NWPX Infrastructure, Inc. Common Stock 2026 Q3 Earnings Call

Good morning and welcome to NWPX Infrastructure's third quarter 2026 conference call. My name is Scott Montross, and I am President and CEO of the company. I am joined today by Aaron Wilkins, our Chief Financial Officer. By now, all of you should have access to our earnings press release, which was issued yesterday, October 28th, at approximately 4:00 P.M. Eastern Time. This call is being webcast, and it is available for replay. As we begin, I would like to remind everyone that statements made on this call regarding our expectations for the future are forward-looking statements, and actual results could differ materially. Please refer to our most recent Form 10-K for the year ended December 31st, 2025, and in our other SEC filings for a discussion of such risk factors that could cause actual results to differ materially from expectations. We undertake no obligation to update any forward-looking statements.

Thank you all for joining us today. I'll begin with a review of our third quarter performance and our outlook for the fourth quarter of 2026, and then Aaron will walk you through our financials in more detail. Third quarter marked another outstanding quarter for NWPX Infrastructure as we delivered record financial performance across several key metrics. Net sales were up 18.7% year-over-year to a record $179.4 million, primarily driven by strength in our Water Transmission Systems business. Consolidated gross profit totaled a record $38.2 million, up 18.8% from last year, with our gross margin at 21.3%, consistent with the prior year. Strong execution across the business drove significant year-over-year earnings growth, with net income increasing 35% to $18.2 million or $1.86 per diluted share. We also generated $20.4 million of free cash flow during the quarter, further strengthening our financial position.

These results reflect the strength and resilience of our business, disciplined execution across our operations, and our continued ability to capitalize on favorable market conditions. Turning to our WTS segment. Revenue reached a quarterly record of $131.9 million, up 27% year-over-year with strong margin performance. Our performance reflected higher production volume with tons produced up 7%, supported by strong project execution and favorable project timing. Additionally, selling prices per ton were up 19% year-over-year, driven by changes in product mix. Steel lead times have remained extended during the quarter but have begun to moderate. Importantly, our longstanding relationships with domestic mills continue to support reliable access to steel and our ability to serve our customers. Additionally, the significant NDA project we have discussed throughout the year was a meaningful contributor during the third quarter, generating approximately $31 million of revenue.

We expect the project to make additional contributions in the fourth quarter and possibly into 2027 as well. We had another exceptionally strong booking quarter with robust bidding activity, sustaining continued healthy backlog and reinforcing demand strength across our markets. The WTS backlog, including confirmed orders, ended the quarter at a record $435 million, up from $423 million at June 30 and well above the $301 million level we reported last year at this time. Importantly, backlog continued to grow as we work through a meaningful portion of the NDA project, demonstrating the strength of the broader demand environment. This is a good indication of how strong the bidding was in the third quarter and continues to be in the fourth quarter. Our record backlog provides excellent visibility into future production activity and reflects continued demand for critical water infrastructure.

WTS gross profit increased 23.4% year-over-year to a record $27.3 million, resulting in a strong gross margin of 20.7% compared to 21.3% last year. This performance reflects higher volumes and strong execution, which continue to drive operating efficiencies across the business. Gross margin was modestly below the prior year, primarily related to project production mix. That said, year to date, WTS gross margin was approximately 180 basis points above prior year period, underscoring the continued strength of the business. Now turning to our Precast segment. Precast revenue slightly increased 0.6% year-over-year to $47.5 million. Our performance reflected a 4% decrease in volume shipped. However, selling prices were up 3% over last year, primarily reflecting favorable changes in product mix. Precast gross margin improved 160 basis points versus the prior year period.

Approximately $1 million of revenue contribution came from Serpentix, reflecting only a partial final month of the third quarter contribution from the September acquisition. While residential construction remains muted, and we have seen some softening in portions of the non-residential market, our ability to serve a diverse range of applications continues to help us navigate these conditions. We are particularly encouraged by the continued growth of our data center business. Through the third quarter, we quoted $33.5 million of data center project, booked in excess of $11 million worth of data center orders, and we are currently working on turning several additional large data center projects into new orders. While still a relatively small part of our overall business, it represents a growing source of opportunity, and we continue to approach the vertical selectively while maintaining our focus on our traditional Precast markets.

Our quarter-end Precast order book totaled $67 million, which includes $10 million related to Serpentix. The legacy Precast order book of $57 million is down from $61 million at June 30, and above the $55 million level at September 30 of last year, positioning the business well as we close out the year. While demand in the order book remains solid, some customer delayed shipments during the quarter amid continued uncertainty around interest rates, fuel costs, and the broader economic environment. This contributed to Precast revenue coming in somewhat below our expectations but did not meaningfully change our view of the longer-term demand environment. The resilience of the Precast business was particularly evident in this quarter.

