Scott Montross - President and CEO Robin Gantt - SVP and CFO

Brent Thielman - D.A. Davidson Michael Hamlet - First Capital Matt Sherwood - Cooper Creek Partners Bhupinder Bahra - Schroders Investment Management

Thank you, Bob. Good morning, and welcome to Northwest Pipe's Conference Call.

My name is Scott Montross, and I'm President and CEO of the Company. And I'm joined by Robin Gantt, our Chief Financial Officer.

As we begin, I would like to remind everyone that the statements we make in this call about our 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 first quarter results.

Thank you, Scott. Our first quarter loss from continuing operations was $2.1 million or $0.22 per diluted share.

This included a 1.8 million after tax lower cost to market to inventory adjustment on our tubular product inventory. Excluding this charge, the adjusted loss from continuing operations in the first quarter of 2015 is $336,000 or $0.04 per diluted share, compared to a loss from continuing operations of 1.2 million or $0.13 per diluted share in the first quarter of 2014.

Water transmission sales increased 31% to $56 million in the first quarter of 2015 from $43 million in the first quarter of 2014. Water Transmission gross profit as a percent of sales increased to 13.4% in the first quarter of 2015 from 3.9% in the first quarter of 2014.

Tubular Product sales from continuing operations decreased 28% to $29 million in the first quarter of 2015, from 4$0 million in the first quarter of 2014. Volume decreased as we sold 28,300 tons in the first quarter of 2015 compared to 39,000 tons in the first quarter of 2014.

Tubular products had a gross loss as a percent of sales of negative 12.7% in the first quarter of 2015, compared to a positive 6.7% in the first quarter of 2014. As I noted earlier, we had a lower cost per market inventory adjustment on our tubular products inventory.

Before tax impact of this adjustment was $2.8 million. Excluding this charge, the adjusted gross loss as a percent of sales in the first quarter of 2015 is negative 2.8%.

This loss is caused by the decline in world crude oil prices, the declining steel market and continued high import levels of [indiscernible] pipe. Selling, general and administrative cost increased to $7 million in the first quarter of 2015 compared to $5.4 million in the first quarter of 2014.

This increase was due to primarily to increased professional fees associated with the 2014 audit and a $400,000 environmental reserves on Atchison property. Interest expense is $417,000 in the first quarter of 2015 from $770,000 in the first quarter of 2014.

The decrease was due to lower average borrowings and lower capital lease balances. Our effective tax benefit rate was 37.7% in the first quarter of 2015, compared to 35.5% in the first quarter of 2014.

In the first quarter of 2015 the company generated 24.6 million in cash from operations to support the growth of the business, mainly through decreases in accounts receivable and inventories. This was partially offset by an increase in cost and estimated earnings in excess of billings and uncompleted contracts.

Depreciation was $2.6 million in the first quarter of 2015 and $3.2 million in the first quarter of 2014. Inventory decreased 11.5 million in the first quarter of 2015 from year end 2014.

This was primarily due to a decrease in inventory at Atchison. Capital expenditures were 3.7 million in the first quarter of 2015 which was for ongoing maintenance capital expenditures.

On April 21st we filed an 8-K noting that we implemented a production curtailment at our Atchison location and anticipated one-time termination expenses of about $500,000. This is a second quarter event and therefore will be included in our second quarter results.

Now I’ll turn it over to Scott for an update on our business.

As of March 31, 2015, our backlog in water transmission was approximately $88 million. As of March 31, 2014, our backlog was approximately $148 million.

We expect the second quarter of 2015 will continue to present significant challenges. The backlog in water transmission has decreased significantly from.

Significantly from year end due to the smaller and therefore more competitive bidding environment in the last couple of quarters. We expect Water Transmission second quarter sales and gross margins to be similar to the first quarter of 2014.

However we expect the near term market conditions to improve dramatically with approximately $250 million of projects bidding in the second and third quarters of this year. The following is an outlook of upcoming projects in water transmission.

