Speaker 2: Please note this conference is being recorded.
Speaker 2: I'll now turn the conference over to your host, Scott Montrose. You may be good.
Speaker 3: Good morning and welcome to Northwest Pipe Company's fourth quarter and full year 2022 earnings conference call. My name is Scott Montross and I am the president and CEO of the company. I'm joined today by Erin Wilkins our chief financial officer. By now all of you should have access to our earnings press release.
Speaker 3: which was issued yesterday, March 15th, 2023, at approximately 4 p.m. Eastern time. This call is being webcast and it is available for replay.
Speaker 3: As I begin, I'd like to remind everyone that the statements made on this call regarding our expectations for the future, our forward-looking statements and actual results could differ materially. Please refer to our most recent Form 10-K for the year ended December 31st, 2022, which will be filed later today.
Speaker 3: and in our other SEC filings for 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.
Speaker 3: Thank you all for joining us today. I'll begin with a review of our 2022 performance and outlook. Aaron will then walk you through our financials in greater detail.
Speaker 3: We generated annual revenue of 457.7 million in 2022, which was up 37.3% year over year and included 84.7 million contribution from our acquisition of park USA.
Speaker 3: Annual revenue from our steel pressure pipe segment increased 18.4 percent over 2021 to a record high of 307.6 million.
Speaker 3: Our steel pressure pipe business continued to gain strength throughout 2022, following a slow start to the year.
Speaker 3: We experienced strong bidding activity in the second half of the year, and particularly in the fourth quarter, which allowed us to continue to add to an already strong backlog. We also benefited from higher project pricing in 2022, mainly related to the long lead time nature of steel pressure pipe projects.
Speaker 3: that were bid and awarded during the period when steel prices were higher.
Speaker 3: Hot roll band steel prices decline at a fairly rapid pace through the second half of the year, settling at just below $700 per ton in the December timeframe. Since then, hot roll band steel prices have increased rapidly.
Speaker 3: In general, higher steel prices are positive for our steel pressure pipe business.
Speaker 3: Steel pressure pipe production volume remained at levels that were fairly similar to 2021.
Speaker 3: Despite steel prices that declined at a fairly rapid pace through the second half of 2022, the strong bidding activity in the second half of the year allowed us to continue to improve the value and margin quality of our backlog and led to a 68% improvement.
Speaker 3: in the year ending volume in backlog versus year end 2021.
Speaker 3: We ended the year with a record backlog including confirmed orders of 372 million, up from 347 million as of September 30th, 2022, and up from 290 million as of December 31st, 2021.
Speaker 3: Now turning to our precast segment.
Speaker 3: Annual pre-cast revenue increased 104.2% from 2021 to a record high of 150.1 million, primarily due to the $84.7 million contribution from ParkUSA for a full 12 months.
Speaker 3: compared to an $18 million contribution in 2021 for the partial three month period post acquisition.
Speaker 3: Revenue further benefited from a 17.9% year-over-year increase in sales at our pre-existing pre-cash operations at the Geneva locations.
Speaker 3: driven by higher selling prices, given continued strong demand for our precast products, and increased raw material input costs.
Speaker 3: Our pre-cast related order book remains strong, totaling $64 million as of December 31, 2022, up from $51 million of December 31, 2021, which as a reminder was the first period that we included the order book for PARK-USA.
Speaker 3: but declined from $74 million as of September 30th, 2022, through the fourth quarter being the seasonally slow time of the year for precast, as well as the current uncertainty in the residential housing market.
Speaker 3: Our 2022 consolidated gross profit increased 94% year over year to a record 85.9 million.
Speaker 3: which resulted in gross margins of 18.8%, up from 13.3% in 2021. Which as a reminder,
Speaker 3: was negatively impacted by COVID-related production delays and associated bidding pressures.
Speaker 3: Our 2022 steel pressure pipe gross margin of 14.5% improved 250 basis points over 2021, primarily due to improve project pricing in margin quality and backlog and the solid project bidding activity throughout the year.
Speaker 3: Partially offsetting the strength in our steel pressure pipe gross margin in 2022 was a 2M dollar product liability settlement reserve recorded in the 1st quarter of 2022 as well as a negative impact from severe weather events in July that forced temporary shutdowns of 2 of our steel pressure pipe facilities.
