Q4 2024 Northwest Pipe Co Earnings Call
Greetings and welcome to the northwest pipe company fourth quarter and full year 2024 earnings call.
At this time all participants are in a 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 on your telephone keypad.
As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Scott Montross, Chief Executive Officer for Northwest Pipe Company. Please go ahead Sir.
Good morning, and welcome to northwest pipe company's fourth quarter and full year 2024 earnings Conference call. My name is Scott mantra.
I am president and CEO of the company and 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.
February 26th 2025 at approximately four P. M. Eastern time this call is being webcast and it is available for replay.
As we begin 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, 2023, and in our other SEC filings for a disc.
<unk> of such risk factors that could cause actual results to differ materially from our expectations and we undertake no obligation to update any forward looking statements.
Thank you all for joining us today I'll begin with a review of our 2024 performance and outlook for 2025.
We will then walk you through our financials in greater detail.
We delivered strong results in 2024, achieving record financial and operational performance in a complex market environment.
Net sales of $492 5 million or one of the highest in our company's history, increasing 10, 8% over 2024, and what I would call a decent but not remarkable S. P. P bidding market environment with an added element of depressed market conditions on the nonresidential side of our precast business.
Impacting our volumes.
However, our strategy led us to produce record consolidated gross profit dollars as well as record profitability that was consistent with our free cash flow generation, both of which translated to $3 40 per share demonstrating the strength and quality of our earnings. Most importantly, we achieved record safety performance in two.
24, with a total recordable incident rate of 1.25, underscoring our unwavering commitment to the wellbeing of our employees as well as demonstrating a stable operating environment.
Further break down our segment level results revenue from our SPP segment totaled a record $337 9 million in 2024 up 14% year over year, our performance reflected higher production levels, resulting from ongoing strength in our backlog due to the consistent level of bidding.
As well as changes in project timing.
Our STP backlog, including confirmed orders increased to 310 million as of December 31.
$282 million as of September 32024, it was down slightly from $319 million as of December 31, 2023. The bidding environment is expected to remain fairly consistent in 2025 are S. P. P. Team has continued to do a great job executing on bids and <unk>.
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However, our 2024 performance was partially offset by lower realized selling prices due primarily to lower raw material costs well.
While steel prices declining throughout 2024, they have been on the rise in 2025 now in the $850 per ton range up approximately $125 from the end of January.
With lead times standing at about six to eight weeks, so still well below levels from a year ago. We believe the recent steel tariff overtures will help support higher steel pricing in 2025 and in turn support higher S. P. P project pricing in general we are in favor of higher steel prices, which are positive.
For our STP business.
Now turning to our free cash segment free cash revenue increased four 5% year over year to a new annual record of $154 6 million. Despite ongoing challenges in the nonresidential construction market. Our performance was driven by continued strength on the residential side of our Geneva business as strong demand led to higher.
Production and shipment levels, while our volumes were very healthy reduce shipments on the nonresidential construction related portion of our free cash business at park, partially offset some of this strength.
As the current higher interest rate environment has continued to affect the market for commercial construction. However, Dodge momentum index was 19% higher than December of 'twenty four than it was the previous year, indicating growing strength in the nonresidential construction market for 2025.
The commercial sector was up 30% versus the prior year period, while the institutional sectors remained fairly flat.
On the pricing side, while the residential portion of our free cash business benefited from multiple price increases throughout 2024, driven by strong demand at the Geneva locations slow demand and downward pricing pressure on our nonresidential precast business more than offset these benefits.
As of December 31, our precast order book serves to 61 million, which was up from $57 million as of September 32024, and a significant increase from 46 million as of December 31, 2023, indicating strong momentum heading into 2025 importantly, a fairly.
A large portion of the year and pre cashed order Brook surge was done the park nonresidential side of our precast business. The order book on the residential side of our precast business at Geneva remains stable at strong levels.
Our consolidated gross profit in 2024. It was another record at $95 4 million up 22, 9% year over year and resulted in strong gross margin of 19, 4% up from 17, 5%. In 2023. This is the strongest annual gross margin we have reported for the current S.
<unk> and precast configuration of the company.
<unk> gross margin of 18, 5% was also strong increasing by approximately 420 basis points over 2023, primarily due to higher production volumes with strong overhead absorption as well as changes in product mix.
Our free cash gross margin of 21, 2% declined by approximately 260 basis points from 2023, primarily resulting from changes in product mix, while margins on the residential construct structure side of the Geneva location strengthened versus last year lackluster demand in the nonresidential commercial construction.
<unk> of our business, resulting from higher interest rates has led to some margin compression.
Next I would like to provide an update on our.
Free cash product spread strategy, which has been a crucial element of our top strategic priority to grow the business.
As part of level, one product spread we did over $57 million worth of projects outside of Texas in 2024, and booked approximately $10 million worth of orders achieving our goals for the year. This endeavor enhanced capacity utilization at our Texas based free cash plants to help maximize overall efficiency and <unk>.
<unk> volume.
As part of our level two we gained additional traction on product spread at the Geneva to plant in Utah by booking approximately $2 3 million of park related projects in 2024.
And finally as part of level III product spreads were in the process of expanding park and other pre cash related products to additional northwest pipe legacy locations now that the park precast products are more comfortably established that the Utah Geneva locations.
Our new goal for 2025 as the book in excess of $12 million worth of park related projects outside of Texas.
We expect level three will be put into place by mid year and will begin to benefit our results more in 2026 and beyond. Additionally, we are continuing to organically invest in our footprint and equipment to drive capacity expansion and greater efficiencies. We were pleased to complete the reinforced concrete pipe and man.
<unk> mill at our Salt Lake City, Utah facility and are in the process of commissioning as a reminder, this investment provides the rapidly growing Geneva operations with additional production capacity and capabilities and it is our intention to continue to invest in our pre cast facilities to drive organic growth we are.