We have two segments of the San Antonio Water Resource Integration Project with production in the first quarter and the rest of the production in the second quarter. The second segment of IPO was mostly completed by the end of the first quarter.

The segment of IPO will bid next week and we expect a bid award sometime in June. The fourth segment of IPO is currently schedule to bid in October November time frame.

The Trinidad River Mainstem project is expected to bid in mid-September and is an additional of the Lake Texoma project that we participated in 2012 and 2013. A loose volume, also known the Houston MSA project is a major project that continues to show progress and we expect this job to actively start bidding some time at mid-2016.

We also expect that the Texas swept program will result in additional close in opportunities. We believe that the 140 mile Red River project will be delayed due to economic factors.

We're also watching the situation in California very closely and with the ongoing drought emergency, in the passage of proposition one we are anticipating increase in bidding in activity starting in 2016. The private cutting water conservation recovery and storage project is making progress and production could start on a 43-mile pipeline in Southern California as early as the first quarter of 2016.

There are several other major California projects in 2016 and beyond that could be aided by proposition one funding. These projects are the Fresno surface water program, a Southern California re-liner program and the Los Angles pipeline replacement program.

In Tubular products, we have implemented a production curtailment in mid-April. We will continue to show and ship finished products and perform blended [ph] manufacturing if needed to fulfill customer orders.

We are closely monitoring market conditions and inventory levels and as the market improves we will resume normal operations. Second quarter sales and sales prices will be lower than the first quarter and we expect to have a negative mid-single digit gross margin for the quarter in tubular products.

As we have discussed before, we are part of an industry trade case filed against Korea and Turkey on line pipe. The ITC preliminarily determined that there has been harm and the Commerce Department’s preliminary determinations are expected in the next couple of weeks.

We have planned approximately $12 million to $13 million of total capital expenditures for 2015 matching our depreciation. We monitor in all spending especially capital and we will quickly adjust as conditions warrant.

We closely manage our balance sheet with a balance of on our credit facility of about $18 million at the end of April. In G&A we have made some cuts in April and will continue to manage these cuts to support the requirements of our business.

As we have mentioned in the past, we are actively pursuing acquisitions and are considering a wide range of strategic opportunities. As all of you know, it is our policy not to discuss M&A activity on these calls, and we cannot share any further information at this time, but this is of the highest priority for North West Pipe.

In conclusion, we expect Water Transmission results will be weaker in the second quarter as seen by the relatively small backlog. With a big upswing in bidding activity expected in the second and third quarters we look for better results in the second half of 2015.

In Tubular products, the production curtailment will likely be in effect for the entire second quarter as the markets are negatively impacted by the decline in crude oil prices, decline in steal market and extreme levels of imports. At this time we will be happy to answer any of your questions.

The bidding activity you're seeing over the next couple of quarters. You mentioned a number of large programs there but is this a function of kind of the larger order opportunities or is it also kind of returning smaller book and burn type work?

I think certainly the larger ones play into that because as I mentioned Brent, there are two segments of IPO in the rest of this year bidding and obviously kind of size range. Those jobs are 19,000 to 21,000 tons depending on which segment you’re talking about.

The Trinity River job is also in that period, but there is a significant number of and what I would call $2 million, $3 million and $5 million projects over that same time period. We came out of a pretty low bidding environment in the first quarter of this year and really the fourth quarter of last year.

But I think what we’re seeing is a lot of the bidding that’s going to take place in 2015 really crowded into mid second quarter through third quarter and early into the fourth quarter. So I don’t know that the total number of jobs when you look at year-to-year is really up dramatically.

I think if you look at it, it is still relatively flat with 2014, but all of a sudden we are seeing those larger jobs come into play in middle of the year.

And then you talked about the competitive landscape before and how difficult it’s been on the water side. I look at the $88 million in backlog, 40% decline.

Is that indicative of the kind of opportunities you’ve seen this last quarter in the market or is it also Northwest Pipe kind of willing to surrender some share to try and protect the margins?