Speaker 3: Our precast gross margin significantly improved by 990 basis points over 2021 to 27.6% of precast sales in 2022.
Speaker 3: The improvement was predominantly due to contributions from our acquired Park USA operations, despite some of the challenges that we experienced with the ongoing ERP implementation that I will discuss in a moment.
Speaker 3: In addition, we benefited from improved project pricing at our pre-existing precast operations.
Speaker 3: as we implemented price increases to help offset inflationary pressures that have driven increasing costs for raw materials and transportation.
Speaker 3: Next, I would like to provide an update on our growth initiatives.
Speaker 3: We are intently focused on driving growth in our pre-cash-related space to further diversify our business and increase our resilience through economic cycles.
Speaker 3: Our top priority remains the ongoing integration of ParkUSA following our 2021 acquisition.
Speaker 3: I'm very pleased with our team's efforts throughout 2022. I want to thank each and every 1 of them for their hard work so far toward fully integrating park into our operations and culture.
Speaker 3: We are continuing to work through the PARC ERP implementation project.
Speaker 3: Almost a year into the project, we have encountered various challenges that have required us to take unplanned downtime at our plants during the second half of 2022. Which reduce production levels and shipments suppressing both revenue and gross profit at our park facilities and ultimately having a muting effect on both our pre-cash revenue and our
Speaker 3: gross profit margins in the second half
Speaker 3: These challenges stem from the complex nature of park products in the significant internal transactional volume inherent to parks operations.
Speaker 3: And, as Erin will explain in greater detail shortly, we identified control deficiencies for our ERP implementation project.
Speaker 3: As such, we will experience additional downtime in the first quarter as we continue down the path toward achieving optimum system functionality. However, the system is currently functioning and the possibility of meaningful downtime beyond the first quarter is receding.
We view these short-term challenges as system-related growing pains that are necessary in order to achieve our strategic growth initiatives.
Now I would like to turn to our organic growth strategy, which we refer to as product spread.
Level 1 product spread is focused on building out capacity utilization at our Texas-based park plants to maximize overall production capabilities. In order to accomplish this, we are focused on growing our sales outside of Texas from the park facilities. The park sales group has made good progress in this area.
in 2022 with approximately 6.5 million dollars in orders booked outside of the state of Texas. Our objective is to continue to grow the level one product spread in 2023.
Level 2 product spread is geared toward producing and shipping part products out of our legacy Northwest pipe plants.
The pre-existing Geneva precast operations will be the pilot location for Level 2 product spread activity. Training has begun and will significantly progress as more part products are produced at and sold out of Geneva locations.
We produced two part product orders at Geneva in 2022 and currently have four part product units scheduled for production at Geneva so far in 2023 and several other projects that are in various stages of bidding that would be slated for Geneva. There's ongoing work being done to introduce part products.
to potential customers that are in the Geneva region.
Once part products are established at the Geneva locations, we will move on to establish these products and additional Northwest pipe, let's see plants.
We remain very optimistic about the growth potential of the park business.
In addition to the ongoing park integration work, we are continuing to invest in our Geneva operations to increase our production capabilities and capacity through expansion and automation in order to satisfy the growing market demand for our pre-cash products.
We have committed approximately 16 million dollars for a new RCP manhole facility at our Salt Lake City, Utah plant, which will replace an existing facility that is at the end of its use for life, that was responsible for a considerable amount of unscheduled downtime in 2022.
and that limited our production capabilities throughout the year. The new facility will be significantly more automated and will require about half the manpower of the current old machine. We expect the new facility to be operational in the fourth quarter of 2023.
which reflects a slightly extended construction timeline due to building construction delays and extended lead times.
We have also installed a new batch plan at our St. George, Utah location, which was operational in mid-2022 and will aid in serving the increasing demand for our pre-cast products in both Utah and Nevada.
While our growth initiatives are predominantly focused on driving growth in the pre-cast related space, we are dually focused on maximizing our steel pressure pipe water transmission business to become as efficient as possible and to enhance shareholder value.