Also investing to maximize efficiencies in our other northwest pipe legacy SPP plants.
In addition to our focus on organic growth, we are actively evaluating M&A opportunities and the free cash related space that would help accelerate progress on our pre cash strategy, while increasing our manufacturing capabilities and production efficiencies and expanding our geographic reach and product portfolio.
Concurrent with our growth plans, we are actively repaying the debt we incurred to finance the 2021 acquisition of pork USA in 2024, we repaid $26 million of our debt in our balance sheet remains healthy with ample liquidity.
As I've mentioned, we will opt to repurchase shares of our common stock as we did this past year and the absence of a viable M&A opportunity.
Before I conclude I'd like to summarize our outlook for the first quarter of 2025, and our S. P. P business, we anticipate modestly lower revenue versus the first quarter of last year related to product mix and the continuing impact of nationwide weather events due to typical seasonality and severe weather conditions that are.
Led to unscheduled downtime at our various SPP facilities.
However, we expect margins to be similar to the first quarter of last year that said, we enter 2025 with a strong SPP backlogs and while we expect like bidding environment in the first quarter, we anticipate strong bidding activity in the second and third quarter.
With full year bidding levels aligning closely with 2024, we continue to remain encouraged by the amount of activity, we're seeing on our current and upcoming water transmission projects.
For a more complete view of these projects. Please review our investor presentation, which can be found on the investor tab of our website within the events and presentations section.
Our precast business, we entered the year with a robust order book and are projecting a strong 2025, the residential business remains strong and we are now seeing a surge in the nonresidential order book, indicating improved strength in 2025 for the first quarter of 2025, our free cash revenue and margins.
<unk> are expected to be as good or higher than the first quarter of 2024 due to higher production levels and associated better absorption as well as the growing strength of our order book, we continue to believe in the strength of the precast business in the mid to long term given the significant level of pent up demand specifically for residents.
<unk> housing and a growing need for infrastructure spending in the U S and our growing market position.
On a consolidated basis, we expect the first quarter of 2025 to be relatively similar to the first quarter of 2024 as weather events in various locations across the country continue to have an impact.
In summary, I'm very pleased with our record 2020 for performance across the various metrics I'd like to thank our talented team at northwest pipe for their strong execution of our growth strategy in a highly complex market environment and four executing another record safety year, we look forward to benefiting from a solid bidding market and free cash.
The order book in 2025 looking ahead.
<unk> are to one maintain a safe workplace, where our employees are proud to work to focus on margin over volume three implement continued cost reductions inefficiencies did all levels of the company for intensify our focus on strategic acquisition opportunities to grow the company and number five.
In the absence of M&A opportunities returned value to our shareholders through opportunity opportunistic share repurchases I will now turn the call over to Aaron who will walk through our financial results in greater detail.
Aaron Wilkins: Thank you Scott and good morning, everyone I'd like to Echo Scott's sentiment surrounding the companys back to back record safety year.
Aaron Wilkins: We hold safety at the core value most important to our corporate culture.
Aaron Wilkins: We believe our team's success with workplace health and safety is a direct correlation to the financial performance I'm about to take you through it.
Aaron Wilkins: Again, congratulations to the entire company on this outstanding accomplishment.
Aaron Wilkins: Now I will discuss our record year and fourth quarter profitability.
Aaron Wilkins: Consolidated net income for the quarter was $10 1 million or $1 per diluted share.
Aaron Wilkins: $5 4 million or <unk> 54 per diluted share in the fourth quarter of 2023.
Aaron Wilkins: I'd also note that our profitability benefited from the realization of previously uncertain tax positions.
Aaron Wilkins: As anticipated this reduced our effective income tax rate and resulted in a favorable impact of approximately $2 3 million on our net income in the fourth quarter of 2024.
Aaron Wilkins: Without this unique item our consolidated net income for the quarter would've been approximately seven 8 million or <unk> 77 per diluted share.
Aaron Wilkins: There was no like item included in our earnings per share for the fourth quarter or full year of 2023.
Aaron Wilkins: For full year 2024, consolidated net income was a record $34 2 million or $3 40 per diluted per diluted share compared to $21 1 million or $2 90 per diluted share in the 2023.
Aaron Wilkins: Our fourth quarter consolidated net sales increased eight 6% to $119 6 million compared to a $110 2 million in the year ago quarter.
Aaron Wilkins: Steel pressure pipe segment sales in the quarter increased nine 9% to $82 5 million compared to $75 1 million in the fourth quarter of 2023.
Aaron Wilkins: The improvement was primarily driven by an 11% increase in tons produced resulting from improved market demand and a continued solid bidding environment as well as changes in project timing.
Aaron Wilkins: Recast segment sales in the fourth quarter increased five 9% to $37 1 million compared to $35, one nine a year ago.
Aaron Wilkins: This was driven by a 23% increase in volume shipped as demand at our Geneva operations in Utah remained strong and was partly offset by continued softness in commercial construction demand in Texas.
Aaron Wilkins: Additionally, our free cash sales were negatively impacted by a 14% decrease in selling prices.
Aaron Wilkins: Resulting from changes in product mix.
Aaron Wilkins: As a reminder, the products we manufacture are unique.
Aaron Wilkins: Kevin volumes in the case of pre cast production volumes in the case of steel pressure pipe and a corresponding average sales prices for both segments do not always provide comparable metrics between periods.
Aaron Wilkins: Which are highly dependent on the composition of each segments product mix.
Aaron Wilkins: Our fourth quarter consolidated gross profit increased 16, 3% $22 4 million or 18, 8% of sales compared to $19 3 million or 17, 5% of sales in the fourth quarter of 2023.
