UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended:
or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______to _______
Commission File Number:
NORTHWEST PIPE COMPANY
(Exact name of registrant as specified in its charter)
| | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices and Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.
| Large accelerated filer | ☐ | | ☒ |
| Non-accelerated filer | ☐ | Smaller reporting company | |
| Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes
The number of shares outstanding of the registrant’s common stock as of April 23, 2024 was
FORM 10‑Q
TABLE OF CONTENTS
Item1. Financial Statements
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
| Three Months Ended March 31, |
||||||||
| 2024 |
2023 |
|||||||
| Net sales |
$ | $ | ||||||
| Cost of sales |
||||||||
| Gross profit |
||||||||
| Selling, general, and administrative expense |
||||||||
| Operating income |
||||||||
| Other income (expense) |
( |
) | ||||||
| Interest expense |
( |
) | ( |
) | ||||
| Income before income taxes |
||||||||
| Income tax expense |
||||||||
| Net income |
$ | $ | ||||||
| Net income per share: |
||||||||
| Basic |
$ | $ | ||||||
| Diluted |
$ | $ | ||||||
| Shares used in per share calculations: |
||||||||
| Basic |
||||||||
| Diluted |
||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
| Three Months Ended March 31, |
||||||||
| 2024 |
2023 |
|||||||
| Net income |
$ | $ | ||||||
| Other comprehensive income (loss), net of tax: |
||||||||
| Pension liability adjustment |
||||||||
| Unrealized gain on foreign currency forward contracts designated as cash flow hedges |
||||||||
| Unrealized gain (loss) on interest rate swaps designated as cash flow hedges |
( |
) | ||||||
| Other comprehensive income (loss), net of tax |
( |
) | ||||||
| Comprehensive income |
$ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollar amounts in thousands, except per share amounts)
| March 31, 2024 | December 31, 2023 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Trade and other receivables, net of allowance of $ and $ | ||||||||
| Contract assets | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other | ||||||||
| Total current assets | ||||||||
| Property and equipment, less accumulated depreciation and amortization of $ and $ | ||||||||
| Operating lease right-of-use assets | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Current debt | $ | $ | ||||||
| Accounts payable | ||||||||
| Accrued liabilities | ||||||||
| Contract liabilities | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Total current liabilities | ||||||||
| Borrowings on line of credit | ||||||||
| Operating lease liabilities | ||||||||
| Deferred income taxes | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 7) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ par value, shares authorized, issued or outstanding | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in-capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(Dollar amounts in thousands)
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||
| Common Stock | Paid-In- | Retained | Comprehensive | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Loss | Equity | |||||||||||||||||||
| Balances, December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Net income | - | |||||||||||||||||||||||
| Other comprehensive income: | ||||||||||||||||||||||||
| Pension liability adjustment, net of tax expense of $ | - | |||||||||||||||||||||||
| Unrealized gain on foreign currency forward contracts designated as cash flow hedges, net of tax expense of $ | - | |||||||||||||||||||||||
| Unrealized gain on interest rate swaps designated as cash flow hedges, net of tax expense of $ | - | |||||||||||||||||||||||
| Issuance of common stock under stock compensation plans, net of tax withholdings | - | ( | ) | - | - | ( | ) | |||||||||||||||||
| Repurchase of common stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||||||
| Balances, March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||
| Common Stock | Paid-In- | Retained | Comprehensive | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Loss | Equity | |||||||||||||||||||
| Balances, December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Net income | - | |||||||||||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||
| Pension liability adjustment, net of tax expense of $ | - | |||||||||||||||||||||||
| Unrealized gain on foreign currency forward contracts designated as cash flow hedges, net of tax expense of $ | - | |||||||||||||||||||||||
| Unrealized loss on interest rate swap designated as cash flow hedge, net of tax benefit of $ | - | ( | ) | ( | ) | |||||||||||||||||||
| Issuance of common stock under stock compensation plans, net of tax withholdings | ( | ) | - | - | ( | ) | ||||||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||||||
| Balances, March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| Three Months Ended March 31, |
||||||||
| 2024 |
2023 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||||
| Depreciation and finance lease amortization |
||||||||
| Amortization of intangible assets |
||||||||
| Deferred income taxes |
( |
) | ||||||
| Share-based compensation expense |
||||||||
| Other, net |
||||||||
| Changes in operating assets and liabilities: |
||||||||
| Trade and other receivables |
( |
) | ||||||
| Contract assets, net |
( |
) | ||||||
| Inventories |
( |
) | ||||||
| Prepaid expenses and other assets |
||||||||
| Accounts payable |
( |
) | ( |
) | ||||
| Accrued and other liabilities |
( |
) | ( |
) | ||||
| Net cash provided by (used in) operating activities |
( |
) | ||||||
| Cash flows from investing activities: |
||||||||
| Purchases of property and equipment |
( |
) | ( |
) | ||||
| Other investing activities |
||||||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| Cash flows from financing activities: |
||||||||
| Borrowings on line of credit |
||||||||
| Repayments on line of credit |
( |
) | ( |
) | ||||
| Payments on finance lease obligations |
( |
) | ( |
) | ||||
| Tax withholdings related to net share settlements of equity awards |
( |
) | ( |
) | ||||
| Repurchase of common stock |
( |
) | ||||||
| Net cash provided by (used in) financing activities |
( |
) | ||||||
| Change in cash and cash equivalents |
||||||||
| Cash and cash equivalents, beginning of period |
||||||||
| Cash and cash equivalents, end of period |
$ | $ | ||||||
| Noncash investing and financing activities: |
||||||||
| Accrued property and equipment purchases |
$ | $ | ||||||
| Right-of-use assets obtained in exchange for operating lease liabilities |
||||||||
| Right-of-use assets obtained in exchange for finance lease liabilities |
||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| 1. | Organization and Basis of Presentation |
Northwest Pipe Company (collectively with its subsidiaries, the “Company”) is a leading manufacturer of water-related infrastructure products, and operates in
In addition to being the largest manufacturer of engineered steel water pipeline systems in North America, the Company manufactures stormwater and wastewater technology products; high-quality precast and reinforced concrete products; pump lift stations; steel casing pipe, bar-wrapped concrete cylinder pipe, and one of the largest offerings of pipeline system joints, fittings, and specialized components. Strategically positioned to meet growing water and wastewater infrastructure needs, the Company provides solution-based products for a wide range of markets under the ParkUSA, Geneva Pipe and Precast, Permalok®, and Northwest Pipe Company lines. The Company is headquartered in Vancouver, Washington, and has
The Condensed Consolidated Financial Statements are expressed in United States Dollars and include the accounts of the Company and its subsidiaries over which the Company exercises control as of the financial statement date. Intercompany accounts and transactions have been eliminated.
