Q3 2023 Northwest Pipe Co Earnings Call
Okay.
Greetings and welcome to the Northwest Pipe Company third quarter 2023 earnings Conference call.
At this time all participants are in a listen only mode. A question 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. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Mr. Scott Montross, President and CEO of Northwest Pipe company. Thank you you may begin.
Good morning, and welcome to northwest pipe Company's third quarter 2023 earnings Conference call. My name is Scott mantra, and I am 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 <unk> 2023.
At approximately four P. M. Eastern time this call is being webcast and is available for replay.
Again, I would 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, 2022, and in our other SEC filings for a discussion of such risk factors that could cause actual.
Our 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 third quarter performance and outlook. Aaron will then walk you through our financials in greater detail, our third quarter revenue of $118 seven.
Improved 2% over the second quarter and declined by three 5% compared to the prior year quarter.
Revenue from our S. P. P segment remained fairly strong, but decreased three 8% to $85 million compared to the prior year quarter coming in below our expectations due to one time anomalies that impacted both revenue and gross margins in the third quarter.
First we had some customer driven contract changes as well as scope changes of certain projects that had previously been forecasted to benefit the third quarter. We also encountered some customer related delays that impacted project delivery timing, which pushed projects scheduled to be produced in the third quarter out into early 2024.
This led to short term production gaps at certain plants, causing higher levels of under absorption further impacting our revenue and margins for the quarter. In addition to these non reoccurring items higher selling prices in our SPP business due to sales mix were partially offset by decrease in tons produced resulting primarily from changes in.
Timing.
Prices of hot rolled band steel declined approximately 27% from the second quarter to the third quarter, but have increased rapidly by approximately 16% from September through year to date fourth quarter.
Backlog, including confirmed orders was 335 million at September 30th, which modestly declined from 343 million at June 32023, and from $347 million as of September 32022, our backlog remains elevated by historical standards, even though.
2023 has been a relatively small bidding year.
Now turning to our free cash segment free cash revenue decreased two 8% from the prior year quarter to $38 2 million, primarily due to reduced demand, resulting from the current interest rate environment impacting the U S. Construction market, which led to decreased absorption of overhead changes in our Prada.
Mix and reduced selling prices given lower market demand all while raw material input costs have remained fairly elevated never.
Nevertheless, as we progressed into a slower period pre cash time of the year in the fourth quarter. Our pre cash related order book has remained fairly strong and totaled $52 million as of September 30th 2023, which was down from $58 million as of June 32023, and down from $74 million as of September 30th two.
<unk> thousand 22.
Our third quarter consolidated gross profit decreased 23, 2% year over year to $19 3 million, resulting in a gross margin of 16, 3% down from 24% in the third quarter of 2022.
Our SPP gross margin of 13, 6% declined by approximately 340 basis points over third quarter 2022, primarily due to the anomalies I just discussed including customer driven contract changes and project scope changes that reduce the gross profit we expected to realize in the third quarter and from customer.
Driven changes in project delivery timing, which pushed projects that were scheduled to be produced in the third quarter out into early 2024 and created near term production gaps at certain plants, leading to higher levels of under absorption absent. These items, we estimate that our SPP gross margins would've been approximately 200 basis points higher.
Also important to note is that we are starting to see the relatively small SPP bidding market. We've experienced in 2023 result in some pressure on project margins for projects that are currently bidding.
Our free cash gross margin of 21, 9% of free cash sales in the third quarter of 23 decreased by approximately 590 basis points from the near record highs experienced in the third quarter of 2022. The decline was predominantly due to the impact of rising interest rates on the commercial construction and residential.
Housing markets, which moderately reduced free cash product demand, reducing overhead absorption and resulting in changes in our product mix. This led to our margins normalizing compared to the record year, we had in 2022.
Next I would like to provide an update on our capital allocation priorities.
Our focus on organic growth of the business remains a top priority by means of our product spread strategy with our precast operations.
The acquisition of Park USA in October of 2021 spun this strategy given the park business employ some of the same capabilities that we have at our other northwest pipe facilities, namely the production of free cash vaults and fabricated steel housings, which in the case of pork USA service containment units for the water control system products.
And the water related environmental solution systems as such our level one product spread effort has been ramping to build out our capacity utilization at our Texas based park USA plants to maximize efficiency and production to that and the par team has been on approximately $32 million worth of projects outside of Texas year to date.
