Good morning, and Welcome to the Northwest Pipe Company First Quarter 2023 Earnings Call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing star, then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Scott Montross, President and CEO of Northwest Pipe Company. Please go ahead.
Good morning. Welcome to Northwest Pipe Company's First Quarter 2023 Earnings Conference Call. My name is Scott Montross. I am President and CEO of the company. I'm 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, May 3rd, 2023 at approximately 4:00 P.M. Eastern Time. This call is being webcast. It is available for replay. As we begin, I would like to remind everyone that the 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, 2022, and in our other SEC filings for a discussion of such risk factors that could cause actual results to differ materially from our 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 1st quarter performance and outlook. Aaron will walk you through our financials in greater detail. Our 1st quarter results came in slightly better than our expectations. We generated revenue of $99.1 million, a decline of 9.4% compared to the prior year quarter.
Revenue from our steel pressure pipe segment totaled $63.5 million, reflecting a decrease of 14.9% over the prior year quarter, mainly due to anticipated customer-driven delays, which affected the production timing of our projects in backlog, in addition to severe weather events, which led to unscheduled downtime at multiple of our facilities in the 1st quarter. This resulted in relatively flat production volume year-over-year. That said, we ended the quarter with a strong backlog, including confirmed orders near record territory at $370 million, which was down marginally from our all-time high of $372 million at year-end and up from $341 million as of March 31st, 2022.
We entered 2023 with a very strong backlog from robust bidding in the 2nd half of the year, which should carry us through to deliver strong steel pressure pipe results in 2023. We do expect bidding volume to be down moderately in 2023. Backlog in the 2nd quarter may moderate lower, but is anticipated to still remain high by historical standards. On the pricing side, hot-rolled band steel prices have increased fairly rapidly since the start of this year, which in general bodes well for our steel pressure pipe business. Turning to our precast segment. Precast revenue increased 2.7% from the prior year quarter to $35.6 million, driven primarily by higher selling prices, given continued strong demand for our precast products, as well as increased raw material input costs.
Our sales were partially offset by lost production days resulting from the ongoing ERP implementation project at ParkUSA as anticipated, as well as severe weather events we experienced in the 1st quarter. Our precast related order book remains strong, in total $58 million as of March 31st, 2023, despite moderating down from $64 million as of December 31st, 2022, and from $66 million as of March 31st, 2022. While our order book was impacted by a softer U.S. residential housing market, we continue to believe we are well-positioned to benefit longer term given our strong presence in Utah and Texas, as these particular states are within the top five fastest growing markets in the U.S.
Further, the ParkUSA products provide unique advantages for growth in the commercial construction market despite near-term macroeconomic concerns, highlighting a key benefit of our diversification strategy. Our 1st quarter consolidated gross profit increased at 12.1% year-over-year to $16.6 million, resulting in a gross margin of 16.7%, up from 13.5% in the 1st quarter of 2022. Our steel pressure pipe gross margin of 12.2% improved by approximately 260 basis points over 1st quarter 2022, primarily due to the higher margin quality of projects that we have in backlog, as well as improved project pricing.
Partially offsetting the strength in our steel pressure pipe gross margin in the 1st quarter was a negative impact from severe weather events and customer-driven production delays that affected our overhead absorption levels. Our precast gross margins improved by approximately 280 basis points over the 1st quarter of 2022 to 24.7% of precast sales. The improvement was predominantly due to improved pricing despite some of the ongoing challenges that we continue to face with the ERP implementation, severe weather events that cause unscheduled downtime, and the impact of rising interest rates on the residential housing market. I would like to provide an update on our growth initiatives to position Northwest Pipe for increased resilience through market cycles. Our 1st strategic priority is to continue driving growth in the precast related space, which we believe has attractive through cycle characteristics.
The integration work post our acquisition of ParkUSA remains ongoing as we continue to assimilate the company into our operations and culture, and we are making solid progress toward finalizing the Park ERP implementation project. As we discussed on our last call, we've encountered challenges which including control deficiencies related to ERP system implementation, have required us to take planned downtime at our plants as we work toward achieving optimum system functionality. This downtime reduced both our production levels and shipments, adversely affecting both our precast revenue and gross margins during the 1st quarter. We expect we will experience additional downtime in the 2nd and 3rd quarters of 2023 before returning to a more normalized operation toward the end of this year. To reiterate, we view this project as short-term challenge and is necessary to achieving our strategic growth objectives.