Aaron Wilkins: STP gross profit increased 32, 2% $14 8 million or 17, 9% of segment sales compared to gross profit of $11 2 million or 14, 9% of segment sales in the fourth quarter of 2023, primarily due to higher production volume, resulting from improved market conditions as well as changes.
Aaron Wilkins: And product mix.
Aaron Wilkins: Further our steel pressure pipe margins were negatively impacted by tariffs enacted on foreign steel starting in July of 2024.
Aaron Wilkins: Regardless of our ongoing dispute over the applicability of these tariffs and there are retroactive back application. Our gross profit was reduced by zero point $8 million during the quarter.
Aaron Wilkins: If we are unsuccessful in disputing the merits of our steel sourcing for the handful of jobs affected we expect our future incremental costs associated with these previously enacted tariffs to be approximately 0.8 million and realized over the next few quarters.
Aaron Wilkins: We intend to work vigorously to defend the company's position regarding this matter.
Aaron Wilkins: Free cash gross profit decreased five 4% to $7 7 million or 27% of pre cap sales from $8 1 million or 23, 2% of segment sales in the fourth quarter of 2023, primarily due to changes in product mix, specifically, a higher proportion of shipment volume derived from lower margin.
Aaron Wilkins: Commercial products.
Aaron Wilkins: Selling general and administrative expenses for the quarter increased 12% to $11 9 million or 10% of sales compared to $10 7 million in the fourth quarter of 2023 or nine 7% of sales.
Aaron Wilkins: The increase was primarily due to higher incentive compensation expense, including for both cash based and share based programs.
Aaron Wilkins: Our noncash share based compensation expense in the fourth quarter of 2024 was $1 2 million compared to <unk> 6 million in the year ago quarter.
Aaron Wilkins: For the full year, our selling general and administrative expenses increased seven 7% to $47 2 million or nine 6% of consolidated net sales compared to $43 8 million or nine 9% of sales in 2023 also due predominantly to a higher performance based incentive compensation program costs.
Aaron Wilkins: For the full year 2025, we estimate our consolidated SG&A expenses to be in the range of $47 million to $50 million.
Aaron Wilkins: Depreciation and amortization expense in the fourth quarter of 2024 was $4 8 million compared to $4 million a year ago quarter.
Aaron Wilkins: For the full year depreciation and amortization expense was $19 1 million compared to $15 8 million in 2023.
Aaron Wilkins: We expect depreciation and amortization expense to be approximately $18 million to $20 million for the full year 2025.
Aaron Wilkins: Interest expense decreased to <unk> 9 million from $1 1 million in the fourth quarter of 2023 due to a decrease in average daily borrowings.
Aaron Wilkins: For the full year interest expense increased $5 7 million compared to $4 9 million in 2023 and for the full year 2025, we expect interest expense to be approximately $3 million.
Aaron Wilkins: Our 2020 for income tax expense was $8 2 million, resulting in an effective income tax rate of 19, 3% compared to $8 2 million in the prior year or an effective income tax rate of 28%.
Aaron Wilkins: As previously discussed our effective income tax rate for 2024 was significantly impacted by the realization of uncertain income tax positions due to a lapse in statute of limitations.
Aaron Wilkins: From the year the tax attribute originated.
Aaron Wilkins: This resulted in a favorable impact on our fourth quarter and full year provisions of approximately $2 3 million.
Aaron Wilkins: In 'twenty three the effective income tax rate was primarily impacted by nondeductible permanent differences accrued interest on uncertain income tax positions and state income tax rates.
Aaron Wilkins: We expect our tax rate for the full year 2025.
Aaron Wilkins: Within the range of 24% to 26%.
Aaron Wilkins: Now I will transition to our financial condition.
Aaron Wilkins: We generated strong cash flows in 2024.
Aaron Wilkins: For the quarter net cash provided by operating activities was $36 1 million compared to $9 million in the fourth quarter of 2023.
Aaron Wilkins: For the full year, we generated net cash provided by operating activities of $55 1 million a modest increase from $53 $5 million in 2023 due to our improved profitability, partially offset by a reduction in cash provided from working capital.
Aaron Wilkins: Additionally, our full year free cash flow of $34 million was better than anticipated due largely to a shifting working capital needs in our steel pressure pipe business, which will vary quarter to quarter.
Aaron Wilkins: For the full year of 2025, we anticipate free cash flow to range between $23 and $30 million.
Aaron Wilkins: As we've previously emphasized enhanced cash generation remains a key focus of our leadership team.
Aaron Wilkins: Our capital expenditures for the fourth quarter were $4 2 million compared to $5 million in the fourth quarter of 2023.
Aaron Wilkins: For the full year 2025, we anticipate our capex to be in the range of $19 million to $22 million, including about $5 million in various investment projects, most notably to support the precast product spread as well as initiatives to grow revenues at both our park and Geneva businesses to 100 million in the near term.
Aaron Wilkins: As of December 31, 2024, we had $24 7 million of outstanding borrowings on our credit facility.
Aaron Wilkins: Leaving approximately $99 million in additional borrowing capacity on our credit line.
Aaron Wilkins: We remain committed to our capital allocation strategy.
Aaron Wilkins: Julie focused on both growth and providing stockholder returns, including our anticipated adoption of a new share repurchase program from which we expect to start transacting early in the second quarter.
Aaron Wilkins: In summary, we are extremely pleased that we have achieved new annual performance records in safety revenues gross profit and earnings per share.
Aaron Wilkins: We believe our steel pressure pipe and precast businesses remain well positioned in 2025 and beyond the new level of through cycle resiliency achieved through our growth into pre cast.
Aaron Wilkins: Thank you again to our dedicated employees, who made these achievements possible and to our shareholders for their continued trust and support northwest pipe company.
