0001001385 西北管道公司。 錯誤 --12-31 Q3 2024 215 121 137,029 126,359 0.01 0.01 10,000,000 10,000,000 0 0 0 0 0.01 0.01 15,000,000 15,000,000 9,918,711 9,918,711 9,985,580 9,985,580 0 84 0 1 19 0 12 89 0 34 53 3.0 1.1 2.1 1.1 6.7 1.1 6.4 1.1 0 0 1 0.8 0.25 1 http://fasb.org/us-gaap/2024#SecuredOvernightFinancingRateSofrMember 錯誤 錯誤 錯誤 2024年8月19日 Aaron Wilkins 高級副總裁、致富金融(臨時代碼)和公司秘書 此表披露的PSA數量達到了100%的目標水平。 針對2024年4月1日授予的PSAs,根據本表披露的100%目標水平乘以基於實現的績效條件的支付百分比來確定發行的普通股實際數量。支付百分比分別爲2021-2023績效期間的123%,2022-2023績效期間的110%,以及2023績效期間的90%。 00010013852024-01-012024-09-30 xbrli:股份 00010013852024-10-22 iso4217:美元指數 00010013852024-07-012024-09-30 00010013852023-07-012023-09-30 00010013852023-01-012023-09-30 iso4217:美元指數xbrli:股份 0001001385美國通用會計原則:養老金計劃-定義利益成員2024-07-012024-09-30 0001001385美國通用會計原則:養老金計劃-定義利益成員2023-07-012023-09-30 0001001385美國通用會計原則:養老金計劃-定義利益成員2024-01-012024-09-30 0001001385美國通用會計原則:養老金計劃-定義利益成員2023-01-012023-09-30 0001001385美國通用會計準則:外匯遠期成員2024-07-012024-09-30 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0001001385美國通用會計準則:重新分類累計其他綜合收益成員2024-01-012024-09-30 0001001385美國通用會計準則:重新分類累計其他綜合收益成員2023-01-012023-09-30 0001001385us-gaap:運營業務細分會員西北管道:工程鋼壓力管成員2024-07-012024-09-30 0001001385us-gaap:運營業務細分會員西北管道:工程鋼壓力管成員2023-07-012023-09-30 0001001385us-gaap:運營業務細分會員西北管道(Northwest Pipe Co):鋼製壓力管道成員2024-01-012024-09-30 0001001385us-gaap:運營業務細分會員西北管道(Northwest Pipe Co):鋼製壓力管道成員2023-01-012023-09-30 0001001385us-gaap:運營業務細分會員西北管道(Northwest Pipe Co):預製基礎設施和工程系統成員2024-07-012024-09-30 0001001385us-gaap:運營業務細分會員西北管道(Northwest Pipe Co):預製基礎設施和工程系統成員2023-07-012023-09-30 0001001385us-gaap:運營業務細分會員nwpx: 預製基礎設施和工程系統成員2024-01-012024-09-30 0001001385us-gaap:運營業務細分會員nwpx: 預製基礎設施和工程系統成員2023-01-012023-09-30 0001001385us-gaap:運營業務細分會員2024-07-012024-09-30 0001001385us-gaap:運營業務細分會員2023-07-012023-09-30 0001001385us-gaap:運營業務細分會員2024-01-012024-09-30 0001001385us-gaap:運營業務細分會員2023-01-012023-09-30 0001001385西北管道:富國銀行NA會員西北管道:臨時融資協議債務轉爲定期貸款會員us-gaap:後續事件會員2024-10-312024-10-31 thunderdome:item 00010013852024-10-312024-10-31 0001001385西北管道:富國銀行NA會員西北管道:定期貸款會員us-gaap:後續事件會員2024-10-312024-10-31
 

Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: September 30, 2024

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______to _______

 

Commission File Number: 0-27140

 

NORTHWEST PIPE COMPANY

(Exact name of registrant as specified in its charter)

 

Oregon

93-0557988

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

201 NE Park Plaza Drive, Suite 100

Vancouver, Washington 98684

(Address of principal executive offices and Zip Code)

 

3603976250

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

NWPX

Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

  

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes No ☒

 

The number of shares outstanding of the registrant’s common stock as of October 22, 2024 was 9,918,711 shares.



 

 

 

NORTHWEST PIPE COMPANY

FORM 10Q

TABLE OF CONTENTS

 

 

Page

PARTI- FINANCIAL INFORMATION

 
   

Item1. Financial Statements (Unaudited):

 
   

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2024 and 2023

2
   

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2024 and 2023

3
   

Condensed Consolidated Balance Sheets as of September 30, 2024 and December31, 2023

4
   

Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2024 and 2023

5
   

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023

7

   

Notes to Condensed Consolidated Financial Statements

8
   

Item2. Managements Discussion and Analysis of Financial Condition and Results of Operations

21
   

Item3. Quantitative and Qualitative Disclosures About Market Risk

27
   

Item4. Controls and Procedures

28
   

PARTII- OTHER INFORMATION

 
   

Item1. Legal Proceedings

28
   

Item1A. Risk Factors

28
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 29
   

Item5. Other Information

29
   

Item6. Exhibits

30
   

Signatures

31
 

 

1

 

PartI FINANCIAL INFORMATION

 

Item1. Financial Statements

 

NORTHWEST PIPE COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2024

   

2023

   

2024

   

2023

 
                                 

Net sales

  $ 130,201     $ 118,722     $ 372,921     $ 334,191  

Cost of sales

    103,182       99,428       299,954       275,839  

Gross profit

    27,019       19,294       72,967       58,352  

Selling, general, and administrative expense

    11,581       10,237       35,220       33,119  

Operating income

    15,438       9,057       37,747       25,233  

Other expense

    (66 )     (61 )     (287 )     (224 )

Interest expense

    (1,452 )     (1,162 )     (4,749 )     (3,722 )

Income before income taxes

    13,920       7,834       32,711       21,287  

Income tax expense

    3,667       2,016       8,601       5,659  

Net income

  $ 10,253     $ 5,818     $ 24,110     $ 15,628  
                                 

Net income per share:

                               

Basic

  $ 1.03     $ 0.58     $ 2.43     $ 1.57  

Diluted

  $ 1.02     $ 0.58     $ 2.40     $ 1.55  
                                 

Shares used in per share calculations:

                               

Basic

    9,919       10,014       9,915       9,985  

Diluted

    10,055       10,107       10,040       10,088  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

2

 

NORTHWEST PIPE COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2024

   

2023

   

2024

   

2023

 
                                 

Net income

  $ 10,253     $ 5,818     $ 24,110     $ 15,628  
                                 

Other comprehensive loss, net of tax:

                               

Pension liability adjustment

    23       29       67       88  

Unrealized gain (loss) on foreign currency forward contracts designated as cash flow hedges

    -       3       13       (98 )

Unrealized loss on interest rate swaps designated as cash flow hedges

    (261 )     (59 )     (276 )     (152 )

Other comprehensive loss, net of tax

    (238 )     (27 )     (196 )     (162 )
                                 

Comprehensive income

  $ 10,015     $ 5,791     $ 23,914     $ 15,466  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3

 

NORTHWEST PIPE COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollar amounts in thousands, except per share amounts)

 

  

September 30, 2024

  

December 31, 2023

 

Assets

        

Current assets:

        

Cash and cash equivalents

 $5,723  $4,068 

Trade and other receivables, net of allowance of $215 and $121

  79,507   47,645 

Contract assets

  120,983   120,516 

Inventories

  84,977   91,229 

Prepaid expenses and other

  2,530   9,026 

Total current assets

  293,720   272,484 

Property and equipment, less accumulated depreciation and amortization of $137,029 and $126,359

  149,262   143,955 

Operating lease right-of-use assets

  84,161   88,155 

Goodwill

  55,504   55,504 

Intangible assets, net

  28,050   31,074 

Other assets

  6,493   6,709 

Total assets

 $617,190  $597,881 
         

Liabilities and Stockholders’ Equity

        

Current liabilities:

        

Current debt

 $10,756  $10,756 

Accounts payable

  20,356   31,142 

Accrued liabilities

  26,659   27,913 

Contract liabilities

  28,897   21,450 

Current portion of operating lease liabilities

  5,181   4,933 

Total current liabilities

  91,849   96,194 

Borrowings on line of credit

  60,704   54,485 

Operating lease liabilities

  81,748   85,283 

Deferred income taxes

  10,856   10,942 

Other long-term liabilities

  9,673   10,617 

Total liabilities

  254,830   257,521 
         

Commitments and contingencies (Note 7)

          
         

Stockholders’ equity:

        

Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued or outstanding

  -   - 

Common stock, $.01 par value, 15,000,000 shares authorized, 9,918,711 and 9,985,580 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively

  99   100 

Additional paid-in-capital

  127,182   129,095 

Retained earnings

  236,235   212,125 

Accumulated other comprehensive loss

  (1,156)  (960)

Total stockholders’ equity

  362,360   340,360 

Total liabilities and stockholders’ equity

 $617,190  $597,881 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4

 

NORTHWEST PIPE COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(Unaudited)

(Dollar amounts in thousands)

 

                  

Accumulated

     
          

Additional

      

Other

  

Total

 
  

Common Stock

  

Paid-In-

  

Retained

  

Comprehensive

  

Stockholders’

 
  

Shares

  

Amount

  

Capital

  

Earnings

  

Loss

  

Equity

 
                         

Balances, June 30, 2024

  9,918,711  $99  $126,020  $225,982  $(918) $351,183 

Net income

  -   -   -   10,253   -   10,253 

Other comprehensive income (loss):

                        

Pension liability adjustment, net of tax expense of $0

  -   -   -   -   23   23 

Unrealized loss on interest rate swaps designated as cash flow hedges, net of tax benefit of $84

  -   -   -   -   (261)  (261)

Share-based compensation expense

  -   -   1,162   -   -   1,162 

Balances, September 30, 2024

  9,918,711  $99  $127,182  $236,235  $(1,156) $362,360 

 