No I think one of the things you look at with the backlog is over the last couple of years we seen backlog within quarters fluctuate down to 80 some million, up over 100 million. So we’ve run into spots within quarters where we’ve gotten down to these kind of levels previously.

It just so happens that once we’re reporting a quarter, we’ve either got an IPL segment or something like that that kind of props about. So that’s not a number that we haven’t seen previously.

I think what you see coming out of the second quarter with this bidding activity going on and the number of jobs that we see bidding between second, third and beginning of fourth quarter is then you will see that grow and see the higher backlog as we come out of these quarters. But the bidding environment, as we’ve discussed in the past has certainly been very contentious and competitive because of the low number of jobs.

But I think it’s pretty safe to say when you look at the entire market, we’re still getting our selection, getting our market share of the 42% to 45% of the market share that we’ve maintained. The problem is we can’t seem to rate now with the way that this water market is going, at least through 2015.

It seems like it’s spits and starts of bidding activity. You can’t seem to put a full year together.

And ultimately, the thing that gets so exciting about looking at 2016 with the Proposition One that’s been approved in the Texas Swift program is there’re a lot of potential work as we go into ’16 and forward that fits into those programs with ultimately not only the number of jobs, but the tons associated with all those jobs picking up as we go into this time frame. So we are pretty happy with what we’re seeing as we start looking forward, not only with the bidding activity that we see middle of this year.

And I think we mentioned this $250 million or so of bidding activity, but also what we see developing in 2016 and beyond. I think we’ve mentioned before, this California market has been way down for the last three or four years.

But the things that are starting to double up to the top because of this Proposition One, there is another big job out there recall the sites reservoir that’s in Northern California that could be 30,000 tons of pipe. That’s one of the things that’s listed associated with Proposition One right now and I didn’t even mention on this list.

So I think we’re starting to see a significant amount of work being generated in one, states that have significant draught issues, and all a sudden that these programs are coming to pass. So I don’t think there has been any limit or shortage of requirements.

It’s getting these projects to get started and getting them funded. And I think the mechanisms are there to really get this started as we move into 2016.

One last one if I could. With the Kansas facility, are you looking for something specific to develop in the market before you consider bringing production back on, or are you willing to do it even if these conditions persist in the second half?

We think that as long as the market stabilizes we could run at relatively low production levels at the Atchison faculty and still be pretty good based on the cost that we have now there. The guys that run the plant, the operations, the commercial guys, do a good job in working together and reduced the cost.

I think the biggest thing is, and the first step is the stabilization of the steel price. We see steel price drop some $200 a ton and since the end of last year, which certainly puts the -- flows the cold water on especially the distribution buying.

Well, this morning for the first time in I don’t know how many weeks, we actually saw the CRU or the weekly publication on coil prices actually stabilize and move up a dollar. I think that’s step one.

I think step two is that no matter what piece of the energy tubular business you look at, there is a significant amount of inventory to be worked through, that has come in via the imports, right. So I think there is probably a couple of quarters of looking through the inventory that exists in that business.

And as you know, we're part of this trade case on the line-pipe business. We also think that that starts playing into as the preliminary determinations are announced by the commerce department, which I think will develop May 15th or May 17th.

So all those things together I think are starting to piece together the story of when you start back up, and right now we're expecting that -- and we're still running orders, we're still running where customer requirements exits, but it's relatively small levels of production because we have skeleton crews at that facility. I think we get through June and we get some impact of the trade case, we get the impact of the coal price stabilizing.

Oil prices seem to be moving up a little bit. The issues in Libya may cause that to move up even a little bit more.

So there is some positives. I’m starting to think that the second half really starts to develop there.

And I think we're well positioned at Atchison with a product mix where we're located and the amount of costs that the guys have taken out of the conversion cost there, that once this market stabilizes, we're going to be in pretty good shape going forward there.

Robin, question for you regarding book value. At the end of the first quarter what do you see the book value of the Company as?

So book value, you mean the stockholders equity?