The accompanying unaudited interim Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. The financial information as of December 31, 2023 is derived from the audited Consolidated Financial Statements presented in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2023 (“2023 Form 10‑K”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission and the accounting standards for interim financial statements. In the opinion of management, the accompanying Condensed Consolidated Financial Statements include all adjustments necessary (which are of a normal and recurring nature) for the fair statement of the results of the interim periods presented. The Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto together with management’s discussion and analysis of financial condition and results of operations contained in the Company’s 2023 Form 10‑K.
Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 31, 2024.
| 2. | Inventories |
Inventories consist of the following (in thousands):
| March 31, 2024 | December 31, 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-process | ||||||||
| Finished goods | ||||||||
| Supplies | ||||||||
| Total inventories | $ | $ | ||||||
| 3. | Fair Value Measurements |
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date.
The authoritative guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. These levels are: Level 1 (inputs are quoted prices in active markets for identical assets or liabilities); Level 2 (inputs are other than quoted prices that are observable, either directly or indirectly through corroboration with observable market data); and Level 3 (inputs are unobservable, with little or no market data that exists, such as internal financial forecasts). The Company is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The following table summarizes information regarding the Company’s financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| As of March 31, 2024 | ||||||||||||||||
| Financial assets: | ||||||||||||||||
| Deferred compensation plan | $ | $ | $ | $ | ||||||||||||
| Foreign currency forward contracts | ||||||||||||||||
| Interest rate swaps | ||||||||||||||||
| Total financial assets | $ | $ | $ | $ | ||||||||||||
| As of December 31, 2023 | ||||||||||||||||
| Financial assets: | ||||||||||||||||
| Deferred compensation plan | $ | $ | $ | |||||||||||||
| Foreign currency forward contracts | ||||||||||||||||
| Interest rate swaps | ||||||||||||||||
| Total financial assets | $ | $ | $ | $ | ||||||||||||
| Financial liabilities: | ||||||||||||||||
| Foreign currency forward contracts | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
The deferred compensation plan assets consist of cash and several publicly traded stock and bond mutual funds, valued using quoted market prices in active markets, classified as Level 1 within the fair value hierarchy, as well as guaranteed investment contracts, valued at principal plus interest credited at contract rates, classified as Level 2 within the fair value hierarchy. Deferred compensation plan assets are included within Other assets in the Condensed Consolidated Balance Sheets.
The foreign currency forward contracts and interest rate swaps are derivatives valued using various pricing models or discounted cash flow analyses that incorporate observable market parameters, such as interest rate yield curves and currency rates, and are classified as Level 2 within the fair value hierarchy. Derivative valuations incorporate credit risk adjustments that are necessary to reflect the probability of default by the counterparty or the Company. The foreign currency forward contracts and interest rate swaps are presented at their gross fair values. Foreign currency forward contract and interest rate swap assets are included within Prepaid expenses and other and foreign currency forward contract liabilities are included within Accrued liabilities in the Condensed Consolidated Balance Sheets.
The net carrying amounts of cash and cash equivalents, trade and other receivables, accounts payable, accrued liabilities, and current debt approximate fair value due to the short-term nature of these instruments. The net carrying amount of the borrowings on the line of credit approximates fair value due to its variable interest rate based on market.
| 4. | Derivative Instruments and Hedging Activities |
In the normal course of business, the Company is exposed to interest rate and foreign currency exchange rate fluctuations. Consistent with the Company’s strategy for financial risk management, the Company has established a program that utilizes foreign currency forward contracts and interest rate swaps to offset the risks associated with the effects of these exposures.
For each derivative entered into in which the Company seeks to obtain cash flow hedge accounting treatment, the Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking the hedge transaction, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method of measuring ineffectiveness. This process includes linking all derivatives to specific firm commitments or forecasted transactions and designating the derivatives as cash flow hedges. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. The effective portion of these hedged items is reflected in Unrealized gain (loss) on cash flow hedges on the Condensed Consolidated Statements of Comprehensive Income. If it is determined that a derivative is not highly effective, or that it has ceased to be a highly effective hedge, the Company is required to discontinue hedge accounting with respect to that derivative prospectively.
As of March 31, 2024, the total notional amount of the foreign currency forward contracts was $
The Company has entered into interest rate swaps which effectively convert a portion of its variable-rate debt to fixed-rate debt, and are designated as cash flow hedges. For one cash flow hedge, the Company receives floating interest payments monthly based on Secured Overnight Finance Rate (“SOFR”) and pays a fixed rate of
The following table summarizes the gains (losses) recognized on derivatives in the Condensed Consolidated Financial Statements (in thousands):
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Foreign currency forward contracts: | ||||||||
| Net sales | $ | $ | ( | ) | ||||
| Property and equipment | ( | ) | ||||||
| Interest rate swaps: | ||||||||
| Interest expense | ||||||||
| Total | $ | $ | ( | ) | ||||
As of March 31, 2024, unrealized pretax gains (losses) on outstanding cash flow hedges in Accumulated other comprehensive loss was $
| 5. | Stockholders’ Equity |
Share Repurchase Program
On November 2, 2023, the Company announced its authorization of a share repurchase program of up to $
During the three months ended March 31, 2024, the Company repurchased approximately
| 6. | Share-based Compensation |
The Company has
The Company recognizes the compensation cost of employee and director services received in exchange for awards of equity instruments based on the grant date estimated fair value of the awards. The Company estimates the fair value of RSUs and PSAs using the value of the Company’s stock on the date of grant. Share-based compensation cost is recognized over the period during which the employee or director is required to provide service in exchange for the award and, as forfeitures occur, the associated compensation cost recognized to date is reversed. For awards with performance-based payout conditions, the Company recognizes compensation cost based on the probability of achieving the performance conditions, with changes in expectations recognized as an adjustment to earnings in the period of change. Any recognized compensation cost is reversed if the conditions are ultimately not met.
The following table summarizes share-based compensation expense recorded (in thousands):
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cost of sales | $ | $ | ||||||
| Selling, general, and administrative expense | ||||||||
| Total | $ | $ | ||||||
Restricted Stock Units and Performance Share Awards
The Company’s stock incentive plan provides for equity instruments, such as RSUs and PSAs, which grant the right to receive a specified number of shares at specified times. RSUs and PSAs are service-based awards that vest according to the terms of the grant. PSAs have performance-based payout conditions.