                  

Accumulated

     
          

Additional

      

Other

  

Total

 
  

Common Stock

  

Paid-In-

  

Retained

  

Comprehensive

  

Stockholders’

 
  

Shares

  

Amount

  

Capital

  

Earnings

  

Loss

  

Equity

 
                         

Balances, June 30, 2023

  10,014,196  $100  $128,562  $200,863  $(924) $328,601 

Net income

  -   -   -   5,818   -   5,818 

Other comprehensive income (loss):

                        

Pension liability adjustment, net of tax expense of $0

  -   -   -   -   29   29 

Unrealized gain on foreign currency forward contracts designated as cash flow hedges, net of tax expense of $1

  -   -   -   -   3   3 

Unrealized loss on interest rate swaps designated as cash flow hedges, net of tax benefit of $19

  -   -   -   -   (59)  (59)

Share-based compensation expense

  -   -   746   -   -   746 

Balances, September 30, 2023

  10,014,196  $100  $129,308  $206,681  $(951) $335,138 

 

5

 

NORTHWEST PIPE COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY, Continued

(Unaudited)

(Dollar amounts in thousands)

 

                  

Accumulated

     
          

Additional

      

Other

  

Total

 
  

Common Stock

  

Paid-In-

  

Retained

  

Comprehensive

  

Stockholders’

 
  

Shares

  

Amount

  

Capital

  

Earnings

  

Loss

  

Equity

 
                         

Balances, December 31, 2023

  9,985,580  $100  $129,095  $212,125  $(960) $340,360 

Net income

  -   -   -   24,110   -   24,110 

Other comprehensive income (loss):

                        

Pension liability adjustment, net of tax expense of $0

  -   -   -   -   67   67 

Unrealized gain on foreign currency forward contracts designated as cash flow hedges, net of tax expense of $12

  -   -   -   -   13   13 

Unrealized loss on interest rate swaps designated as cash flow hedges, net of tax benefit of $89

  -   -   -   -   (276)  (276)

Issuance of common stock under stock compensation plans, net of tax withholdings

  78,021   -   (1,449)  -   -   (1,449)

Repurchase of common stock

  (144,890)  (1)  (4,300)  -   -   (4,301)

Share-based compensation expense

  -   -   3,836   -   -   3,836 

Balances, September 30, 2024

  9,918,711  $99  $127,182  $236,235  $(1,156) $362,360 

 

                  

Accumulated

     
          

Additional

      

Other

  

Total

 
  

Common Stock

  

Paid-In-

  

Retained

  

Comprehensive

  

Stockholders’

 
  

Shares

  

Amount

  

Capital

  

Earnings

  

Loss

  

Equity

 
                         

Balances, December 31, 2022

  9,927,360  $99  $127,911  $191,053  $(789) $318,274 

Net income

  -   -   -   15,628   -   15,628 

Other comprehensive income (loss):

                        

Pension liability adjustment, net of tax expense of $0

  -   -   -   -   88   88 

Unrealized loss on foreign currency forward contracts designated as cash flow hedges, net of tax benefit of $34

  -   -   -   -   (98)  (98)

Unrealized loss on interest rate swaps designated as cash flow hedge, net of tax benefit of $53

  -   -   -   -   (152)  (152)

Issuance of common stock under stock compensation plans, net of tax withholdings

  86,836   1   (1,653)  -   -   (1,652)

Share-based compensation expense

  -   -   3,050   -   -   3,050 

Balances, September 30, 2023

  10,014,196  $100  $129,308  $206,681  $(951) $335,138 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6

 

NORTHWEST PIPE COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

   

Nine Months Ended September 30,

 
   

2024

   

2023

 

Cash flows from operating activities:

               

Net income

  $ 24,110     $ 15,628  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation and finance lease amortization

    11,255       8,644  

Amortization of intangible assets

    3,024       3,147  

Deferred income taxes

    (70 )     226  

Share-based compensation expense

    3,836       3,050  

Other, net

    539       1,298  

Changes in operating assets and liabilities:

               

Trade and other receivables

    (32,267 )     4,401  

Contract assets, net

    6,980       16,165  

Inventories

    6,252       (12,064 )

Prepaid expenses and other assets

    10,832       7,417  

Accounts payable

    (10,517 )     4,974  

Accrued and other liabilities

    (5,046 )     (8,477 )

Net cash provided by operating activities

    18,928       44,409  
                 

Cash flows from investing activities:

               

Purchases of property and equipment

    (16,609 )     (13,244 )

Payment of working capital adjustment in acquisition of business

    -       (2,731 )

Other investing activities

    62       63  

Net cash used in investing activities

    (16,547 )     (15,912 )
                 

Cash flows from financing activities:

               

Borrowings on line of credit

    142,883       113,047  

Repayments on line of credit

    (136,664 )     (138,667 )

Payments on finance lease liabilities

    (1,067 )     (548 )

Tax withholdings related to net share settlements of equity awards

    (1,449 )     (1,652 )

Repurchase of common stock

    (4,429 )     -  

Other financing activities

    -       (300 )

Net cash used in financing activities

    (726 )     (28,120 )

Change in cash and cash equivalents

    1,655       377  

Cash and cash equivalents, beginning of period

    4,068       3,681  

Cash and cash equivalents, end of period

  $ 5,723     $ 4,058  
                 

Noncash investing and financing activities:

               

Accrued property and equipment purchases

  $ 514     $ 528  

Right-of-use assets obtained in exchange for finance lease liabilities

    269       3,243  

Right-of-use assets obtained in exchange for operating lease liabilities

    481       952  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

7

 

NORTHWEST PIPE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1.

Organization and Basis of Presentation

 

Northwest Pipe Company (collectively with its subsidiaries, the “Company”) is a leading manufacturer of water-related infrastructure products, and operates in two segments, Engineered Steel Pressure Pipe (“SPP”) and Precast Infrastructure and Engineered Systems (“Precast”). This segment presentation is consistent with how the Company’s chief operating decision maker, its Chief Executive Officer, evaluates the performance of the Company and makes decisions regarding the allocation of resources. See Note 12, “Segment Information” for detailed descriptions of these segments.

 

In addition to being the largest manufacturer of engineered steel water pipeline systems in North America, the Company manufactures stormwater and wastewater technology products; high-quality precast and reinforced concrete products; pump lift stations; steel casing pipe, bar-wrapped concrete cylinder pipe, and one of the largest offerings of pipeline system joints, fittings, and specialized components. Strategically positioned to meet growing water and wastewater infrastructure needs, the Company provides solution-based products for a wide range of markets under the ParkUSA, Geneva Pipe and Precast, Permalok®, and Northwest Pipe Company lines. The Company is headquartered in Vancouver, Washington, and has 13 manufacturing facilities across North America.

 

The Condensed Consolidated Financial Statements are expressed in United States Dollars and include the accounts of the Company and its subsidiaries over which the Company exercises control as of the financial statement date. Intercompany accounts and transactions have been eliminated.

 

The accompanying unaudited interim Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. The financial information as of December 31, 2023 is derived from the audited Consolidated Financial Statements presented in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2023 (“2023 Form 10‑K”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission and the accounting standards for interim financial statements. In the opinion of management, the accompanying Condensed Consolidated Financial Statements include all adjustments necessary (which are of a normal and recurring nature) for the fair statement of the results of the interim periods presented. The Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto together with management’s discussion and analysis of financial condition and results of operations contained in the Company’s 2023 Form 10‑K.

 

Operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 31, 2024.

 

 

2.

Inventories

 

Inventories consist of the following (in thousands):

 

   

September 30, 2024

   

December 31, 2023

 
                 

Raw materials

  $ 61,552     $ 68,110  

Work-in-process

    8,293       8,912  

Finished goods

    12,660       11,911  

Supplies

    2,472       2,296  

Total inventories

  $ 84,977     $ 91,229  

 

8

 

3.

Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date.

 

The authoritative guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. These levels are: Level 1 (inputs are quoted prices in active markets for identical assets or liabilities); Level 2 (inputs are other than quoted prices that are observable, either directly or indirectly through corroboration with observable market data); and Level 3 (inputs are unobservable, with little or no market data that exists, such as internal financial forecasts). The Company is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 

The following table summarizes information regarding the Company’s financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):

 

   

Total

   

Level 1

   

Level 2

   

Level 3

 

As of September 30, 2024

                               

Financial assets:

                               

Deferred compensation plan

  $ 3,794     $ 3,307     $ 487     $ -  

Interest rate swaps

    124       -       124       -  

Total financial assets

  $ 3,918     $ 3,307     $ 611     $ -  
                                 

Financial liabilities:

                               

Foreign currency forward contracts

  $ (6 )   $ -     $ (6 )   $ -  

Interest rate swaps

    (163 )     -       (163 )     -  

Total financial liabilities

  $ (169 )   $ -     $ (169 )   $ -  
                                 

As of December 31, 2023

                               

Financial assets:

                               

Deferred compensation plan

  $ 3,912     $ 3,391     $ 521     $ -  

Foreign currency forward contracts

    42       -       42       -  

Interest rate swaps

    326       -       326       -  

Total financial assets

  $ 4,280     $ 3,391     $ 889     $ -  
                                 

Financial liabilities:

                               

Foreign currency forward contracts

  $ (115 )   $ -     $ (115 )   $ -  

 

The deferred compensation plan assets consist of cash and several publicly traded stock and bond mutual funds, valued using quoted market prices in active markets, classified as Level 1 within the fair value hierarchy, as well as guaranteed investment contracts, valued at principal plus interest credited at contract rates, classified as Level 2 within the fair value hierarchy. Deferred compensation plan assets are included within Other assets in the Condensed Consolidated Balance Sheets.