Next, I would like to turn to our ongoing organic growth strategy for precast, which we refer to as Product Spread. As a reminder, level one product spread is focused on building out capacity utilization at our Texas-based Park plants to maximize overall production capabilities. The Park sales group has made good progress on growing our sales outside of the state of Texas from the Park facilities with approximately $2 million of orders booked outside the state of Texas in the 1st quarter and over $8 million in the last 12 months. Our objective remains to continue growing the level one product spread throughout 2023. The premise for level two product spread is to produce and ship Park products out of our other Northwest Pipe plants. We are utilizing our preexisting Geneva precast operations as the pilot location for level two product spread activity.
We are successfully continuing to bid new projects that are currently being produced and will be produced out of our Geneva plants. So far in 2023, we are in production on four Park product orders at Geneva with more scheduled to come. Once Park products are comfortably established at Geneva locations, we will expand upon this strategy to produce these products at additional Northwest Pipe legacy locations. We remain bullish on the long-term growth prospects for the Park business. Additionally, part of our organic growth initiatives include reinvesting in our precast locations, particularly in the Geneva operations, in order to increase our production capabilities and capacity through expansion and automation. For example, we are continuing work on a $16 million new RCP manhole facility at our Salt Lake City, Utah plant, which is anticipated to become operational in the 4th quarter of this year.
While driving growth in the precast related space remains our top strategic priority, we are also focused on maximizing our steel pressure pipe water transmission business to become as efficient as possible. We currently have about 55% market share in this space, with fairly limited acquisition growth opportunities in the market that has been dramatically consolidated over the years. With our nationwide footprint and as an industry leader in the space, we are well positioned to participate in the ever-growing amount of water transmission grid infrastructure projects required to support the increasing U.S. population. We continue to be fixated on enhancing shareholder value over time. As such, we are focused on opportunities for further cost reduction measures, lean manufacturing and maximizing margin over volume. Next, I'd like to discuss project on some current and upcoming water transmission projects that are bidding in the steel pressure pipe market.
In the eastern markets, the ongoing multi-year, multi-agency Houston Surface Water Program is bidding 3,600 tn of pipe this year across multiple projects, with additional sections planned for 2024 for West and North Harris County Regional Water Authorities. The Alliance Regional Water Authority program in central Texas is another multi-agency regional water program. The program includes a large pipeline, pump stations and treatment facilities. The final remaining 2,700 tn of pipe is expected to bid this year. In North Dakota, progress continues on the 140 mile, 87,000 ton Red River Valley Water Supply Project. The 1st two segments were awarded to Northwest Pipe and installation is currently underway. We are closely tracking the outcome of further budget approval for future segment construction.
In the Western markets, California's Prop One $7.5 billion bond for water infrastructure has created the much needed funding for projects within the state. The following Prop One projects are expected to start construction in the next 5 years. The Sites Reservoir is a water storage project that has received funding from Prop One. It will involve over 30 mi of a 144-in pipeline. Additionally, Sites Reservoir received $30 million in IIJA funding this past quarter. Harvest Water is a program intended to provide recycled wastewater for agricultural use in the Sacramento area. This program includes nearly 25 mi of 30-in to 66-in pipeline. The 1st segments of this program are expected to bid in late 2023.
Los Vaqueros Reservoir Expansion Project provides a substantial capacity improvement to the existing reservoir and conveyance facilities in Northern California. The program includes approximately 22 mi of 48-in-96- in pipe. Willow Springs Water Bank will create 500,000 ac ft of underground water storage in the Antelope Valley. The project includes approximately 16 mi of 30-in-84- in pipe. Water reuse programs have generated new opportunities in California market, on which we expect to see bidding activity continue for the foreseeable future. MWD is heading a regional water reuse pilot project in conjunction with LA Sanitation & Environment. This reuse program would treat and recycle water from one of the largest reclamation facilities in Southern California and involves 60+ mi of large diameter pipe. The current demonstration facility has been in operation for 2 years.
