Executive Summary

Revenue surged 48.4% year over year to $116.5M, with diluted EPS from continuing operations at $0.61 vs $0.29 YoY; sequentially, revenue rose from $102.0M and EPS from $0.33 in Q2 .
Strong Water Transmission execution (segment sales +64.1% YoY to $76.9M; segment gross margin 21.5%) drove the quarter, partially offset by Tubular Products gross loss due to steel cost/sales price mismatch .
Management guided to margin compression in Q4: Water Transmission margins expected in the low teens and Tubular Products “around break-even” amid aggressive bidding and import pressure—an adverse near‑term catalyst .
Backlog remained robust at $138M vs $143M in Q2 and $148M in Q1, signaling continued demand despite pricing pressure .
Wall Street consensus estimates for Q3 2014 EPS and revenue were unavailable via S&P Global at time of analysis; we cannot assess beat/miss versus estimates (Values retrieved from S&P Global unavailable due to API limits).

What Went Well and What Went Wrong

What Went Well

Water Transmission volume/mix drove segment gross margin to 21.5% and operating income to $14.4M; IPL project ramp key driver .
Company executed higher production levels, with consolidated gross profit up to $15.8M and gross margin improving to 13.6% vs 11.1% in Q2 .
Backlog remained strong at $138M, supporting future Water Transmission visibility despite competitive bidding .

What Went Wrong

Tubular Products posted a gross loss of $0.7M (−1.9% margin) on 39,700 tons, with higher steel costs relative to sales prices compressing margins .
Management warned of Q4 margin pressure: “extremely aggressive bidding” expected to drive Water Transmission margins into low teens; Tubular near break‑even due to import pressure .
YoY consolidated gross margin declined (13.6% vs 14.3%) due to mix and pricing dynamics despite higher sales, flagging quality of growth .

Financial Results

Consolidated Results vs Prior Periods and Prior Year

Metric	Q3 2013	Q1 2014	Q2 2014	Q3 2014
Revenue ($USD Millions)	$78.5	$82.6	$102.0	$116.5
Diluted EPS (Continuing Ops, $)	$0.29	$(0.13)	$0.33	$0.61
Gross Profit Margin %	14.3%	5.2%	11.1%	13.6%

Segment Breakdown

Segment Metric	Q1 2014	Q2 2014	Q3 2014
Water Transmission Net Sales ($M)	$43.0	$62.2	$76.9
Water Transmission Gross Profit ($M)	$1.7	$11.5	$16.6
Water Transmission Gross Margin %	3.9%	18.5%	21.5%
Tubular Products Net Sales ($M)	$39.6	$39.8	$39.6
Tubular Products Gross Profit ($M)	$2.6	$(0.2)	$(0.7)
Tubular Products Gross Margin %	6.7%	−0.4%	−1.9%
Tubular Tons Sold (000s)	39.0	40.9	39.7

KPIs and Balance Sheet Highlights

KPI	Q1 2014	Q2 2014	Q3 2014
Water Transmission Backlog ($M)	$148	$143	$138
Cash & Equivalents ($000s)	$49	$75	$72
Note Payable to Financial Institution ($000s)	$25,191	$39,924	$46,649
Total Assets ($000s)	$362,596	$355,820	$368,996
Stockholders’ Equity ($000s)	$251,098	$252,951	$258,962

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Water Transmission Gross Margin	Q3 2014	“High teens” expected in Q3	Actual delivered 21.5% (segment; for context)	N/A (context)
Water Transmission Gross Margin	Q4 2014	N/A	“Low teens” expected due to aggressive bidding	Lower vs Q3
Tubular Products Gross Margin	Q3 2014	“Low single digits” expected	Actual −1.9%	Miss vs guidance
Tubular Products Gross Margin	Q4 2014	N/A	“Around break‑even” expected near term	Maintained low
Capital Expenditures ($)	FY 2014	$14–$17M (company outlook)	Reiterated trajectory in Q3 communications context	Maintained