Keys to this effort are opportunities for further cost production measures, a focus on lean manufacturing, and a continued emphasis on maximizing margin over volume.
Next, I'd like to discuss progress on some current and upcoming water transmission projects that are bidding in the steel pressure pipe market.
Next, I'd like to discuss progress on some current and upcoming water transmission projects that are bidding in the steel pressure pipe market. In the Eastern markets...
The ongoing multi-year multi-agency Houston surface water program is bidding 4,000 tons of pipe this year across multiple projects with additional sections planned for 2024 for West and North Harris County regional water authorities.
The Alliance Regional Water Authority Program in Central Texas is another multi-agency regional water program. This program includes large pipeline, pump station, treatment facilities. The final remaining 2,700 tons of pipe are expected to bid this year.
In North Dakota, progress continues on the 140 mile, 87,000 ton Red River Valley water supply project.
The first two segments were awarded to 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 1 $7.5 billion bond for water infrastructure has created the much needed funding for projects within the state.
The following Prop 1 projects are expected to start construction in the next five years. The sites reservoir is a water storage program that has received funding from Prop 1. It will involve over 30 miles of 144 inch pipeline. Additionally, sites reservoir.
Received 30M dollars in IIJA funding this past quarter. Harbors Water is a program intended to provide recycled wastewater for agricultural use in the Sacramento area. This program includes nearly 25 miles of 30 to 66 inch pipeline.
The first segments of this program are expected to bid in late 2023. Los Licaros 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 to 96 inch pipe.
Willow Springs Water Bank will create 500,000 acre feet of underground water storage in the Antelope Valley. The project includes approximately 16 miles of 30 to 84 inch pipe.
Water reuse programs have generated new opportunities in the state of California market on which we expect to see bidding activity continue for the foreseeable future.
MWD is setting a regional water reuse pilot project in conjunction with LA Sanitation District. This reuse program would treat and recycle water from one of the largest reclamation facilities in Southern California. It involves 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 for the full scale treatment and conveyance facilities could begin as early as 2025.
MWD secured a $224 million WIFA loan in October 2021, which will fund nearly 50% of the anticipated construction costs.
Southwest Nevada Water Authority, a Las Vegas water wholesaler and Colorado River water user has also pledged significant financial support for this program.
The MWD PCCP rehabilitation program will result in about 5,000 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 been moving forward in earnest with the 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 2025.
In Utah, 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 Bureau of Reclamation's Navajo-Gallup Supply Project.
The final major phase of the pipeline construction for this project is advertised to bid in early 2024 and includes 2800 tons of steel pipe.
New Mexico Governor Grisham recently announced 160M dollars in funding for the completion of the Eastern New Mexico rural water system. Remaining pipeline segments include 15,000 tons of steel pipe to convey water from the Ute Reservoir in Northern New Mexico.
south to water users in the greater Clovis area. Before I conclude, I'd like to summarize our outlook for 2023.
Our outlook for the full year remains positive aside from challenging first quarter that has many of the same issues that we experienced in the first quarter of 2022.
In our steel pressure pipe business, we've been seeing customer-driven delays in the first quarter affecting the production timing of near-term projects as well as severe weather events which have led to unscheduled downtime at multiple facilities.
These issues will suppress both revenue and margins in the first quarter. However, steel pressure pipe backlog is very strong, indicating there should be good strength as we progress through 2023. After an anticipated slow first quarter, steel pressure pipe business levels are expected to normalize. These issues will suppress both revenue and margins in the first quarter. However, steel pressure pipe backlog is very strong, indicating there should be good strength
similar to what we experienced in 2022. In our pre-task business, we are cautiously optimistic demand will remain fairly strong for the near term, despite current macroeconomic uncertainty pertaining to the residential housing market and current rate environment.
Severe weather events in the first quarter have also caused unscheduled downtime in our precast operations, further suppressing our first quarter sales and margins to what is already the historically slow time of the year.
Despite these factors, Precast is still expected to have a solid 2023.
In summary, despite some of the complexities and challenges involved with executing our strategic growth priorities, we were very pleased to have delivered record financial results and operational performance in 2022 supported by the strength we've seen in our steel pressure pipe bidding activity.
as well as the continued strong demand for high quality pre-cast products. We remain bullish on our future prospects for growth to increase our pre-cast business to a similar size as our steel pressure pipe business supported by the increasing infrastructure needs in the United States.