The following table summarizes the Company’s RSU and PSA activity:
| Number of RSUs and PSAs (1) | Weighted-Average Grant Date Fair Value | |||||||
| Unvested RSUs and PSAs as of December 31, 2023 | $ | |||||||
| RSUs and PSAs granted | ||||||||
| RSUs vested | ( | ) | ||||||
| Unvested RSUs and PSAs as of March 31, 2024 | ||||||||
| (1) | The number of PSAs disclosed in this table are at the target level of |
The unvested balance of RSUs and PSAs as of March 31, 2024 includes approximately
Based on the estimated level of achievement of the performance targets associated with the PSAs as of March 31, 2024, unrecognized compensation expense related to the unvested portion of the Company’s RSUs and PSAs was $
| 7. | Commitments and Contingencies |
Portland Harbor Superfund Site
In 2000, a section of the lower Willamette River known as the Portland Harbor Superfund Site was included on the National Priorities List at the request of the United States Environmental Protection Agency (“EPA”). While the Company’s Portland, Oregon manufacturing facility does not border the Willamette River, an outfall from the facility’s stormwater system drains into a neighboring property’s privately owned stormwater system and slip. Also in 2000, the Company was notified by the EPA and the Oregon Department of Environmental Quality (“ODEQ”) of potential liability under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). A remedial investigation and feasibility study of the Portland Harbor Superfund Site was directed by a group of
The ODEQ is separately providing oversight of voluntary investigations and source control activities by the Company involving the Company’s site, which are focused on controlling any current “uplands” releases of contaminants into the Willamette River. No liabilities have been established in connection with these investigations because the extent of contamination and the Company’s responsibility for the contamination have not yet been determined.
Concurrent with the activities of the EPA and the ODEQ, the Portland Harbor Natural Resources Trustee Council (“Trustees”) sent some or all of the same parties, including the Company, a notice of intent to perform a Natural Resource Damage Assessment (“NRDA”) for the Portland Harbor Superfund Site to determine the nature and extent of natural resource damages under CERCLA Section 107. The Trustees for the Portland Harbor Superfund Site consist of representatives from several Northwest Indian Tribes, three federal agencies, and one state agency. The Trustees act independently of the EPA and the ODEQ. The Trustees have encouraged potentially responsible parties to voluntarily participate in the funding of their injury assessments and several of those parties have agreed to do so. In 2014, the Company agreed to participate in the injury assessment process, which included funding $
In 2017, the Confederated Tribes and Bands of the Yakama Nation, a Trustee until they withdrew from the council in 2009, filed a complaint against the potentially responsible parties including the Company to recover costs related to their own injury assessment and compensation for natural resources damages. The case has been stayed until 2025, and the Company does not have sufficient information at this time to determine the likelihood of a loss in this matter or the amount of damages that could be allocated to the Company.
The Company has insurance policies for defense costs, as well as indemnification policies it believes will provide reimbursement for the remediation assessed. However, the Company can provide no assurance that those policies will cover all of the costs which the Company may incur.
All Sites
The Company operates its facilities under numerous governmental permits and licenses relating to air emissions, stormwater runoff, and other environmental matters. The Company’s operations are also governed by many other laws and regulations, including those relating to workplace safety and worker health, principally the Occupational Safety and Health Act and regulations thereunder which, among other requirements, establish noise and dust standards. The Company believes it is in material compliance with its permits and licenses and these laws and regulations, and the Company does not believe that future compliance with such laws and regulations will have a material adverse effect on its financial position, results of operations, or cash flows.
Other Contingencies and Legal Proceedings
From time to time, the Company is party to a variety of legal actions, including claims, suits, complaints, and investigations arising out of the ordinary course of its business. The Company maintains insurance coverage against potential claims in amounts that are believed to be adequate. To the extent that insurance does not cover legal, defense, and indemnification costs associated with a loss contingency, the Company records accruals when such losses are considered probable and reasonably estimable. The Company believes that it is not presently a party to legal actions, the outcomes of which would have a material adverse effect on its business, financial condition, results of operations, or cash flows.
Commitments
As of March 31, 2024, the Company’s commitments include approximately $
Guarantees
The Company has entered into certain letters of credit that total $
| 8. | Revenue |
The Company manufactures water infrastructure steel pipe products, which are generally made to custom specifications for installation contractors serving projects funded by public water agencies, as well as precast and reinforced concrete products. Generally, each of the Company’s contracts with its customers contains a single performance obligation, as the promise to transfer products is not separately identifiable from other promises in the contract and, therefore, is not distinct. The Company generally does not recognize revenue on a contract until the contract has approval and commitment from both parties, the contract rights and payment terms can be identified, the contract has commercial substance, and its collectability is probable.
SPP revenue for water infrastructure steel pipe products is recognized over time as the manufacturing process progresses because of the Company’s right to payment for work performed to date plus a reasonable profit on cancellations for unique products that have no alternative use to the Company. Revenue is measured by the costs incurred to date relative to the estimated total direct costs to fulfill each contract (cost-to-cost method). Contract costs include all material, labor, and other direct costs incurred in satisfying the performance obligations. The cost of steel material is recognized as a contract cost when the steel is introduced into the manufacturing process. Changes in job performance, job conditions, and estimated profitability, including those arising from contract change orders, contract penalty provisions, foreign currency exchange rate movements, changes in raw materials costs, and final contract settlements may result in revisions to estimates of revenue, costs, and income, and are recognized in the period in which the revisions are determined. Provisions for losses on uncompleted contracts, included in Accrued liabilities, are estimated by comparing total estimated contract revenue to the total estimated contract costs and a loss is recognized during the period in which it becomes probable and can be reasonably estimated.
Net revisions in contract estimates resulted in an increase in SPP net sales of $
Precast revenue for water infrastructure concrete pipe and precast concrete products is recognized at the time control is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for the products. All variable consideration that may affect the total transaction price, including contractual discounts, returns, and credits, is included in net sales. Estimates for variable consideration are based on historical experience, anticipated performance, and management’s judgment. The Company’s contracts do not contain significant financing.
Disaggregation of Revenue
The following table disaggregates revenue by recognition over time or at a point in time, as the Company believes it best depicts how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors (in thousands):
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Over time | $ | $ | ||||||
| Point in time | ||||||||
| Net sales | $ | $ | ||||||
Contract Assets and Contract Liabilities
Contract assets primarily represent revenue earned over time but not yet billable based on the terms of the contracts. These amounts will be billed based on the terms of the contracts, which can include certain milestones, partial shipments, or completion of the contracts. Payment terms of amounts billed vary based on the customer, but are typically due within 30 days of invoicing. Contract liabilities represent advance billings on contracts, typically for steel.
The difference between the opening and closing balances of the Company’s contract assets and contract liabilities primarily results from the timing difference between the Company’s performance and billings.