Aaron Wilkins: I will now turn it over to the operator begin the question and answer session.
Aaron Wilkins: Thank you at this time, we will be conducting a question and answer session.
Speaker Change: You'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Aaron Wilkins: You May press star two if you'd like to.
Aaron Wilkins: Remove your question from the queue for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star.
Speaker Change: Our first question comes from the line of Julio Romero with Sidoti and company. Please proceed with your question.
Speaker Change: Thanks, Hey, good morning, Scott and Sharon.
Speaker Change: Hey, you guys had a pretty strong.
Speaker Change: Wrong free cash flow year in 2024.
Speaker Change: Very similar and impressive with 2023 free cash flow.
Speaker Change: Just talk about your expectations for 25 on the free cash flow front, and how youre thinking about managing the variability of cash flow between quarters, especially.
Speaker Change: Aaron you alluded to in your comments that.
Speaker Change: The shifting working capital needs of the SPP portion, especially as that becomes kind of a stronger portion of the business.
Speaker Change: Yeah.
What I would tell you as I take a big a big part of the focus on the cash flow has been a focus on mining the the cash that's tied up in current assets specifically related to the SPP business.
Speaker Change: And ultimately as we said last year.
Speaker Change: We made that a.
Speaker Change: How are you doing for everybody as variable compensation. That's in the management group. So there's a lot of attention on cash flow. All the time in fact, we get a report every day that tells US how much cash has been has come into the company, where we are for every month in and it's always it's always a focus on the goal to try to make sure we're getting more.
Speaker Change: Cash and revenue we are recognizing in a specific month or time period. So it's really the focus on that and I think that.
Speaker Change: Aaron talk about the first quarter, a little but I think we're coming into a first quarter cash flow wise, it's going to be a little bit different than what we saw last year with the.
Speaker Change: The negative cash flow in the first quarter, but theres. So much focus on that the belief is that our cash flow should should either be as good or improve versus where we were in 2024. So it's a big focus it's looked at every day and it's part of everybody's goals in the company. So you want to talk a little.
Speaker Change: One of the first quarter at the end of 'twenty two 'twenty three we really didn't have the billings that we needed to have a strong cash flow in the first quarter of 2024, which is why we started the year. So slow and came on through the course of the year.
Scott: This year has shaped up to be much different do a lot of things that Scott just talked about.
Scott: We really had a strong billings performance for our steel pressure pipe business in the last quarter of the year and things have proceeded pretty well into into the first quarter.
Scott: Which will set us up for for I think better performance than you saw.
Speaker Change: I would guess Julio that we'd probably be pretty ratable to my to my estimate.
Scott: And in the in the first quarter.
Scott: And maybe have a little bit of a softer second quarter, but then progress up and kind of see things improve through the balance of the year, where the cash flows to getting to that 23% to $30 million range that we talked about.
Scott: Got it very helpful. There and then.
Scott: You guys mentioned, you expect the bidding environment for SPP to remain.
Scott: On balance fairly consistent for the full year of 25.
Scott: But can you also kind of talk about the industry capacity as it currently stands for channel work, especially.
Scott: Especially given less industry participants compared to previous cycles, and what that means for your profit outlook.
Scott: 25%, maybe even beyond that even though the bidding environment is kind of fairly stable.
Scott: Yes.
Scott: And we haven't talked about capacity in quite a while but we are.
Scott: Far as having a rated capacity and just our SPP business, probably have the ability to do about 180000 tons of rated capacity a year now when you start looking at that and saying well Thats rated capacity Thats, if youre running the optimal mix of whether it's 72 to <unk> 96 in certain gauge ranges to be.
Scott: To produce a certain amount of tons and then you look down and say well. Okay. So what is practical capacity. So practical capacity for us is probably about somewhere in the area of 135 to 140000 tonnes and we have approximately half of the capacity in the marketplace. So total market capacity is likely some places.
Scott: In the area of about 300, 325 or 330000 tons.
Scott: And even with what the expectations are coming with a J I think that there is more than enough capacity in the market to be able to do that now for us remember.
Scott: In most instances, where only one at running one shift at the steel pressure pipe plants. So so if you start running multiple shifts at the steel pressure pipe plants, you can scale up pretty quickly to be able to handle way more than the market is ever going to be able to give to us. So we don't have any concerns at all about about our ability to.
Scott: Handle the higher tonnage production levels that we expect.
Scott: <unk> funded projects out in 'twenty six 'twenty 728, and 29 are going to put forward. So we don't think we have any issue with that in fact, we welcome that.
Scott: Very helpful. There and then.
Scott: On the on.
Scott: On the precast side, you talked about the surge in the precast order book that you experienced at year end and that being weighed.
Scott: Towards the parked out of our side just if you could just speak to how that.
Scott: How that translates to the non res portion.
Scott: Maybe on the cadence of that as we progress throughout 2025.
Scott: We start with a reference to.
Scott: Watching the Dodge momentum index.
Scott: And Thats really nonresidential related commercial institutional stuff and that really is held relatively strong through 2024 and why that's important is these generally are representative of projects that go in planning generally about 12 months before they start getting produced.
Scott: Right. So so ultimately projects start going into planning and then there's a gap of time before our orders start getting placed and then they start getting shipped to the customer and produced so we are we saw this bubble coming through and not a bubble or the surge coming through the pipeline and the Dodge momentum.
Index through 2024.
Scott: It just so happens that it started to translate into the order book at really the nonresidential facilities that we have for park USA in the order book has grown to relatively strong levels through year end, which normally doesn't happen, which which bodes well for for the production and shipment of nonresidential.
Scott: Projects in 2025, and we're starting to see that because when you look at park.
Scott: When they suffered through a little bit of a rough nonresidential market.
