Northwest Pipe Company — Q1 2021 Form 10-Q
Business context and period: The filing covers the three months ended March 31, 2021. Northwest Pipe manufactures steel water pipeline systems and concrete and other water-infrastructure products; it reports one Water Infrastructure segment. Comparisons are with Q1 2020. Amounts below are in U.S. dollars.
Financial results and position
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $72.3 million | $68.9 million | +4.9% |
| Gross profit / margin | $8.8 million / 12.1% | $9.6 million / 13.9% | Profit down 8.4%; margin down 1.8 percentage points |
| Operating income / margin | $2.9 million / 4.1% | $1.6 million / 2.4% | Income increased |
| Net income | $2.2 million | $0.6 million | Increased |
| Diluted EPS | $0.22 | $0.06 | Increased |
| Operating cash flow | $(0.6) million | $15.0 million | Decreased |
| Capital expenditures | $1.9 million | $2.9 million | Decreased |
- At March 31, cash and cash equivalents were $29.9 million, down from $37.9 million at December 31, 2020. Working capital was $148.9 million, compared with $146.1 million at year-end.
- Long-term debt was $8.4 million, with no revolving-loan borrowings; operating lease liabilities were $33.6 million and finance lease liabilities were $1.6 million. Revolver borrowing capacity was approximately $52 million. The company reported compliance with its financial covenants.
- Assets totaled $367.3 million and stockholders’ equity was $272.3 million at quarter-end.
Changes and drivers
- Sales growth primarily reflected Geneva’s contribution: $12.3 million in Q1 2021 versus $8.0 million in Q1 2020. Legacy steel-pipe sales declined 1%, reflecting a 2% lower selling price per ton, partly offset by 1% more tons produced.
- Gross profit and margin declined mainly due to product mix at legacy steel-pipe facilities. Steel costs introduced into production were 11% higher year over year.
- Operating income increased as SG&A fell 26.6%, principally because Q1 2020 included $2.5 million of Geneva acquisition transaction costs. Q1 2021 also had $0.3 million higher compensation-related expense.
- The 2020 comparison included $48.7 million of net cash used to acquire Geneva; there was no acquisition spending in Q1 2021. The 2021 quarter included $5.4 million of long-term debt repayments, including a $4.6 million prepayment from 2020 excess cash flow.
- Operating cash flow turned negative primarily as working capital movements used $6.7 million, versus providing $10.1 million in Q1 2020.
Outlook, risks and contingencies
- Backlog was approximately $178 million at March 31. The company expects to recognize about 65% in 2021, 32% in 2022, and the remainder thereafter.
- Management expects 2021 capital expenditures of approximately $12–15 million and believes cash, operating cash flows, and available credit will fund requirements for at least the next 12 months.
- Management described long-term U.S. water-infrastructure demand as strong, but noted near-term pressure from constrained government and water-agency budgets, competition and increased manufacturing capacity, and volatile steel costs. Higher steel prices and extended procurement lead times may challenge margins; the ability to pass costs through depends on market conditions.
- COVID-19 had no direct material adverse effect on reported Q1 results, but its future effects—including possible delays or reductions in municipal project funding—remain uncertain.
- The company cannot estimate its potential share of Portland Harbor Superfund cleanup costs or a range of costs; no additional liability was recorded. Related natural-resource claims and site investigations also remain unresolved. The company reported $1.6 million of workers’ compensation letters of credit and does not expect material payments under them.
- Other stated risks include changes in demand, product mix, bidding and order timing, raw-material availability and pricing, production disruptions, acquisition integration, and insurance adequacy.
Important facts for investors to verify
- Whether higher steel and other input costs can be passed through to customers, and how product mix affects gross margin.
- Whether backlog converts to revenue and cash on the expected schedule, particularly given project timing and customer funding.
- The causes and persistence of working-capital cash use, including contract assets, inventories, and customer collections.
- Remaining credit availability, debt repayment requirements, and covenant compliance as operating conditions change.
- Potential exposure from the Portland Harbor matter, natural-resource claims, and environmental investigations; the filing says the exposure cannot currently be estimated clearly.