The following is a summary of the changes in contract assets (in thousands):
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Balance, beginning of period | $ | $ | ||||||
| Revenue recognized in advance of billings | ||||||||
| Billings | ( | ) | ( | ) | ||||
| Other | ( | ) | ( | ) | ||||
| Balance, end of period | $ | $ | ||||||
The following is a summary of the changes in contract liabilities (in thousands):
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Balance, beginning of period | $ | $ | ||||||
| Billings | ||||||||
| Revenue recognized | ( | ) | ( | ) | ||||
| Other | ||||||||
| Balance, end of period | $ | $ | ||||||
Backlog
Backlog represents the balance of remaining performance obligations under signed contracts for SPP water infrastructure steel pipe products for which revenue is recognized over time. As of March 31, 2024, backlog was $
| 9. | Income Taxes |
The Company files income tax returns in the United States Federal jurisdiction, in a limited number of foreign jurisdictions, and in many state jurisdictions. With few exceptions, the Company is no longer subject to United States Federal, state, or foreign income tax examinations for years before
The Company recorded income tax expense at an estimated effective income tax rate of
| 10. | Accumulated Other Comprehensive Loss |
The following tables summarize changes in the components of Accumulated other comprehensive loss (in thousands). All amounts are net of income tax:
| Pension Liability Adjustment | Unrealized Loss on Foreign Currency Forward Contracts Designated as Cash Flow Hedges | Unrealized Gain on Interest Rate Swaps Designated as Cash Flow Hedges | Total | |||||||||||||
| Balances, December 31, 2023 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Other comprehensive income before reclassifications | ||||||||||||||||
| Amounts reclassified from Accumulated other comprehensive loss | ( | ) | ( | ) | ||||||||||||
| Net current period other comprehensive income | ||||||||||||||||
| Balances, March 31, 2024 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Pension Liability Adjustment | Unrealized Gain on Foreign Currency Forward Contracts Designated as Cash Flow Hedges | Unrealized Gain on Interest Rate Swaps Designated as Cash Flow Hedges | Total | |||||||||||||
| Balances, December 31, 2022 | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||
| Other comprehensive income (loss) before reclassifications | ( | ) | ( | ) | ( | ) | ||||||||||
| Amounts reclassified from Accumulated other comprehensive loss | ( | ) | ( | ) | ||||||||||||
| Net current period other comprehensive income (loss) | ( | ) | ( | ) | ||||||||||||
| Balances, March 31, 2023 | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||
The following table provides additional detail about Accumulated other comprehensive loss components that were reclassified to the Condensed Consolidated Statements of Operations (in thousands):
| Amount reclassified from Accumulated Other Comprehensive Loss | Affected line item in the Condensed Consolidated | |||||||||
| Details about Accumulated Other | Three Months Ended March 31, | Statements | ||||||||
| Comprehensive Loss Components | 2024 | 2023 | of Operations | |||||||
| Pension liability adjustment: | ||||||||||
| Net periodic pension cost: | ||||||||||
| Service cost | $ | ( | ) | $ | ( | ) | Cost of sales | |||
| ( | ) | ( | ) | Net of tax | ||||||
| Unrealized gain (loss) on foreign currency forward contracts: | ||||||||||
| Gain (loss) on cash flow hedges | ( | ) | Net sales | |||||||
| Loss on cash flow hedges | ( | ) | Property and equipment | |||||||
| Associated income tax benefit | Income tax expense | |||||||||
| ( | ) | ( | ) | Net of tax | ||||||
| Unrealized gain on interest rate swaps: | ||||||||||
| Gain on cash flow hedges | Interest expense | |||||||||
| Associated income tax expense | ( | ) | ( | ) | Income tax expense | |||||
| Net of tax | ||||||||||
| Total reclassifications for the period | $ | $ | ||||||||
| 11. | Net Income per Share |
Basic net income per share is computed by dividing the net income by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share is computed by giving effect to all dilutive potential shares of common stock, including RSUs and PSAs, assumed to be outstanding during the period using the treasury stock method. Performance-based PSAs are considered dilutive when the related performance conditions have been met assuming the end of the reporting period represents the end of the performance period. In periods with a net loss, all potential shares of common stock are excluded from the computation of diluted net loss per share as the impact would be antidilutive.
Net income per basic and diluted weighted-average common share outstanding was calculated as follows (in thousands, except per share amounts):
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Net income | $ | $ | ||||||
| Basic weighted-average common shares outstanding | ||||||||
| Effect of potentially dilutive common shares (1) | ||||||||
| Diluted weighted-average common shares outstanding | ||||||||
| Net income per common share: | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
| (1) | The weighted-average number of antidilutive shares not included in the computation of diluted net income per share was approximately |
| 12. | Segment Information |
The operating segments reported below are based on the nature of the products sold and the manufacturing process used by the Company and are the segments of the Company for which separate financial information is available and for which operating results are regularly evaluated by the Company’s chief operating decision maker, its Chief Executive Officer, to make decisions about resources to be allocated to the segment and assess its performance. Management evaluates segment performance based on gross profit. The Company does not allocate selling, general, and administrative expenses, interest, other non-operating income or expense items, or taxes to segments.
The Company’s Engineered Steel Pressure Pipe (SPP) segment manufactures large-diameter, high-pressure steel pipeline systems for use in water infrastructure applications, which are primarily related to drinking water systems. These products are also used for hydroelectric power systems, wastewater systems, seismic resiliency, and other applications. In addition, SPP makes products for industrial plant piping systems and certain structural applications. SPP has manufacturing facilities located in Portland, Oregon; Adelanto and Tracy, California; Parkersburg, West Virginia; Saginaw, Texas; St. Louis, Missouri; and San Luis Río Colorado, Mexico.
The Company’s Precast Infrastructure and Engineered Systems (Precast) segment manufactures stormwater and wastewater technology products, high-quality precast and reinforced concrete products, including reinforced concrete pipe, manholes, box culverts, vaults, and catch basins, pump lift stations, oil water separators, biofiltration units, and other environmental and engineered solutions. Precast has manufacturing facilities located in Dallas, Houston, and San Antonio, Texas; and Orem, Salt Lake City, and St. George, Utah.
The following table disaggregates revenue and gross profit based on the Company’s reportable segments (in thousands):
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Net sales: | ||||||||
| Engineered Steel Pressure Pipe | $ | $ | ||||||
| Precast Infrastructure and Engineered Systems | ||||||||
| Total net sales | $ | $ | ||||||
| Gross profit: | ||||||||
| Engineered Steel Pressure Pipe | $ | $ | ||||||
| Precast Infrastructure and Engineered Systems | ||||||||
| Total gross profit | $ | $ | ||||||
| 13. | Recent Accounting and Reporting Developments |
There have been no developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company’s Condensed Consolidated Financial Statements and disclosures in Notes to Condensed Consolidated Financial Statements, from those disclosed in the Company’s 2023 Form 10‑K, except for the following.
Accounting Changes
In March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023‑01 “Leases (Topic 842): Common Control Arrangements” (“ASU 2023‑01”) which requires leasehold improvements associated with common control leases be (1) amortized by the lessee over the useful life of the leasehold improvements to the common control group as long as the lessee controls the use of the underlying asset through a lease and (2) accounted for as a transfer between entities under common control through an adjustment to equity if, and when, the lessee no longer controls the use of the underlying asset. The Company adopted ASU 2023‑01 on January 1, 2024 and the impact was not material to its financial position, results of operations, or cash flows.