2023, predominantly in the western and south eastern regions of the United States.
And of that year to date the team has booked approximately $7 $1 million worth of orders outside of Texas up from $4 5 million in the second quarter over.
Over the last 12 months, we've successfully booked approximately $8 million and projects and we were just getting started.
Level two product spread comes into play because we also produce the concrete vaults and steel fabrication at the current northwest pipe plants as such we're in the early stages of bringing the production of park USA products to our existing northwest pipe locations, which we believe will provide incremental organic growth potential to the company.
As previously discussed our Geneva precast operations have been serving as the pilot locations for lever to product spread activity year to date in 2023, we have produced 10 projects that Geneva and are currently in production on three park product orders with more scheduled to come.
We plan to expand upon level two product spread once park products are more comfortably established at the Geneva locations before we expand the pork products to additional northwest pipe legacy plants.
We remain confident in our organic growth strategy for the free cash to further diversify our business with the goal of improving our resiliency through economic cycles, and driving long term consistent profitable growth.
Despite the short term challenges affecting the precast business, we believe in the long term value proposition of this space and investments that we're making to drive sustainable growth.
Following organic growth, we remain highly focused on repaying the debt incurred to finance the acquisition of park USA in order to position ourselves for further acquisitions, but only after we were comfortable that park USA has been fully integrated.
I'll next turn to our M&A strategy in which we currently are continuing to seek accretive acquisition candidates and the free cash related space, while the integration of park remains paramount, including the Finalization of the ERP system integration, which is expected to be completed by the end of this year, we are continuing to evaluate prospective high.
Alrighty opportunities that possess strong organic growth potential and margin characteristics solid asset efficiency and positive cash flow profiles, we recognize that finding the right opportunities takes significant due diligence in time and as such we are pleased that our board has authorized a stock repurchase program and the amount.
A $30 million with no expiration date.
Underscoring their confidence in our long term strategic growth plan and alignment with our goal to enhance shareholder value in the absence of meaningful M&A activity, we may opt to return value to our stockholders via opportunistic share repurchases as we deem appropriate obviously any repurchases will be subject to our liquidity.
Including availability of borrowings and covenant compliance under our amended credit facility and other capital needs of the business.
Before I conclude I'd like to summarize our outlook for the remainder of the year.
Aside from some of the challenges we are continuing to work through such as our ERP implementation and the resultant impact. The current interest rate environment has had on our business our outlook for the balance of 2023 remains positive and our SPP business, we anticipate a strong fourth quarter, given various customer driven anomalies that I just discussed.
That we faced during the third quarter that are not expected to be reoccurring as well as continued strength in our backlog. We entered 2023 with a robust steel pressure pipe backlog near record territory, which has remained elevated and should carry us through into 2024 and lead to a strong finish to 2010.
Three.
Despite the relatively small level of bidding that we've seen this year. However over the last few months. The small bidding environment has caused downward pressure on project bidding as such we expect fourth quarter SPP revenue to be in line with the fourth quarter of 2022, but with some downward pressure on gross margins I would also like to add that we.
We remain encouraged by the amount of activity, we're seeing on our current and upcoming water transmission projects.
As we are currently expecting a larger bidding year in 2024.
For a more complete review of the projects. Please review, our investor presentation, which can be found on the investor tab of our website within the events and presentations section in our precast business we.
We anticipate macroeconomic factors to continue to weigh on our volume as a result of our pre cash revenue in the fourth quarter is expected to be modestly down from the prior year period with margins that are down from 2022 record hires but similar to what we've seen in the second and third quarter of 2023.
We continue to believe our precast business is well positioned to benefit longer term given the significant level of pent up demand specifically for residential housing a growing need for infrastructure spending in the United States and our strong market position in summary, I'd like to thank our team for the continued solid execution against our strategic plan to drive enhanced <unk>.
Holder value and long term profitable growth with our nationwide footprint and as an industry leader in this space, we are well positioned to participate in the increasing amount of water infrastructure projects required to support the increasing U S population in the years to come as a result, our goal remains for our pre cash related business to grow to our Sim.
<unk> size as our SPP business.
Looking ahead, we will remain focused on one finalizing the integration of park USA as quickly as efficiently as possible to persistently focus on margin over volume three continuing to implement cost reductions and efficiencies at all levels of the company for continuing to identify strategic growth opportunity.
