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Northwest Pipe Company (NWPX 1.25%)
Q4Â 2018 Earnings Conference Call
March 14, 2019, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
See all our earnings call transcripts.
Prepared Remarks:
Operator
Welcome and thank you all for standing by. At this time, all participants are in a listen-only mode until the Q&A session of this conference. (Operator Instructions) This call is being recorded. If you have any objections, you may disconnect at this point.
Now, I will turn the meeting over Scott Montross, you may begin.
Scott J. Montross -- President, Chief Executive Officer and Director
Thank you, Andy. Good morning, and welcome to Northwest Pipe's Conference Call. My name is Scott Montross, and I'm President CEO of the company. I'm joined by Robin Gantt, or Chief Financial Officer.
As we begin, I'd like to remind everyone that statements we make in this call about are expectations for the future are forward-looking statements and actual results could differ materially. Please refer to our most recent SEC filing on Form 10-K for a discussion of risk factors that could cause actual results to differ materially from expectations.
I will now turn to Robin, who will discuss our fourth quarter and full year results.
Robin A. Gantt -- Chief Financial Officer, Senior Vice President
Thank you, Scott. Our fourth quarter income from continuing operations was $148,000 or $0.02 per diluted share. Adjusted for the bargain purchase, moderate sale gains and restructuring and acquisition related costs, our adjusted income from continuing operations was $2.6 million or $0.27 per diluted share compared to an adjusted loss from continuing operations of $1.1 million or $0.11 per diluted share in the fourth quarter of 2017.
Sales were $57.5 million in the fourth quarter of 2018, compared to $35.6 million in the fourth quarter of 2017. Gross profit as a percent of sales was 11.8% in the fourth quarter of 2018, compared to 5.1% in the fourth quarter of 2017. Ameron acquisition added about $19.1 million in sales. The remaining increase was due to the 23% increase in selling price per ton, partially offset by 12% decrease in tons produced. Gross profit as a percent of sales improved with the increases in selling prices per ton.
Selling, general and administrative costs increased to $4.1 million in the fourth quarter of 2018, from $3.3 million in the fourth quarter of 2017. This increase was due primarily to $600,000 in acquisition related costs. We sold the Monterrey facility in the fourth quarter for net proceeds of $2.7 million and recorded a gain of about $200,000. We did have an adjustment in the fourth quarter to the bargain purchase recorded with the acquisition of Ameron Water Transmission Group, and have a net gain of $20.1 million. The initial gain was recorded based on a preliminary fair value of the assets and liabilities, and we recorded some adjustments as we continued our fair value assessments. We may have additional adjustments in the future through first and second quarter of 2019.
As we noted last quarter, Ameron has been consolidated into Northwest Pipe's results. And excluding the acquisition related costs, Ameron has been accretive to Northwest Pipe's income in the third and fourth quarters.
Moving on to the full year results, our income from continuing operations was $20.3 million or $2.09 per diluted share, compared to a loss of $8.4 million or $0.88 per diluted share in 2017. We did have several one-time adjustments in 2018 and 2017 that impacted results, including the bargain purchase gain, gains on the sale of Houston and Monterrey, acquisition related costs, restructuring expenses and a change in workers compensation reserves. When we adjust the results for these one-time items net of tax, our adjusted net loss from continuing operations was $1.7 million or $0.18 per diluted share in 2018, compared to an adjusted net loss of $7.1 million or $0.74 per diluted share in 2017. Sales increased to $172.1 million in 2018 from $132.8 million in 2017.
Gross profit as a percent of sales was 7% in 2018, compared to 4.4% in 2017. The Ameron acquisition added about $30.2 million in sales. The remaining increase was due with 6% increase in selling price per ton, and a 1% increase in tons produced. Gross profit as a percent of sales improved with the increases in selling prices per ton.
Selling, general and administrative costs increased to $16.7 million in 2018, from $14.1 million in 2017. This increase was due to $2.6 million in acquisition related costs. We had an income tax benefit rate of 19.1% in 2018, compared to an income tax benefit rate of 11.6% in 2017. Our 2018 rate was impacted by the non-taxable bargain purchase gain, as well as changes in the valuation allowance and the tax windfall from share-based compensation.
In 2018, the company used $18.4 million in cash from operations. Depreciation and amortization were $9.3 million in 2018 and $6.6 million in 2017. Capital expenditures were $3.8 million in 2018, which were for ongoing maintenance capital expenditures. We have planned about 12 million in total capital expenditures for 2019, most of which falls under maintenance capital spending. At the end of 2018, have had borrowed $11.5 million under the line of credit. Today, we do not have any borrowings and have about $50 million in availability for working capital needs.
Now, I'll turn it over to Scott for an update on our business.