Recent Accounting Standards
In November 2023, the FASB issued ASU No. 2023‑07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023‑07”) which requires disclosure of incremental segment information, primarily through enhanced disclosures about significant segment expenses, on an annual and interim basis for all public entities. ASU 2023‑07 will be applied retrospectively, and will be effective for the Company’s 2024 annual reporting, and for interim periods beginning in 2025, with early adoption permitted. The Company does not expect a material impact to its financial position, results of operations, or cash flows from adoption of this guidance.
In December 2023, the FASB issued ASU No. 2023‑09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023‑09”) which improves the transparency, effectiveness, and comparability of income tax disclosures and allows investors to better assess, in their capital allocation decisions, how an entity’s worldwide operations and related tax risks and tax planning and operation opportunities affect its income tax rate and prospects for future cash flows. ASU 2023‑09 will be applied prospectively, and will be effective for the Company’s 2025 annual reporting, with early adoption permitted. The Company is currently assessing the impact of ASU 2023‑09 on its disclosures in the notes to the consolidated financial statements.
Item2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Quarterly Report on Form 10‑Q for the quarter ended March 31, 2024 (“2024 Q1 Form 10‑Q”) contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on current expectations, estimates, and projections about our business, management’s beliefs, and assumptions made by management. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “forecasts,” “should,” “could,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements as a result of a variety of important factors. While it is impossible to identify all such factors, those that could cause actual results to differ materially from those estimated by us include:
| • |
changes in demand and market prices for our products; |
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product mix; |
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bidding activity and order modifications or cancelations; |
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timing of customer orders and deliveries; |
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production schedules; |
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price and availability of raw materials; |
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excess or shortage of production capacity; |
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international trade policy and regulations; |
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changes in tariffs and duties imposed on imports and exports and related impacts on us; |
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economic uncertainty and associated trends in macroeconomic conditions, including potential recession, inflation, and the state of the housing market; |
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interest rate risk and changes in market interest rates, including the impact on our customers and related demand for our products; |
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our ability to identify and complete internal initiatives and/or acquisitions in order to grow our business; |
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our ability to effectively integrate future acquisitions into our business and operations and achieve significant administrative and operational cost synergies and accretion to financial results; |
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effects of security breaches, computer viruses, and cybersecurity incidents; |
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| • | timing and amount of share repurchases; | |
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impacts of U.S. tax reform legislation on our results of operations; |
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adequacy of our insurance coverage; |
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supply chain challenges; |
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labor shortages; |
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ongoing military conflicts in areas such as Ukraine and Israel, and related consequences; |
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operating problems at our manufacturing operations including fires, explosions, inclement weather, and floods and other natural disasters; |
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material weaknesses in our internal control over financial reporting and our ability to remediate such weaknesses; |
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impacts of pandemics, epidemics, or other public health emergencies; and |
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other risks discussed in Part I — Item 1A. “Risk Factors” of our Annual Report on Form 10‑K for the year ended December 31, 2023 (“2023 Form 10‑K”) and from time to time in our other Securities and Exchange Commission (the “SEC”) filings and reports. |
Such forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this 2024 Q1 Form 10‑Q. If we do update or correct one or more forward-looking statements, investors and others should not conclude that we will make additional updates or corrections with respect thereto or with respect to other forward-looking statements.
Overview
Northwest Pipe Company is a leading manufacturer of water-related infrastructure products, and operates in two segments, Engineered Steel Pressure Pipe (“SPP”) and Precast Infrastructure and Engineered Systems (“Precast”). For detailed descriptions of these segments, see Note 12, “Segment Information” of the Notes to Condensed Consolidated Financial Statements in Part I – Item 1. “Financial Statements” of this 2024 Q1 Form 10‑Q.
In addition to being the largest manufacturer of engineered steel water pipeline systems in North America, we manufacture stormwater and wastewater technology products; high-quality precast and reinforced concrete products; pump lift stations; steel casing pipe, bar-wrapped concrete cylinder pipe, and one of the largest offerings of pipeline system joints, fittings, and specialized components. Strategically positioned to meet growing water and wastewater infrastructure needs, we provide solution-based products for a wide range of markets under the ParkUSA, Geneva Pipe and Precast, Permalok®, and Northwest Pipe Company lines. Our diverse team is committed to safety, quality, and innovation while demonstrating our core values of accountability, commitment, and teamwork. We are headquartered in Vancouver, Washington, and have 13 manufacturing facilities across North America.
Our water infrastructure products are sold generally to installation contractors, who include our products in their bids to federal, state, and municipal agencies, privately-owned water companies, or developers for specific projects. We believe our sales are substantially driven by spending on urban growth and new water infrastructure with a recent trend towards spending on water infrastructure replacement, repair, and upgrade. Within the total range of products, our steel pipe best addresses the larger-diameter, higher-pressure pipeline applications, while our precast concrete products mainly serve stormwater and sanitary sewer systems.
Our Current Economic Environment
Demand for our Precast products is generally influenced by general economic conditions such as housing starts, population growth, interest rates, and rates of inflation. According to the United States Census Bureau, privately-owned housing starts were at a seasonally adjusted annual rate of 1.3 million in March 2024 and 1.5 million in December 2023, and the population of the United States is expected to increase by approximately 2 million people in 2024. While these two indicators point to a strong housing market, particularly in Texas and Utah which are two of the five fastest growing markets in the United States according to the November 2022 Bluefield Research Insight Report – U.S. & Canada Municipal Water Outlook: Utility CAPEX & OPEX Forecasts, 2022-2030 and the states in which our Precast manufacturing facilities are located, the current elevated federal funds rate could continue to temper demand for our precast products.
Our SPP projects are often planned for many years in advance, as we operate that business with a long-term time horizon for which the projects are sometimes part of 50 year build-out plans. Even though we experienced a relatively modest level of project bidding in 2023, our backlog for SPP has remained elevated, and long-term demand for water infrastructure projects in the United States appears strong. Additionally, while our SPP business faces possible head winds from recessionary concerns in the broader domestic economy, we currently believe it more likely a modest increase in funding will be brought on by the Bipartisan Infrastructure Deal (“IIJA”) and the Inflation Reduction Act. According to the February 2024 Bluefield Research Insight Report – Infrastructure Investment & Jobs Act: Tracking the Spending, Q1 2024, approximately $1 billion earmarked under the IIJA has currently been outlaid by the Federal Government to date, leaving most of the $55 billion spending package still to be appropriated; we expect to benefit from this spending late in the cycle due to the long project timelines.
Purchased steel typically represents approximately 35% of cost of sales, and higher steel costs generally result in higher selling prices and revenue; however, volatile fluctuations in steel markets can affect our business. SPP contracts are generally quoted on a fixed-price basis, and volatile steel markets can result in selling prices that no longer correlate to the cost available at the time of steel purchase. Our average price of purchased steel was $997 per ton in the first three months of 2024, as compared to annual averages of $994 per ton in 2023 and $1,174 per ton in 2022.