 

The foreign currency forward contracts and interest rate swaps are derivatives valued using various pricing models or discounted cash flow analyses that incorporate observable market parameters, such as interest rate yield curves and currency rates, and are classified as Level 2 within the fair value hierarchy. Derivative valuations incorporate credit risk adjustments that are necessary to reflect the probability of default by the counterparty or the Company. The foreign currency forward contracts and interest rate swaps are presented at their gross fair values. Foreign currency forward contract and interest rate swap assets are included within Prepaid expenses and other and foreign currency forward contract liabilities are included within Accrued liabilities in the Condensed Consolidated Balance Sheets.

 

The net carrying amounts of cash and cash equivalents, trade and other receivables, accounts payable, accrued liabilities, and current debt approximate fair value due to the short-term nature of these instruments. The net carrying amount of the borrowings on the line of credit approximates fair value due to its variable interest rate based on market.

 

9

 

4.

Derivative Instruments and Hedging Activities

 

In the normal course of business, the Company is exposed to interest rate and foreign currency exchange rate fluctuations. Consistent with the Company’s strategy for financial risk management, the Company has established a program that utilizes foreign currency forward contracts and interest rate swaps to offset the risks associated with the effects of these exposures.

 

For each derivative entered into in which the Company seeks to obtain cash flow hedge accounting treatment, the Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking the hedge transaction, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method of measuring ineffectiveness. This process includes linking all derivatives to specific firm commitments or forecasted transactions and designating the derivatives as cash flow hedges. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. The effective portion of these hedged items is reflected in Unrealized gain (loss) on cash flow hedges on the Condensed Consolidated Statements of Comprehensive Income. If it is determined that a derivative is not highly effective, or that it has ceased to be a highly effective hedge, the Company is required to discontinue hedge accounting with respect to that derivative prospectively.

 

As of September 30, 2024, the total notional amount of the foreign currency forward contracts was $2.2 million (CAD$3.0 million) and $1.2 million (EUR€1.1 million), which included $1.5 million (CAD$2.1 million) and $1.2 million (EUR€1.1 million) of foreign currency forward contracts not designated as cash flow hedges. As of December 31, 2023, the total notional amount of the foreign currency forward contracts was $5.1 million (CAD$6.7 million) and $1.2 million (EUR€1.1 million), which included $4.9 million (CAD$6.4 million) and $1.2 million (EUR€1.1 million) of foreign currency forward contracts not designated as cash flow hedges. As of September 30, 2024, the Company’s foreign currency forward contracts mature at various dates through April 2025 and are subject to an enforceable master netting arrangement.

 

The Company has entered into interest rate swaps which effectively convert a portion of its variable-rate debt to fixed-rate debt and are designated as cash flow hedges. For the first cash flow hedge, the Company received floating interest payments monthly based on Secured Overnight Finance Rate (“SOFR”) and paid a fixed rate of 1.941% to the counterparty on the total notional amount of $6.7 million as of December 31, 2023, which amortized ratably on a monthly basis to zero by the April 2024 maturity date. For the second cash flow hedge, beginning April 3, 2023, the Company receives floating interest payments monthly based on the SOFR Average 30 day and pays a fixed rate of 2.96% to the counterparty on the total notional amount of $10.8 million and $13.0 million as of September 30, 2024 and December 31, 2023, respectively, which amortizes ratably on a monthly basis to zero by the April 2028 maturity date. For the third cash flow hedge, beginning June 30, 2024, the Company receives floating interest payments monthly based on SOFR and pays a fixed rate of 5.10% to the counterparty on the total notional amount of $28.0 million as of September 30, 2024, which amortizes ratably on a monthly basis to $20 million through December 2024, and matures in June 2025.

 

The following table summarizes the gains (losses) recognized on derivatives in the Condensed Consolidated Financial Statements (in thousands):

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2024

   

2023

   

2024

   

2023

 

Foreign currency forward contracts:

                               

Net sales

  $ (21 )   $ 77     $ 90     $ (601 )

Property and equipment

    41       (22 )     41       (109 )
                                 

Interest rate swaps:

                               

Interest expense

    88       201       285       553  

Total

  $ 108     $ 256     $ 416     $ (157 )

 

As of September 30, 2024, unrealized pretax losses on outstanding cash flow hedges in Accumulated other comprehensive loss was approximately $0. See Note 10, “Accumulated Other Comprehensive Loss” for additional quantitative information regarding foreign currency forward contract and interest rate swap gains and losses.

 

10

 

5.

Stockholders’ Equity

 

Share Repurchase Program

 

On November 2, 2023, the Company announced its authorization of a share repurchase program of up to $30 million of its outstanding common stock. The program does not commit to any particular timing or quantity of purchases, and the program may be suspended or discontinued at any time. Under the program, shares may be purchased in open market, including through plans adopted pursuant to Rule 10b5‑1 of the Securities Exchange Act of 1934, as amended, or in privately negotiated transactions administered by its broker, D.A. Davidson Companies. At this time, the Company has elected to limit its share repurchase transactions to only those under the Rule 10b5‑1 trading plan it executed in November 2023, which designates up to $10 million for daily share repurchases with volumes that fluctuate with changes in the trading price of its common stock.

 

During the nine months ended September 30, 2024, the Company repurchased approximately 145,000 shares of the Company’s common stock for an aggregate amount of $4.3 million. There were no share repurchases during the three months ended September 30, 2024 nor in the three and nine months ended September 30, 2023. All shares reacquired in connection with the Company’s share repurchase program are retired and treated as authorized and unissued shares. As of September 30, 2024, $24.9 million of the share repurchase authorization remained available for repurchases under this program.

 

 

6.

Share-based Compensation

 

The Company has one active stock incentive plan for employees and directors, the 2022 Stock Incentive Plan, which provides for awards of stock options to purchase shares of common stock, stock appreciation rights, restricted and unrestricted shares of common stock, restricted stock units (“RSUs”), and performance share awards (“PSAs”). In addition, the Company had one inactive stock incentive plan, the 2007 Stock Incentive Plan, under which previously granted awards vested on April 1, 2024.

 

The Company recognizes the compensation cost of employee and director services received in exchange for awards of equity instruments based on the grant date estimated fair value of the awards. The Company estimates the fair value of RSUs and PSAs using the value of the Company’s stock on the date of grant. Share-based compensation cost is recognized over the period during which the employee or director is required to provide service in exchange for the award and, as forfeitures occur, the associated compensation cost recognized to date is reversed. For awards with performance-based payout conditions, the Company recognizes compensation cost based on the probability of achieving the performance conditions, with changes in expectations recognized as an adjustment to earnings in the period of change. Any recognized compensation cost is reversed if the conditions are ultimately not met.

 

The following table summarizes share-based compensation expense recorded (in thousands):

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2024

   

2023

   

2024

   

2023

 
                                 

Cost of sales

  $ 387     $ 275     $ 1,102     $ 816  

Selling, general, and administrative expense

    775       471       2,734       2,234  

Total

  $ 1,162     $ 746     $ 3,836     $ 3,050  

 

11

 

Restricted Stock Units and Performance Share Awards

 

The Company’s stock incentive plan provides for equity instruments, such as RSUs and PSAs, which grant the right to receive a specified number of shares at specified times. RSUs and PSAs are service-based awards that vest according to the terms of the grant. PSAs have performance-based payout conditions.

 

The following table summarizes the Company’s RSU and PSA activity:

 

   

Number of RSUs and PSAs (1)

   

Weighted-Average Grant Date Fair Value

 
                 

Unvested RSUs and PSAs as of December 31, 2023

    226,391     $ 29.66  

RSUs and PSAs granted

    120,143       34.68  

Unvested RSUs and PSAs canceled

    (3,197 )     29.15  

RSUs and PSAs vested (2)

    (103,266 )     30.35  

Unvested RSUs and PSAs as of September 30, 2024

    240,071       31.89  

 

(1)

The number of PSAs disclosed in this table are at the target level of 100%.

   
(2) For the PSAs vested on April 1, 2024, the actual number of common shares that were issued was determined by multiplying the PSAs at the target level of 100%, as disclosed in this table, by a payout percentage based on the performance-based conditions achieved. The payout percentage was 123% for the 2021-2023 performance period, 110% for the 2022-2023 performance period, and 90% for the 2023 performance period.

 

The unvested balance of RSUs and PSAs as of September 30, 2024 includes approximately 180,000 PSAs at the target level of 100%. The vesting of these awards is subject to the achievement of specified performance-based conditions, and the actual number of common shares that will ultimately be issued will be determined by multiplying this number of PSAs by a payout percentage ranging from 0% to 200%.

 

Based on the estimated level of achievement of the performance targets associated with the PSAs as of September 30, 2024, unrecognized compensation expense related to the unvested portion of the Company’s RSUs and PSAs was $4.9 million, which is expected to be recognized over a weighted-average period of 1.6 years.

 

Stock Awards

 

For the nine months ended September 30, 2024 and 2023, stock awards of 14,424 shares and 15,904 shares, respectively, were granted to non-employee directors, which vested immediately upon issuance. The Company recorded compensation expense based on the weighted-average fair market value per share of the awards on the grant date of $33.27 in 2024 and $29.51 in 2023.

 

12

 

7.

Commitments and Contingencies

 

Portland Harbor Superfund Site

 

In 2000, a section of the lower Willamette River known as the Portland Harbor Superfund Site was included on the National Priorities List at the request of the United States Environmental Protection Agency (“EPA”). While the Company’s Portland, Oregon manufacturing facility does not border the Willamette River, an outfall from the facility’s stormwater system drains into a neighboring property’s privately owned stormwater system and slip. Also in 2000, the Company was notified by the EPA and the Oregon Department of Environmental Quality (“ODEQ”) of potential liability under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). A remedial investigation and feasibility study of the Portland Harbor Superfund Site was directed by a group of 14 potentially responsible parties known as the Lower Willamette Group under agreement with the EPA. The EPA finalized the remedial investigation report in 2016, and the feasibility study in 2016, which identified multiple remedial alternatives. In 2017, the EPA issued its Record of Decision selecting the remedy for cleanup at the Portland Harbor Superfund Site, which it believes will cost approximately $1 billion at net present value and 13 years to complete. The EPA has not yet determined who is responsible for the costs of cleanup or how the cleanup costs will be allocated among the more than 150 potentially responsible parties. Because of the large number of potentially responsible parties and the variability in the range of remediation alternatives, the Company is unable to estimate an amount or an amount within a range of costs for its obligation with respect to the Portland Harbor Superfund Site matters, and no further adjustment to the Consolidated Financial Statements has been recorded as of the date of this filing.

