Executive Summary

Q4 delivered strong Water Transmission performance but was overshadowed by a $16.1M non‑cash goodwill impairment in the Tubular Products segment, resulting in a GAAP loss from continuing operations of $14.0M (-$1.47 diluted EPS); excluding the impairment, adjusted diluted EPS was $0.21 as Water Transmission margins outperformed prior guidance and mix .
Segment divergence widened: Water Transmission sales rose 31.9% YoY with gross margin 17.5% (15.5% ex ~$1.1M insurance credit), while Tubular Products posted a gross loss (-1.7% margin) amid import pressure and the rapid oil price collapse .
Backlog ended 2014 at ~$121M (vs. $103M in 2013), but management flagged a smaller/more competitive bid environment and guided Q1’15 Water Transmission margins to low–mid teens and Tubular to a small gross loss, citing oil shock and inventory valuation headwinds .
Key near-term catalysts: trajectory of steel coil prices and line pipe demand recovery, outcomes in the U.S. line pipe trade case (Korea/Turkey), execution on IPL and San Antonio projects, and potential M&A (management “aggressively seeking acquisitions”) .

What Went Well and What Went Wrong

What Went Well
- Water Transmission: Revenue +31.9% YoY to $56.5M; gross margin expanded to 17.5% (15.5% ex insurance), reflecting higher production and mix benefits despite competition .
- Backlog and project execution: Year-end backlog rose to ~$121M (vs. $103M), with clear visibility on IPL segments and San Antonio WRIP timing; segment-level bids expected in 2015 (two more IPL segments) .
- Cost progress and resilience: CEO emphasized structural cost work supports ~16% Water Transmission margins even at lower volumes versus 7–8% during 2009–2010; “those cost reductions are showing up” .
What Went Wrong
- Tubular Products downturn: Q4 gross loss (-$0.8M; -1.7% margin) vs. +8.9% in Q4’13, driven by imports, unfavorable product mix, 2% higher steel costs and 1% lower sales prices YoY; broader oil capex cuts froze orders late in the quarter .
- Impairment: Non‑cash goodwill impairment of $16.1M in Tubular Products tied to late‑Q4 crude collapse, swinging GAAP EPS to a loss; adjusted results mask core segment divergence .
- Competitive pressure: Management reiterated “extremely aggressive” bidding in Water Transmission compressing margins vs. earlier peaks; Q1’15 guided to low–mid teens margins despite solid execution .

Financial Results

Metric	Q4 2013	Q2 2014	Q3 2014	Q4 2014
Revenue ($USD Millions)	$85.6	$102.0	$116.5	$102.2
Gross Profit ($USD Millions)	$10.9	$11.3	$15.8	$9.1
Gross Margin %	12.7%	11.1%	13.6%	8.9%
Diluted EPS – Continuing Ops ($)	$0.25	$0.33	$0.61	-$1.47
Adjusted Diluted EPS – Continuing Ops ($)	N/A	N/A	N/A	$0.21 (ex $16.1M impairment)

Segment breakdown (Net Sales, Gross Profit, GM%):

Segment	Q4 2013	Q2 2014	Q3 2014	Q4 2014
Water Transmission – Net Sales ($M)	$42.8	$62.2	$76.9	$56.5
Water Transmission – Gross Profit ($M)	$7.0	$11.5	$16.6	$9.9
Water Transmission – GM%	16.4%	18.5%	21.5%	17.5% (15.5% ex insurance)
Tubular Products – Net Sales ($M)	$42.8	$39.8	$39.6	$45.7
Tubular Products – Gross Profit ($M)	$3.8	-$0.2	-$0.7	-$0.8
Tubular Products – GM%	8.9%	-0.4%	-1.9%	-1.7%

KPIs and balance sheet:

KPI	Dec 31, 2013	Jun 30, 2014	Sep 30, 2014	Dec 31, 2014
Water Transmission Backlog ($M)	$103	$143	$138	$121
Line of Credit Borrowings ($M)	$87.9	$39.9	$46.6	$45.6
Cash & Equivalents ($M)	$0.6	$0.08	$0.07	$0.5

Tubular volumes (context):

Tons Sold (TP)	Q4 2013	Q2 2014	Q3 2014	Q4 2014
Volume (000s tons)	43	40.9	39.7	45

Notes:

Q4 included ~$1.1M net insurance credit in WT; ex this, WT GM% would have been ~15.5% .
Company recorded $16.1M goodwill impairment in Tubular in Q4’14 tied to crude collapse; 2014 adjusted income from continuing ops $9.9M vs GAAP loss of $6.2M .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Water Transmission gross margin	Q4 2014	“Low teens” (Q3 outlook)	Actual: 17.5% (15.5% ex insurance)	Above prior outlook (ex‑insurance mid‑teens)
Water Transmission revenue	Q1 2015	N/A	“Similar to Q4”	Initial Q1’15 view provided
Water Transmission gross margin	Q1 2015	N/A	“Low to mid‑teens”	Initial Q1’15 view provided
Tubular Products gross profit	Q4 2014	“Around break-even near term” (Q3)	Actual: Gross loss (-1.7% margin)	Weaker than prior outlook
Tubular Products gross profit	Q1 2015	N/A	“Small gross loss expected”	Initial Q1’15 view provided
Capital Expenditures	FY 2015	N/A	~$15–$16M (≈ depreciation)	Initial FY15 capex guide