Despite the softer residential activity and some pressure within the non-residential construction, Precast revenue remained above the prior year as we continued to pivot between residential, traditional non-residential, and emerging opportunities such as data centers. Looking ahead at the broader market, non-residential construction indicators remain mixed but continue to point toward areas of opportunities. The Dodge Momentum Index was up 3.7% year-over-year in September, with the commercial sector down 3% and the institutional sector up 17.2%. While near-term activity continues to be influenced by interest rates and broader macroeconomic uncertainty, the continued strength in institutional planning supports opportunities across portions of the non-residential construction market as we move into 2027. In addition, during the quarter, we completed the acquisition of Serpentix Conveyor, a manufacturer of engineered conveyor systems used primarily in municipal wastewater treatment plants and industrial manufacturing facilities.

The acquisition expands our participation in the wastewater treatment market and adds specialized engineered conveyance capabilities that fit naturally alongside NWPX Park's existing dewatering, separation, and mixing capabilities. Together, these businesses strengthen the wastewater platform we have been developing and broaden the solutions we can provide to municipal and industrial customers. Integration is progressing well with the existing Serpentix management team remaining in place and helping lead the process. We see attractive long-term growth potential in the wastewater market and believe Serpentix provides us with an additional platform from which to pursue opportunities across essential water and wastewater platforms. With two acquisitions completed this year, our immediate priority is executing a successful integration and ensuring we fully capture the strategic benefits of both businesses. At the same time, we continue to evaluate attractive acquisition opportunities that can expand our geographic reach, enhance our manufacturing capabilities, and broaden our product offering.

Further, we are continuing to advance our Precast product spread strategy across the network, broadening our capabilities and increasing our capacity utilization. Through September of this year, we have quoted $58.3 million worth of projects, and we have booked $9.7 million of product spread orders, exceeding total bookings for the full year of 2025. Precast gross profit of $10.9 million was up 8.6%. Gross margin improved approximately 160 basis points to 22.9% from 21.3% last year, primarily reflecting favorable changes in product mix. The margin improvement is especially encouraging given the lowered volumes of customer-driven shipment delays as we experienced during the quarter and reflects our continued focus on pricing, cost management, and operating efficiency. I'll now turn to our outlook for the fourth quarter.

On a consolidated basis, we currently anticipate stronger performance than both the fourth quarter of 2025 and the first quarter of 2026, which is particularly notable given the typical fourth quarter seasonality associated with fewer shipping days, holiday shutdowns, and potential weather-related disruptions. The strength of our backlog and the opportunities across our businesses give us confidence in our outlook as we close out the year. In our Water Transmission Systems segment, we expect WTS backlog to remain elevated through year-end, supported by continued demand for critical water infrastructure. Our record $435 million backlog, including confirmed orders, provides excellent visibility into future production activity. In addition, elevated bidding levels that have continued into October are providing great visibility into near-term financial performance. Based on what we are seeing today, we expect full-year base bidding levels, not including the NDA project, to be stronger than what we saw in 2025.

We also expect additional contribution from the previously discussed NDA project during the fourth quarter. More broadly, the strength of the underlying WTS business gives us confidence that 2026 would have been a record year, even without the benefit of this unique project. Through the first nine months of 2026, without the contribution from the NDA project, WTS revenue would have been approximately 10% higher than the same period of 2025. The pipeline of current and upcoming water transmission projects remains strong, with attractive economics and margins supporting our outlook. For a more complete view of these projects, please refer to our investor presentation on our website. Turning to Precast. We expect our Precast business to remain steady in the fourth quarter, supported by a solid order book and continued customer activity. We continue to expect 2026 to be a record year for Precast revenue.

While residential construction remains muted, and we are seeing some softness in portions of the non-residential market, we continue to benefit from the diversity of our product portfolio and end market exposure. In particular, data centers continue to provide an attractive source of incremental opportunity, helping offset softness in other areas of the business. Looking beyond the fourth quarter, the addition of Serpentix further broadens our capabilities and provides another avenue for growth across wastewater infrastructure and engineered solutions. In closing, we delivered another outstanding third quarter, setting new records for revenue and gross profit while generating earnings of $1.86 per diluted share. WTS continues to perform at an exceptional level, supported by record backlog and continued demand for critical water infrastructure, while Precast delivered year-over-year growth and strong margin improvement.