 

The ODEQ is separately providing oversight of voluntary investigations and source control activities by the Company involving the Company’s site, which are focused on controlling any current “uplands” releases of contaminants into the Willamette River. No liabilities have been established in connection with these investigations because the extent of contamination and the Company’s responsibility for the contamination have not yet been determined.

 

Concurrent with the activities of the EPA and the ODEQ, the Portland Harbor Natural Resources Trustee Council (“Trustees”) sent some or all of the same parties, including the Company, a notice of intent to perform a Natural Resource Damage Assessment (“NRDA”) for the Portland Harbor Superfund Site to determine the nature and extent of natural resource damages under CERCLA Section 107. The Trustees for the Portland Harbor Superfund Site consist of representatives from several Northwest Indian Tribes, three federal agencies, and one state agency. The Trustees act independently of the EPA and the ODEQ. The Trustees have encouraged potentially responsible parties to voluntarily participate in the funding of their injury assessments and several of those parties have agreed to do so. In 2014, the Company agreed to participate in the injury assessment process, which included funding $0.4 million of the assessment. The Company has not assumed any additional payment obligations or liabilities with the participation with the NRDA, nor does the Company expect to incur significant future costs in the resolution of the NRDA.

 

In 2017, the Confederated Tribes and Bands of the Yakama Nation, a Trustee until they withdrew from the council in 2009, filed a complaint against the potentially responsible parties including the Company to recover costs related to their own injury assessment and compensation for natural resources damages. The case has been stayed until 2025, and the Company does not have sufficient information at this time to determine the likelihood of a loss in this matter or the amount of damages that could be allocated to the Company.

 

The Company has insurance policies for defense costs, as well as indemnification policies it believes will provide reimbursement for the remediation assessed. However, the Company can provide no assurance that those policies will cover all of the costs which the Company may incur.

 

All Sites

 

The Company operates its facilities under numerous governmental permits and licenses relating to air emissions, stormwater runoff, and other environmental matters. The Company’s operations are also governed by many other laws and regulations, including those relating to workplace safety and worker health, principally the Occupational Safety and Health Act and regulations thereunder which, among other requirements, establish noise and dust standards. The Company believes it is in material compliance with its permits and licenses and these laws and regulations, and the Company does not believe that future compliance with such laws and regulations will have a material adverse effect on its financial position, results of operations, or cash flows.

 

13

 

Other Contingencies and Legal Proceedings

 

From time to time, the Company is party to a variety of legal actions, including claims, suits, complaints, and investigations arising out of the ordinary course of its business. The Company maintains insurance coverage against potential claims in amounts that are believed to be adequate. To the extent that insurance does not cover legal, defense, and indemnification costs associated with a loss contingency, the Company records accruals when such losses are considered probable and reasonably estimable. The Company believes that it is not presently a party to legal actions, the outcomes of which would have a material adverse effect on its business, financial condition, results of operations, or cash flows.

 

Commitments

 

As of September 30, 2024, the Company’s commitments include approximately $1.2 million remaining relating to its investment in the primary component of the new reinforced concrete pipe mill which remained unpaid at September 30, 2024 and approximately $0.9 million remaining relating to the final obligations associated with the construction of the building for the new mill at the Company’s facility in Salt Lake City, Utah.

 

Guarantees

 

The Company has entered into certain letters of credit that total $1.6 million as of September 30, 2024. The letters of credit relate to workers’ compensation insurance and a public improvement project.

 

 

8.

Revenue

 

The Company manufactures water infrastructure steel pipe products, which are generally made to custom specifications for installation contractors serving projects funded by public water agencies, as well as precast and reinforced concrete products. Generally, each of the Company’s contracts with its customers contains a single performance obligation, as the promise to transfer products is not separately identifiable from other promises in the contract and, therefore, is not distinct. The Company generally does not recognize revenue on a contract until the contract has approval and commitment from both parties, the contract rights and payment terms can be identified, the contract has commercial substance, and its collectability is probable.

 

SPP revenue for water infrastructure steel pipe products is recognized over time as the manufacturing process progresses because of the Company’s right to payment for work performed to date plus a reasonable profit on cancellations for unique products that have no alternative use to the Company. Revenue is measured by the costs incurred to date relative to the estimated total direct costs to fulfill each contract (cost-to-cost method). Contract costs include all material, labor, and other direct costs incurred in satisfying the performance obligations. The cost of steel material is recognized as a contract cost when the steel is introduced into the manufacturing process. Changes in job performance, job conditions, and estimated profitability, including those arising from contract change orders, contract penalty provisions, foreign currency exchange rate movements, changes in raw materials costs, and final contract settlements may result in revisions to estimates of revenue, costs, and income, and are recognized in the period in which the revisions are determined. Provisions for losses on uncompleted contracts, included in Accrued liabilities, are estimated by comparing total estimated contract revenue to the total estimated contract costs and a loss is recognized during the period in which it becomes probable and can be reasonably estimated.

 

Net revisions in contract estimates resulted in an increase (decrease) in SPP net sales of $0.8 million and $3.1 million for the three and nine months ended September 30, 2024, respectively and ($0.8) million for the three and nine months ended September 30, 2023.

 

Precast revenue for water infrastructure concrete pipe and precast concrete products is recognized at the time control is transferred to customers which is generally at the time of shipment, in an amount that reflects the consideration the Company expects to be entitled to in exchange for the products. All variable consideration that may affect the total transaction price, including contractual discounts, returns, and credits, is included in net sales. Estimates for variable consideration are based on historical experience, anticipated performance, and management’s judgment. The Company’s contracts do not contain significant financing.

 

14

 

Disaggregation of Revenue

 

The following table disaggregates revenue by recognition over time or at a point in time, as the Company believes it best depicts how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors (in thousands):

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2024

  

2023

  

2024

  

2023

 
                 

Over time

 $85,924  $80,493  $255,454  $221,294 

Point in time

  44,277   38,229   117,467   112,897 

Net sales

 $130,201  $118,722  $372,921  $334,191 

 

Contract Assets and Contract Liabilities

 

Contract assets primarily represent revenue earned over time but not yet billable based on the terms of the contracts. These amounts will be billed based on the terms of the contracts, which can include certain milestones, partial shipments, or completion of the contracts. Payment terms of amounts billed vary based on the customer, but are typically due within 30 days of invoicing. Contract liabilities represent advance billings on contracts, typically for steel.

 

The difference between the opening and closing balances of the Company’s contract assets and contract liabilities primarily results from the timing difference between the Company’s performance and billings.

 

The following is a summary of the changes in contract assets (in thousands):

 

  Nine Months Ended September 30, 
  

2024

  

2023

 
         

Balance, beginning of period

 $120,516  $121,778 

Revenue recognized in advance of billings

  220,632   192,558 

Billings

  (220,060)  (207,436)

Other

  (105)  (1,480)

Balance, end of period

 $120,983  $105,420 

 

The following is a summary of the changes in contract liabilities (in thousands):

 

  Nine Months Ended September 30, 
  

2024

  

2023

 
         

Balance, beginning of period

 $21,450  $17,456 

Billings

  42,333   28,544 

Revenue recognized

  (34,822)  (28,736)

Other

  (64)  - 

Balance, end of period

 $28,897  $17,264 

 

Backlog

 

Backlog represents the balance of remaining performance obligations under signed contracts for SPP water infrastructure steel pipe products for which revenue is recognized over time. As of September 30, 2024, backlog was $231 million. The Company expects to recognize approximately 33% of the remaining performance obligations in 2024, 51% in 2025, and the balance thereafter.

 

15

 

9.

Income Taxes

 

The Company files income tax returns in the United States Federal jurisdiction, in a limited number of foreign jurisdictions, and in many state jurisdictions. With few exceptions, the Company is no longer subject to United States Federal, state, or foreign income tax examinations for years before 2020.

 

The Company recorded income tax expense at an estimated effective income tax rate of 26.3% and 26.3% for the three and nine months ended September 30, 2024, respectively and 25.7% and 26.6% for the three and nine months ended September 30, 2023, respectively. The Company’s estimated effective income tax rates for the three and nine months ended September 30, 2024 and 2023 were primarily impacted by non-deductible permanent differences.

 

 

10.