Scott J. Montross -- President, Chief Executive Officer and Director
We continue to make progress on integrating the Ameron Water Transmission Group into Northwest Pipe. This acquisition has created a strong platform, this is expected to have major impact on the ongoing earning potential of the company. As of December 31st, 2018, our backlog, including confirmed orders, was $252 million, an all time record compared to $201 million in the third quarter, and $88 million in the fourth quarter of 2017.
The significant increase in backlog at year-end was a result of a strong fourth quarter bidding opportunities that we've discussed in our previous calls. The current demand levels, along with a stable competitive landscape should lead to a stronger first quarter than we've seen recently bucking the trend for relatively slow first quarters for the last three years. We expect first quarter to be similar to the fourth quarter of 2018 with respect to revenue and gross profit. Furthermore, we expect continuing improvement in revenues and margins as we progressed through the rest of 2019.
The following is a look at current and upcoming water transmission projects. In the Texas market, the SWIFT program has funded over $8 billion in projects over the last six years. SWIFT is expected to continue to fund major projects like the Houston Project in Bois d'Arc Reservoir well into the future. The Houston Surface Water Project is a major multi-year, multi-agency program with a series of segments representing 90,000 tons of pipe. Northwest Pipe has been the successful bidder on multiple Houston segments, representing over 150,00 tons of pipe. The production of the individual segments are in various stages from pre-manufacturing to ship complete.
There are additional segments of Houston project that will bid throughout 2019 and 2020 that represent about 35,000 tons of pipe. The Bois d'Arc Reservoir project by the North Texas Municipal Water District has begun construction and represents approximately 60,000 tons of pipe. Northwest Pipe was the successful bidder on a portion of the raw water line for Bois d'Arc in the fourth quarter of 2018. The segments that we were awarded represent approximately 25,000 tons of pipe scheduled to be produced in 2019. The finished water line for this project is forecast to bid in the first half of 2019 and represent an additional 22,000 tons of pipe.
In the Western market, the $2.6 billion California reline program began in 2017 and will be active over the next 20 years. In 2018, Northwest Pipe was successful bidder on to reliner segments. First, the 6,000 ton MWD reline project on which production began in the fourth quarter, and will run through the first quarter of 2019. And the 3,500 ton San Diego County Authority reline project with production that will run through the first quarter of 2019. Two to three additional reline segments will bid each year, representing 8000 to 10,000 tons of pipe annually. The city of San Diego's $1.7 billion pure water program is a 6000 ton project that is scheduled to begin bidding in the first half of 2019. The Santa Clara Valley Water District's $1 billion pure water program represents 8500 tons of pipe projected to start bidding in early 2020.
In North Dakota, progress has slowed on 140 mile, 87,000 ton Red River Valley Water Supply Project, as it is competing for funding with an urgent flood diversion project, which appears to be taking priority. We are hopeful that beginning on this project will start sometime within the next year. With a very strong backlog coming out of 2018 and a solid bidding year projected for 2019, along with a stable bidding environment, we expect a positive trend in revenue and margins throughout 2019. And because a substantial portion of the project is currently bidding on multi-year programs, we expect to see continued strength in the backlog, which should translate into positive business conditions beyond 2019. The acquisition of the Ameron Water Transmission Group further strengthens our position in the business.
In closing, as we move forward, we will remain focused on, one, the successful integration of the Ameron Water Transmission Group, two, improving the performance of the business by focusing on margin over volume, and three, driving cost reductions and efficiencies at all levels of the company.
At this time, we would be happy to answer any of your questions.
Questions and Answers:
Operator
Thank you. We will now begin the question-and-answer session over the phone. (Operator Instructions) And our first question comes from the line of Brent Thielman. You may ask your question.
Brent Thielman -- D.A. Davidson -- Analyst
Hey, thanks. Congrats on a strong finish of the year.
Scott J. Montross -- President, Chief Executive Officer and Director
Hey, Brent. Thank you.
Robin A. Gantt -- Chief Financial Officer, Senior Vice President
Good morning, Brent.
Brent Thielman -- D.A. Davidson -- Analyst
Good morning. Scott or Robin, you've seen lot of improvement and profitability but I know it's still not exactly where you wanted to be. I guess two questions. Did the fourth quarter have any negative sort of price cost impact because of this big move in steel last year and I presume now it subsided. And then also, have you seen your gross profit percentage sort of markedly improve month-over-month? In other words are you sort of exiting the quarter at something above that 12% level?