For the company once we've completed the integration work with park, USA and five and the absence of M&A opportunities returning value to our stockholders through opportunistic share repurchases. Thank.
Thank you to our dedicated team at northwest pipe for your continued persistence and execution against our growth strategy and for operating 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.
Today with an overview of our third quarter profitability.
Consolidated net income for the third quarter was $5 8 million or 58 cents per diluted share compared to 10 million or <unk> 99 per diluted share in the third quarter of 2022.
<unk> net sales decreased three 5% to $118 7 million compared to $123 million a year ago quarter.
Steel pressure pipe segment sales decreased three 8% to $80 5 million compared to $83 7 million in the third quarter of 2022.
The decrease which Scott discussed earlier was driven largely by customer driven contract changes as well as other anomalies that impacted production timing.
This resulted in a 13% decrease in tons Purdue.
Which was partially offset by an 11% increase in selling price per ton, primarily due to product mix.
Free cash segment sales decreased two 8% to $38 2 million compared to $39 3 million in the third quarter of 2022, primarily due to an 8% decrease in selling prices due to reduced demand, which was partially offset by a 6% increase in volume shipped due to changes in product mix.
Due to the unique nature of the products we manufacture.
Shipment volumes in the case of pre cast and production volumes in the case of S. P. P 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 decreased 23, 2% to $19 3 million or 16, 3% of sales compared to $25 1 million or 24% of sales in the third quarter of 2022.
Steel pressure pipe gross profit decreased 23, 1% to $10 9 million or 13, 6% of segment sales.
Compared to gross profit of $14 2 million or 17% of segment sales in the third quarter of 2022, primarily due to contract changes and project timing delays. It's important to note that while timing delays are typical for the steel pressure pipe business. The magnitude of these changes reduced revenue.
And production efficiencies at certain plants, resulting in significant and a significant variance from our expectations for the third quarter.
Free cash gross profit decreased 23, 2% to $8 4 million or 21, 9% of pre cast sales from $10 9 million or 27, 8% of segment sales in the third quarter of 2022, primarily due to changes in product mix.
We have seen our commercial construction precast market's decrease however, our residential free cash markets have held up better to the current pressures from the broader economy.
Selling general and administrative expenses decreased three 9% to $10 2 million or eight 7% of sales compared to $10 7 million in the third quarter of 2022 or eight 6% of sales.
The decrease was primarily due to $2 million and lower incentive compensation expense, partially offset by <unk> 9 million and higher professional services, including ERP implementation fees.
<unk> 7 million and higher base compensation and benefits expense.
For the full year of 2023, we expect our consolidated selling general and administrative expenses to be approximately $44 million.
<unk> and amortization expense in the third quarter of 2023 was $4 million compared to $4 3 million in the year ago quarter and I currently expect the quarterly run rate to continue at a similar pace.
Our noncash incentive compensation expenses were <unk> 7 million and $1 2 million in the third quarters of 2023 and 2022, respectively.
Interest expense increased to $1 2 million compared to $1 million in the third quarter of 2022.
We continue to hedge approximately half of our exposure to variable interest rates using interest rate swaps.
Due to the dramatic increase in the risk free interest rates compared to the year ago quarter, our interest costs increased even though our average debt balance decreased from the third quarter of 2022.
We expect interest expense of approximately $5 million for full year 2023.
Our third quarter income tax expense was $2 million, resulting in an effective income tax rate of 25, 7% compared to $3 6 million in the prior year quarter or an effective income tax rate of 26, 3%.
Our tax rates for the third quarters of 2023, and 2022 were impacted by non deductible permanent differences.
We continue to expect our tax rate for full year 2023 to range between 25 and 26%.
Now I will transition to our financial condition.
We generated net cash provided by operating activities of $16 9 million in the third quarter of 2023 compared to $15 3 million in the third quarter of 2022 due.
Due to changes in working capital, partially offset by lower net income adjusted for noncash items.
Our capital expenditures totaled $4 9 million in the third quarter of 2023 compared to $3 3 million in the third quarter 2022.
We anticipate our total capex to be in the range of 18% to $21 million for full year 2023.
As of September 32023, we had $58 1 million of outstanding borrowings on our credit facility, leaving approximately $66 million in additional borrowing capacity on our credit line.
Before I conclude I'd like to provide an update on the progress we've made with the ongoing ERP implementation and material weakness remediation projects.