Accumulated Other Comprehensive Loss

 

The following tables summarize changes in the components of Accumulated other comprehensive loss (in thousands). All amounts are net of income tax:

 

   

Pension Liability Adjustment

   

Unrealized Loss on Foreign Currency Forward Contracts Designated as Cash Flow Hedges

   

Unrealized Gain (Loss) on Interest Rate Swaps Designated as Cash Flow Hedges

   

Total

 
                                 

Balances, December 31, 2023

  $ (1,193 )   $ (13 )   $ 246     $ (960 )
                                 

Other comprehensive income (loss) before reclassifications

    57       11       (60 )     8  

Amounts reclassified from Accumulated other comprehensive loss

    10       2       (216 )     (204 )

Net current period other comprehensive income (loss)

    67       13       (276 )     (196 )
                                 

Balances, September 30, 2024

  $ (1,126 )   $ -     $ (30 )   $ (1,156 )
                                 
    Pension Liability Adjustment     Unrealized Gain (Loss) on Foreign Currency Forward Contracts Designated as Cash Flow Hedges     Unrealized Gain on Interest Rate Swaps Designated as Cash Flow Hedges     Total  
                                 

Balances, December 31, 2022

  $ (1,532 )   $ 94     $ 649     $ (789 )
                                 

Other comprehensive income (loss) before reclassifications

    78       (115 )     266       229  

Amounts reclassified from Accumulated other comprehensive loss

    10       17       (418 )     (391 )

Net current period other comprehensive income (loss)

    88       (98 )     (152 )     (162 )
                                 

Balances, September 30, 2023

  $ (1,444 )   $ (4 )   $ 497     $ (951 )

 

16

 

The following table provides additional detail about Accumulated other comprehensive loss components that were reclassified to the Condensed Consolidated Statements of Operations (in thousands):

 

    Amount reclassified from  

Affected line item in

    Accumulated Other Comprehensive Loss  

the Condensed

   

Three Months Ended

   

Nine Months Ended

 

Consolidated

Details about Accumulated Other

  September 30,     September 30,  

Statements of

Comprehensive Loss Components

 

2024

   

2023

   

2024

   

2023

 

Operations

                                   

Pension liability adjustment:

                                 

Net periodic pension cost:

                                 

Service cost

  $ (4 )   $ (4 )   $ (10 )   $ (10 )

Cost of sales

      (4 )     (4 )     (10 )     (10 )

Net of tax

                                   

Unrealized gain (loss) on foreign currency forward contracts:

                                 

Gain (loss) on cash flow hedges

    -       10       (3 )     87  

Net sales

Loss on cash flow hedges

    -       (22 )     -       (109 )

Property and equipment

Associated income tax benefit

    -       3       1       5  

Income tax expense

      -       (9 )     (2 )     (17 )

Net of tax

                                   

Unrealized gain on interest rate swaps:

                                 

Gain on cash flow hedges

    88       201       285       553  

Interest expense

Associated income tax expense

    (21 )     (49 )     (69 )     (135 )

Income tax expense

      67       152       216       418  

Net of tax

                                   

Total reclassifications for the period

  $ 63     $ 139     $ 204     $ 391    

 

17

 

11.

Net Income per Share

 

Basic net income per share is computed by dividing the net income by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share is computed by giving effect to all dilutive potential shares of common stock, including RSUs and PSAs, assumed to be outstanding during the period using the treasury stock method. Performance-based PSAs are considered dilutive when the related performance conditions have been met assuming the end of the reporting period represents the end of the performance period. In periods with a net loss, all potential shares of common stock are excluded from the computation of diluted net loss per share as the impact would be antidilutive.

 

Net income per basic and diluted weighted-average common share outstanding was calculated as follows (in thousands, except per share amounts):

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2024

   

2023

   

2024

   

2023

 
                                 

Net income

  $ 10,253     $ 5,818     $ 24,110     $ 15,628  
                                 

Basic weighted-average common shares outstanding

    9,919       10,014       9,915       9,985  

Effect of potentially dilutive common shares

    136       93       125       103  

Diluted weighted-average common shares outstanding

    10,055       10,107       10,040       10,088  
                                 

Net income per common share:

                               

Basic

  $ 1.03     $ 0.58     $ 2.43     $ 1.57  

Diluted

  $ 1.02     $ 0.58     $ 2.40     $ 1.55  

 

 

12.

Segment Information

 

The operating segments reported below are based on the nature of the products sold and the manufacturing process used by the Company and are the segments of the Company for which separate financial information is available and for which operating results are regularly evaluated by the Company’s chief operating decision maker, its Chief Executive Officer, to make decisions about resources to be allocated to the segment and assess its performance. Management evaluates segment performance based on gross profit. The Company does not allocate selling, general, and administrative expenses, interest, other non-operating income or expense items, or taxes to segments.

 

The Company’s Engineered Steel Pressure Pipe (SPP) segment manufactures large-diameter, high-pressure steel pipeline systems for use in water infrastructure applications, which are primarily related to drinking water systems. These products are also used for hydroelectric power systems, wastewater systems, seismic resiliency, and other applications. In addition, SPP makes products for industrial plant piping systems and certain structural applications. SPP has manufacturing facilities located in Portland, Oregon; Adelanto and Tracy, California; Parkersburg, West Virginia; Saginaw, Texas; St. Louis, Missouri; and San Luis Río Colorado, Mexico.

 

The Company’s Precast Infrastructure and Engineered Systems (Precast) segment manufactures stormwater and wastewater technology products, high-quality precast and reinforced concrete products, including reinforced concrete pipe, manholes, box culverts, vaults, and catch basins, pump lift stations, oil water separators, biofiltration units, and other environmental and engineered solutions. Precast has manufacturing facilities located in Dallas, Houston, and San Antonio, Texas; and Orem, Salt Lake City, and St. George, Utah.

 

18

 

The following table disaggregates revenue and gross profit based on the Company’s reportable segments (in thousands):

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2024

   

2023

   

2024

   

2023

 

Net sales:

                               

Engineered Steel Pressure Pipe

  $ 85,924     $ 80,493     $ 255,454     $ 221,294  

Precast Infrastructure and Engineered Systems

    44,277       38,229       117,467       112,897  

Total net sales

  $ 130,201     $ 118,722     $ 372,921     $ 334,191  
                                 

Gross profit:

                               

Engineered Steel Pressure Pipe

  $ 16,628     $ 10,911     $ 47,851     $ 31,264  

Precast Infrastructure and Engineered Systems

    10,391       8,383       25,116       27,088  

Total gross profit

  $ 27,019     $ 19,294     $ 72,967     $ 58,352  

 

 

13.

Recent Accounting and Reporting Developments

 

There have been no developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company’s Condensed Consolidated Financial Statements and disclosures in Notes to Condensed Consolidated Financial Statements, from those disclosed in the Company’s 2023 Form 10‑K, except for the following.

 

Accounting Changes

 

In March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023‑01 “Leases (Topic 842): Common Control Arrangements” (“ASU 2023‑01”) which requires leasehold improvements associated with common control leases be (1) amortized by the lessee over the useful life of the leasehold improvements to the common control group as long as the lessee controls the use of the underlying asset through a lease and (2) accounted for as a transfer between entities under common control through an adjustment to equity if, and when, the lessee no longer controls the use of the underlying asset. The Company adopted ASU 2023‑01 on January 1, 2024 and the impact was not material to its financial position, results of operations, or cash flows.

 

Recent Accounting Standards

 

In November 2023, the FASB issued ASU No. 2023‑07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023‑07”) which requires disclosure of incremental segment information, primarily through enhanced disclosures about significant segment expenses, on an annual and interim basis for all public entities. ASU 2023‑07 will be applied retrospectively, and will be effective for the Company’s 2024 annual reporting, and for interim periods beginning in 2025, with early adoption permitted. The Company does not expect that the adoption of this guidance will have a material impact on the consolidated financial statements, other than additional disclosures in the notes to the consolidated financial statements.

 

In December 2023, the FASB issued ASU No. 2023‑09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023‑09”) which improves the transparency, effectiveness, and comparability of income tax disclosures and allows investors to better assess, in their capital allocation decisions, how an entity’s worldwide operations and related tax risks and tax planning and operation opportunities affect its income tax rate and prospects for future cash flows. ASU 2023‑09 should be applied on a prospective basis, and will be effective for the Company’s 2025 annual reporting, with early adoption permitted. The Company is currently assessing the impact of ASU 2023‑09 on its disclosures in the notes to the consolidated financial statements. The Company does not expect that the adoption of this guidance will have a material impact on the consolidated financial statements, other than additional disclosures in the notes to the consolidated financial statements.

 

19

 

14.

Subsequent Event

 

Long-Term Debt

 

On October 28, 2024, the Company converted the $10.8 million outstanding balance of the Interim Funding Agreement dated August 2, 2022 with Wells Fargo Equipment Finance, Inc. (“WFEF”), as amended January 23, 2023, March 15, 2023, July 21, 2023, and November 2, 2023 into a $15 million term loan with WFEF that was used to fund the Company’s new reinforced concrete pipe mill. The term loan matures on October 28, 2029, bears interest at the SOFR Average plus 2.22%, is payable in monthly installments of $0.3 million plus accrued interest, and is secured by the pipe mill. The term loan may be prepaid in full at any time provided that the Company pays a prepayment fee equal to 2% of the outstanding principal balance if repaid in the first 30 months of the loan.

 

20

 

Item2. Managements Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Quarterly Report on Form 10‑Q for the quarter ended September 30, 2024 (“2024 Q3 Form 10‑Q”) contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on current expectations, estimates, and projections about our business, management’s beliefs, and assumptions made by management. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “forecasts,” “should,” “could,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements as a result of a variety of important factors. While it is impossible to identify all such factors, those that could cause actual results to differ materially from those estimated by us include:

 

 

changes in demand and market prices for our products;

 

product mix;

 

bidding activity and order modifications or cancelations;

 

timing of customer orders and deliveries;

 

production schedules;

 

price and availability of raw materials;

 

excess or shortage of production capacity;

 

international trade policy and regulations;

 

changes in tariffs and duties imposed on imports and exports and related impacts on us;

 

economic uncertainty and associated trends in macroeconomic conditions, including potential recession, inflation, and the state of the housing market;

 

interest rate risk and changes in market interest rates, including the impact on our customers and related demand for our products;

 

our ability to identify and complete internal initiatives and/or acquisitions in order to grow our business;

 

our ability to effectively integrate future acquisitions into our business and operations and achieve significant administrative and operational cost synergies and accretion to financial results;

 

effects of security breaches, computer viruses, and cybersecurity incidents;

  timing and amount of share repurchases;
 

impacts of U.S. tax reform legislation on our results of operations;

 

adequacy of our insurance coverage;

 

supply chain challenges;

 

labor shortages;

 

ongoing military conflicts in areas such as Ukraine and Israel, and related consequences;

 

operating problems at our manufacturing operations including fires, explosions, inclement weather, and floods and other natural disasters;

 

material weaknesses in our internal control over financial reporting and our ability to remediate such weaknesses;

  uncertainty around the outcome of political elections;
 

impacts of pandemics, epidemics, or other public health emergencies; and

 

other risks discussed in Part I — Item 1A. “Risk Factors” of our Annual Report on Form 10‑K for the year ended December 31, 2023 (“2023 Form 10‑K”) and from time to time in our other Securities and Exchange Commission (the “SEC”) filings and reports.