Economic uncertainty, including the impacts of raw material shortages, inflationary pressures, potential risks of a recession, and disruptions in the financial markets could have an adverse effect on our business. The extent of the impact of these broader economic forces on our business will depend on future developments, which cannot be predicted.
Results of Operations
The following table sets forth, for the periods indicated, certain financial information regarding costs and expenses expressed in dollars (in thousands) and as a percentage of total net sales.
| Three Months Ended |
Three Months Ended |
|||||||||||||||
| March 31, 2024 | March 31, 2023 | |||||||||||||||
| $ |
% of Net Sales |
$ |
% of Net Sales |
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| Net sales: |
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| Engineered Steel Pressure Pipe |
$ | 80,007 | 70.7 | % | $ | 63,546 | 64.1 | % | ||||||||
| Precast Infrastructure and Engineered Systems |
33,208 | 29.3 | 35,551 | 35.9 | ||||||||||||
| Total net sales |
113,215 | 100.0 | 99,097 | 100.0 | ||||||||||||
| Cost of sales: |
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| Engineered Steel Pressure Pipe |
65,765 | 58.1 | 55,764 | 56.3 | ||||||||||||
| Precast Infrastructure and Engineered Systems |
27,316 | 24.1 | 26,756 | 27.0 | ||||||||||||
| Total cost of sales |
93,081 | 82.2 | 82,520 | 83.3 | ||||||||||||
| Gross profit: |
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| Engineered Steel Pressure Pipe |
14,242 | 12.6 | 7,782 | 7.8 | ||||||||||||
| Precast Infrastructure and Engineered Systems |
5,892 | 5.2 | 8,795 | 8.9 | ||||||||||||
| Total gross profit |
20,134 | 17.8 | 16,577 | 16.7 | ||||||||||||
| Selling, general, and administrative expense |
11,444 | 10.1 | 11,866 | 11.9 | ||||||||||||
| Operating income |
8,690 | 7.7 | 4,711 | 4.8 | ||||||||||||
| Other income (expense) |
7 | - | (29 | ) | - | |||||||||||
| Interest expense |
(1,474 | ) | (1.3 | ) | (1,369 | ) | (1.5 | ) | ||||||||
| Income before income taxes |
7,223 | 6.4 | 3,313 | 3.3 | ||||||||||||
| Income tax expense |
1,985 | 1.8 | 951 | 0.9 | ||||||||||||
| Net income |
$ | 5,238 | 4.6 | % | $ | 2,362 | 2.4 | % | ||||||||
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023
Net sales. Net sales increased 14.2% to $113.2 million in the first quarter of 2024 compared to $99.1 million in the first quarter of 2023.
SPP net sales increased 25.9% to $80.0 million in the first quarter of 2024 compared to $63.5 million in the first quarter of 2023 driven by a 54% increase in tons produced resulting primarily from changes in project timing, partially offset by an 18% decrease in selling price per ton primarily due to product mix. Bidding activity, backlog, and production levels may vary significantly from period to period affecting sales volumes.
Precast net sales decreased 6.6% to $33.2 million in the first quarter of 2024 compared to $35.6 million in the first quarter of 2023, despite a 23% increase in volume shipped, due to a 24% decrease in selling prices driven by changes in product mix.
Gross profit. Gross profit increased 21.5% to $20.1 million (17.8% of net sales) in the first quarter of 2024 compared to $16.6 million (16.7% of net sales) in the first quarter of 2023.
SPP gross profit increased 83.0% to $14.2 million (17.8% of SPP net sales) in the first quarter of 2024 compared to $7.8 million (12.2% of SPP net sales) in the first quarter of 2023 primarily due to increased volume and changes in product mix.
Precast gross profit decreased 33.0% to $5.9 million (17.7% of Precast net sales) in the first quarter of 2024 compared to $8.8 million (24.7% of Precast net sales) in the first quarter of 2023 primarily due to changes in product mix.
Selling, general, and administrative expense. Selling, general, and administrative expense decreased 3.6% to $11.4 million (10.1% of net sales) in the first quarter of 2024 compared to $11.9 million (11.9% of net sales) in the first quarter of 2023 primarily due to $0.5 million in lower incentive compensation expense.
Income taxes. Income tax expense was $2.0 million in the first quarter of 2024 (an effective income tax rate of 27.5%) compared to $1.0 million in the first quarter of 2023 (an effective income tax rate of 28.7%). The estimated effective income tax rates for the first quarter of 2024 of 2023 were primarily impacted by non-deductible permanent differences. The estimated effective income tax rate can change significantly depending on the relationship of permanent income tax differences to estimated pre-tax income or loss. Accordingly, the comparison of estimated effective income tax rates between periods is not meaningful in all situations.
Liquidity and Capital Resources
Sources and Uses of Cash
Our principal sources of liquidity generally include operating cash flows and the Credit Agreement dated June 30, 2021 with Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent, and the lenders from time to time party thereto, including the initial sole lender, Wells Fargo (the “Lenders”), as amended by the Incremental Amendment dated October 22, 2021, the Second Amendment to Credit Agreement dated April 29, 2022, and the Third Amendment to Credit Agreement dated June 29, 2023 (together, the “Amended Credit Agreement”). From time to time our long-term capital needs may be met through the issuance of additional debt or equity. Our principal uses of liquidity generally include capital expenditures, working capital, organic growth initiatives, acquisitions, share repurchases, and debt service. Information regarding our cash flows for the three months ended March 31, 2024 are presented in our Condensed Consolidated Statements of Cash Flows contained in Part I – Item 1. “Financial Statements” of this 2024 Q1 Form 10‑Q, and are further discussed below.
As of March 31, 2024, our working capital (current assets minus current liabilities) was $213.4 million compared to $176.3 million as of December 31, 2023. Cash and cash equivalents totaled $4.3 million and $4.1 million as of March 31, 2024 and December 31, 2023, respectively.
Fluctuations in SPP working capital accounts result from timing differences between production, shipment, invoicing, and collection, as well as changes in levels of production and costs of materials. We typically have a relatively large investment in working capital, as we generally pay for materials, labor, and other production costs in the initial stages of a project, while payments from our customers are generally received after finished product is delivered. A portion of our revenues are recognized over time as the manufacturing process progresses; therefore, cash receipts typically occur subsequent to when revenue is recognized and the elapsed time between when revenue is recorded and when cash is received can be significant. As such, our payment cycle is a significantly shorter interval than our collection cycle, although the effect of this difference in the cycles may vary by project, and from period to period.
