Northwest Pipe(US:NWPX)2022-03-16 20:18Acquisitions and Market Position - Northwest Pipe Company completed the acquisition of Park Environmental Equipment, LLC for approximately $88.4 million in cash, enhancing its position in the water infrastructure technology market [25]. - The company acquired Geneva Pipe and Precast Company for $49.4 million in cash, expanding its water infrastructure product capabilities with additional reinforced concrete pipe capacity [26]. - The company acquired ParkUSA on October 5, 2021, and Geneva on January 31, 2020, with the success of these acquisitions dependent on effective integration and realization of anticipated benefits [104]. - The company acquired Park Environmental Equipment, LLC in October 2021, enhancing its product offerings in water and wastewater solutions [161]. Financial Performance - Net sales increased by 16.6% to $333.3 million in 2021 compared to $285.9 million in 2020 [167]. - Engineered Steel Pressure Pipe (SPP) net sales rose by 7.5% to $259.8 million in 2021, driven by a 15% increase in selling price per ton [168]. - Precast Infrastructure and Engineered Systems net sales surged by 66.2% to $73.5 million in 2021, primarily due to the acquisition of ParkUSA, contributing $18.0 million in Q4 2021 [169]. - Gross profit decreased by 12.4% to $44.3 million (13.3% of net sales) in 2021 compared to $50.5 million (17.7% of net sales) in 2020 [170]. - SPP gross profit fell by 29.4% to $31.3 million (12.0% of SPP net sales) in 2021, impacted by changes in product mix and project pricing pressure [171]. - Precast gross profit increased by 108.4% to $13.0 million (17.7% of Precast net sales) in 2021, aided by higher prices and production volume [172]. - Selling, general, and administrative expenses rose by 13.1% to $28.2 million (8.4% of net sales) in 2021, primarily due to higher compensation and acquisition-related costs [173]. - Income tax expense was $3.6 million in 2021, with an effective tax rate of 24.0%, compared to $6.6 million and 25.7% in 2020 [175]. Market Demand and Infrastructure Investment - As of December 31, 2021, the backlog for water infrastructure steel pipe products was approximately $183 million, up from $167 million in 2020, indicating a positive trend in demand [44]. - The total addressable market for engineered welded steel pipeline system products is estimated to be approximately $1.8 billion over the next three years [40]. - The American Society of Civil Engineers estimates that $150 billion will be needed for capital investment in water and wastewater infrastructure by 2025, and $204 billion by 2040 [35]. - The Bipartisan Infrastructure Deal will invest $55 billion to expand access to clean drinking water across the country, providing significant opportunities for growth in the water infrastructure sector [33]. - The average age of drinking water and wastewater pipes in the U.S. is approximately 45 years, indicating a critical need for repair and replacement [41]. Operational and Compliance Risks - The Engineered Steel Pressure Pipe segment faces overcapacity issues due to recent capacity expansions and increased competition from substitute products, negatively impacting sales and gross margins [95]. - The company is subject to risks from project delays in public water transmission projects, which could adversely affect financial performance [93]. - A downturn in government spending related to public water transmission projects could negatively impact the company's business and financial condition [94]. - Compliance with stringent environmental, health, and safety laws is a significant factor, with expected substantial expenditures for compliance and potential penalties for non-compliance [100]. - The company faces risks related to environmental assessments and potential liabilities, which could require significant future expenditures [102]. - The company is exposed to interest rate risk due to its variable rate indebtedness, which could increase debt service obligations if interest rates rise [132]. Employee and Safety Metrics - As of December 31, 2021, the company employed 1,256 individuals, with a weighted-average tenure of 8 years [72]. - Company is committed to equal pay for equal work, regardless of employee demographics [73]. - The average total recordable incident rate over the last four years was 2.48, and the average days away rate was 0.52, indicating strong safety performance [76]. - As of December 31, 2021, 46% of employees in the United States self-identified as belonging to underrepresented racial/ethnic groups, and 11% self-identified as female [78]. Financial Position and Capital Expenditures - The company had $86.8 million of outstanding revolving loan borrowings and $1.6 million of outstanding letters of credit as of December 31, 2021, with additional borrowing capacity of approximately $37 million under the Amended Credit Agreement [128]. - The company has $98.4 million of operating lease liabilities and $2.2 million of finance lease liabilities as of December 31, 2021 [129]. - Future capital expenditures in 2022 are expected to be approximately $26 million to $30 million, including $13 million for a new reinforced concrete pipe mill [191]. - The company may need to substantially increase working capital if market conditions and customer order levels continue to grow, which could adversely affect its financial position and cash flows [128]. Steel Price Volatility - Steel is a substantial portion of cost of sales, with prices influenced by economic conditions and other external factors [66]. - The average cost of steel per ton was approximately $1,291 in 2021, compared to $655 in 2020 and $803 in 2019, indicating significant price volatility [123]. - Monthly average steel purchasing costs in 2021 ranged from a high of approximately $1,975 per ton to a low of approximately $656 per ton, affecting gross profit margins [123]. - Steel costs increased by 67% in 2021 compared to 2020, significantly impacting cost of sales for steel pipe products [163]. - Fluctuations in steel prices and availability may adversely affect the company's future results of operations, with the steel industry being highly cyclical [123].