 

Such forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this 2024 Q3 Form 10‑Q. If we do update or correct one or more forward-looking statements, investors and others should not conclude that we will make additional updates or corrections with respect thereto or with respect to other forward-looking statements.

 

21

 

Overview

 

Northwest Pipe Company is a leading manufacturer of water-related infrastructure products, and operates in two segments, Engineered Steel Pressure Pipe (“SPP”) and Precast Infrastructure and Engineered Systems (“Precast”). For detailed descriptions of these segments, see Note 12, “Segment Information” of the Notes to Condensed Consolidated Financial Statements in Part I – Item 1. “Financial Statements” of this 2024 Q3 Form 10‑Q.

 

In addition to being the largest manufacturer of engineered steel water pipeline systems in North America, we manufacture stormwater and wastewater technology products; high-quality precast and reinforced concrete products; pump lift stations; steel casing pipe, bar-wrapped concrete cylinder pipe, and one of the largest offerings of pipeline system joints, fittings, and specialized components. Strategically positioned to meet growing water and wastewater infrastructure needs, we provide solution-based products for a wide range of markets under the ParkUSA, Geneva Pipe and Precast, Permalok®, and Northwest Pipe Company lines. Our diverse team is committed to safety, quality, and innovation while demonstrating our core values of accountability, commitment, and teamwork. We are headquartered in Vancouver, Washington, and have 13 manufacturing facilities across North America.

 

Our water infrastructure products are sold generally to installation contractors, who include our products in their bids to federal, state, and municipal agencies, privately-owned water companies, or developers for specific projects. We believe our sales are substantially driven by spending on urban growth and new water infrastructure with a recent trend towards spending on water infrastructure replacement, repair, and upgrade. Within the total range of products, our steel pipe best addresses the larger-diameter, higher-pressure pipeline applications, while our precast concrete products mainly serve stormwater and sanitary sewer systems.

 

Our Current Economic Environment

 

Demand for our Precast products is generally influenced by general economic conditions such as housing starts, population growth, interest rates, and rates of inflation. According to the United States Census Bureau, privately-owned housing starts were at a seasonally adjusted annual rate of 1.4 million in September 2024 and 1.5 million in December 2023, and the population of the United States is expected to increase by approximately 2 million people in 2024. While these two indicators point to a strong housing market, particularly in Texas and Utah which are two of the five fastest growing markets in the United States according to the November 2022 Bluefield Research Insight Report – U.S. & Canada Municipal Water Outlook: Utility CAPEX & OPEX Forecasts, 2022-2030 and the states in which our Precast manufacturing facilities are located, the current elevated federal funds rate could continue to temper demand for our precast products.

 

Our SPP projects are often planned for many years in advance, as we operate that business with a long-term time horizon for which the projects are sometimes part of 50‑year build-out plans. While we experienced a relatively modest level of project bidding in 2023, 2024 has been an improved bidding environment and our backlog for SPP has remained elevated, and long-term demand for water infrastructure projects in the United States appears strong. Additionally, while our SPP business faces possible head winds from recessionary concerns in the broader domestic economy, we currently believe it more likely a modest increase in funding will be brought on by the Bipartisan Infrastructure Deal (“IIJA”) and the Inflation Reduction Act. According to the February 2024 Bluefield Research Insight Report – Infrastructure Investment & Jobs Act: Tracking the Spending, Q1 2024, approximately $1 billion earmarked under the IIJA has currently been outlaid by the Federal Government to date, leaving most of the $55 billion spending package available; we expect to benefit from this spending late in the cycle due to the long project timelines.

 

Purchased steel typically represents approximately 35% of our SPP projects’ cost of sales, and higher steel costs generally result in higher selling prices and revenue; however, volatile fluctuations in steel markets can affect our business. SPP contracts are generally quoted on a fixed-price basis, and volatile steel markets can result in selling prices that no longer correlate to the cost available at the time of steel purchase. Our average price of purchased steel was $933 per ton in the first nine months of 2024, as compared to annual averages of $994 per ton in 2023 and $1,174 per ton in 2022.

 

Economic uncertainty, including the impacts of raw material shortages, inflationary pressures, potential risks of a recession, and disruptions in the financial markets could have an adverse effect on our business. While the 2024 U.S. presidential election and overall domestic political outlook may result in volatility in financial markets, near-term changes in demand for our products are considered unlikely. The extent of the impact of these broader economic forces on our business will depend on future developments, which cannot be predicted.

 

22

 

Results of Operations

 

The following tables set forth, for the periods indicated, certain financial information regarding costs and expenses expressed in dollars (in thousands) and as a percentage of total net sales.

 

   

Three Months Ended

   

Three Months Ended

 
   

September 30, 2024

   

September 30, 2023

 
   

$

   

% of Net Sales

   

$

   

% of Net Sales

 

Net sales:

                               

Engineered Steel Pressure Pipe

  $ 85,924       66.0 %   $ 80,493       67.8 %

Precast Infrastructure and Engineered Systems

    44,277       34.0       38,229       32.2  

Total net sales

    130,201       100.0       118,722       100.0  

Cost of sales:

                               

Engineered Steel Pressure Pipe

    69,296       53.2       69,582       58.6  

Precast Infrastructure and Engineered Systems

    33,886       26.0       29,846       25.1  

Total cost of sales

    103,182       79.2       99,428       83.7  

Gross profit:

                               

Engineered Steel Pressure Pipe

    16,628       12.8       10,911       9.2  

Precast Infrastructure and Engineered Systems

    10,391       8.0       8,383       7.1  

Total gross profit

    27,019       20.8       19,294       16.3  

Selling, general, and administrative expense

    11,581       8.9       10,237       8.7  

Operating income

    15,438       11.9       9,057       7.6  

Other expense

    (66 )     (0.1 )     (61 )     -  

Interest expense

    (1,452 )     (1.1 )     (1,162 )     (1.0 )

Income before income taxes

    13,920       10.7       7,834       6.6  

Income tax expense

    3,667       2.8       2,016       1.7  

Net income

  $ 10,253       7.9 %   $ 5,818       4.9 %

 

   

Nine Months Ended

   

Nine Months Ended

 
   

September 30, 2024

   

September 30, 2023

 
   

$

   

% of Net Sales

   

$

   

% of Net Sales

 

Net sales:

                               

Engineered Steel Pressure Pipe

  $ 255,454       68.5 %   $ 221,294       66.2 %

Precast Infrastructure and Engineered Systems

    117,467       31.5       112,897       33.8  

Total net sales

    372,921       100.0       334,191       100.0  

Cost of sales:

                               

Engineered Steel Pressure Pipe

    207,603       55.6       190,030       56.8  

Precast Infrastructure and Engineered Systems

    92,351       24.8       85,809       25.7  

Total cost of sales

    299,954       80.4       275,839       82.5  

Gross profit:

                               

Engineered Steel Pressure Pipe

    47,851       12.9       31,264       9.4  

Precast Infrastructure and Engineered Systems

    25,116       6.7       27,088       8.1  

Total gross profit

    72,967       19.6       58,352       17.5  

Selling, general, and administrative expense

    35,220       9.5       33,119       9.9  

Operating income

    37,747       10.1       25,233       7.6  

Other expense

    (287 )     (0.1 )     (224 )     (0.1 )

Interest expense

    (4,749 )     (1.2 )     (3,722 )     (1.1 )

Income before income taxes

    32,711       8.8       21,287       6.4  

Income tax expense

    8,601       2.3       5,659       1.7  

Net income

  $ 24,110       6.5 %   $ 15,628       4.7 %

 

23

 

Three and Nine Months Ended September 30, 2024 Compared to Three and Nine Months Ended September 30, 2023

 

Net sales. Net sales increased 9.7% to $130.2 million in the third quarter of 2024 compared to $118.7 million in the third quarter of 2023 and increased 11.6% to $372.9 million in the first nine months of 2024 compared to $334.2 million in the first nine months of 2023.

 

SPP net sales were $85.9 million in the third quarter of 2024 compared to $80.5 million in the third quarter of 2023 and $255.5 million in the first nine months of 2024 compared to $221.3 million in the first nine months of 2023. The 6.7% increase in the third quarter of 2024 compared to the third quarter of 2023 was driven by an 18% increase in tons produced resulting from an improved bidding environment coupled with changes in project timing, partially offset by a 9% decrease in selling price per ton due to lower raw materials costs. The 15.4% increase in the first nine months of 2024 compared to the first nine months of 2023 was driven by a 42% increase in tons produced resulting primarily from an improved bidding environment coupled with changes in project timing, partially offset by a 19% decrease in selling price per ton due to a combination of lower raw materials costs and product mix. Bidding activity, backlog, and production levels may vary significantly from period to period, thereby affecting sales volumes.

 

Precast net sales were $44.3 million in the third quarter of 2024 compared to $38.2 million in the third quarter of 2023 and $117.5 million in the first nine months of 2024 compared to $112.9 million in the first nine months of 2023. The 15.8%increase in the third quarter of 2024 compared to the third quarter of 2023 was driven by a 35%increase in volume shipped, partially offset by a 14%decrease in selling prices due to changes in product mix. The 4.0%increase in the first nine months of 2024 compared to the first nine months of 2023 was driven by a 30% increase in volume shipped, partially offset by a 20%decrease in selling prices due to changes in product mix.

 

Gross profit. Gross profit increased 40.0% to $27.0 million (20.8% of net sales) in the third quarter of 2024 compared to $19.3 million (16.3% of net sales) in the third quarter of 2023 and increased 25.0% to $73.0 million (19.6% of net sales) in the first nine months of 2024 compared to $58.4 million (17.5% of net sales) in the first nine months of 2023.