As of March 31, 2024, we had $89.9 million of outstanding revolving loan borrowings, $10.8 million of outstanding current debt, $89.3 million of operating lease liabilities, and $7.3 million of finance lease liabilities. As of December 31, 2023, we had $54.5 million of outstanding revolving loan borrowings, $10.8 million of outstanding current debt, $90.2 million of operating lease liabilities, and $7.5 million of finance lease liabilities. The increase in our revolving loan borrowings was primarily due to increased production and temporary changes in SPP working capital needs.
Net Cash Provided by (Used in) Operating Activities
Net cash provided by (used in) operating activities was ($26.1) million in the first three months of 2024 compared to $26.3 million in the first three months of 2023. Net income, adjusted for non-cash items, provided $10.8 million of operating cash flow in the first three months of 2024 compared to $8.3 million of operating cash flow in the first three months of 2023. The net change in working capital provided (used) ($36.8) million of operating cash flow in the first three months of 2024 compared to $18.0 million of operating cash flow in the first three months of 2023.
Net Cash Used in Investing Activities
Net cash used in investing activities was $4.5 million in the first three months of 2024 compared to $4.4 million in the first three months of 2023. Capital expenditures were $4.6 million in the first three months of 2024 compared to $4.4 million in the first three months of 2023, which includes $0.5 million in the first three months of 2024 and $1.9 million in the first three months of 2023 of investment in our new reinforced concrete pipe mill, $0.5 million in the first three months of 2024 for the construction of a building at our Salt Lake City, Utah facility for the new mill, and the remainder primarily for standard capital replacement. We currently expect capital expenditures in 2024 to be approximately $19 million to $22 million, which includes approximately $2 million of investment in our new reinforced concrete pipe mill, and associated ancillary equipment, approximately $5 million for the construction of a building at our Salt Lake City, Utah facility for the new mill, and the remainder primarily for standard capital replacement.
Net Cash Provided by (Used in) Financing Activities
Net cash provided by (used in) financing activities was $30.8 million in the first three months of 2024 compared to ($21.6) million in the first three months of 2023. Net borrowings (repayments) on the line of credit were $35.4 million in the first three months of 2024 compared to ($21.1) million in the first three months of 2023. Repurchases of common stock were $3.9 million in the first three months of 2024.
We anticipate that our existing cash and cash equivalents, cash flows expected to be generated by operations, and additional borrowing capacity under the Amended Credit Agreement and other loans will be adequate to fund our working capital, debt service, capital expenditure requirements, and share repurchases for the foreseeable future. To the extent necessary, we may also satisfy capital requirements through additional bank borrowings, senior notes, term notes, subordinated debt, and finance and operating leases, if such resources are available on satisfactory terms. We have from time to time evaluated and continue to evaluate opportunities for acquisitions and expansion. Any such transactions, if consummated, may necessitate additional bank borrowings or other sources of funding.
On December 4, 2023, our shelf registration statement on Form S‑3 (Registration No. 333‑275691) covering the potential future sale of up to $150 million of our equity and/or debt securities or combinations thereof, was declared effective by the SEC. This shelf registration statement, which replaced the registration statement on Form S‑3 that expired on November 3, 2023, provides another potential source of capital, in addition to other alternatives already in place. We cannot be certain that funding will be available on favorable terms or available at all. To the extent that we raise additional funds by issuing equity securities, our shareholders may experience significant dilution. As of the date of this 2024 Q1 Form 10‑Q, we have not yet sold any securities under this registration statement, nor do we have an obligation to do so. Please refer to the factors discussed in Part I – Item 1A. “Risk Factors” in our 2023 Form 10‑K.
On November 2, 2023, we announced our authorization of a share repurchase program of up to $30 million of our outstanding common stock. The program does not commit to any particular timing or quantity of purchases, and the program may be suspended or discontinued at any time. Under the program, shares may be purchased in open market, including through plans adopted pursuant to Rule 10b5‑1 of the Exchange Act, or in privately negotiated transactions administered by our broker, D.A. Davidson Companies. At this time, we have elected to limit our share repurchase transactions to only those under the Rule 10b5‑1 trading plan we executed in November 2023, which we believe considers our liquidity, including availability of borrowings and covenant compliance under our Amended Credit Agreement, and other capital allocation priorities of the business. Our Rule 10b5‑1 trading plan designates up to $10 million for daily share repurchases with volumes that fluctuate with changes in the trading price of our common stock. We expect to consider share repurchase strategies beyond the current Rule 10b5‑1 trading plan at a future date. For a summary of shares repurchased during the first quarter of 2024, see Part II — Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds” of this 2024 Q1 Form 10‑Q. Please refer to the factors discussed in Part I – Item 1A. “Risk Factors” in our 2023 Form 10‑K.
Credit Agreement
The Amended Credit Agreement provides for a revolving loan, swingline loan, and letters of credit in the aggregate amount of up to $125 million (“Revolver Commitment”), with an option for us to increase that amount by $50 million, subject to provisions of the Amended Credit Agreement. The Amended Credit Agreement will expire, and all obligations outstanding will mature, on June 29, 2028. We may prepay outstanding amounts at our discretion without penalty at any time, subject to applicable notice requirements. As of March 31, 2024 under the Amended Credit Agreement, we had $89.9 million of outstanding revolving loan borrowings, $1.1 million of outstanding letters of credit, and additional borrowing capacity of approximately $34 million.
Revolving loans under the Amended Credit Agreement bear interest at rates related to, at our option and subject to the provisions of the Amended Credit Agreement, either: (i) Base Rate (as defined in the Amended Credit Agreement) plus the Applicable Margin; (ii) Adjusted Term Secured Overnight Finance Rate (“SOFR”) (as defined in the Amended Credit Agreement) plus the Applicable Margin; or (iii) Adjusted Daily Simple SOFR (as defined in the Amended Credit Agreement) plus the Applicable Margin. The “Applicable Margin” is 1.75% to 2.35%, depending on our Consolidated Senior Leverage Ratio (as defined in the Amended Credit Agreement) and the interest rate option chosen. Interest on outstanding revolving loans is payable monthly. Swingline loans under the Amended Credit Agreement bear interest at the Base Rate plus the Applicable Margin. As of March 31, 2024, the weighted-average interest rate for outstanding borrowings was 7.41%. The Amended Credit Agreement requires the payment of a commitment fee of between 0.30% and 0.40%, based on the amount by which the Revolver Commitment exceeds the average daily balance of outstanding borrowings (as defined in the Amended Credit Agreement). Such fee is payable monthly in arrears. We are also obligated to pay additional fees customary for credit facilities of this size and type.
The letters of credit outstanding as of March 31, 2024 relate to workers’ compensation insurance. Based on the nature of these arrangements and our historical experience, we do not expect to make any material payments under these arrangements.