The total book value of the Company.

You're looking at total book. Oh, god, you know, it kind of fluctuates.

Obviously with the changes in stock price and we look at obviously trialing EBITDA in the multiples that we're seeing in the marketplace, because generally we're working on a lot of M&A activity. So we get to see the multiples in the marketplace pretty significantly on the things that we're looking at.

And those multiple are anywhere between nine and 10 times of trailing EBITDA. Now we're hitting a relatively low point in the business because of how slow the water transmission business is.

So when we're looking at those -- those book values for us, I look at our trailing EBITDA of $40 million to $45 million in a normal market situation and look at the multiples that are out there between $9 and $10 times.

Okay but what would you calculate the book value to be, the shareholder equity over the outstanding shares?

The stockholders equity at the end of March is in the press release. That was $244 million.

And how many millions of share, is it $9.5 million?

Yes.

Right, so it's around $25.5 a share okay. You referenced Scott, the cuts in G&A.

Give a percentage that you're trying to get to that you want to --

Yes, we certainly do have a percentage that we're working on. Obviously I don't what to talk about it on this call for a lot of different reasons, but suffice it to say, we are trying to work very diligently and co-create a match that to the requirements of the business.

Okay, and you did say that you're actively pursuing acquisitions. What is the major motivation for the acquisitions?

Well, one of the things is we don't really comment on M&A activity in these calls. All I can is ultimately what we've done as we've taken a look -- we took our OCTG business out of the mix at the beginning of 2014, and ultimately we're in a situation where our debt on our balance is very, very low, then the motivation for is to grow the Company, and to grow the return on the invested capital for the shareholders.

So ultimately that's the motivation. But it's -- what I would say is in the water business it's -- there are a lot of potentials out there, there a lot of either very small potentials or relatively large potentials out there and there is a lot of in between, and the timing on what’s actionable is what makes it more difficult.

So what we're doing is we're making sure that we're looking at things to acquire that to have the best strategic fit for the Company and allow us to grow the Company and increase the profitability. That's the motivation.

Okay so I mean with the stock trading below book, I can't see you using your stock as currency in any sort of transaction.

We're not going to discuss that on these calls.

Yes, I mean I just saying commonsense wise. And if anything, I think there has been no or very little or nothing that I've seen with regarding management’s activity in market buying, considering now you’re probably in a blackout period but as a shareholder, I’d like to see management step forward and invest.

I think that these are compelling levels and the story that you're telling me is you're echoing that yourself. So there would be something that -- a welcome sight that I would like to see.

Now with regard to the California contracts and you have the -- you mentioned the Texas contracts; outside of the U.S. what types of opportunities are ahead for 2015 through 2020, one would say for the Company?

Can you hold on for one second. We have some kind of a malfunction in the equipment in the background.

Hold on for one second.

Sure.

Okay, would you repeat that question.

Sure, I just want to find out from you, outside of the U.S. where are the opportunities in the coming years or even certainly the near term.

Are you speaking specifically of the water business?

Yes.

Well, one of the things you have with the water business is that, it's relatively regional and a lot of the pipe that we produce is relatively large and ultimately doesn't ship long distance. Everything ships by truck because it's lying in [indiscernible].

So it's not really conducive to shipping very long distances. We have participated in some off shore programs in the past.

We continuously look at programs in Mexico but we're not finding anything to any great extent at this point.

Hey, just had a quick question for you. You sort of laid out a case that based on current M&A multiples in the marketplace and your normalized EBITDA, the stock should be you know $40 to $45 a share now; and also you know if you look at your previous goals to get that EBITDA meaningfully higher, to be even higher than that and it's trimming at 24, and you've taken debt from $85 million to $25 million.

I guess can you talk about your interest in maybe buying back some stock at a discounted valuation versus M&A.

Yes, and we are certainly looking at that along with the M&A right now Matt. So it is something that we've looked at and will continue to look at.

And do you think you could do both potentially or do you think one is mutually exclusive of the other.