Looking ahead, we will remain focused on finalizing the integration of the ParkUSA as quickly and as efficiently as possible. Persistently focused on margin over volume.
continuing to implement cost reductions and efficiencies at all levels of the company.
And continuing to identify strategic growth opportunities for the company once we've completed the integration work with Park USA.
Thank you to our team at Northwest Pipe for their commitment to continuous improvement and strong performance and safety.
I will now turn the call over to Aaron who will walk through our financial results in greater detail. Thank you, Scott, and good morning, everyone.
Before I discuss our financial results, I would like to expand on the identified deficiencies related to the system implementation project that Scott alluded to earlier.
As will be reported in our 2022 Form 10-K , which will be issued later today, we identify deficiencies in business process controls specific to Park USA's sales and cost of sales transactions. As a result of this control weakness, there is a reasonable possibility that a material misstatement in our future interim financial statements will be made.
Until our remediation work is complete, expanded monitoring of the ParkUSA sales and cost-of-sales transactions will be required to ensure continued integrity of our interim financial statements.
I will provide additional updates throughout the year with the goal of having this material weakness remediated as soon as possible.
Now I'll turn to the fourth quarter profitability.
After that, I will review the full year 2022 performance as well as discuss our cash flow and liquidity.
Consolidate net income for the fourth quarter with $8 million or $0.79 per diluted share compared to $2.3 million or $0.23 per diluted share in the fourth quarter of 2021.
Our consolidated net income in the 4th quarter of 2022 included 0.8 million in the amortization expense specific to Park USA, which net of 0.2 million in associated tax expense resulted in an adjusted net income of 8.5 million in the 4th quarter of 2022, or 85 cents per looted share. Our consolidated net income in the 4th quarter of 2021 included 0.8 million in the amortization expense specific to Park USA, which net of 0.2 million in associated tax expense specific to Park USA, or 85 cents per looted share, resulted in an adjusted net income of 8.5 million in the amortization expense specific to Park USA,
$6.6 million or 67 cents per diluted share in the fourth quarter of 2021.
Adjustment in comments 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 4.2% to 106.8 million compared to 102.5 million in the 4th quarter of 2021.
Steel pressure pipe segment sales increased 0.8% to 72.1 million compared to 71.6 million in the fourth quarter of 2021, driven primarily by a 28% increase in our tons produced, mainly due to changes in our project timing, partially offset by a 21% decrease in our selling price per ton, primarily due to decreased raw material costs.
Precast segment sales increased 12.1% to 34.7 million compared to 31 million in the fourth quarter of 2021, primarily due to a 2.3 million increase from our Park USA operations.
In addition, segment sales benefited from an 11.3% increase in sales at our pre-existing pre-test operations resulting from a 40% increase in selling prices on continued strong demand for our concrete products and increased raw material input costs, which were partially offset by a 21% decrease in volume shift due to unscheduled equipment downtime and changes in product mix.
Do the unique nature of the products we manufacture, shipment volumes in the case of precast, production volumes in the case of steel pressure pipe, and the corresponding sales prices for both segments do not always provide comparable metrics between periods as they are highly dependent on the composition of the mix of our products.
Consolidated gross profit increased 61.1% to 21.9 million or 20.5% of sales compared to 13.6 million or 13.2% of sales in the fourth quarter of 2021.
Steel pressure pipe gross profit increased 38.2% to 12 million or 16.6% of segment sales largely due to increased production volumes coupled with lower steel costs.
This compared to gross profit of $8.7 million or 12.1% of steel pressure pipe sales for the fourth quarter of 2021.
Precast gross profit increased 101.4 percent to 9.9 million, or 28.5 percent of precast sales from 4.9 million, or 15.9 percent of segment sales in the fourth quarter of 2021, primarily due to the contribution from Park USA. Please like and subscribe for more videos.
and higher pricing at our pre-existing pre-cast operations. To add, pre-cast gross profit included $2.3 million of increased acquisition-related inventory charges in the fourth quarter of 2021.