The Amended Credit Agreement contains customary representations and warranties, as well as customary affirmative and negative covenants, events of default, and indemnification provisions in favor of the Lenders. The negative covenants include restrictions regarding the incurrence of liens and indebtedness, annual capital expenditures, certain investments, acquisitions, and dispositions, and other matters, all subject to certain exceptions. The Amended Credit Agreement requires us to regularly provide financial information to Wells Fargo and to maintain a consolidated senior leverage ratio no greater than 3.00 to 1.00 (subject to certain exceptions) and a minimum consolidated earnings before interest, taxes, depreciation, and amortization (“EBITDA”) (as defined in the Amended Credit Agreement) of at least $35 million for the four consecutive fiscal quarters most recently ended. Pursuant to the Amended Credit Agreement, we have also agreed that we will not sell, assign, or otherwise dispose or encumber, any of our owned real property. The occurrence of an event of default could result in the acceleration of the obligations under the Amended Credit Agreement. We were in compliance with our financial covenants as of March 31, 2024, and expect to continue to be in compliance in the near term.
Our obligations under the Amended Credit Agreement are secured by a senior security interest in substantially all of our and our subsidiaries’ assets.
Current Debt
The Interim Funding Agreement dated August 2, 2022 with Wells Fargo Equipment Finance, Inc. (“WFEF”), as amended January 23, 2023, March 15, 2023, July 21, 2023, and November 2, 2023 (together, the “IFA”), provides for aggregate interim funding advances up to $10.8 million of equipment purchased for a new reinforced concrete pipe mill, to be converted into a term loan upon final delivery and acceptance of the financed equipment. As of March 31, 2024, the outstanding balance of the IFA was $10.8 million, which was classified as a current liability since there was not a firm commitment for long-term debt financing. The IFA bears interest at the SOFR Average plus 2.00%. As of March 31, 2024, the weighted-average interest rate for outstanding borrowings was 7.07%. The IFA requires monthly payments of accrued interest and grants a security interest in the equipment to WFEF. Effective November 2, 2023, the IFA requires us to maintain a consolidated senior leverage ratio no greater than 3.00 to 1.00 (subject to certain exceptions) and to maintain a minimum consolidated EBITDA (as defined in the IFA) of at least $35 million for the four consecutive fiscal quarters most recently ended. We were in compliance with our financial covenants as of March 31, 2024, and expect to continue to be in compliance in the near term.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements affecting our company, including the dates of adoption and estimated effects on financial position, results of operations, and cash flows, see Note 13, “Recent Accounting and Reporting Developments” of the Notes to Condensed Consolidated Financial Statements in Part I – Item 1. “Financial Statements” of this 2024 Q1 Form 10‑Q.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements included in Part I – Item 1. “Financial Statements” of this 2024 Q1 Form 10‑Q, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our Condensed Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. On an ongoing basis, we evaluate all of our estimates, including those related to revenue recognition, goodwill, income taxes, and litigation and other contingencies. Actual results may differ from these estimates under different assumptions or conditions.
There have been no significant changes in our critical accounting estimates during the three months ended March 31, 2024 as compared to the critical accounting estimates disclosed in our 2023 Form 10‑K.
Item3. Quantitative and Qualitative Disclosures About Market Risk
For a discussion of our market risk associated with commodity prices, interest rates, and foreign currency exchange rates, see Part II – Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” in our 2023 Form 10‑K.
Item4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a‑15(e) and 15d‑15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are designed to provide reasonable assurance that information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosures.
In connection with the preparation of this Quarterly Report on Form 10‑Q for the quarter ended March 31, 2024, our management, under the supervision and with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2024. As a result of the assessment, our CEO and CFO have concluded that, as of March 31, 2024, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There were no significant changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are party to a variety of legal actions arising out of the ordinary course of business. Plaintiffs occasionally seek punitive or exemplary damages. We do not believe that such normal and routine litigation will have a material impact on our consolidated financial results. We are also involved in other kinds of legal actions, some of which assert or may assert claims or seek to impose fines, penalties, and other costs in substantial amounts. See Note 7, “Commitments and Contingencies” of the Notes to Condensed Consolidated Financial Statements in Part I – Item 1. “Financial Statements” of this 2024 Q1 Form 10‑Q.
In addition to the other information set forth in this 2024 Q1 Form 10‑Q, the factors discussed in Part I – Item 1A. “Risk Factors” in our 2023 Form 10‑K and any subsequently filed quarterly reports on Form 10‑Q could materially affect our business, financial condition, or operating results. The risks described in our 2023 Form 10‑K and subsequent Form 10‑Q’s are not the only risks facing us. There are additional risks and uncertainties not currently known to us or that we currently deem to be immaterial, that may also materially adversely affect our business, financial condition, or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On November 2, 2023, we announced our authorization of a share repurchase program of up to $30 million of our outstanding common stock. The program does not commit to any particular timing or quantity of purchases, and the program may be suspended or discontinued at any time. Under the program, shares may be purchased in open market, including through plans adopted pursuant to Rule 10b5‑1 of the Exchange Act, or in privately negotiated transactions administered by our broker, D.A. Davidson Companies. At this time, we have elected to limit our share repurchase transactions to only those under the Rule 10b5‑1 trading plan we executed in November 2023, which we believe considers our liquidity, including availability of borrowings and covenant compliance under our Amended Credit Agreement, and other capital allocation priorities of the business. Our Rule 10b5‑1 trading plan designates up to $10 million for daily share repurchases with volumes that fluctuate with changes in the trading price of our common stock. We expect to consider share repurchase strategies beyond the current Rule 10b5‑1 trading plan at a future date.
The following table provides information relating to our repurchase of common stock during the three months ended March 31, 2024 pursuant to our share repurchase program.
| Period |
Total Number of Shares Purchased |
Average Price Paid Per Share (1) |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs |
||||||||||||
| January 1, 2024 to January 31, 2024 |
58,774 | $ | 29.19 | 58,774 | $ | 27,448,886 | ||||||||||
| February 1, 2024 to February 29, 2024 |
61,274 | 29.51 | 61,274 | 25,640,430 | ||||||||||||
| March 1, 2024 to March 31, 2024 |
7,327 | 29.98 | 7,327 | 25,420,733 | ||||||||||||
| Total |
127,375 | 29.39 | 127,375 | |||||||||||||
of our directors or officers adopted, modified, or terminated a Rule 10b5‑1 trading arrangement or a non-Rule 10b5‑1 trading arrangement during the three months ended March 31, 2024, as such terms are defined under Item 408(a) of Regulation S‑K.
(a) The exhibits filed as part of this 2024 Q1 Form 10‑Q are listed below:
| * |
This exhibit constitutes a management contract or compensatory plan or arrangement. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: May 2, 2024
| NORTHWEST PIPE COMPANY |
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| By: |
/s/ Scott Montross |
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| Scott Montross |
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| Director, President, and Chief Executive Officer |
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| (principal executive officer) |
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| By: |
/s/ Aaron Wilkins |
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| Aaron Wilkins |
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| Senior Vice President, Chief Financial Officer, and Corporate Secretary |
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| (principal financial and accounting officer) |
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