PART I - FINANCIAL INFORMATION This section presents the company's financial statements, management's analysis, market risk disclosures, and controls and procedures Item 1. Financial Statements The company's financial statements for Q2 and H1 2019 show significant growth, a return to profitability, and improved cash flow, driven by the Ameron acquisition Condensed Consolidated Statements of Operations Net sales more than doubled in Q2 and H1 2019, leading to a significant return to net income from prior-year losses Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Q2 2019 | Q2 2018 | YoY Change | H1 2019 | H1 2018 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales | $69,203 | $28,785 | +140.4% | $131,846 | $62,150 | +112.1% | | Gross profit (loss) | $8,218 | $(1,238) | N/A | $14,789 | $110 | +13344.5% | | Operating income (loss) | $3,513 | $(5,827) | N/A | $5,837 | $(8,169) | N/A | | Net income (loss) | $2,974 | $(5,686) | N/A | $5,139 | $(7,637) | N/A | | Diluted EPS | $0.31 | $(0.59) | N/A | $0.53 | $(0.79) | N/A | Condensed Consolidated Balance Sheets The balance sheet strengthened by June 30, 2019, with increased assets and equity, and the line of credit fully repaid Balance Sheet Summary (in thousands) | Account | June 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total current assets | $161,805 | $159,513 | | Total assets | $279,052 | $271,350 | | Total current liabilities | $37,405 | $31,492 | | Borrowings on line of credit | $0 | $11,464 | | Total liabilities | $54,610 | $52,760 | | Total stockholders' equity | $224,442 | $218,590 | Condensed Consolidated Statements of Cash Flows Operating cash flow significantly improved to $17.3 million in H1 2019, enabling line of credit repayment and cash increase Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $17,299 | $623 | | Net cash used in investing activities | $(2,243) | $(888) | | Net cash used in financing activities | $(11,679) | $(1,494) | | Change in cash and cash equivalents | $3,377 | $(1,759) | | Cash and cash equivalents, end of period | $10,054 | $41,887 | Notes to Condensed Consolidated Financial Statements Notes detail the Ameron acquisition, ASC 842 adoption, Saginaw fire impact, and a $180.2 million backlog of performance obligations - The company operates in a single business segment, Water Transmission, producing steel pipeline systems and related products for water infrastructure22 - On July 27, 2018, the company acquired Ameron Water Transmission Group for $38.1 million in cash, expanding its product portfolio to include reinforced concrete pipe and T-Lock lining26 - An accidental fire occurred at the Saginaw, Texas facility on April 21, 2019, impairing coating ability. As of June 30, 2019, the company wrote off $1.0 million in assets, offset by $0.9 million in insurance proceeds and receivables. An additional $3.2 million in production costs were incurred due to the fire6194 - As of June 30, 2019, the company's backlog of remaining performance obligations was approximately $180.2 million, with 58% expected to be recognized as revenue in 201970 - The company adopted the new lease accounting standard ASC Topic 842 on January 1, 2019, recognizing right-of-use assets and lease liabilities of approximately $8.0 million77 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses significant revenue and profit growth driven by the Ameron acquisition and production volume, alongside strong liquidity and capital expenditure plans Results of Operations Q2 2019 net sales surged 140.4% due to Ameron acquisition and higher production, improving gross profit despite fire-related costs - Q2 2019 net sales increased 140.4% to $69.2 million, driven by a 186% increase in tons produced from higher demand and the acquired Ameron operations93 - The acquired Ameron operations contributed $13.8 million in net sales for Q2 2019 and $25.6 million for the first six months of 201993 - Gross profit for Q2 2019 was negatively impacted by $3.2 million in higher production costs resulting from the fire at the Saginaw facility94 - SG&A expenses increased 23.6% in Q2 2019 primarily due to $1.3 million in higher wages and incentive compensation-related expenses95 Liquidity and Capital Resources Strong liquidity is maintained with $17.3 million operating cash flow, no credit line borrowings, and $49.4 million available capacity - As of June 30, 2019, the company had no outstanding borrowings on its line of credit, down from $11.5 million at the end of 2018101 - Net cash provided by operating activities was $17.3 million for the first six months of 2019, a significant increase from the prior year102 - Total capital expenditures for 2019 are expected to be $12.1 million, for standard replacement and repairs at the Saginaw facility103 - The company has an available borrowing capacity of $49.4 million under its credit agreement as of June 30, 2019108 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company refers to its Annual Report on Form 10-K for a discussion of market risks associated with foreign currencies and interest rates - For discussion of market risk, the company refers to Part II – Item 7A of its 2018 Form 10-K113 Item 4. Controls and Procedures Disclosure controls were effective as of June 30, 2019, excluding the recently acquired Ameron's controls, which are being integrated - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2019115 - Management excluded the internal control over financial reporting of the newly acquired Ameron from its evaluation, as permitted by SEC guidance. Ameron represented 16.4% of total assets as of June 30, 2019116 PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, and a list of exhibits filed with the report Item 1. Legal Proceedings Routine legal actions are not expected to be material; significant matters are detailed in Note 9 of the financial statements - The company states that routine litigation is not expected to have a material impact on its financial results. For more significant legal actions, it refers to Note 9 of the Notes to Condensed Consolidated Financial Statements118 Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed, referring readers to the 2018 Form 10-K - The company refers to Part I – Item 1A. "Risk Factors" in its 2018 Form 10-K for a discussion of factors that could materially affect its business119 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL interactive data files - Lists the exhibits filed with the report, including Sarbanes-Oxley certifications and XBRL data files120
Northwest Pipe(NWPX) - 2019 Q2 - Quarterly Report