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1, Q2)	Current Period (Q3)	Trend
Bidding intensity/pricing pressure	Pricing more aggressive; margins compressed by mix and competition	Expect low‑teens Water Transmission margins in Q4 due to “extremely aggressive bidding”	Deteriorating pricing environment
Project pipeline (IPL, SAWS, Madison, Red River)	IPL, Madison Gillette underway; SAWS bids; IPL multi‑segment tonnage; Red River bid timing 2015/2016	Q3 driven by IPL; continued backlog strength, but pricing pressure	Volume visibility solid; pricing challenged
Tubular Products margins/imports	Q2 margins negative due to coil price surge; import pressure; modernization at Atchison	Near‑term margins “around break‑even” due to continued import pressure	Slowly improving volumes; margin headwinds persist
Regional trends (Texas, California drought)	Texas strong financing; California drought could catalyze projects later (WRRDA)	Noted aggressive market conditions broadly; Q4 caution (no specific regional update in PR)	Texas remains constructive; CA timing uncertain
Trade case backdrop	OCTG case success could set tone for line pipe; import share unsustainably high	Continued commentary on import pressure in Tubular	Policy tailwinds possible; timing uncertain

Management Commentary

“The company’s financial performance is expected to come under increasing pressure in the fourth quarter compared to the third quarter. The extremely aggressive bidding posture in the Water Transmission market is expected to drive margins into the low teens.” — Scott Montross, President & CEO .
“Near term margins [are] to be around break‑even for the Tubular Products segment due to continued pressure from imports in the line pipe market.” — Scott Montross .
Q2 context (for trajectory): Water Transmission margins guided to high teens in Q3; Tubular expected low single digits as line pipe prices begin to move up and Atchison modernization enhances heavier‑wall capability .

Q&A Highlights

IPL and project tonnage detail: next IPL segment ~21–22k tons; SAWS ~15–16k tons; Madison ~4–5k tons; Red River likely substantial tonnage over the full project .
Bidding competitiveness: smaller jobs seeing “very, very aggressive” bids, down significantly vs 2012; regional competitiveness matters .
California drought: likely to catalyze projects under WRRDA; Southern CA may pick up mid‑2015 into 2016; Northern CA later; timing uncertain .
Tubular capacity/margin path: Atchison capacity to 325k tons; aiming >60% utilization; margin recovery dependent on spread between line pipe and hot‑rolled band prices (> $400/ton spread would materially help) .
Market structure changes: McKeesport closure could redistribute market share to remaining players, potentially aiding volumes in H2 .

Note: The Q3 2014 call transcript was not available in the SEC document set; highlights reflect Q2 2014 call themes as the closest prior period and public Q3 commentary from the press release .

Estimates Context

S&P Global consensus EPS and revenue for Q3 2014 were unavailable at time of analysis due to API limits; thus, a beat/miss vs estimates cannot be determined. We recommend updating with S&P Global once accessible for precise comparison (Values retrieved from S&P Global unavailable due to API limits).

Key Takeaways for Investors

Q3 print was strong operationally, led by Water Transmission (segment gross margin 21.5%), but management’s Q4 margin warning and aggressive bidding posture are likely to cap near‑term multiple expansion .
Tubular Products remains the swing factor: volumes stable (~39.7k tons), but margins negative; import pressure and steel price dynamics dominate near‑term profitability .
Backlog at $138M provides revenue visibility; however, the quality of backlog (pricing/margins) is the key determinant for Q4–Q1 trajectory .
Watch the spread between line pipe prices and coil costs and any trade case developments; margin recovery hinges on spreads reopening and import normalization .
Project cadence remains healthy (IPL, SAWS, Madison), supporting Water Transmission volumes through 2015 even as pricing remains competitive .
Balance sheet improved equity base ($258.962M) with higher working capital tied to project activity; monitor note payable increase and cash levels in Q4 .
Near‑term trading: expect sensitivity to Q4 margin commentary and any updates on bidding/pricing; medium‑term thesis rests on policy tailwinds, project pipeline, and Tubular modernization benefits translating to sustained margin uplift .

Appendix: Consolidated Operating Detail (for reference)

Metric	Q3 2013	Q3 2014
Operating Income ($M)	$5.7	$9.3
Income from Continuing Ops ($M)	$2.7	$5.9
Total Gross Profit ($M)	$11.3	$15.8
SG&A ($M)	$5.6	$6.5

All figures are sourced from the company’s Q3 2014 8‑K press release (Exhibit 99.1), Q2 and Q1 2014 8‑K press releases, and the Q2 2014 earnings call transcript . Wall Street consensus data were unavailable from S&P Global at time of analysis.

NORTHWEST PIPE CO (NWPX)·Q3 2014 Earnings Summary