Without those, the adjusted gross margin for the segment would have been 23.3% for the year ago quarter.
While the ongoing ERP system implementation at ParkUSA has been a challenging project.
The team continues to show significant progress. Our remaining issues center on entering transactions in a timely manner through the system.
This in turn necessitates a higher degree of review, most notably surrounding our inventory quantities.
We mitigate this risk by conducting physical inventory observations which require us to halt production and shipping activities, thereby hampering our ability to achieve optimal throughput at our ParkUSA facilities.
We estimate that this costs us approximately three operating days each quarter, and I foresee another physical account to be required at the end of the first quarter of 2023.
Selling general and administrative expenses increased 3.7% to 10.9 million, or 10.2% of sales, compared to 10.5 million for the fourth quarter of 2021.
The increase was primarily due to $1.6 million in company-wide related incentive compensation expense, $0.5 million in increased salaries and related benefits supporting the growing business, and $0.2 million in higher travel costs, which were partially offset by $2 million in investment banking fees.
associated with the closing of the ParkUSA transaction in the fourth quarter of 2021. Depreciation and amortization expense in the fourth quarter of 2022 was $4.4 million compared to $4.3 million in the year-ago quarter.
Our non-cash incentive compensation expense was $1.2 million and $0.8 million in the fourth quarters of 2022 and 2021, respectively.
Now turning to our full year results. Consolidated adjusted net income in 2022 was $33.6 million or $3.35 per diluted share compared to $16.5 million or $1.66 per looted share in 2021.
Our 2022 adjusted net income excluded $2.4 million in unique and one-time items associated with the acquisition of ParkUSA net of respective taxes. This compared to our 2021 adjusted net income, which excluded 5 million unique and one-time items.
Also associated with the acquisition of Park USA, Nen of Respect of Texas.
Consolidated net sales increased 37.3% to 457.7 million in 2022 compared to 333.3 million in 2021.
Field pressure pipe segment sales increased 18.4% to 307.6 million compared to 259.8 million in 2021, driven by a 20% increase in selling price per ton due to increased material costs and changes in product mix, partially offset by a 1% decrease in tons produced,
which resulted from changes in project timing. Precast segment sales increased 104.2% to 150.1 million in 2022 compared to 73.5 million in 2021.
Largely due to the addition of park USA, which contributed 84.7M in 2022. Compared to 18M in 2021.
The company owned Park USA for just the fourth quarter of 2021. In addition, the segment realized a 17.9% increase in net sales at the pre-existing pre-cast operations due to a 45% increase in selling prices.
due to the high demand for our concrete products coupled with increased raw material costs, partially offset by an 18% decrease in volume shift due to unscheduled equipment downtime and changes in product mix.
Consolidated gross profit increased 94% to $85.9 million, or 18.8% of net sales in 2022 compared to $44.3 million, or 13.3% of net sales in 2021.
SPP gross profit increased 42.2% to 44.5 million or 14.5% of segment sales in 2022 compared to 31.3 million or 12% of sales in 2021 due to improved product pricing. SPP gross profit in 2022 was reduced in part as...
of sales in 2021.
to the full year contribution from Park USA as well as the higher prices that are pre-existing precast operations.
To add, pre-test gross profit in 2021 included $2.3 million of increased acquisition-related inventory charges. Without those, the adjusted gross margin for this segment would have been 20.8% in 2021.
Selling general and administrative expenses increased 45.4% to 41 million, or 9% of consolidated net sales in 2022, compared to 28.2 million, or 8.5% of sales in 2021. The increase in SG&A expense was largely due to the addition of Park USA and included approximately 7 million in higher compensation related expenses.
primarily tribute to the acquired workforce.
4.5 million in higher incentive compensation expense, 2.3 million in higher amortization expense,
0.7 and higher travel costs partially offset by 2 million and lower professional services and for investment banking costs that were transactional in nature.
For the full year of 2023, we estimate our consolidated selling general administrative expenses to be in the range of $42 to $45 million.
Company-wide depreciation and amortization expense was 17.1 million in 2022 compared to 13.6 million in 2021.
We expect appreciation and memorization to be in the range of $17 to $19 million for 2023.
