NORTHWEST PIPE CO (NWPX)·Q3 2018 Earnings Summary

Executive Summary

• Q3 2018 marked a sharp rebound: net sales rose to $52.5M (+82% q/q, +35% y/y) with gross margin at 9.9%; GAAP diluted EPS printed $2.86 aided by a $21.9M bargain purchase gain and a $2.8M Houston real estate gain; adjusted diluted EPS was $0.21, turning positive versus a year-ago loss .
• Backlog including confirmed orders jumped to $201M, the highest since Q3 2012, driven by improved bidding and the Ameron acquisition; management expects revenues and margins to continue improving in Q4 and into 2019 .
• Ameron added ~$11.1M to Q3 sales; integration is underway with bidding unified across the combined footprint; near-term synergies targeted and focus on margin over volume reiterated .
• Liquidity bolstered by a new $60M revolver (accordion to $100M) executed Oct 25; CFO confirmed structure on the call, supporting working capital needs for multi-year program ramps .
• Key stock narrative catalysts: record backlog and visible program pipeline (Houston, Lower Bois d’Arc, Atoka), offset by non-recurring EPS boost; investors should assess adjusted earnings trajectory and integration execution .

What Went Well and What Went Wrong

• What Went Well

  • “As of September 30th, 2018, our combined backlog including confirmed orders was $201 million, the highest backlog since the third quarter of 2012,” with strong bidding into Q4 and expectations of continued improvement in 2019 .
  • Pricing/mix improved: selling price per ton rose ~35% y/y, lifting gross margin to 9.9% despite lower tons produced; Ameron facilities also contributed to margin improvement .
  • Strategic progress: Ameron integration launched with unified bidding and job allocation to best-fit sites; management emphasized cost synergies and a disciplined, margin-over-volume approach .

• What Went Wrong

  • Q2 weakness lingered in the comp base: sequential rebound came off a very weak Q2 marked by less value-added mix and under-absorption of fixed overhead .
  • Non-recurring items dominated GAAP EPS: $21.9M bargain purchase gain (Ameron) and $2.8M Houston sale gains drove $2.86 diluted EPS; adjusted diluted EPS was $0.21, highlighting still-early stage of turnaround .
  • SG&A was elevated by acquisition-related costs (+$1.9M), and Monterrey shutdown drove restructuring charges; CFO flagged minor amounts to come as assets are prepped for sale .

Financial Results

Segment/Contributions (Q3 2018):

• Ameron contribution to net sales: ~$11.1M .
• Ameron operations (incl. acquisition-related costs): ~$0.7M loss in Q3 .

KPIs and Backlog:

Operational/mix notes (Q3 2018 vs Q3 2017):

• Selling price per ton: +35%; tons produced: −21%, with mix shift to higher-value work .

Guidance Changes

Note: No formal quantitative revenue/EPS guidance was issued; management commentary remains directional .

Earnings Call Themes & Trends

Management Commentary

• “As of September 30th, 2018, our combined backlog including confirmed orders was $201 million, the highest backlog since the third quarter of 2012… we expect to see a continued improvement in the backlog which should result in positive trend for revenue and margins that will continue through the fourth quarter and into 2019.” – Scott Montross, CEO .
• “Immediately upon acquisition all bidding and job decisions were combined… we are bidding everything as a combined entity… produced where it best fits our strategic goals.” – Scott Montross on Ameron integration .
• “Gross profit as a percent of sales improved with the increases in selling prices per ton… Ameron has been accretive to Northwest Pipe's income in the third quarter [excluding acquisition costs].” – Robin Gantt, CFO .
• “We like high steel prices, but we like stable steel prices… coil pricing ~$820–$825/ton; plate ~$1,000/ton.” – Scott Montross on steel .

Q&A Highlights

• Weather/schedule impacts: Minor delays noted; no expectation of material deferrals on larger projects (e.g., Lower Bois d’Arc) .
• Backlog conversion: Typical 30–45% conversion to next quarter; Q4 likely at lower end due to longer-lead tunneling mix; expected to pick up into 2019 .
• Bidding environment: 2018 is “a pretty huge bidding year,” stability across markets with disciplined players and improved pricing/margins as industry-wide backlogs rise .
• Asset monetization: Monterrey property sale in process; no other asset sales planned tied to Ameron integration; ongoing portfolio optimization if underperformance arises .
• Legislative/regulatory: CA Prop 3 failed; prior Prop 1 likely aiding growth; potential federal infrastructure focus under a Democratic House could be supportive, but timelines are multi-year .
• Credit facility clarification: CFO confirmed $60M revolver with $100M accordion, consistent with prior facility flexibility .

Estimates Context

• Wall Street consensus estimates (S&P Global Capital IQ) for Q3 2018 EPS and revenue were not available via the tool at the time of analysis; therefore, comparison to consensus could not be performed. Investors should note the significant non-recurring items in GAAP results when evaluating core performance [Tool error: GetEstimates].

Key Takeaways for Investors

• Core turnaround underway: Adjusted diluted EPS turned positive ($0.21) with strong pricing/mix and backlog momentum; monitor adjusted metrics and gross margin sustainability as Ameron integrates .
• Backlog strength provides visibility: $201M backlog incl. confirmed orders and multi-year programs (Houston, Lower Bois d’Arc, Atoka) underpin 2019 revenue/margin trajectory .
• Non-recurring boosts skewed GAAP EPS: Bargain purchase and asset sale gains drove $2.86 EPS; use adjusted figures for run-rate assessment .
• Integration execution is key: Unified bidding and footprint optimization should unlock synergies; watch SG&A normalization as one-time acquisition costs roll off .
• Pricing tailwinds vs input volatility: Steel pricing remains elevated; stability supports bidding confidence and margin capture; no widespread project deferrals observed .
• Liquidity supports growth: New $60M revolver (accordion to $100M) enhances flexibility for working capital and program ramps .
• Near-term trading: Record backlog and qualitative guidance for improving Q4 may support positive sentiment; focus on sequential adjusted margins and backlog conversion, while discounting non-recurring GAAP EPS effects .