Northwest Pipe Company — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Although the request specifies 2021 Q4, this filing principally reports full-year results; selected fourth-quarter figures are included below. Financial amounts are U.S. dollars.
Business context
Northwest Pipe manufactures water infrastructure products, including engineered steel pressure pipe and precast concrete products and systems. In Q4 2021, following its ParkUSA acquisition, the company began reporting two segments: Engineered Steel Pressure Pipe (SPP) and Precast Infrastructure and Engineered Systems (Precast). It acquired ParkUSA for approximately $88.4 million cash on October 5, 2021; the acquisition contributed $18.0 million of Q4 sales. The company operated 13 manufacturing facilities across North America.
Financial performance
| Metric | 2021 | 2020 |
|---|---|---|
| Net sales | $333.3 million | $285.9 million |
| Gross profit / margin | $44.3 million / 13.3% | $50.5 million / 17.7% |
| Operating income / margin | $16.0 million / 4.8% | $25.6 million / 8.9% |
| Net income | $11.5 million | $19.1 million |
| Diluted EPS | $1.16 | $1.93 |
| Operating cash flow | $(5.8) million | $56.1 million |
| Capital expenditures | $13.3 million | $14.0 million |
- Sales increased 16.6%. SPP sales rose 7.5%, mainly from higher selling prices, while tons produced fell 6%. Precast sales increased 66.2%, including ParkUSA and stronger Geneva shipments and pricing.
- Gross profit declined 12.4%. SPP gross margin fell to 12.0% from 18.3%, reflecting product mix and pricing pressure; Precast margin rose to 17.7% from 14.1%. Precast results included $2.1 million of acquisition-related fair-value inventory charges.
- Net income fell 39.5%. Higher steel costs, margin pressure, and acquisition-related expenses contributed; 2020 also included a $1.4 million Saginaw fire business-interruption insurance recovery in gross profit.
- Q4 2021 sales were $102.5 million and net income was $2.3 million, compared with $69.4 million and $5.2 million, respectively, in Q4 2020.
Liquidity, debt, and cash flow
- Cash and cash equivalents were $3.0 million at year-end, down from $37.9 million. Working capital was $164.1 million, compared with $146.1 million.
- Operating cash flow was negative $5.8 million, including a $34.5 million cash use from working-capital changes, notably higher contract assets and inventories.
- Investing cash outflow was $100.2 million, including $87.2 million for acquisitions. Financing cash inflow was $71.0 million, including net line-of-credit borrowings.
- Year-end revolving borrowings were $86.8 million, with $1.6 million of letters of credit and approximately $37 million of additional borrowing capacity under the $125 million facility, which matures June 30, 2024. The company reported covenant compliance at year-end.
- Operating and finance lease liabilities totaled approximately $100.6 million. The company stated that cash, expected operating cash flow, and available borrowing capacity should cover anticipated needs for at least 12 months.
Changes, outlook, and risks
- SPP backlog was approximately $183 million at year-end, versus $167 million a year earlier. Including confirmed orders without executed contracts, backlog was approximately $290 million, versus $221 million. The company expected to recognize about 82% of SPP backlog in 2022 and 18% in 2023; backlog and confirmed orders may be delayed or canceled.
- Management cited long-term demand for water infrastructure but warned that near-term public-agency budget constraints, expanded steel-pipe industry capacity, labor shortages, and volatile input costs could weigh on results. Steel cost introduced into production rose 67% in 2021 versus 2020; the company does not hedge commodity risk and may not fully pass cost increases through to customers.
- Expected 2022 capital expenditures were $26 million to $30 million, including approximately $13 million for a new reinforced concrete pipe mill. The filing also disclosed about $10 million of commitments for that mill.
- COVID-19 caused indirect project bidding, execution, and delivery delays; impacts remained uncertain. The filing also described potential effects of Russia’s invasion of Ukraine on commodity prices, supply chains, and financial markets.
- The company is a potentially responsible party at the Portland Harbor Superfund Site. It could not estimate its share of cleanup costs and recorded no reserve; the EPA’s selected cleanup remedy was estimated to cost about $1 billion overall. A related natural-resource damages claim also remained unresolved.
- Management and the auditor reported effective internal controls overall, but ParkUSA’s controls were excluded from the year-end assessment while integration and assessment continued. The auditor identified contract cost-to-complete estimates and ParkUSA customer-relationship intangible valuation as critical audit matters.
Most important facts for investors to verify
- Whether SPP pricing and product mix can recover margins as steel costs, labor expenses, and competitive capacity evolve.
- How much of the $183 million signed backlog and $290 million backlog-plus-confirmed-orders converts to revenue, and on what schedule.
- Whether working capital and operating cash flow improve after the 2021 cash use, while funding the mill investment and acquisition integration.
- ParkUSA’s post-acquisition contribution, realized synergies, final purchase accounting, and internal-control integration.
- Potential exposure and insurance coverage for Portland Harbor environmental matters and other contingencies.
- Availability under the credit facility, covenant headroom, and sensitivity to variable interest rates and refinancing needs.