Northwest Pipe Company (Nasdaq: NWPX) — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Northwest Pipe manufactures water-related infrastructure products and reports two segments: Engineered Steel Pressure Pipe (SPP) and Precast Infrastructure and Engineered Systems (Precast). Unless otherwise noted, amounts below are in millions of U.S. dollars. The 2021 comparison predates the October 2021 ParkUSA acquisition and is therefore not fully comparable.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $109.3 | $72.3 |
| Gross profit / margin | $14.8 / 13.5% | $8.8 / 12.1% |
| Operating income / margin | $5.4 / 5.0% | $2.9 / 4.1% |
| Net income / margin | $3.6 / 3.3% | $2.2 / 3.0% |
| Diluted earnings per share | $0.36 | $0.22 |
| Operating cash flow | $1.6 | $(0.6) |
| Capital expenditures | $4.4 | $1.9 |
Sales increased 51.2% and net income increased 63.6% year over year. Gross profit rose 68.5%; selling, general and administrative expense increased 60.7% to $9.4 million. Interest expense was $0.6 million, up from $0.2 million.
Segments and drivers
- SPP: Sales were $74.7 million, up 24.4%. Higher selling price per ton (up 85%, reflecting material costs and product mix) more than offset a 33% decline in tons produced due to project timing. Gross profit was $7.2 million, nearly flat, while segment gross margin declined to 9.6% from 11.9%, amid mix and pricing pressure and a product-liability settlement reserve.
- Precast: Sales were $34.6 million, up 182.5%, and gross profit was $7.6 million versus $1.6 million. ParkUSA contributed $19.7 million of Q1 2022 sales; Geneva sales also rose, including higher pricing. Segment gross margin improved to 21.9% from 13.2%.
- Q1 2021 pro forma results assuming ParkUSA had been acquired at the start of that comparison quarter were sales of $85.5 million and net income of $4.0 million; these illustrative amounts are not a forecast or a direct reported-period comparison.
Cash, liquidity and debt
- At March 31, 2022, cash was $3.3 million, working capital was $171.5 million, and current assets were $241.2 million against current liabilities of $69.7 million.
- Revolver borrowings were $90.3 million under a $125 million facility; $1.1 million of letters of credit were outstanding and reported additional borrowing capacity was approximately $34 million. The facility matures June 30, 2024. The company reported compliance with financial covenants at quarter-end and expected to remain compliant over the next 12 months.
- Operating lease liabilities were $97.3 million and finance lease liabilities were $2.4 million. The company reported no long-term debt balance apart from revolving borrowings and lease obligations.
- Operating cash flow improved from $(0.6) million to $1.6 million, but working-capital changes used $7.2 million. Cash used in investing was $4.4 million, primarily capital expenditures; financing provided $3.1 million, including $3.5 million of net revolver borrowings.
Outlook, risks and notable items
- Management expects 2022 capital expenditures of approximately $26–30 million, including about $13 million for a new reinforced concrete pipe mill. The company had approximately $10 million of related commitments for equipment not yet received at March 31.
- SPP backlog was approximately $200 million at quarter-end; management expects to recognize about 65% in 2022, 32% in 2023, and the remainder thereafter. Management gave no specific earnings or revenue guidance and cautioned that Q1 results are not necessarily indicative of full-year results.
- Management described long-term U.S. water infrastructure demand as strong, while noting near-term potential pressure from constrained public-agency budgets, increased competition and labor shortages. Steel-price volatility, supply-chain challenges, freight and fuel costs, project timing, and COVID-19 effects may also affect results. Management said lower steel prices from Q1 purchases had not yet flowed through financial results; freight cost exposure is more significant for SPP because of long lead times.
- A $40 million interest-rate swap, fixed at 1.94%, was entered into in March and scheduled to begin April 29, 2022, with maturity April 30, 2024. Foreign-currency cash-flow hedges had a $0.6 million pretax unrealized loss at quarter-end.
- Contingency: The company cannot estimate its potential share of Portland Harbor Superfund cleanup costs; no additional liability was recorded. The EPA’s estimated cleanup cost for the site is approximately $1 billion, with allocation among more than 150 potentially responsible parties unresolved. The company also disclosed a Yakama Nation natural-resource damages claim and said the loss likelihood and amount could not be determined.
- Management said ordinary-course litigation was not expected to have a material effect. A product-liability settlement reserve reduced SPP gross profit. The ParkUSA acquisition accounting remained preliminary; ParkUSA represented approximately 16.1% of total assets and 18.0% of Q1 revenue. ParkUSA’s internal controls were excluded from management’s quarter-end controls assessment during integration; overall disclosure controls were deemed effective.
Important facts for investors to verify
- Whether the roughly $200 million SPP backlog converts to revenue on the stated schedule, given project timing and production-volume variability.
- Whether SPP margins recover and whether steel, labor, freight, and other cost changes can be passed through to customers.
- ParkUSA integration performance, final purchase-accounting adjustments, and any impact on reported comparability and controls.
- Available revolver capacity and covenant headroom as planned capital spending proceeds; the filing does not provide a clear covenant headroom figure.
- Developments in Portland Harbor and the Yakama Nation matter, for which potential company exposure is not estimable from the filing.