With respect to the ERP implementation, we continue to meet project milestones and remain on schedule.
We are working through user testing and broader training of the workforce in advance of our initial deployment of materials resource planning our MRP automation.
At the end of the year.
I'm proud of the team's incremental gains in data management and business process improvement.
Inventories are detecting fewer variances, which will reduce our dependency on these labor intensive events.
As for the material weakness remediation. This remains a top priority for management and our audit Committee.
We have instituted more robust internal monitoring of our manual controls that failed at park well related to revenue and cost of sales. While we continue to focus on addressing specific concerns that arose from system development lifecycle control failures noted in last year's audit.
Importantly, the internal control deficiencies identified have not impacted the accuracy of our current or historical financial results.
In closing, even though we encountered some anomalies that impacted our third quarter financial results I am very pleased with the progress our team has made position us well for a solid finish to 2023 and a year ahead.
We remain steadfast in our commitment to drive long term growth and enhance shareholder value.
I'd also like to thank our employees for their continued prioritization of our safety program and express gratitude to all our stakeholders for their continued confidence in northwest pipe.
I will now turn it over to the operator to begin the question and answer session.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
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Our first question comes from the line of Brent Thielman with D. A Davidson. Please proceed with your question.
Hey, Thanks, Good morning, Scott Erin.
Hey, Brian.
Okay.
SPP.
Maybe could you just talk about the nature of the delays you're experiencing does it sound like isolated cases that maybe maybe it Ed and then I guess, Scott kind of what gives you the confidence that schedules into the first quarter.
<unk>.
Yeah.
I mean, it was a little bit of a messy quarter on steel pressure pipe in I think.
The way to describe it is as you know these are customer deliver driven changes in and contracts and contract scope and then we have some projects design build projects, which means that youre getting the project generally from the contractor owner before it's fully designed.
So normally normally they are probably 90%, 95% designed and then when the case that we had this time it was probably 80% to 85% designed and and as a result.
I mean, youre going forward with the value that you think you have with the customer going forward, but scope can change as you go through a project normal are these projects will go for like a year or a year and a half sometimes even longer with these design build project, but.
It was a relatively large project. It was design build it actually went off in like five to six months.
The changes were happening quickly and ultimately the project scope change and reduced.
The project was that was one piece the other piece was.
And build project that was being design issues that were supposed to be done and made in the in the third quarter that end up getting pushed into the first quarter of 2023 and we'd see these once in a while but.
Two relatively large projects that really had an impact and we don't see these things reappearing.
On a smaller scale, but generally the design build projects don't move as quickly as some of the things are happening now and I think theres a little bit of a change in the business Brent because obviously, we're trying to promote change and get progress payments on stuff and get paid in advance for for steel and things of that nature. So some of these projects are starting to come.
[noise] out and move a little bit quicker, now, which which we obviously have to pay more attention to but that really is what caused the issue in the third quarter. So and what was the second part of the question Brent.
No I think you answered it Scott it was really just the confidence that the schedules for these are kind of firm as we get into the early next year.
Yes, I think we're looking pretty firm right. Now obviously this was this has been a pretty small bidding year right.
If you think back or when we are bidding years like this in the past.
Especially steel pressure pipe back 15, 16, and 17 I don't probably have to remind you too much of what what's the margin look like.
And those years I think one of the exciting things as well the quarter was disappointing the.
One of the exciting things is that even with markets. This small I mean, these are not great margins, but theyre, okay margins in a market. This small which really kind of speaks there has been a little bit of a.
A change in the market resiliency based on the current configuration in the market.
And ultimately obviously due to the consolidation in the market, which we were a big part of which really bodes well for the steel pressure pipe business as we get into bigger markets, which we expect to do in 2024, we expect that market in 24 to be quite.
Quite a bit bigger than it was in 'twenty three so so I think we're in pretty good shape with that.
Okay, Yes.
On that front, Scott Davies delay in.
Impede your ability to add new business.
Can you just given that okay, even though the production sort of allocate and you can still so no. Yes. I mean, we have we have more than enough production capacity practical production capacity, probably handle most of what's coming out in the market. Some of the timing gets a little bit dicey on projects and you can't handle them based on things being.
Pushed out but in any given quarter, we might be producing on somewhere between 50 and 100 different projects. So across all of our plants plus obviously, we have the ability to move stuff around because we've got a nationwide footprint and deploy different assets. Unlike a lot of our competitors.