Preliminary design and permitting is ongoing, construction of the full-scale treatment and conveyance facilities could begin as early as 2025. MWD secured a $224 million WIFIA loan in October of 2021, which will fund nearly 50% of the anticipated construction cost. SNWA, a Las Vegas water wholesaler and Colorado River water user, has also played significant financial support for this program. The MWD PCCP rehabilitation programs will result in about 5,000 tns annually over the next 10-15 years. This program includes approximately 81 mi of pipe from 75-120 ins. Southern Nevada Water Authority has begun moving forward in earnest with the expansion of the southern part of their water delivery system.
This program, which has recently started preliminary design activity, will include approximately 25 mi of 78- in steel pipe, with construction tentatively scheduled for 2025. In Utah, design and permitting continues on a 150 mile, 69 in Lake Powell Pipeline. This pipeline will provide an alternative source of water for Southern Utah. Construction is proceeding in earnest in New Mexico on the U.S. Bureau of Reclamation Navajo-Gallup Water Supply Project. The final major phase of this pipeline construction for this program is advertised to bid in early 2024 and includes 2,800 tn of steel pipe. New Mexico Governor Grisham recently announced $160 million in IIJA funding for the completion of the Eastern New Mexico Rural Water System.
Remaining pipeline segments include 15,000 tn of steel pipe to convey water from the Ute Reservoir in northern New Mexico south to water users in the greater Clovis area. Before I conclude, I'd like to summarize our outlook. Our outlook for 2023 remains positive. Aside from the challenging 1st quarter that had many of the same issues we experienced in the comparable period last year, we carried a robust, near record territory backlog into 2023, which we believe will set the pace for a strong year despite anticipated moderation in the amount of tn bidding in 2023.
In regard to the 2nd quarter, our steel pressure pipe business, we anticipate similar production levels as to what we saw in the 2nd quarter of last year, given the same strength that we've been maintaining in our backlog, which should fuel improved gross profit and margins. In our precast business, we remain cautiously optimistic. Demand will remain fairly strong for the near term despite current macroeconomic uncertainty surrounding the residential housing market and current rate environment. That said, we expect we'll be able to maintain strong business levels and margins in the 2nd quarter, even with a slight moderation in our order book resulting from macroeconomic factors. The precast business is expected to have a solid 2023, off only modestly from what many would consider to be an all-time record year in 2022.
In summary, we are pleased with our solid start to the year, which surpassed our expectations. We remain bullish on our growth initiatives to increase our precast-related business to a similar size as our steel pressure pipe business. Continued by strong demand for our high-quality precast products and growing infrastructure needs in the United States. Looking ahead, we will remain focused on finalizing the integration of ParkUSA as quickly and efficiently as possible. Number 2, persistently focused on margin over volume. Number 3, continuing to implement cost reductions and efficiencies at all levels of the company. Number 4, continuing to identify strategic opportunities to grow the company once we've completed the integration work with ParkUSA. Thank you to our dedicated team at Northwest Pipe for your commitment to the excellence and for operational safety. I will now turn the call over to Aaron, who will walk through our financial results in greater detail.
Thank you, Scott. Good morning, everyone. I begin today with an overview of our profitability. Consolidated net income for the 1st quarter was $2.4 million or $0.23 per diluted share, compared to $3.6 million or $0.36 per diluted share in the 1st quarter of 2022. Consolidated net sales decreased 9.4% to $99.1 million, compared to $109.3 million in the 1st quarter of 2022.
SPP segment sales decreased 14.9% to $63.5 million, compared to $74.7 million the 1st quarter of 2022, driven primarily by a 4% decrease in our tn produced, mainly due to changes in project timing, and an 11% decrease in our selling price per ton due to decreased raw material input costs. Precast segment sales increased 2.7% to $35.6 million compared to $34.6 million in the 1st quarter of 2022, primarily due to an increase in selling prices resulting from the high demand for our concrete products in addition to increased material costs. Consolidated gross profit increased 12.1% to $16.6 million or 16.7% of sales compared to $14.8 million or 13.5% of sales in the 1st quarter of 2022.