Non-cash compensation related expense was $3.7 million in 2022, compared to $3.2 million in 2021. Interest expense increased $3.6 million in 2022, compared to $1.2 million in 2021.
We currently expect interest expense between 5 and 6 million in 2023. However, that could vary with interest rate movements and variability in working capital needs for steel pressure pipe business. Our 2022 income tax expense was 10.2 million. Resulting in an effective income tax rate of 24.7%.
compared to $3.6 million in 2021 or an effective income tax rate of 24%. We expect our tax rate for 2023 to be between 24 and 26%.
Now transitioning to our financial condition. Our improved profitability helped us generate net cash provided by operating activities of $17.5 million in 2022 compared to net cash used in operating activities of $5.8 million in 2021.
Our capital expenditures totaled 22.7 million in 2022 compared to 13.3 million in 2021. We currently anticipate our total CAPX to be in the range of 24 to 28 million for full year 2023, which includes approximately 6 million in remaining investment CAPX.
for a new reinforced concrete pipe machine, as well as other standard capital replacement projects.
As of December 31, 2022, we had $83.7 million of outstanding borrowings on our credit facility, leaving approximately $40 million in additional borrowing capacity. In summary, I'm very proud of our 2022 financial results.
We have made considerable progress this year to position our business for long-term, sustainable growth, despite the head ones many members of our team have endured related to the ERP implementation project.
Your extra efforts are truly appreciated. While the resulting material weakness identified in the company's control environment presents short-term challenges, it was not an unforeseen risk at the time we were evaluating the park acquisition, given the state of the data and systems we were inheriting.
We continue to believe it was a great investment for our company both financially and for the potential it has created for our future growth.
I would like to thank our employees for their continued focus on workplace safety. I would also like to thank our shareholders for their continued support and confidence in Northwest Pipe.
I will now turn it over to the operator to begin the question and answer session. At this time we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.
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One moment please while we pull for questions. And our first question comes from the line of Ted Jackson with Northland Securities.
Please proceed with your question. And Ted, you are up for questions. Make sure your line is not...
a question. And Ted, you are up for questions. Make sure your line is not... Thanks. –
Sorry about that. I was on mute. Yeah, as I said, I hope that you didn't hear that I actually had about a dozen questions in the presentation so thorough.
That answered all of them. I would like to touch base, maybe quickly, on steel in 2012.
Can you give us some kind of sense in terms of what percentage of your revenue it was?.
On projects Ted I would say that this is steel pressure pipe pretty pretty much primarily because that's the the main material. It's probably somewhere in the area of about 25 to 30 percent.
So it moves the needle maybe and maybe sometimes a little bit higher when steel prices get higher. You know, in 2022, we started the year with really, really high steel prices. Like, I guess it's 14, 1500 bucks a ton. It dropped and went back up and then dropped all the way.
down to just below $700 a ton at the end of the year. Now, it started low this year, and it's increasing very, very rapidly right now to the point now where we've gone from some $700 a ton back up to numbers we're looking at about $1200 a ton. So obviously, that starts to get built into the project pricing and the...
the revenue as we go forward and usually it lags by by several months but it starts building into the project pricing and ultimately like we said in the script that's actually good for us it's positive because obviously higher pricing leads to higher gross profit levels
Not necessarily higher gross margins, but higher gross profit levels. So we're good with higher steel prices. We just don't like a lot of volatility with steel. As long as we can get what we need, I think that's a great thing for us.
testing, then like thinking about 2023 in steel prices, like I do break that out of the model around 750 a ton. You know, what do you guys see in terms of like an average price per ton steel? What do you think about that? Well,
Obviously it started off relatively low, but some of the stuff that you know we're looking at you know it You know it probably continues to travel up for a period of time, and I'm talking really about hot roll coil prices
But you know you get you get past probably the the May June timeframe the current projections are as it starts to drop so you know right now we're probably somewhere in the area of $1,200 a ton and seeing a lot of price increase announcements from the steel guys to the rest of the year it's looking more like $850 ish
So, probably average wise, you're probably 9, 950 in that area. And then, with regards to your steel suppliers, are they... I mean, are your orders still coming through on time? I mean, you commented a bit about some issues on the supply side. I mean, it's one...
you're still able to get the steel and deliver relative to your project. It's another thing, prices go up and then they're at $3.
you know, they're deferring, you know what I'm saying? You know, are you thinking about shipment deferrals or delays or anything?