Scott J. Montross -- President, Chief Executive Officer and Director
You know, when you think about the steel piece, Brent. I think that the steel piece is -- in the pricing on pipe is pretty much kept up with the increasing on steel as we've gone through the marketplace. And in fact, I think the price on pipe has increased even more than we've seen. As you go through a period of time, as you know, we've grown this backlog to $252 million, so you continue to work your way through a backlog that, quite frankly, as you look at it chronologically, has an improving margin over a period of time which is what we expect to see as we move from the first quarter to the second quarter, to the third quarter of this year.
Really what I would say is, moving back toward what the historical margins level were for the company. So, I think we're kind of in that track at this point.
Brent Thielman -- D.A. Davidson -- Analyst
Okay, OK. And Scott, I seem to recall, I think maybe last quarter, maybe your thought process was -- was 2019 might not quite be as strong from a bidding perspective relative to 2018? Is that view changed at all?I mean, you sound like you should be still able to grow that backlog as we move through the year.
Scott J. Montross -- President, Chief Executive Officer and Director
Yeah, Brent, the interesting thing is, every year we expect to start out one way and it kind of changes around a little bit and more straight. So, 2018 was a really big bidding year. You know, there were probably somewhere in the area of about 250,000 or so tons of bidding. When you look at 2019 bidding wise, it looks like a year with the Municipal market and some of the hydro work and plant work that's in there, that's probably you now a relatively solid year that's around 200,000 tons when you put that all together. So it's not a significant drop off from what we would consider to be a very strong market.
So as we look at -- as we look at bidding as we progress through 2019, as you know, and you've heard really for the last few years, the first quarter generally starts off not only relatively slow from a result standpoint, but relatively slow from bidding standpoint. So you see, probably the January, February time frame are a little bit slow and then things start to pick up in March for this year, and really probably get to the highest level in the second and third quarter or sometime between the second third quarter. So, when we look at what we're forecasting our backlog to be, you know probably takes a little bit of a dip in the first quarter. But we expect it, at least at this point with the way the bidding is shaping up, we expect it to be relatively range-bound and stay within a range and settle out at a higher level than we've seen recently.
Brent Thielman -- D.A. Davidson -- Analyst
Got it. Okay. Out of curiosity, I mean, this does sound like weather has been a hang up for you in-terms of volumes. Seems like that's been chatted about a lot across the industry and other areas of construction?
Scott J. Montross -- President, Chief Executive Officer and Director
Yeah, I think weather has been an issue in certain places. We've seen weather issues in both Texas and California, that have created issues with -- I guess probably as much as anything getting shipments to lay locations in the field to the contractors. But yeah, we definitely have seen some weather related situations. And looking at some of the transcripts from some of the earnings calls that we've seen on other people in similar businesses. I would agree that we've had some impact from the weather.
Obviously, the winter weather in the Midwest and further East has impacted things too. So I would say its had a -- its reasonable impact on the -- what the revenues been.
Brent Thielman -- D.A. Davidson -- Analyst
Yeah. Okay, I think that's it from me. Thank you.
Scott J. Montross -- President, Chief Executive Officer and Director
Thanks, Brent.
Operator
Thank you. Our next question comes from the line of David Wright. You may ask your question.
David Wright -- -- Analyst
Robin and Scott, good morning.
Scott J. Montross -- President, Chief Executive Officer and Director
Hi, David.
Robin A. Gantt -- Chief Financial Officer, Senior Vice President
Good morning, David.
David Wright -- -- Analyst
Brent asked my questions, so let me just try to drill down on him a little bit further. So on backlog -- I'm sorry, on bidding opportunity. I was going to ask and the answers you gave. So the total opportunity this year was maybe about 80% of what you saw at as last year.
Scott J. Montross -- President, Chief Executive Officer and Director
Yeah, you know, I would say that's probably in the right range. But in general, when you look at a year that has this kind of volume and this is a pretty solid year that we would characterize a bidding year being in any normal time, other than, David, when you follow a year has 250,000 tons of project bidding. So --
David Wright -- -- Analyst
Right. Do you have sense of what percentage of last year's opportunities you were successful on?
Scott J. Montross -- President, Chief Executive Officer and Director
When you look at market percentages last year, God, I would say that -- because remember we've only had the Ameron assets within the fold of the company for the last four or five months of the year. So I would say we were probably in the mid 40s percent of market share. As we look forward, we think it's probably somewhere between 48% and 52% in this market that probably settles out as a market share for us.
David Wright -- -- Analyst
Okay, so even with a lower opportunity, if you get a little more market share, that's going to push you up a bit?
Scott J. Montross -- President, Chief Executive Officer and Director
Yeah. And I think, David, just to add on to this, when you look at where the opportunities are in the market, we still see strength in the Texas market, which is where we were been strong for years. But we also see some strength in the Western market, and that's not just California, it's different parts of the West. So, I think we are located in pretty good spots to be able to take advantage of the tons that are going to be bid.
