Business context and reporting period
Northwest Pipe Company manufactures water-related infrastructure products through Engineered Steel Pressure Pipe (SPP) and Precast Infrastructure and Engineered Systems (Precast). This unaudited Form 10-Q covers the three and six months ended June 30, 2022; comparisons are with 2021. Results include ParkUSA, acquired in October 2021, so year-over-year comparisons—particularly for Precast—reflect the acquisition.
Financial performance
Amounts are in U.S. dollars; financial statement amounts below are in millions unless otherwise noted.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $118.5 | $73.8 | $227.9 | $146.1 |
| Gross profit / margin | $24.1 / 20.3% | $9.5 / 12.9% | $38.9 / 17.1% | $18.3 / 12.5% |
| Operating income / margin | $14.0 / 11.8% | $3.2 / 4.3% | $19.4 / 8.5% | $6.1 / 4.2% |
| Net income | $9.7 | $2.1 | $13.2 | $4.3 |
| Diluted EPS | $0.97 | $0.21 | $1.33 | $0.43 |
- Revenue and segment trends: Q2 sales rose 60.6%; six-month sales rose 55.9%. Q2 SPP sales increased 31%, largely from higher selling prices and product mix, despite a 3% decline in tons produced. Precast sales increased 175%, principally reflecting ParkUSA’s $24.2 million contribution and improved pricing at existing operations.
- Profitability: Gross profit more than doubled in Q2 and increased 112% for the six-month period. Management attributed SPP improvement primarily to product mix and Precast improvement to ParkUSA and higher pricing. Six-month SPP gross profit included a $2.0 million product-liability settlement reserve. Q2 net margin was 8.2%, versus 2.9% a year earlier; six-month net margin was 5.8%, versus 2.9%.
- Cash flow: Six-month operating cash flow was $10.2 million, versus $5.1 million in 2021. Working-capital changes used $13.0 million, including increases in receivables, contract assets, and inventory, partly offset by higher payables. Capital expenditures were $8.5 million; investing cash outflow was $8.4 million.
- Balance sheet and liquidity: At June 30, cash was $3.5 million, working capital was $178.1 million, and total assets were $586.6 million. Revolver borrowings were $86.7 million; operating lease liabilities were $96.1 million and finance lease liabilities $2.8 million. The $125 million credit facility had approximately $37 million of additional borrowing capacity after $1.1 million of letters of credit. The company reported compliance with financial covenants.
Outlook, risks and unusual items
- No full-year revenue or earnings guidance is provided. Management expects 2022 capital expenditures of approximately $23–27 million, including about $9 million for a new reinforced concrete pipe mill, and believes available cash, operating cash flow, and borrowing capacity will fund needs for at least 12 months.
- SPP backlog was approximately $303 million at June 30; the company expects to recognize about 45% in 2022, 41% in 2023, and the balance thereafter.
- Management cited strong long-term U.S. water-infrastructure demand, but noted near-term risks from constrained public-agency budgets, increased competition and capacity, labor shortages, supply-chain issues, volatile steel prices, and higher fuel and freight costs. Steel prices were volatile in the first half; lower-cost steel purchases were beginning to flow through results. The company cannot assure all increased delivery costs will be recovered.
- The Portland Harbor Superfund matter remains unquantified: responsibility and allocation among more than 150 potentially responsible parties have not been determined, and no additional liability was recorded. A related Yakama Nation claim also cannot be assessed for likelihood or amount. The company says it has insurance but cannot assure full coverage. Separately, approximately $10 million of steel in inventory and accounts payable relates to a supplier quality claim expected to be settled.
- Other risks discussed include COVID-19 effects, the war in Ukraine and related economic consequences, acquisition integration, project timing and cancellations, and interest-rate exposure. ParkUSA’s internal controls were excluded from management’s controls evaluation while integration and assessment continue; overall disclosure controls were concluded effective.
Important facts for investors to verify
- How much of reported growth and margin improvement is attributable to ParkUSA versus organic volume, pricing, and product mix.
- Whether the $303 million backlog converts on schedule and at expected profitability, given project timing, steel-price volatility, and labor constraints.
- Working-capital and cash conversion trends, including growth in contract assets and inventory, and funding needs for the planned mill investment.
- Credit-facility availability, variable-rate exposure, covenant headroom, and the effect of refinancing at the June 2024 facility maturity.
- Potential exposure and insurance recovery relating to the Portland Harbor and Yakama Nation matters, the supplier quality claim, and the product-liability settlement reserve.