Are you seeing some of the shipment deferrals or delays or anything like that? No.
when steel was really really tough to get. So I would say at this point it's not really that much of an issue. As the prices go up and demand goes up it could get a little bit tighter but I think we're pretty well positioned with multiple steel suppliers to be able to handle any kind of steel requirements that we have and especially with what we see in front of us. Everything in the backlog, the 372 million of tons of backlog, we have commitments on steel for that already. So ultimately that's in good shape. It's just the near-term stuff when you get orders.
So I think we're looking forward to a pretty good second half of or the last three quarters of 2023 in regards to steel pressure pipe really on a pretty similar trajectory Based on the backlog that we have now same projectors as we saw in the in 2022 Well, I gotta say when I look at your backlog number and I try to make adjustments to take it down to a tons level You know, it seems like backlog. You've got a Got a lot of visibility
I'm going to step out of line so other people can ask questions. Sounds good. Thanks, Ted. Our next question comes from the line of...
Brent Seelman with VA Davidson. Please proceed with your questions. Hey, thanks. Good morning. Can you guys hear me okay?
with VA Davidson. Please proceed with your questions. Hey, thanks. Good morning. Can you guys hear me okay? You're great. Good morning, Brent.
Thanks. Hey, Aaron, thanks for all the detail. I wanted to come back to part because you put up pretty significant contributions in pre-CAT, despite the fact you had some of these headwinds with the ERP implementation. Just wondering, can you parse out what impact that actually had here in the quarter?
Brent, on the impact on the fourth quarter for Park USA specifically?
Yeah okay so it's you know when you're looking at that you know we had obviously multiple days down and you're probably looking at something that's a couple million or better in revenue and with the margin potential on that generally the margin potential is you see most margins are like
high 20s to running up to 30% range. So you can do the math on what we missed out on those.
So there was a little bit of miss, but I mean we still, the interesting thing is that when we acquired Park in 2021, they were about, I guess about 71 million in revenue. And this year they finished at almost 85 million, even with those delays and obviously added a ton of gross profit to our business.
It's just a matter of getting this thing stabilized and you know the Aaron's going to talk about the ERP system But there was a concern right up front during the acquisition Aaron turned to me and said man I'll tell you this is going to be a hard one because the complexity of the product and he was he wasn't wrong so we spent a lot of time on that but
I think the facilities are operating very well. And I'm going to just add on to a little bit that you didn't ask. The one thing we're seeing with the park businesses, that really has not slowed down at all to this point. The non-residential business in Texas is very strong. And we've got a lot of people moving to Texas. And every school and hospital and multifamily housing
uses Park products, whether it's meter vaults or backflow preventers. So we're seeing a very, in fact, if you look at the Park order backlog last year, 2021 December versus this year 2022 December , it's significantly higher.
So the park business is is very strong right now Yeah, I mean despite the issues transactions been
I'm usually accreted for you. Yes. I guess that, you know, and understanding that you're going to have some lingering stuff to work through in the first quarter.
I mean, the business precast overall looks like the XB's issues is doing close to 30% or above in gross margins. How do you think about the precast or how should we think about the precast margins overall in 2023? Should they abate from those levels or can you sustain that? Yeah. It's interesting. Joe, dark nuclear invest…"......
you know, that when you look at things like that Brent, because, you know, obviously the park business is really, really strong and, you know, we haven't we haven't seen much much impact on those margins yet. Now, you know, the interest rate environment, if it stays like it is could have a little impact on the margins on in the park side, non residential site. But in our forecast, we haven't built a built a lot into it. Like you said, those margins.
approaching 30% in some cases that are a little bit above 30% so they could they could end up being off a couple hundred basis points just because of the the interest rate environment and in the cautiousness on the on the park side of the business.
What I would tell you about the Geneva side of the business is that obviously there's a lot of negativity right now around residential housing, but we are still seeing very, very high quote volume at Geneva. Like we saw last year, they're just not turning into orders as quickly, and I think the reality of it is.