Okay.
And then on.
Precast.
The sales line with sort of right as we'd anticipated.
Disappeared and I think you've been articulating.
Maybe the margins were a little lighter than what we were thinking about maybe if you can.
Just kind of level set us on where you expect the margin.
The business day.
Incineration network, I mean, I understand that some slack in some of these markets.
Yeah that'd be helpful.
Yeah.
<unk> everybody compares are things that are going on to what 2022 was right. In 2022 was I mean, those those were boom that was a boom year for free cash there was a lot of records set in that business.
We're going through this year, we're modestly off of the revenues that we saw in 2022.
<unk> been off.
The.
The higher interest rates that are affecting both the residential and the noncash the nonresidential part of the market. So you have reduced production levels and obviously with those reduced production levels, you have lower levels of overhead absorption and along with less demand you get a little bit of price pressure because we're seeing.
And and also product mix, we're seeing some products mix changes.
In the pre cash business right now versus what we saw in 2023, maybe some products that are.
But have a little bit lower margin profile than what we saw in 'twenty, three but but all in all I mean, I think when you start looking at where we expect to be I think.
When you look at the second quarter, our margins for the second quarter free cash of about 25%.
In the third quarter. They were about 22%. So I think what youre seeing is margins are going to be aligning up with that as we go through the rest of this year.
And as we go into next year, obviously, there are predicting some different things for next year, especially around the midpoint in the year, where they think that prop.
Probably the fed's going to start loosening the interest rates a little bit mid next year and the markets are going to start to respond pretty positively to that.
Not only the housing market because there's a shortage of housing but also the commercial construction markets, which are a little slower right now than what we're actually seeing the residential side.
So I think again.
Coming through a period like this with significant headwinds in both the steel.
Steel pressure pipe segment as well as the pre cash segment, where the headwinds that we're seeing and well like I said the quarter's disappointing but.
We're still coming through this.
Decent shape for the headwinds that we're actually seeing so so we're pretty excited about the market's coming at us going forward.
Yes.
Just my last question it might be for Aaron.
Yes, I mean, the cash conversion here this.
And this year it's been.
Pretty fantastic.
I guess Im wondering if theres anything thats, an anomaly in there and how we ought to think about that.
We enter 2024 is this unusual or.
Can you keep up this.
Because.
Youre going to have a balance sheet question from cat from very little debt here pretty soon.
Yeah I think.
What I would say Brent is that model.
We are performing better I think.
We have changed our focus guys kind of mentioned that a little bit here and there because it's it's a it's a thing we are continuing to work on and we're not where we want to be yet, but we're making progress.
On on really trying to get customer prepayments.
Especially for steel.
To put us in a little bit of a different working capital position on.
Our jobs and really try to moderate the working capital needs of that steel pressure pipe business.
That has been kind of a little bit of a of a pain point for the company in its history and we acknowledge that and we acknowledged that that's something that we should we should strive to improve and we're trying to do that now I'm not saying that we haven't had a couple of good bounces in the course of this year or two to kind of help especially in the first quarter when I think.
Just kind of a big I think what it was like 2000 $21 million of free cash I think in the first quarter. So we've had a couple of good things, but I think all in all we.
We have a little bit of a shift kind of starting on some of the customer relationship stuff, that's starting to pay some dividends for the business and its cash flows yes, I think just to add a little bit to that Brent the progress payments like I said at the beginning of the market's starting to change a little bit and obviously, we've been trying to drive that because of all the cash.
Cash that we get tied up in current assets, especially where the steel pressure pipe business progress payments are something that we're always looking at getting paid for steel in jobs that are long jobs that we're having to buy steel to protect the steel price upfront to make sure that we don't get sideways with steel pricing in another area of.
Big focus, especially across the company, but I think the guys on the steel pressure pipe side have done a really good job of getting the AAR on time.
And when you go back several years ago, we were saying <unk> times in the 40 some percent range now.
Now, we're seeing them in a lot of cases between 75% and 80% on time. So so big change there too. It's a big focus right cash is important to us going forward to do the things that we want to do as a company to grow the company. So.
Very good I'll pass it on thank you.
Thank you Brian.
Thank you. Our next question comes from the line of Julio Romero with Sidoti <unk> Company. Please proceed with your question.
Hey, good morning, Scott and Erin.
Hey.