Well you know our balance sheet's in pretty good shape right now in relation to the debt load we're carrying. We're carrying very little debt.

So ultimately I think what it starts to do is it starts to get to the point where when some of this business starts to come online and the EBITDA generation starts to get back to relatively normal levels, I think it makes it a little bit easier to talk about doing a wide variety of things. Obviously right now being at a low level in the marketplace it's a little tough to do both.

So you look at the things that really -- what you're saying is if you're going to do a stock buyback, you’ve got no other better place to spend your money to generate, right. So that doesn't really grow the Company.

So I'm not saying we're not looking at it but we're -- we are looking more intensely at the M&A activity than just doing a stock buyback at this point.

But I guess just by definition, if you buy something in M&A you're paying whatever the buyer says and you're capturing some synergies, which is the real upside, but you basically suggested that even on a normalized basis your stock is trading at 60% of what it would be worth in an M&A transaction. I just don't see how that's not a very compelling opportunity.

Well, we think you're right, I mean obviously we think we're in a situation right now with where the market actually both markets are, at this point. We're in a low EBITDA generation environment and as you mentioned if you look at those water transmission multiples that we see on an ongoing basis in the marketplace, it gives you a feel for when you look at our trailing EBITDA what the stock price should likely be.

So.

Great, and then you know I guess just final question. When you hear the debt's at 25 million do you see an opportunity to work that down further at least until the restart of Aitchison.

Yes, the debt absolutely. I think we've got probably about 18 out of our credit facility and we some leases.

And so we're below 20 at this point as we sit. And as we continue to bring the Atchison inventory down, we will continue to reduce that debt.

Great, thanks so much.

We've seen it come down significantly in the second quarter.

Great, thanks so much.

Just wanted Scott, if you can clarify on the outlook here for the water transmission business. I believe you said the top line and the gross margin line would be similar to last year second quarter right.

Last year's first quarter.

Last year's first quarter. So are we looking at margins about like 4% on the gross margin line?

We're looking at likely mid-single digit margins in the second quarter.

Okay just to wrap, just to say a couple of things; obviously the first quarter is been a rough first quarter. And we're expecting to see the tough second quarter like we've indicated here.

And then obviously water is in a low period of demand. We've talked about that.

We’ve talked about the spring bidding environment and everybody knows what's going on in the energy business. But certainly there is a lot of bright spots to look at going forward in this business.

The line pipe trade case, it’s going to take a while to work through, but we really haven’t stable market in the energy tubular side in the last three years, and we think that we're very well positioned with Atchison once this market stabilizes, and it will to take advantage to the market places, especially since we've driven 25% to 30% of the conversion cost and we have the expanded market products that we did with the modernization project. And we certainly as I've indicated see -- we certainly see a lot of great spots on the water transmission business.

Not only the increased bidding activity that we see in the second quarter and the third quarter, but we believe that this Texas suit program and Proposition One and some of the private work to starting to show up certainly has a big effect on us as we go forward. We see pretty low levels of bidding really over the last three years in the water transmission business, and if you go back a few years and look at 2011, we were running three plants hard in 2011 and running really high top line in developing this 16% margin.

In 2014 we're only running one plant hard, and that was the Saginaw, Texas plant, and still developed the 16% gross margin. I think that’s an indication of the work that’s being done on the cost side in every one of those plants, not only lean manufacturing but day to day cost reduction.

So you can see what the margin potential is as this water market continues to return to where we think it’s going. And also the work that’s being done on the M&A activity.

I certainly don’t want to mention that. A lot of work is being done there and it will ultimately pay off as we go forward, because we think things will continue to develop there.

They are slower developing than I would like to see, but we certainly think that they’ll develop as we move forward over the next several months. So I guess our next earnings call is in August and Annual Shareholder Meeting at the end of May.

On June 4. So anybody that shows up at the Annual Shareholder Meeting, we will see you there and anybody that doesn’t, we’ll talk in August.

So thank you.