Customers are being cautious because obviously the residential market has slowed in Utah and across the country, but we don't see any doom and gloom. When we look at our Geneva backlog, fourth quarter of this year to fourth quarter last year, it's only down about 2% right now.
And I think that there's a lot of strength in that Utah market and a lot of momentum still based on, you know, what we saw with delays in the supply chain in 2020 and 2021. So there's momentum buildup and we think that even you see a little bit of a slow period in that marketplace, it's going to come back relatively quickly.
And right now, even with what's going on to answer your initial question on maybe it being a little bit slower, we're not seeing any deterioration on the pricing side.
That is helpful, Scott. On pressure pipe, when you look at the bidding pipeline, what is going to come over the course of the next 12 months, Scott, is there an argument that the pressure pipe business can kind of hold in there?
300 plus or minus revenue level for the next couple of years. There's enough out there to support that kind of volume Well what I would tell you with that Brent is there's a lot of that depends on the backlog you carry into Into the next year right and this big backlog really is a is The biggest one I've ever seen here
But I think that is the key going into 2023. When you look at overall bidding in 2023, we're expecting it to be a little bit lower than it was in 2022, but then again higher in 2024. So could you be
300 or near 300 area over that period of time, especially with what steel prices are doing because quite frankly right now steel prices are moving a little bit beyond what we thought they were going to in our forecast. I think that's a pretty good possibility. All right great. Just the last one I know you've got some...
pretty big CapEx plans and probably a little exhausted from tidying up the ERP system with the ParkUSA acquisition. Maybe you're just your plan for the balance sheet over the next few quarters here. Yeah, we're going to be focused on paying down the debt. We were, quite frankly, a little disappointed.
trying to reload things and get the debt paid down as fast as possible. So that's in addition to just
You know, obviously finishing things up on the. Uh, the reinforced concrete pipe machine and normal maintenance capex. We didn't think that's really that's really our focus for 2023.
Okay, thanks guys. Appreciate it. Thank you.
And our next question comes from the line of David Wright with Henry Investment Trust. Please proceed with the question. Hey, good morning, guys....
Morning David. Hey, question. Did you notice any tension on the standard municipal bid pipeline?
versus municipalities, you know, maybe putting those things on hold, trying to figure out what to do with all of their new infrastructure bill money? No, not, I mean, we would, that wouldn't actually happen near term, David. When you, things like that with our backlog and what's in front of us.
Those things are ready to go. Some of the delays that we may see may be labor related or getting equipment moved related or permitting related, sometimes weather related. That's why we see delays in those. The things that you're talking about, I think with the IIJA, the infrastructure package, would be things that would be a couple of years out.
like the sites reservoir stuff that we talked about or the project that we talked about in the script. Those are the things that that would likely affect, but the near-term stuff, it generally wouldn't have any impact on that. There's a little bit of IIJA money right now that's in the market on an eastern New Mexico job that I talked about in the script, but we're expecting more as we go. And that funding mechanism is starting to impact probably some other projects that are on the drawing board.
turn the call back over to Scott Montrose for close remarks.
Okay, I'd like to, I'd just like to thank everybody for joining our call today. And before we close the call just to leave you with a few key takeaways. You know, I think the strong second half bidding that we saw last year in steel pressure pipe is really positioned us with really strong momentum going into 2023. Despite the first quarter, which like I said had
a lot of the same issues that we saw last year in the first quarter. And indications are that we should continue to be able to carry a relatively strong backlog by historical standards through 2003, or 23, excuse me. The precast business, again, is expected to remain fairly strong near term.
within the Utah market and in the pre-cast related engineered systems market in Texas. And I think the other thing that we talked a little bit about on the call is why we expect the pre-cast gross margins may be temporarily impacted by seasonality, severe weather, and short-term ERP related challenges in the impact on the production levels we can
continue to believe that this business is a very strong business as we move into 23 and beyond. So I think it's the reality of it is the near-term goals for us continue to be to grow our pre-cash business within the next few years to be the same size as what our steel pressure pipe business is. So I think we have a after a slow first quarter a 2023 that looks
pretty good. So I'd like to thank everybody for joining the call. Thank you. This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.
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