Scott: That business was probably off between 15 and 20% in 2024 because of the interest rates and impact on the nonresidential business. We're we are seeing that order book grow so the production levels the shipment levels and the revenue levels appear to be coming back relatively <unk>.
Scott: In 2025 and on the residential side and you Didnt ask about this but I'm going to put this in any way.
Yeah.
That's okay.
Scott: Yes.
Scott: <unk> has stayed pretty stable at very strong levels.
Scott: And we you know for the Geneva business, there more than double the size of the revenue when the when we acquired them in 2020.
Scott: That is just stayed Ron.
Scott: Very very strong even in the face of the higher interest rates and really I think that kind of speaks to the net migration into the state of Utah and the demand for <unk>.
Scott: Single family and multifamily houses.
Scott: And facilities to limit. So so we are seeing.
Scott: A pretty strong free cash market going into 2025.
Scott: You know like you asked at the beginning with the steel pressure pipe business, we're seeing bidding.
Scott: That is going to be similar to what it was in 2020 for the first quarter is a little slower in the steel pressure pipe bidding. This year just by way of the project bidding falls, but we're expecting really strong second and third quarters.
Scott: In finishing the year pretty similar to what we did in 'twenty four.
Scott: Yeah.
Aaron Wilkins: Really helpful. Thanks, so much for all the color there Julio.
Julio Romero: Sure. He wanted all of that but you got it.
Aaron Wilkins: I'll take it thanks, so much.
Aaron Wilkins: No problem.
Julio Romero: Yeah.
Speaker Change: Thank you. Our next question comes from the line of Ted Johnson with Northland Securities. Please proceed with your question.
Ted Johnson: Thanks, Good morning, guys.
Speaker Change: Hey, Jed.
Ted Johnson: Hey, I wanted to start out.
Ted Johnson: And maybe give you more color on the terrapin that you brought up that was news to me so.
Ted Johnson: If you could provide a little color on kind of what happened and I assume what you're talking about with regards to the potential in the first half is that you will have to.
Ted Johnson: I guess for lack of a better term pay these tariffs for product that was.
Ted Johnson: For for steel that was brought in in the back half of 'twenty. Four first of all did I read that correct and then secondly can you just kind of explain.
Ted Johnson: Kind of what what that was and what the situation was and then maybe if there's any ramifications for things going forward. That's my first question.
Ted Johnson: Yeah.
Ted Johnson: Ted Thats really a two fold question when you look at the the tariff issues. It's been Aaron brought up and it's part of the script that was really a tariff. That's a proclamation 10 783 from the previous administration and what happened in July of 2020 for the administration basically.
Ted Johnson: Said, hey, you're going to we're going to put a 25% tariff on anything that's not been poured in melted in the U S, Canada and Mexico. Okay. So so that was kind of a retroactive tariff and we have basically we were shipped coils.
One of our producer or steel producers that were producing Brazilian slabs and that happens on a regular basis, but those Brazilian slabs actually came in under the quota before it reached the quota and the administration decided to kind of slap on this retroactive.
Ted Johnson: Ex.
Ted Johnson: Tariffs and ultimately what that did is it hit us in the fourth quarter to the tune of I think Werner does $800000 and probably hit just to a similar amount in the first quarter, which we've already built into our forecast and things like that but that's the previous administration.
Ted Johnson: Pack, so I'm going to stop there and see if you want to talk about the the one that's on the table now and how we're looking at all of that.
Ted Johnson: That's been around with US wanted to start with this itself, but as that.
Ted Johnson: Sorry.
Ted Johnson: It sounds that you had compressed natural gas.
Ted Johnson: Or is it.
Ted Johnson: We've been fighting this we have attorneys fighting this right now but.
Ted Johnson: The problem is this is something that's growing we would fight this for a long time right. Because there is a lot of confusion over the tariff things right now, especially since the new administration has a different proclamation and which basically wipes out anything from the old proclamation. So so this is going to be.
Ted Johnson: Long in an ongoing process to be able to fight through this thing, but we've been doing that already we have we have we have trade attorneys in we're fighting through that from the Brazilian slab piece of this thing so we pay attention.
Speaker Change: Is any of that because I covered in my.
Speaker Change: Yes in my pre kind of the questions I wrote out pre call. The number one question was really around the Trump administration in two parts and the first thing was.
Speaker Change: The proposed tariffs on steel and kind of how does that impact your business. How does that go into the guidance and your thought process and if they put those kind of tariffs in place I mean at some point I mean I know you.
Speaker Change: For lack of better term yeah, you can get past this kind of step on to your customers, but it brings up the cost of things and you know if things get more expensive.
Speaker Change: Economics, It does hurt demand so maybe a discussion with regard to whats going on with the trumps.
Speaker Change: The Trump administration's efforts on tariffs and how you see that playing out for your business.
Speaker Change: Is it.
Speaker Change: Good thing too.
Speaker Change: To discuss a little bit because obviously the.
Speaker Change: This does trade policy with the New administration has had things in flux with the tariffs for a.
Speaker Change: Relatively.
Speaker Change: I guess that hasnt been a long period, yet but.
Speaker Change: There's a bunch of things that are that are that are interesting about it one is what's the long term impact of tariffs on the GDP and Theres a lot of there's a lot of information out there that says hey, if youre, putting these tariffs on on Mexico, Canada, China, It could it could really impact the.
Speaker Change: The GDP and lower the GDP well below the two 2% growth rate that theyre looking at and at the same time, it could obviously inflation and influence.
Speaker Change: Inflation as you just mentioned.
Speaker Change: How much is that is that by 100 basis points. So the thing is it runs a little bit counter to the platform of this new administration.
Speaker Change: Which makes you think okay. If this is this a long term thing, but the way we look at it because we've had to do.