No specific guidance was provided on OpEx, OI&E, tax rate, dividends for Q1’15; CFO noted unusual 2014 tax rate due to non‑deductible goodwill impairment .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q2, Q3)	Current Period (Q4)	Trend
Water Transmission margins & bidding	Q2: expect Q3 margins “high teens”; Q3: Q4 “low teens” amid aggressive bidding	Q4 WT GM 17.5% (15.5% ex insurance); Q1’15 guided low–mid teens; smaller/more competitive bid environment	Competitive intensity persists; execution offsets
Project pipeline (IPL, San Antonio, Red River)	Q2: IPL started mid‑May; Q3: IPL drove volume	2 more IPL segments expected to bid in 2015; San Antonio production in Q1–Q2; Red River may be delayed	Visible 2015 bids; some deferrals
Imports/trade actions (line pipe)	Q2–Q3: imports pressured TP margins	Industry trade case vs. Korea/Turkey; Commerce preliminary in Q2’15	Potential relief catalyst 2015
Oil price shock/TP demand	N/A (pre‑collapse)	“Sudden and swift” crude decline froze ordering and pressured pricing; small TP gross loss expected Q1’15	1H’15 headwind; recovery post coil bottom
Steel coil costs & sourcing	Q2–Q3: higher steel costs compressed TP margins	Coil price decline froze distribution buying; imports a credible option but convergence with domestic prices limits advantage	Watching coil bottom; mixed sourcing
M&A strategy	N/A	“Aggressively seeking acquisitions”; engaged strategic firm and banks	Elevated priority
California Prop 1 / Texas SWIFT	N/A	Potential 2016+ WT opportunities from CA Prop 1; expect more TX projects via SWIFT	Longer‑term demand tailwinds

Management Commentary

“We believe that the first quarter of 2015 will continue to present significant challenges. Water Transmission revenues should be similar to fourth quarter and margins are projected to be in the low to mid‑teens… we expect a small gross loss for Tubular Products in the first quarter of 2015.” — Scott Montross, CEO .
“Our fourth quarter loss from continuing operations was $14 million… including a non‑cash goodwill impairment charge of $16.1 million. Excluding this charge, adjusted income… was $2.1 million or $0.21 per diluted share.” — Robin Gantt, CFO .
“As of December 31, 2014, our backlog in Water Transmission was approximately $121 million… [We] expect Water Transmission sales to be in line with the fourth quarter with gross profit margins in the low to mid‑teens.” — CEO .
“We are aggressively seeking acquisitions… we have engaged a strategic firm… and are working closely with investment banks to identify specific targets.” — CEO .
“We are part of an industry trade case filed against Korea and Turkey on line pipe… Commerce Department preliminary determinations are expected in the second quarter of 2015.” — CEO .

Q&A Highlights

Capital allocation and balance sheet: Management highlighted ~$35.6M cash from operations in 2014 and reduction in credit facility balance to ~$27M by end of February; focus remains on working capital and debt reduction, with M&A prioritized over buybacks .
Water Transmission cost progress: CEO noted sustained ~16% WT margins at lower revenue levels versus ~7–8% in 2009/2010, attributing to structural cost reductions; maintained 42–45% WT market share despite low volume environment .
Permalok update: Contribution was “somewhat less than 10%” of WT top line in 2014; pipeline for microtunneling improving with ongoing R&D and cost work .
Near‑term WT margin bridge: Q1’15 margins guided to low–mid teens due to competitive bidding and job mix, despite similar revenue to Q4 .
Tubular outlook mechanics: Oil collapse and falling coil prices froze distribution purchases; management expects demand recovery once coil bottoms (they referenced ~$700/ton prior level context), with potential support from trade case outcomes in 2H’15 .

Estimates Context

Wall Street consensus (S&P Global) for Q4 2014 revenue and EPS was not retrievable during this session due to a data access limit; as a result, we cannot quantify beats/misses vs. consensus in this report. We will update when S&P Global estimates are accessible.
Given prior qualitative guidance (Q3 call) calling for Q4 WT margins in the low teens, the reported WT margin (17.5%, or ~15.5% ex insurance) appears above that outlook, while Tubular underperformed the “around break‑even” expectation with a gross loss, implying a mixed setup for estimate revisions by segment .

Key Takeaways for Investors

Core Water Transmission execution remains solid with structural cost gains enabling mid‑teens margins even in competitive markets; backlog supports near‑term revenue stability, though bid intensity caps upside until larger projects ramp .
Tubular Products is the swing factor: order intake and pricing are tightly linked to steel coil dynamics and oil‑linked activity; a coil bottom and favorable trade case outcomes in 2H’15 are the principal upside catalysts .
The $16.1M impairment is non‑cash but underscores the severity of the late‑2014 oil shock; adjusted profitability highlights underlying WT strength even as TP resets .
Watch project milestones: IPL segment awards/bids, San Antonio WRIP production, California Prop 1 project pipeline, and Texas SWIFT funding as medium‑term WT demand drivers .
Capital deployment optionality is improving as leverage falls; management is prioritizing M&A with a focus on adjacencies that can be transformative—monitor for deal execution and return hurdles .
Near‑term trading setup: headlines around the line pipe trade case and coil price inflections may drive sentiment for TP‑exposed names; WT execution and margin prints should provide downside support .
Risk check: continued import pressure, elongated competitive bidding in WT, and delayed large projects (e.g., Red River) could dampen 1H’15, making execution on backlog and cost control critical .

Additional Data Appendices

Full-year 2014 and balance sheet context:

2014 net sales from continuing operations: $403.3M (+12.2% YoY); gross profit $40.6M (10.1%); GAAP loss from continuing ops $6.2M; adjusted income $9.9M .
2014 capex $14.3M; 2015 capex plan ~$15–$16M; 2014 cash from operations ~$35.6M; interest expense fell to $2.3M .

NORTHWEST PIPE CO (NWPX)·Q4 2014 Earnings Summary