 

SPP gross profit was $16.6 million (19.4% of SPP net sales) in the third quarter of 2024 compared to $10.9 million (13.6% of SPP net sales) in the third quarter of 2023 and $47.9 million (18.7% of SPP net sales) in the first nine months of 2024 compared to $31.3 million (14.1% of SPP net sales) in the first nine months of 2023. The 52.4% increase in the third quarter of 2024 compared to the third quarter of 2023 and the 53.1% increase in the first nine months of 2024 compared to the first nine months of 2023 were primarily due to increased volume and changes in product mix.

 

Precast gross profit was $10.4 million (23.5% of Precast net sales) in the third quarter of 2024 compared to $8.4 million (21.9% of Precast net sales) in the third quarter of 2023 and $25.1 million (21.4% of Precast net sales) in the first nine months of 2024 compared to $27.1 million (24.0% of Precast net sales) in the first nine months of 2023. The 24.0% increase in the third quarter of 2024 compared to the third quarter of 2023 was primarily due to increased shipment volume. The 7.3% decrease in the first nine months of 2024 compared to the first nine months of 2023 was primarily due to changes in product mix.

 

Selling, general, and administrative expense. Selling, general, and administrative expense increased 13.1% to $11.6 million (8.9% of net sales) in the third quarter of 2024 compared to $10.2 million (8.7% of net sales) in the third quarter of 2023 and increased 6.3% to $35.2 million (9.5% of net sales) in the first nine months of 2024 compared to $33.1 million (9.9% of net sales) in the first nine months of 2023. The increase in the third quarter of 2024 compared to the third quarter of 2023 was primarily due to $1.7 million in higher incentive compensation expense and $0.5 million in higher base compensation and benefits expense, partially offset by $0.7 million in lower professional fees. The increase in the first nine months of 2024 compared to the first nine months of 2023 was primarily due to $2.3 million in higher incentive compensation expense and $0.7 million in higher base compensation and benefits expense, partially offset by $0.5 million in lower professional fees.

 

Income taxes. Income tax expense was $3.7 million in the third quarter of 2024 (an effective income tax rate of 26.3%) compared to $2.0 million in the third quarter of 2023 (an effective income tax rate of 25.7%) and was $8.6 million in the first nine months of 2024 (an effective income tax rate of 26.3%) compared to $5.7 million in the first nine months of 2023 (an effective income tax rate of 26.6%). The estimated effective income tax rates for the third quarters and the first nine months of 2024 and 2023 were primarily impacted by non-deductible permanent differences. The estimated effective income tax rate can change significantly depending on the relationship of permanent income tax differences to estimated pre-tax income or loss. Accordingly, the comparison of estimated effective income tax rates between periods is not meaningful in all situations.

 

24

 

Liquidity and Capital Resources

 

Sources and Uses of Cash

 

Our principal sources of liquidity generally include operating cash flows and the Credit Agreement dated June 30, 2021 with Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent, and the lenders from time to time party thereto, including the initial sole lender, Wells Fargo (the “Lenders”), as amended by the Incremental Amendment dated October 22, 2021, the Second Amendment to Credit Agreement dated April 29, 2022, and the Third Amendment to Credit Agreement dated June 29, 2023 (together, the “Amended Credit Agreement”). From time to time our long-term capital needs may be met through the issuance of additional debt or equity. Our principal uses of liquidity generally include capital expenditures, working capital, organic growth initiatives, acquisitions, share repurchases, and debt service. Information regarding our cash flows for the nine months ended September 30, 2024 and 2023 are presented in our Condensed Consolidated Statements of Cash Flows contained in Part I – Item 1. “Financial Statements” of this 2024 Q3 Form 10‑Q, and are further discussed below.

 

As of September 30, 2024, our working capital (current assets minus current liabilities) was $201.9 million compared to $176.3 million as of December 31, 2023. Cash and cash equivalents totaled $5.7 million and $4.1 million as of September 30, 2024 and December 31, 2023, respectively.

 

Fluctuations in SPP working capital accounts result from timing differences between production, shipment, invoicing, and collection, as well as changes in levels of production and costs of materials. We typically have a relatively large investment in working capital, as we generally pay for materials, labor, and other production costs in the initial stages of a project, while payments from our customers are generally received after finished product is delivered. A portion of our revenues are recognized over time as the manufacturing process progresses; therefore, cash receipts typically occur subsequent to when revenue is recognized and the elapsed time between when revenue is recorded and when cash is received can be significant. As such, our payment cycle is a significantly shorter interval than our collection cycle, although the effect of this difference in the cycles may vary by project, and from period to period.

 

As of September 30, 2024, we had $60.7 million of outstanding revolving loan borrowings, $10.8 million of outstanding current debt, $86.9 million of operating lease liabilities, and $6.7 million of finance lease liabilities. As of December 31, 2023, we had $54.5 million of outstanding revolving loan borrowings, $10.8 million of outstanding current debt, $90.2 million of operating lease liabilities, and $7.5 million of finance lease liabilities. The increase in our revolving loan borrowings was primarily due to increased production and temporary changes in SPP working capital needs.

 

Net Cash Provided by Operating Activities

 

Net cash provided by operating activities was $18.9 million in the first nine months of 2024 compared to $44.4 million in the first nine months of 2023. Net income, adjusted for non-cash items, provided $42.7 million of operating cash flow in the first nine months of 2024 compared to $32.0 million of operating cash flow in the first nine months of 2023. The net change in working capital was $23.8 million of operating cash flow that was used in the first nine months of 2024 compared to $12.4 million of operating cash flow that was provided in the first nine months of 2023.

 

Net Cash Used in Investing Activities

 

Net cash used in investing activities was $16.5 million in the first nine months of 2024 compared to $15.9 million in the first nine months of 2023. Capital expenditures were $16.6 million in the first nine months of 2024 compared to $13.2 million in the first nine months of 2023, which includes $1.7 million in the first nine months of 2024 and $3.1 million in the first nine months of 2023 of investment in our new reinforced concrete pipe mill, $4.5 million in the first nine months of 2024 for the construction of a building at our Salt Lake City, Utah facility for the new mill, and the remainder primarily for standard capital replacement. We currently expect capital expenditures in 2024 to be approximately $20 million to $22 million, which includes approximately $3 million of investment in our new reinforced concrete pipe mill, and associated ancillary equipment, approximately $5 million for the construction of a building at our Salt Lake City, Utah facility for the new mill, and the remainder primarily for standard capital replacement. The $2.7 million payment of the working capital adjustment for the 2021 acquisition of Park Environmental Equipment, LLC was made in the second quarter of 2023.

 

Net Cash Used in Financing Activities

 

Net cash used in financing activities was $0.7 million in the first nine months of 2024 compared to $28.1 million in the first nine months of 2023. Net borrowings (repayments) on the line of credit were $6.2 million in the first nine months of 2024 compared to ($25.6) million in the first nine months of 2023. Repurchases of common stock were $4.4 million in the first nine months of 2024. No repurchases of common stock were made in the first nine months of 2023.

 

25

 

We anticipate that our existing cash and cash equivalents, cash flows expected to be generated by operations, and additional borrowing capacity under the Amended Credit Agreement and other loans will be adequate to fund our working capital, debt service, capital expenditure requirements, and share repurchases for the foreseeable future. To the extent necessary, we may also satisfy capital requirements through additional bank borrowings, senior notes, term notes, subordinated debt, and finance and operating leases, if such resources are available on satisfactory terms. We have from time to time evaluated and continue to evaluate opportunities for acquisitions and expansion. Any such transactions, if consummated, may necessitate additional bank borrowings or other sources of funding.

 

On December 4, 2023, our shelf registration statement on Form S‑3 (Registration No. 333‑275691) covering the potential future sale of up to $150 million of our equity and/or debt securities or combinations thereof, was declared effective by the SEC. This shelf registration statement, which replaced the registration statement on Form S‑3 that expired on November 3, 2023, provides another potential source of capital, in addition to other alternatives already in place. We cannot be certain that funding will be available on favorable terms or available at all. To the extent that we raise additional funds by issuing equity securities, our shareholders may experience significant dilution. As of the date of this 2024 Q3 Form 10‑Q, we have not yet sold any securities under this registration statement, nor do we have an obligation to do so. Please refer to the factors discussed in Part I – Item 1A. “Risk Factors” in our 2023 Form 10‑K.

 

On November 2, 2023, we announced our authorization of a share repurchase program of up to $30 million of our outstanding common stock. The program does not commit to any particular timing or quantity of purchases, and the program may be suspended or discontinued at any time. Under the program, shares may be purchased in open market, including through plans adopted pursuant to Rule 10b5‑1 of the Exchange Act, or in privately negotiated transactions administered by our broker, D.A. Davidson Companies. At this time, we have elected to limit our share repurchase transactions to only those under the Rule 10b5‑1 trading plan we executed in November 2023, which we believe considers our liquidity, including availability of borrowings and covenant compliance under our Amended Credit Agreement, and other capital allocation priorities of the business. Our Rule 10b5‑1 trading plan designates up to $10 million for daily share repurchases with volumes that fluctuate with changes in the trading price of our common stock. We expect to consider share repurchase strategies beyond the current Rule 10b5‑1 trading plan at a future date. For a summary of shares repurchased during the third quarter of 2024, see Part II — Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds” of this 2024 Q3 Form 10‑Q. Please refer to the factors discussed in Part I – Item 1A. “Risk Factors” in our 2023 Form 10‑K.

 

Credit Agreement

 

The Amended Credit Agreement provides for a revolving loan, swingline loan, and letters of credit in the aggregate amount of up to $125 million (“Revolver Commitment”), with an option for us to increase that amount by $50 million, subject to provisions of the Amended Credit Agreement. The Amended Credit Agreement will expire, and all obligations outstanding will mature, on June 29, 2028. We may prepay outstanding amounts at our discretion without penalty at any time, subject to applicable notice requirements. As of September 30, 2024 under the Amended Credit Agreement, we had $60.7 million of outstanding revolving loan borrowings, $1.6 million of outstanding letters of credit, and additional borrowing capacity of approximately $63 million.