You guys mentioned earlier on the precast side that commercial construction has decreased but residential has held up pretty well.
Should we infer that to mean that youre seeing the park USA product demand.
Of temporary or a little bit in Geneva hold up pretty well and is that where some of the product mix challenges you mentioned earlier are stemming from.
Yeah.
Julio I think the interesting piece of this is obviously we're in to really good markets on the free cash side of the business right the state of Texas.
As always building.
They're always they're always spa.
Spending spending.
The cash they have generated from the energy type business good.
Really good market plus Utah, the net migration into Utah has been pretty solid and quite frankly, we've been.
Actually a little bit surprised on how well that the precast infrastructure side of the business that we have at Geneva has held up.
Because of the pent up demand in housing wise in the Utah market. So that's still kind of bumping along in both of those I would say of only only decreased modestly, but I think that probably the impact is a little bit more right now with the park side, but if you look at the the Dodge momentum index and what's coming.
Forward you know in the.
Momentum index as you know, it's basically nonresidential projects going into planning and.
Generally precedes spending in the nonresidential market by about 12 months and the September index was up about 3% and while commercial was pretty flat. The institutional piece has gone up quite a bit in the institutional piece is more public facing.
And we've seen like the commercial fall off a little bit, but institutional like educational hospitals things like that is really kind of a strong point in the construction side and and right now what they are projecting is as if the interest rates start to to maybe moderate a bit by the time, we get to middle of the year that we're probably expecting a <unk>.
Pretty good commercial construction market next year as well as hopefully it continued.
Strength that we're seeing in the free cash the infrastructure side. So these are just really off modestly and like I said at the beginning demands a little bit lower not higher like it was in 2022, So we're seeing a little bit more pressure on pricing, but I wouldn't say it's across the board. It's uncertain things in the mixes have changed a little.
Like you said, but but all in all I think that market holding up pretty well based on the interest rate environment that we've seen over the last 11 interest rate hikes that the fed is done and.
And we're pretty excited about the way that looks going forward too, especially with the headwinds that have been in that business. This year and how well it is still doing so.
Great No. That's that's really good color there.
I appreciate it and then.
Maybe if you can speak to ERP a little bit.
Did you call out how many days downtime.
Taken in the quarter and maybe how many you expect.
For next quarter.
Yes.
What's happening is we're starting to see.
A better transactional integrity through the course of the business mostly because.
We're just.
Reinforcing process.
And.
Managing our data I think a little bit better than we were initially say.
Say a year ago at this time.
We're obviously getting a lot of help from some consultants to kind of get us.
Kind of pull through this little bit, but we're eventually going to get to a place where we're we're on MRP and have a little bit more automation, but I'd say as far as.
Some of the other.
The data that we've been spending on inventory that's improved.
And we're still doing inventories were obviously getting better at them. So that there is proven for that reason, but.
But I would say that now we're getting to a point where going forward, we're especially at two of the three part plants. We're at a stage where due to the confidence that we have that we're not even going to have.
Have them do an inventory because.
One that's still still has a little bit of work to do I think a little bit more of a focus but that's a that's something that I think is going to continue to improve for us going forward.
So I mean, I think I think to this point.
To answer your question on the days I'd say, we've probably spent three days a quarter since we probably thought.
The park business.
And I would say probably the year ago quarter was maybe a little bit more because we were doing the first initial go live.
For for Park USA, So we had to do with kind of an extra.
Inventory at the launch.
Got it thank you for that.
It sounds like Youre, making progress there for sure and then just.
Just thinking about the share repurchase authorization.
Should we kind of think about the cadence of your guys deploying that.
When you balance that with maybe debt reduction and some other cash uses.
Well I think Julio the the way we're looking at it is the board has approved a $30 million.
We're new at this right. So so we will probably begin to deploy.
Maybe $10 million of that at a time just to start getting our feet wet of that.
We're going to continue to work down our debt as we go again like you you heard Brent asked the question about cash flow, we're pretty focused on cash flow. So that we can get that debt down and ultimately to do the things that we need to do to drive shareholder value and really the the repurchase program as a part of.
Our growth strategy now right because there is not always a.
Sure.
Hey, Ben.
M&A acquisition.
Neither readily available or practical right because you know.
There is not always something where you want it when you want it and at the value you want it right. So it's maybe not be regular readily available. The other thing is is when you look at the market is still there.