Steel pressure pipe gross profit increased 8.2% to $7.8 million or 12.2% of segment sales. This compared to gross profit of $7.2 million or 9.6% of segment sales in the 1st quarter of 2022. As a reminder, our SPP gross margin in the 1st quarter of 2022 included a $2 million charge for a product liability claim reserve. Without this, our gross margins would have been $9.2 million or 12.3% of segment sales in the 1st quarter of 2022. Precast gross profit increased 15.8% to $8.8 million or 24.7% of precast sales from $7.6 million or 21.9% of segment sales in the 1st quarter of 2022, primarily due to the improved pricing.
Selling, general and administrative expenses increased 26.7% to $11.9 million or 11.9% of sales compared to $9.4 million in the 1st quarter of 2022 or 8.5% of sales. The increase was primarily due to $1 million in higher incentive-based compensation expenses, $0.9 million in higher salaries and related benefits to support the growing business, as well as smaller increases in professional services and other administrative expenses. For the full year of 2023, we now expect our consolidated selling, general and administrative expenses to be in the range of $43 million-$46 million. Company-wide depreciation and amortization expense in the 1st quarter of 2023 was $3.9 million compared to $4.1 million in the year ago quarter.
For the full year of 2023, we continue to expect depreciation and amortization to be in the range of $17 million-$19 million. Our non-cash incentive compensation expenses were $1 million and $0.6 million in the 1st quarters of 2023 and 2022 respectively. Interest expense increased to $1.4 million in the 1st quarter of 2023 compared to $0.6 million in 2022. We expect interest expense of approximately $5 million in 2023. That could vary with interest rate movements and variability in working capital needs for our steel pressure pipe business. Our 1st quarter income tax expense was $1 million, resulting in an effective income tax rate of 28.7% compared to $1.3 million in 2022 or an effective income tax rate of 27.4%.
Our tax rates for the 1st quarters of 2023 and 2022 were impacted by nondeductible permanent differences. We continue to expect our tax rate for full year 2023 to range between 24%-26%. I'll transition to our financial condition. We generated net cash provided by operating activities of $26.3 million in the 1st quarter of 2023 compared to $1.6 million in the 1st quarter of 2022 due to favorable changes in working capital. Our capital expenditures totaled $4.4 million in the 1st quarter of 2023, which was flat with the prior year quarter.
We continue to anticipate our total CapEx to be in the range of $24 million-$28 million for full year 2023, which includes approximately $3 million in remaining investment CapEx for our new reinforced concrete pipe machine, as well as other standard capital replacement projects. As of March 31st, 2023, we had $62.6 million of outstanding borrowings on our credit facility, leaving approximately $61 million in additional borrowing capacity on our credit line. Before I conclude, I'd like to summarize our progress on the ERP implementation and material weakness remediation projects. We are in the early stages of executing our plan to remediate the material weakness recently identified and discussed in our 4th quarter earnings call. Our focus to this point has been concentrated on employee training and oversight.
We have also restricted certain access within the system, which has eliminated the ability to generate a portion of the problematic transactions. Importantly, the internal control deficiencies identified have not impacted the accuracy of our current or historical financial results. We have also initiated a consulting project to assist with the refinement of our business processes and Material Master Data for the ParkUSA ERP system. This project's objectives are to improve overall transactional integrity as well as to automate some of the more laborious system activities. We expect this project to achieve incremental improvements throughout this project's duration and to conclude near the end of 2023. We believe that the system architecture obtained from this project is critical for both our ParkUSA business and also for our longer-term execution of our two-pronged growth strategy.
In closing, I am very pleased with all of the work our team has done to position us well for another strong year in 2023. I would like to thank our employees for their dedication to operational excellence and workplace safety, as well as our stockholders for their continued confidence in Northwest Pipe. I will now turn it over to the operator to begin the question and answer session.