Speaker Change: Our risk analysis around this because of where we are so we have a our biggest thing is we have a plant in Mexico right see Mexico. So.
Speaker Change: The there is some ambiguity right now and what we're understanding is is that because we buy steel in the United States shipping into Mexico steel that's minded melted in the United States and ship. It back we should be able to get an exclusion for that right because that's what we're we're disk.
Speaker Change: Seeing and being told as we as we sit right now, but again, we've had to do a risk analysis around this so we've basically got three scenarios the.
First is if the if the request for exclusion is denied dress LLC.
Speaker Change: We have.
Speaker Change: We have a lot of steel pressure pipe plants, we have six of them, we basically take forecasted work and move it to the Tracy in adelanto facilities as needed.
Speaker Change: And you know the overall impact on that could be you know several million dollars of revenue and a little bit of a hit to the gross profit, but we have five other steel pressure pipe plants.
Speaker Change: So that's one scenario the the second scenario is as the U S minded melted thing we get the exclusion.
Speaker Change: And basically we just load plans for our business plan because what that means is we're buying steel in the United States Schimek shipping it into the Mexican on the Maquiladora and then shipping it back into the United States. So there wouldn't be any tariff that would apply to that and basically we would just <unk>.
Speaker Change: <unk> per plan as we're doing right now.
Speaker Change: So the other the other thing that's interesting about this which probably is going to draw more questions is that just say that the.
Speaker Change: Situation is tariffs go on and Canada, retaliate with with retaliatory tariffs against the United States.
Speaker Change: Yeah.
Speaker Change: Obviously, we have a lot of product that we produce and ship to British Columbia.
Speaker Change: For for their water transmission needs in British Columbia, and there are no steel pressure pipe plants in Canada, so that that kind of creates a little bit of an issue but.
Speaker Change: The fact of that is is that if they retaliate we can actually produce the Canadian products SLR see assuming that Canada doesn't produce or file a tariff against Mexico and shipped into Canada from SLR see without missing a beat.
Speaker Change: So <unk> can be and there's a lot of information here, that's got to be it's got to be sorted out, but the fact that the tariff could be filed against SLR see if we're not giving an exclusion is obviously a negative but if the exclusion exists.
Speaker Change: And.
Speaker Change: And the and Theres retroactive tariffs or not retroactive retaliatory tariffs filed we can also ship into Canada from SLR C. So I think the fact that we have six plants that we can move things around between and that there are some there are some utility between those plants really means that we can probably work or.
<unk> without a whole lot of damage to the steel pressure pipe business. So I've set a lot.
Speaker Change: And you probably have some questions on that so I'm going to shut up for a minute and let you go.
Speaker Change: Well I don't want nothing more than that but that was actually I'm going to ask Scott that was super interesting. So thanks for the answer.
Speaker Change: We wanted to shift over over just finishing off some of the things with the Trump administration.
Speaker Change: A big driver with regards to the bidding activity is the infrastructure funding.
Speaker Change: You know theres all kinds of discussion of whether you know trumps trying to real a lot of that back in I mean, it seems like most of what he's trying to do is a little more on the renewable side, but as you look into your bidding environment. I mean is there is there any kind of.
Speaker Change: CERN with regards to the market that the Trump administration will pull back on.
Speaker Change: Funding for some of the.
Speaker Change: Things that you were expecting.
Speaker Change: Well obviously.
Speaker Change: There is nothing that we see affected really in 2025, probably the concern would be more related to the.
Speaker Change: JA funded projects are 26, 27, 28, and 29, but I think one of the things that.
Speaker Change: They learned out of the out of the tragedy in California, with the fires and the lack of water and water infrastructure to be able to fight fires like that if they really have to be careful with not replacing infrastructure that has aged out and a lot of cases, because because we have.
Speaker Change: More extreme weather events going on all the time droughts and things like that and there is risk to those things and the administration was pretty.
Speaker Change: Pretty hard on are pretty.
Speaker Change: I guess, they really were pointing at Gavin Newsome and the things that they didn't do in the state of California to make sure that they had the ability to offset or to control things like dish and preventing from nap and so I think things like that start to take more precedence and could it affect some of that stuff out in the future where the Iga funding.
Speaker Change: Maybe but I think youre going to be really careful with doing that because this is really infrastructure out there that needs to be placed replaced in needs to be put in place.
Speaker Change: Not only for safety, but we're supportive of growing communities all across the country. So we don't see that happening at this point Ted.
Speaker Change: Okay.
Speaker Change: Kind of the smaller ones.
Speaker Change: Youre the SPP businesses, clearly humming, it's super strong it's Scott.
Speaker Change: A year and a fabulous macro environment for it.
Speaker Change: We talk more about you know kind of where that business is from a historical standpoint in terms of revenue, but I'm kind of curious with regards to take tons you know like.
Speaker Change: What's the what.
Speaker Change: If you looked at the fourth quarter of 2024, and I'm not asking for a number of full number in terms of tons, but the tons of products you produce how does that stack up against your kind of historic highs.
Speaker Change: Where are you with and what I'm, saying where you.
Speaker Change: No what I'm, saying in terms of fundamental product delivery, where are you relative to where like the best has been in the past.
Speaker Change: Yes.
Speaker Change: They're probably the overall the overall tons are our overall tons in the fourth quarter. This year on steel price pressure pipe versus the fourth quarter of last year were significantly up in tonnage for the year, which significantly up versus the previous year, but what I would say versus historical.
Speaker Change: Is is we're seeing we're seeing less tons in that business now you say Oh My God is that a is that a demand thing, but we're really not seeing less projects. We are seeing less tons and I think that starts to go to the the grades and quality of the steel products that are being produced now.
Speaker Change: The efficiency of design of the of the <unk>.