David Wright -- -- Analyst
Okay, and then, going over the margins. I like your phrase, I hope it's not deemed an official condition, chronologically improving margins toward the historical norms. What would you call the historical gross (inaudible) profit margin?
Scott J. Montross -- President, Chief Executive Officer and Director
I would say that when you when you look at the gross profit percentages historically, they probably are bound by about 15% to 17% is what we've seen historically in gross profit margins when we've had good markets. I think as the longer the market stay stable and the competitive landscape remains stable, I think those continue to improve. If you look back to where we were in 2013, we had gross margin percentages in 2013 that for the year averaged over 20%. I think it was somewhere, Robin in the area of 21%.
So I don't think that's out of the question at all. I think things are setting up quite nicely as long as the bidding stays the way it looks right now, David, there's no reason why we can't get back to those kind of levels.
David Wright -- -- Analyst
And does Ameron with their slightly different product mix, does Ameron make it harder or easier to get to that gross profit level?
Scott J. Montross -- President, Chief Executive Officer and Director
No, I don't -- I don't think it makes it harder. Certainly I think that, with the operational efficiencies and the administrative efficiencies that we see with combining the Ameron business in the Northwest Pipe, we see room for margin improvement, just based on that, OK. So, I think that when you look at the different products they have, one, they have that reinforced concrete product out of the Tracy facility, which is a -- more of when you look at concrete pipe, more of a specialty product compared to what you normally think of reinforced concrete pipe being the stuff that we make in Tracy is large diameter, heavy -- deep-burry corrosive soil, able to handle heavy loads. So it's more of a niche product. And that kind of a niche product generally carries a higher margin. But there's less of that niche product in the bidding environment. So -- but all in all, we think that the Ameron assets as part of the company definitely helps the gross margin profile.
David Wright -- -- Analyst
Okay, that's great. Last question, I'm going to call it personal. So you're integrating an acquisition, you've got new facilities, just kind of in legacy Northwest Pipe, what's your headcount relative to where it was directionally?
Scott J. Montross -- President, Chief Executive Officer and Director
I would say the legacy headcount for Northwest Pipe of the legacy company is probably just below 500 in that area. In total, the headcount for both companies is, I think, somewhere in the area of a little over 700. And we originally got about 228 from the Ameron Group.
David Wright -- -- Analyst
I guess where I was going was just on doing less tons, you're getting more for them, but does less tons mean less people you know to compared to five years ago?
Scott J. Montross -- President, Chief Executive Officer and Director
Well not necessarily. I mean, it all depends on the mixed profile of the product that you're making. One, we could be doing smaller diameter, lighter wall product. It's less tons with more lineal feet. So it's kind of that kind of a combination. But when you look at the less tons is -- I think we're probably comparing to the script. If look at where we were with the legacy company through the July time frame, we were actually ahead year-over-year on tons. And it starts to get a little bit difficult when you look at the legacy company and trying to figure what the tons are for the legacy company because since day one, and when we got the Ameron assets, we've been bidding things as a combined entity and we've chosen where to put all those orders that best fits our strategic goals.
So it's difficult to tell just by looking at the legacy plants where the tons are. If you look at year-over-year, where we were versus '17 and where we are in '18. obviously, we're having more production facilities. We were, it's probably 27% higher in tons and for the year higher than -- in tons. But it's difficult to look at just the legacy plants because we're deciding where to put things now.
David Wright -- -- Analyst
Okay. Well, it's great to see the projects you've been working on actually make their way into the revenue line. And keep up the good work and good luck with the chronological improvements.
Scott J. Montross -- President, Chief Executive Officer and Director
Thanks, David.
David Wright -- -- Analyst
Okay.
Operator
Speakers, right now there are no questions on queue. (Operator Instructions) Excuse me speakers, right now there are no questions on queue. You may proceed.
Scott J. Montross -- President, Chief Executive Officer and Director
Okay. Well, thank you everyone for attending the call. Obviously, we are excited about the improvement that we're seeing in the business and the company, and look forward to seeing more of that as we go forward into the future. So we'll see you on the next call, which is in --
Robin A. Gantt -- Chief Financial Officer, Senior Vice President
The early May.
Scott J. Montross -- President, Chief Executive Officer and Director
Early May. So thank you very much.
Robin A. Gantt -- Chief Financial Officer, Senior Vice President
Thank you.
Operator
Thank you. And that concludes today's conference. Thank you all for joining. You may disconnect now.
Duration: 26 minutes
Call participants:
Scott J. Montross -- President, Chief Executive Officer and Director
Robin A. Gantt -- Chief Financial Officer, Senior Vice President
Brent Thielman -- D.A. Davidson -- Analyst
David Wright -- -- Analyst
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