 

Revolving loans under the Amended Credit Agreement bear interest at rates related to, at our option and subject to the provisions of the Amended Credit Agreement, either: (i) Base Rate (as defined in the Amended Credit Agreement) plus the Applicable Margin; (ii) Adjusted Term Secured Overnight Finance Rate (“SOFR”) (as defined in the Amended Credit Agreement) plus the Applicable Margin; or (iii) Adjusted Daily Simple SOFR (as defined in the Amended Credit Agreement) plus the Applicable Margin. The “Applicable Margin” is 1.75% to 2.35%, depending on our Consolidated Senior Leverage Ratio (as defined in the Amended Credit Agreement) and the interest rate option chosen. Interest on outstanding revolving loans is payable monthly. Swingline loans under the Amended Credit Agreement bear interest at the Base Rate plus the Applicable Margin. As of September 30, 2024, the weighted-average interest rate for outstanding borrowings was 7.35%. The Amended Credit Agreement requires the payment of a commitment fee of between 0.30% and 0.40%, based on the amount by which the Revolver Commitment exceeds the average daily balance of outstanding borrowings (as defined in the Amended Credit Agreement). Such fee is payable monthly in arrears. We are also obligated to pay additional fees customary for credit facilities of this size and type.

 

The letters of credit outstanding as of September 30, 2024 relate to workers’ compensation insurance and a public improvement project. Based on the nature of these arrangements and our historical experience, we do not expect to make any material payments under these arrangements.

 

26

 

The Amended Credit Agreement contains customary representations and warranties, as well as customary affirmative and negative covenants, events of default, and indemnification provisions in favor of the Lenders. The negative covenants include restrictions regarding the incurrence of liens and indebtedness, annual capital expenditures, certain investments, acquisitions, and dispositions, and other matters, all subject to certain exceptions. The Amended Credit Agreement requires us to regularly provide financial information to Wells Fargo and to maintain a consolidated senior leverage ratio no greater than 3.00 to 1.00 (subject to certain exceptions) and a minimum consolidated earnings before interest, taxes, depreciation, and amortization (“EBITDA”) (as defined in the Amended Credit Agreement) of at least $35 million for the four consecutive fiscal quarters most recently ended. Pursuant to the Amended Credit Agreement, we have also agreed that we will not sell, assign, or otherwise dispose or encumber, any of our owned real property. The occurrence of an event of default could result in the acceleration of the obligations under the Amended Credit Agreement. We were in compliance with our financial covenants as of September 30, 2024, and expect to continue to be in compliance in the near term.

 

Our obligations under the Amended Credit Agreement are secured by a senior security interest in substantially all of our and our subsidiaries’ assets.

 

Current Debt

 

The Interim Funding Agreement dated August 2, 2022 with Wells Fargo Equipment Finance, Inc. (“WFEF”), as amended January 23, 2023, March 15, 2023, July 21, 2023, and November 2, 2023 (together, the “IFA”), provides for aggregate interim funding advances up to $10.8 million of equipment purchased for a new reinforced concrete pipe mill, to be converted into a term loan upon final delivery and acceptance of the financed equipment. As of September 30, 2024, the outstanding balance of the IFA was $10.8 million, which was classified as a current liability since there was not a firm commitment for long-term debt financing. The IFA bears interest at the SOFR Average plus 2.00%. As of September 30, 2024, the weighted-average interest rate for outstanding borrowings was 7.10%. The IFA requires monthly payments of accrued interest and grants a security interest in the equipment to WFEF. Effective November 2, 2023, the IFA requires us to maintain a consolidated senior leverage ratio no greater than 3.00 to 1.00 (subject to certain exceptions) and to maintain a minimum consolidated EBITDA (as defined in the IFA) of at least $35 million for the four consecutive fiscal quarters most recently ended. We were in compliance with our financial covenants as of September 30, 2024, and expect to continue to be in compliance in the near term. On October 28, 2024 we converted the IFA into a term loan with WFEF. See Note 14, “Subsequent Event” of the Notes to Condensed Consolidated Financial Statements in Part I – Item 1. “Financial Statements” of this 2024 Q3 Form 10‑Q.

 

Recent Accounting Pronouncements

 

For a description of recent accounting pronouncements affecting our Company, including the dates of adoption and estimated effects on financial position, results of operations, and cash flows, see Note 13, “Recent Accounting and Reporting Developments” of the Notes to Condensed Consolidated Financial Statements in Part I – Item 1. “Financial Statements” of this 2024 Q3 Form 10‑Q.

 

Critical Accounting Estimates

 

The discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements included in Part I – Item 1. “Financial Statements” of this 2024 Q3 Form 10‑Q, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our Condensed Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. On an ongoing basis, we evaluate all of our estimates, including those related to revenue recognition, goodwill, income taxes, and litigation and other contingencies. Actual results may differ from these estimates under different assumptions or conditions.

 

There have been no significant changes in our critical accounting estimates during the nine months ended September 30, 2024 as compared to the critical accounting estimates disclosed in our 2023 Form 10‑K.

 

 

Item3. Quantitative and Qualitative Disclosures About Market Risk

 

For a discussion of our market risk associated with commodity prices, interest rates, and foreign currency exchange rates, see Part II – Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” in our 2023 Form 10‑K.

 

27

 

Item4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures (as defined in Rules 13a‑15(e) and 15d‑15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are designed to provide reasonable assurance that information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosures.

 

In connection with the preparation of this Quarterly Report on Form 10‑Q for the quarter ended September 30, 2024, our management, under the supervision and with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2024. As a result of the assessment, our CEO and CFO have concluded that, as of September 30, 2024, our disclosure controls and procedures were effective.

 

Changes in Internal Control over Financial Reporting

 

There were no significant changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PartII OTHER INFORMATION

 

Item1. Legal Proceedings

 

We are party to a variety of legal actions arising out of the ordinary course of business. Plaintiffs occasionally seek punitive or exemplary damages. We do not believe that such normal and routine litigation will have a material impact on our consolidated financial results. We are also involved in other kinds of legal actions, some of which assert or may assert claims or seek to impose fines, penalties, and other costs in substantial amounts. See Note 7, “Commitments and Contingencies” of the Notes to Condensed Consolidated Financial Statements in Part I – Item 1. “Financial Statements” of this 2024 Q3 Form 10‑Q.

 

 

Item1A. Risk Factors

 

In addition to the other information set forth in this 2024 Q3 Form 10‑Q, the factors discussed in Part I – Item 1A. “Risk Factors” in our 2023 Form 10‑K and any subsequently filed quarterly reports on Form 10‑Q could materially affect our business, financial condition, or operating results. The risks described in our 2023 Form 10‑K and subsequent Form 10‑Q’s are not the only risks facing us. There are additional risks and uncertainties not currently known to us or that we currently deem to be immaterial, that may also materially adversely affect our business, financial condition, or operating results.

 

28

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

On November 2, 2023, we announced our authorization of a share repurchase program of up to $30 million of our outstanding common stock. The program does not commit to any particular timing or quantity of purchases, and the program may be suspended or discontinued at any time. Under the program, shares may be purchased in open market, including through plans adopted pursuant to Rule 10b5‑1 of the Exchange Act, or in privately negotiated transactions administered by our broker, D.A. Davidson Companies. At this time, we have elected to limit our share repurchase transactions to only those under the Rule 10b5‑1 trading plan we executed in November 2023, which we believe considers our liquidity, including availability of borrowings and covenant compliance under our Amended Credit Agreement, and other capital allocation priorities of the business. Our Rule 10b5‑1 trading plan designates up to $10 million for daily share repurchases with volumes that fluctuate with changes in the trading price of our common stock. We expect to consider share repurchase strategies beyond the current Rule 10b5‑1 trading plan at a future date.

 

Pursuant to our share repurchase program, no repurchases of our common stock were made during the three months ended September 30, 2024, and $24.9 million of the share repurchase authorization remained available for repurchases as of September 30, 2024.

 

 

Item5. Other Information

 

During the three months ended September 30, 2024, none of our directors or officers adopted, modified, or terminated a Rule 10b5‑1 trading arrangement or a non-Rule 10b5‑1 trading arrangement, as such terms are defined under Item 408(a) of Regulation S‑K, except as follows:

 

On August 19, 2024, Aaron Wilkins, our Senior Vice President, Chief Financial Officer, and Corporate Secretary, adopted a Rule 10b5‑1 trading arrangement for the sale of shares of our common stock, which is intended to satisfy the affirmative defense conditions of Rule 10b5‑1(c) under the Exchange Act. Mr. Wilkins’ Rule 10b5‑1 trading arrangement provides for the potential sale of up to 2,500 shares of our common stock between November 18, 2024 and April 30, 2025, so long as the market price of our common stock is higher than certain minimum threshold prices specified in Mr. Wilkins’ Rule 10b5‑1 trading arrangement.

 

29

 

Item6. Exhibits

 

(a) The exhibits filed as part of this 2024 Q3 Form 10‑Q are listed below:

 

Exhibit

Number

 

Description

     
10.1   Term loan agreement dated October 28, 2024 by and between Wells Fargo Equipment Finance, Inc. and Geneva Pipe and Precast Company
     

31.1

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

     

31.2

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

     

32.1

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     

32.2

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     

101.INS

 

Inline XBRL Instance Document

     

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

     

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Document

     

101.DEF

 

Inline XBRL Taxonomy Definition Linkbase Document

     

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

     

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

     

104

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

30

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Dated: October 31, 2024

 

 

NORTHWEST PIPE COMPANY

   
 

By:

/s/ Scott Montross

     
   

Scott Montross

   

Director, President, and Chief Executive Officer

   

(principal executive officer)

     
 

By:

/s/ Aaron Wilkins

     
   

Aaron Wilkins

   

Senior Vice President, Chief Financial Officer, and Corporate Secretary

   

(principal financial and accounting officer)

 

 

31