Speaker Change: Water transmission projects those kinds of things. So I think that that's evolved too. So we're seeing a little bit less tons in that business, but really we're seeing a similar amount of projects and and I think it's really a efficiency of engineering.
Speaker Change: That side of the business, that's starting to take hold and they're not having to put a stick of steel. If you will stick a gauge steel on projects because they have grades that can handle higher pressures and things like that so really I think that's what that is at this point and for US we've got 50% 52% of the marketplace.
So we just kind of evolve with the marketplace and work to be there.
Speaker Change: First of all as we can with the conditions as we find them, but we're seeing that business is a is actually growing a little bit at this point I think tons youre going to start to go up a little bit, but I think it's the efficiencies of the lines that are being built said more than anything at this point.
Speaker Change: Two more questions one of them very very easy way, but.
Speaker Change: Just like maybe a little more color on where you are within the M&A strategy I mean, you've got the STP business humming.
Speaker Change: It's going be hard for you to show dramatic growth in that core business given the market share you have and kind of where you're at I think it won't grow but and then on the Geneva business you clearly have.
Speaker Change: No room to run and you're executing well with your organic strategy, but to really kind of kick.
Speaker Change: If you would the business into the next gear that M&A portion as you know, it's a pretty important side of things. So you kind of talk a bit about the process you are with M&A like you.
Speaker Change: Do you have any.
Speaker Change: Opportunities irons in the fire that are within kind of our like for.
Speaker Change: For lack of better term my forecasting horizon, you mean like the chance that you would have something happen this year or within the next two years.
Speaker Change: How many things have you looked at how close would you come in the past whatever you can provide on that front and then a follow up after that.
Speaker Change: Now the things that are going on.
Speaker Change: And we're looking at.
Speaker Change: Got a couple of things that we're looking at at this point that are moving down a path.
Speaker Change: Uh huh.
Speaker Change: Whether they could happen this year early next year I think.
Speaker Change: It could be it could be something this year, if everything goes the way we plan.
Speaker Change: So there are opportunities that are coming forward to too.
Speaker Change: Two for us to be able to act on and execute on in.
Speaker Change: And I would say.
Speaker Change: The things that we're looking at we're not on the starting line, we're kind of past the starting line at this point. So there are things in play.
Speaker Change: The real the real interesting thing is is when you look at the overall strategy of the company. The strategy is to grow on the free cash side of the business right. So.
Speaker Change: And we have this strategy as we want we want to be $1 billion company, which.
Speaker Change: We're kind of halfway there so we've got to grow a whole lot to be able to get to your $1 billion company on the free cash side and the things that we're seeing right now are are like.
Speaker Change: 50 million topline 45, those kind of topline so similar to what we got with Geneva right. So there's a lot of those things that have to happen along with the with the organic growth that we're looking at that have to happen to get us there.
Speaker Change: The key for us is going to be creating some kind of masked going forward, where it's allowing us to look at a little bit bigger opportunities that might be things that are like $200 million of top line to be able to grow to that level at the appropriate cadence, but at a little bit.
Speaker Change: Quicker pace. So I think there's we're focused right now on the idea of we've got a couple in front of US. It look look pretty good but the other piece of it is is how do we create more mass.
Speaker Change: To be able to do some of these bigger ones that might be out there going forward and that's kind of the thing that we're wrestling with and looking at creating our updated strategy around for the growth in the free cash business if that makes any sense.
Speaker Change: It does.
Speaker Change: And then my last question.
Speaker Change: Just the way it kind of how I look at your business.
Speaker Change: Quick one like if you were to look at your SPT Cogs like what percentage of your Cogs was was consumed by steel purchases.
Speaker Change: It fits right now about 29% to 30%, it's pretty pretty similar to what it was last year.
Speaker Change: Yeah.
Speaker Change: Alright, that's it from me Hey, it was a great quarter.
Speaker Change: Like things are continuing to Hum congratulations.
Speaker Change: Great talking to you as always.
Speaker Change: Yeah.
Speaker Change: Thank you, ladies and gentlemen, as a reminder, its star one to join the question queue.
Speaker Change: Our next question comes from the line of John <unk> with D. A Davidson. Please proceed with your question.
John: Hi, good morning, and thank you.
Speaker Change: Good morning, guys.
Speaker Change: Good morning.
Speaker Change: Quick clarification, and then sorry, if I missed it but what are your assumptions for precast margins for the first quarter of 2025.
Speaker Change: Assumptions for pre cash margins for the first quarter of 2025.
Speaker Change: I think they're in line with I don't know I think they are in line with what the first quarter of 2024 was expected to be in a similar area.
Speaker Change: Yeah.
Speaker Change: Alright, Thank you and just.
Speaker Change: Looking at.
Speaker Change: STP.
Speaker Change: The backlogs.
Speaker Change: Taking all into account at all you said about your assumptions on steel price in the bid that can be being relatively high.
Speaker Change: In line with 2024.
Speaker Change: How does that just carry out your margins through the year and we see in.
Speaker Change: Levels.
Speaker Change: Higher than 2024 or in line with 2024.
Speaker Change: No I would say I mean.
We ended we ended.
Speaker Change: 2024, with the growth in our backlog up to a strong 310 million up from about 280 to 282 million in the previous quarter. So the backlog was growing I think what you are you seeing a margin level that as long as we have demand that we the way we see it right now thats going to stay relatively steady.
Speaker Change: To steady with some upward pressure on the margins as we go out through 2025, So I think you're coming into a period and we hope we're coming into a period where these.
Speaker Change: These.
Speaker Change: These demand levels that we're currently seeing and SPP are okay demand levels, but theyre not theyre not great theyre not great. Okay. As we get out into the next couple of years in front of US we think with the IHA a funding it's going to push those demand levels higher and once those demand levels start coming up.