They're still relatively frothy as far as multiples in the markets. The things that we're looking at so we're very sensitive to what we're trading at and making sure that we're doing things that are accretive to the shareholders. If we're doing an acquisition and an absence of being able to do one that makes any sense to continue to drive shareholder value.
Which is part of our growth strategy. We will we will we may very well opt to do share repurchases and that's why we put that into play so.
It's definitely debt repayment, we're not going to do anything with share repurchases to get us out of whack with our credit facility or puts us in a position where we can't do an acquisition. When we find one that makes sense. So we're going to be pretty careful with it.
Great to hear thanks, very much for taking the questions.
Absolutely.
Yeah.
Thank you. Our next question comes from the line of Paul Johnson with Northland Securities. Please proceed with your question.
Thanks, Good morning, Scott era.
Yes.
TGIF.
[laughter] TGIF, yes.
So Mike.
The main question I wanted to ask is going back into your commentary Scott you had.
First of all if.
There was actually a presentation for the quarter I'm not sure. It's on your website when I go in your website IC in August presentations, I think I think it hasn't been updated but perhaps I'm wrong, but then.
I think there'll be updates soon.
Oh, Okay, Okay, sorry, Bob and Todd.
No it's okay.
Hello Guy.
In terms of questions.
Scott you had talked about.
A pickup in bidding activity for 'twenty, four but because of the.
The bidding activity in <unk> and 'twenty, three more margin pressure and I wanted to kind of unpack that a little bit on two fronts.
Number one is.
We've had some nice margin.
Business booked in your backlog that we're seeing the benefit of so maybe can talk about reference back to kind of what you see the impact of.
Your margin structure is from that and then.
That's the negative side of this but the fact of the matter is.
Bidding activity for 24 look to be relatively robust how does that play out in terms of.
Your.
Backlog as you roll through the year and then maybe some color with regards to kind of the drivers behind that bidding activity I mean is it.
Is that a result of several of them.
Government funding coming into the market is that a regional thing based on.
States, maybe some just some color around that that's my first set of questions.
To take the last one first because I'm not sure I'm going to remember all of those.
I think that the E J.
Funding our government funding starts to take a little bit more hold as we go into next year, but really probably the bigger part of that is out at least a couple of years right. These are just projects that were actually seeing coming through the system. We're in are in our strategic planning process right now.
And we're looking at everything that's coming through our our project tracking system. The things that are likely to bid that things that may not bid and obviously when we look at those things. We we gave the things that we don't we don't think are that likely a pretty good haircut to come down and we've come up with a number.
Quite a bit bigger than what we saw in 2023, so that looks good but that's not I don't expect the Iga a funding really to start really kicking in until probably 2025. So that's really that's that's a ways out still this is just stuff coming through and I think the exciting thing about this is I think.
I've said this before Ted even with a really small market and we've seen a couple of pretty small markets over the last couple of years 2021 was a market similar to this this size.
We're seeing this year and while the margins are not great. There is still okay coming through this period and if you look back several years ago. When we had markets. This size before some of the market consolidation happened. The margins were really really ugly so that piece of the that's a piece of the excitement that we have going forward, especially looking.
At bigger markets. So when you look at margins and how those things play in I think this is a little bit of your first part of your question you'll have to remind me about some of that.
When you get when you get lower bidding environments like we've seen this year and like we saw in 2021. What ends up happening is is backlog start to go down because theres less bidding and people putting less of their backlog. So it starts to become more of like Hey, there is there is.
There is starving animals, there and they are all after the piece of meat right at some point so that creates some pressure on the margin and we've seen some of that over the last few months really since probably the last earnings call the kind of pressures things down a little bit.
Lot of the stuff that we have in backlog has has really good margins I think some of the things that create a little bit more margin pressure in specific periods of time is when you get something that moves out.
Like the thing that we talked about earlier that moved out of the third quarter.
Into the first quarter of 2024, you're scrambling to find something to put in there that may not have as good of a margin and you have lower overhead absorption because of that so it's a double whammy on your margins.
So theres a whole bunch of factors that go into this.
And really our production levels in the third quarter for steel pressure pipe have been pretty small right.
And again, you know, even even with them being that small and all the anomalies that we had being able to come through a quarter like that with where the margin. That's just just halfway decent as is exciting and bodes well for how things look when the market starts to really get bigger. So okay. So youre going to have to go back and remind me the other pieces of your question.