We will now begin the question-and-answer session. To ask a question, you may press Star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press Star then two. At this time, we will pause momentarily to assemble our roster. Again, it is Star then one to ask a question. The 1st question comes from David Wright with Henry Investment Trust. Please go ahead.
Hey. Hi, good morning.
Hey, David.
Good morning, David.
Lot to digest there. Lots of good information, thanks for all of it. Scott , SPP. Q2 and Q3 last year were really strong years for the company. Really strong quarters, excuse me. Your commentary suggests that Q2 this year could be close to as good as last year's. Did I hear that correctly?
You know, David, after a pretty slow 1st quarter, right? Because of, you know, weather and a lot of different things. We're actually carrying a backlog right now in tn. It's about 12% higher at the end of the 1st quarter this year than it was last year. We're set up to really get back on a pretty similar revenue trajectory that we saw in steel pressure pipe in the rest of the quarters this year, but with improved margins because the big bidding activity that we saw at the end of 2022. We're pretty excited about the way that steel pressure pipe is looking for the rest of the year.
The kind of the variance, in year-over-year comparisons for the next couple quarters will depend more on what precast does.
I think so. You know, the interesting thing about precast, David, is we are in two of the very, very hot markets in this country. One, Utah, which has really low unemployment and a significant net migration rate into the state of Utah, and, you know, a significant requirement for housing builds. We still have a little bit of pent-up demand from the supply chain issues in Utah during the pandemic. Really what we're seeing along that part of our business with Geneva is we're seeing a market right now that's a little bit skittish and people are holding onto their quotes a little bit longer. There's certain products that may be down a little bit, but some of the major products are still very strong.
Our lead times are a little bit shorter than they were last year, but last year, like we said in some of the calls, we got a little bit overbooked. We're still seeing Utah as being pretty busy. In Texas, on the Park side anyway. You know, obviously, Geneva is mostly residential. You know, there's probably 85% residential for Geneva, or 80% residential for Geneva anyway. Park is about 85% non-residential. We're still seeing a very, very strong non-residential market in the state of Texas and really seeing the Park business not having dropped off at all. That's why we said during the call, you know, we're seeing strong steel pressure pipe for the rest of the year, and we're seeing a precast market that's really down only modestly at this point from what a lot of people consider to be an all-time record year in 2022, but with margins that are in line with what we saw last year. It, it really feels like we're setting up for another strong year in 2023.
Okay. My other question, you talked about California Proposition 1 and all the different, you know, pretty large projects that could lead to over the next, you said, the next 5 years. Just kind of big picture, obviously not everything happens at the same time, but big picture, does the contracting capacity exist in California for multiple projects like that to be going on at the same time?
Oh, yeah. I would say, David, that all the major contractors that we deal with have multiple locations, especially in the locations or the markets that are traditionally really strong steel pressure pipe markets, and really those are California and Texas. Yeah, I would say that the contracting capacity is likely more than enough to handle those big projects as we go forward into the next three or four years.
Okay. Thanks. Thanks for taking my questions.
Absolutely.
This concludes our question and answer session. I would like to turn the conference back over to Scott Montross for any closing remarks.
Just a few things as we close. I'd like to thank everybody for joining the call today. Again, you know, as we get through the 1st quarter, we ended the 1st quarter with a backlog. In tons, it's up 12% versus what we were last year 1st quarter. It really kind of positions us to really have a really solid steel pressure pipe year for the rest of this year. Like I said before, with improved margins. Precast, like we said a little bit earlier with David's questions, even with the headwinds in residential housing, we're in two of the best markets, and we're expecting to see a precast and precast-related market that is only modestly off of what we saw in 2022.
I think the last thing I'd like to say is, if you look at where the company's come from in the last five years, in 2017, the company had about $132 million in revenue and about $5 million of gross profit and really de minimis EBITDA. Well, we finished 2022 with $458 million in revenue and in the mid-80s of gross profit and the low to mid-60s of EBITDA. We've come a long way in the last five years, and we feel like we are just getting started on that growth path to continuing to grow and become more profitable and to become a better holding for our shareholders.
Thanks, everybody, again, for joining the call today, and we'll talk to you again in a few months in August, right? August timeframe. Thank you very much.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.