Speaker Change: Up a little bit higher what youre going to do what you're going to see is you're going to see instances, we think where the steel pressure pipe margins youre, starting with the two instead of one so.
Speaker Change: I think we're kind of coming into that realm as long as the demand. It's the way we think it's going to hit.
Speaker Change: Yeah.
Speaker Change: Got it I appreciate that and.
Speaker Change: Looking at the residential side I mean, you talk you talked about.
Speaker Change: And that came in really being really strong.
Speaker Change: Can you talk about little bit of how you see the business developing.
Speaker Change: 2025.
Speaker Change: As a follow up.
Speaker Change: When do you expect for that.
Speaker Change: Nonresidential too.
Nick: Nick It's mark on the on the model here and then on the margins perspective.
Speaker Change: Okay.
Speaker Change: I'll start with the nonresidential side I think the nonresidential side starts to really show up probably.
Speaker Change: And the key the key to our business. That's mainly nonresidential park is really production level right and we think that those production levels are going to probably start raising once we get towards the end of the first quarter and in the second quarter, we think that we see the the the results of.
Speaker Change: Those those order increases really hit towards the end of the first quarter and then carry through the end of the year and improve those margins back to relatively normalized levels for the nonresidential business.
Speaker Change: What was the first question again.
Speaker Change: Yes.
Speaker Change: Yes, just kind of wanted to hear about.
Speaker Change: Just to sort of cadence.
Speaker Change: Work that you expected 2025, and I guess similarly, do you see it progress.
Speaker Change: And you know.
Speaker Change: And then tack on margins, possibly on the second half or are you seeing just normal steady levels through all four quarters.
Speaker Change: Well I think you've seen no you see seasonality, especially in the residential side of our business because the three plants are in Utah. So they tend to get a little bit of snow in Utah. So it makes the it makes the first quarter.
Speaker Change: Little bit lighter quarter, and then the second and third quarters are the big ones and then the fourth quarter start to fall off because of the ground starts to freeze and a lot of the contractors and construction activity starts to slow down, but like I said I mean, if you look at if you look at the Geneva business in 2024.
Speaker Change: I mean in Geneva was somewhere in the area of $83 million worth of revenue and like I said when we when we when we acquired them in 2020, they were about $41 million revenues. So it's double the size well we have a we have a plan we put the new exact 2500.
Speaker Change: Salt Lake City, Manhole, and RCP machine and we also have additional plans this year for investment projects in the Geneva facilities that is going to help continue to create some new product capabilities for us and it helps us to continue to build that top line we expect.
Speaker Change: And we have a plan in place to be on by the time, we get to the end of 2026 to be a $100 million run rate at the Geneva facilities of $100 million annual run rate at the Geneva facilities by the time, we get to the end of 2026.
Speaker Change: So that's going to increase absorption.
Speaker Change: And it's going to allow those margins that we get into the Geneva business to keep pressing up because of the Geneva margins.
In 2024 increased over where they were in 2023.
Speaker Change: So by about I think about it by about 100 basis points or so.
Speaker Change: It was the ones on the nonresidential side that pulled it down because of the demand on that piece of the business.
Speaker Change: Yeah.
Speaker Change: Got it I appreciate that color and just.
Speaker Change: Quick follow up here, you mentioned, the $100 million Geneva runway by Dana <unk> six.
Speaker Change: Could you, perhaps just talk about a little bit about.
Speaker Change: Mark and Steve can you.
Speaker Change: Just let us know do you have any sort of revenue outlooks for that in the next couple of years well. We have the same goal for park USA at the end of 2026 as we do Geneva.
Speaker Change: We'd like to we'd like to we'd like to see both of those facilities each on a $100 million run rate by the end of 2026.
Speaker Change: Okay I appreciate it thank you so much.
Speaker Change: No problem okay.
Speaker Change: Thank you that concludes our question and answer session I will turn the floor back to Mr. Montross for any final comments.
Speaker Change: Just a few things before we end.
Speaker Change: As we've talked about we faced some headwinds in 2020 for a tough nonresidential market, we had the effect.
Speaker Change: Of that market on revenue and profitability for 2024 as well as the issue that we had with the previous administrations application of AD hoc tariffs that affected revenue and profit for the fourth quarter and yet we were produced a fourth quarter that was pretty strong by historical standards and a full year that had records.
Speaker Change: Sales for SPP and free cash a record annual gross profit.
Speaker Change: Moving toward $100 million and resulting in net income and free cash flow both of $3 40, a share demonstrating the strength and quality of the earnings that we had.
Speaker Change: As we head into 2000 22025, we're facing.
Speaker Change: Different headwinds in 2025 really related to the tariffs but to be completely open.
Speaker Change: In my going on 13 years in this role I can't remember a time, we didn't face headwinds with this business I think the difference is is now we're very well positioned in geared to handle the word red the headwinds and we expect to be success successful with the conditions as we experienced them.
Speaker Change: As we go into 'twenty five we're going in with a very strong steel pressure pipe backlog of $310 million strong.
Speaker Change: <unk> in a bid year like we saw in 2024, we have a surging precast order booked its over $61 million.
Speaker Change: Expect a very very strong year.
Speaker Change: For this the pre cash business and a pretty consistent year for the SPP business.
Speaker Change: And we're going to continue to focus on safety.
Aaron Wilkins: Our employees improving margins growing both organically and through M&A and focusing on driving shareholder value as Aaron mentioned, we're anticipating putting in place a new share buyback program here in the next couple of months. So we're expecting a good 2025.
Aaron Wilkins: I just like to thank you all for your attendance here in your.
Aaron Wilkins: Your participation and attention to this and we look forward to talking to you again in a few months in the May timeframe. When would you do in the next earnings call. So so thanks very much we appreciate your attention.
Aaron Wilkins: Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.