Well, it's more it's more of a discussion and then a question you've gotten into a lot of it.
If I take what you just what you just kind of lay it out to me and listen is it fair to say that when you are talking about a lot of the bid activity.
This isn't like you say youre, saying this isn't big government project. This is more.
Kind of smaller projects in that pack that you haven't had a big set of government projects you have a lot of people competing aggressively for the smaller business yes.
That is when you talk about 24, as Youre, saying Youre talking about really kind of these smaller not mega projects, but smaller kind of bread and butter pieces of business that that's the activity that you are talking about yes, we're still seeing some bigger bigger projects that are that are on the website.
In 2024, there is some big things out there, we're just seeing more smaller ones genera.
Generally smaller ones don't get as much pressure as the bigger ones and they are generally all municipality or utility related so in some way shape or form a government sponsored at least to some extent, whether it's state or federal funding that goes into those.
But there's all kinds of different dynamics, but what I'll say is on the on the larger projects. Ted those are the ones that generally get more attention and become more what I would say nationwide bidding attractions. The smaller projects are more regional attractions. So unless you have one region of the country that's really.
Low those are generally.
A what do we how do I want to say this a more reasonable bidding environment, because they are smaller projects, but the big ones the big ones attract more attention for sure.
Okay.
Put it altogether and it sounds like.
There is.
There is a pickup in activity you have any of that and then you've got a longer term drive with a lot of the infrastructure funding.
I guess the tone I am reading as you're moving through the end of 2003 and $2 24, feeling pretty good about the current level of business and then the.
The longer term demand for.
Your services and products through 'twenty four 'twenty five.
Yeah, I think Thats right I think the reality is Ted is that 2023 has been a small bidding year.
122 was a bigger bidding year.
Robley, maybe maybe 30 or 35% more than 2023 2021 was like 2023. So we've had we've had three probably okay bidding year, one okay bidding year in that timeframe and two smaller ones and we're still coming out the way we're coming.
And we're expecting bigger bidding years in 'twenty, four 'twenty, five, especially with the J a funding which.
Could add.
<unk> thousand tons of <unk>.
Business to your backlog during a period of time like that depending on how these things come out. So we're pretty excited about how things look going forward on the steel pressure pipe side with the markets that are coming at us, but I think I.
Equally say, we're excited about the pre cash business as well as Ed said held up with the amount of headwinds that we've had this year. So I think those are both positive signs and really bode well for the business as we get back into stronger markets.
Okay.
And then just say the free cash flow is what I care, the most about and I was.
Great.
Im going to point out that if you look at your year to date cash flow generation, you're almost at the same well I believe we're in 'twenty.
We'll see what happens with the fourth quarter, but.
It's great to see.
The success, we're having in the business and I look forward to it.
And you continue to grow that free cash flow and I'll get out of line.
Thanks Ted.
Thank you, ladies and gentlemen that concludes our question and answer session I will turn the floor back to Mr. <unk> for any final comments.
Yes.
Like you say I'd like to thank everybody again for joining us today and obviously, we came into 2023 with a with a pretty high backlog and we've maintained a pretty high backlog for the last several quarters I think.
We're pretty steady with that going into 2024, I think we're well positioned to handle the significant opportunities coming up in the in the water transmission steel pressure pipe business.
And even though the pre cash business is off its record highs that we saw in 2022, that's still remains strong and our long term view about the free cash.
Cash business remains unchanged. We are we are focused on growing in that business and growing that business in the relative near term to the similar size that we have our steel pressure pipe business and I think the biggest thing again just to reiterate we've come through a year end 2023 that has had quite a bit of headwinds steel pressure pipe is a small.
Market and like I said before you look back several years ago to markets that where this size and the margin generation in those markets were really ugly and even though this year is a little bit disappointing or this quarter was a little bit disappointing.
The margins arent, great, but there are significantly better than what we've seen in the past with markets. This size, which again I think represents more of a market resiliency.
Just on the current market configuration and due to the consolidation that we've had in that market and it really bodes well for bigger markets and I think it's the same thing for free cash I mean, theres been a lot of headwinds their interest rates.
And it's off last year's records record highs, but we're still bumping along pretty good in a business that also has a lot of headwinds. So we're really looking forward to these markets continuing to grow and expand as we go forward and we appreciate.
<unk> everybody each time and thank you and we'll I guess, we'll talk to you in March.
March so thank you.
Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.