NWPXインフラストラクチャー 2026年第3四半期決算説明会：過去最高の売上高と4億3500万ドルのWTS受注残高

主要ポイント

• NWPXインフラストラクチャーの2026年第3四半期売上高は過去最高の 1億7,940万ドルで、前年同期比18.7%増加し、純利益は35%増加して 1,820万ドル（希薄化後1株当たり1.86ドル）となった。
• 導水システム事業の売上高は27%増加して過去最高の 1億3,190万ドルとなった。確定注文を含む受注残高は過去最高の 4億3,500万ドルに達した（6月30日時点の4億2,300万ドル、前年同期の3億100万ドルから増加）。
• NDAプロジェクトは第3四半期に約3,100万ドル の売上高を計上した。経営陣によると、同プロジェクトの総額は約 5,600万ドルで、第2四半期と第3四半期を通じて約4,000万ドルが計上され、残りの一部は2027年に及ぶ可能性がある。
• プレキャスト事業の売上高は0.6%増の4,750万ドルとなった（出荷量が4%減少したにもかかわらず）。売上総利益率は 160ベーシスポイント拡大して22.9%となり、製品ミックスおよび非住宅分野の利益率改善が寄与した。
• 四半期営業キャッシュフローは2,740万ドルに増加し、フリーキャッシュフローは2,040万ドルに増加した。経営陣は現在、2026年通期のフリーキャッシュフローを6,200万ドル〜7,200万ドルと見込んでいる。
• 経営陣は、出荷日数の減少、祝日休業、天候悪化の可能性はあるものの、第4四半期の連結業績は2025年第4四半期および2026年第1四半期の両方を上回ると予想している。

主要財務データ

事業および営業業績

送水システム事業

WTSが引き続き主な成長牽引役となりました。売上高は27%増加し、 1億3,190万ドルとなりました。これは生産トン数の7%増加 と、トン当たり販売単価の19%上昇 （製品ミックスによる影響）を反映しています。

売上総利益は23.4%過去最高となる 2,730万ドルに達しました。売上総利益率は60ベーシスポイント低下し、 20.7%。これはプロジェクトの生産ミックスによるものですが、年初来の利益率は前年同期を約180ベーシスポイント上回る水準を維持しました。

同セグメントは第3四半期中に約1億4,400万ドルの案件を受注残高に転換しました。経営陣は10月の入札活動も引き続き好調であり、2027年に予想される生産の大部分はすでに受注残高に反映されていると述べました。秘密保持契約（NDA）プロジェクトを除いた場合でも、2026年最初の9か月間のWTS売上高は前年同期比で約10%増加していたことになります。

プレキャスト

プレキャスト部門の売上高は微増して4,750万ドルとなりました。販売価格の3%の上昇（主に製品ミックスによる）が、出荷量の4%減少の一部を相殺しました。当四半期には、9月の一部期間におけるSerpentixの売上高約100万ドルが含まれています。

同セグメントの受注残高は合計で6,700万ドルとなり、これにはSerpentixからの1,000万ドルが含まれます。既存のプレキャスト受注残高は5,700万ドルで、6月30日時点の6,100万ドルからは減少したものの、前年同期の5,500万ドルを上回りました。

データセンターが需要の拡大要因となりました。第3四半期までに、NWPXは3,350万ドル規模のデータセンタープロジェクトの見積もりを提示し、1,100万ドルを超える受注を獲得しました。経営陣は2026年中に約700万ドルが出荷されたと推計しており、データセンター関連の案件は従来のプレキャスト受注よりも一般的に利益率が高いと述べています。

NWPXはまた、プレキャスト製品拡大戦略に基づき5,830万ドルの見積もりを提示し、970万ドルを受注しました。これは2025年通期の総受注額を上回っています。

Serpentixの買収

NWPXは9月に4,970万ドルを投入してSerpentix Conveyorを買収しました。同事業は主に地方自治体の下水処理施設や産業製造施設で使用される特注コンベヤシステムを製造しています。

経営陣は、SerpentixがPark Processの脱水、分離、混合機能を補完すると述べました。また、Serpentixの利益率は従来のプレキャスト事業より大幅に高く、下水処理事業をさらなる成長と買収に向けた潜在的なプラットフォームと位置付けています。

経営陣の業績予想

• 第4四半期の業績： 経営陣は、連結業績が2025年第4四半期および2026年第1四半期の双方を上回ると予想しています。
• WTS： 受注残高は年末まで高水準で推移する見通しです。秘密保持契約（NDA）プロジェクトは第4四半期の売上高にさらに寄与する見込みですが、施工業者のスケジュールによっては一部の工程が2027年初頭にずれ込む可能性があります。
• プレキャスト： 経営陣は第4四半期の業績が第3四半期と比較して概ね堅調に推移すると見込んでおり、2026年通期のプレキャスト売上高は過去最高を記録すると引き続き予想しています。
• フリーキャッシュフロー： 2026年通期の見通しは6,200万ドル〜7,200万ドルです。
• 販売費及び一般管理費（SG&A）： 通期の連結販売費及び一般管理費は5,500万ドル〜5,600万ドルと見込まれています。
• 設備投資： 通期の支出は2,100万ドル〜2,300万ドルが見込まれており、これには製品拡大プロジェクトやその他の成長施策に向けた約600万ドルが含まれています。
• 減価償却費および償却費: 通期費用は 2,200万ドル〜2,300万ドルの見通しです。
• 税率: 通期の実効税率は約 23%〜24%の見通しです。

リスクと注視すべき点

• 金利の影響により住宅建設は引き続き低調で、商業用非住宅市場の一部でも軟化が見られます。
• 金利、燃料コスト、広範な経済環境を巡る不確実性を理由に、プレキャスト製品の一部顧客で出荷の遅延が発生しました。経営陣はこれらをキャンセルではなく、単なる遅延であると説明しています。
• 鋼材のリードタイムは長期化した状態が続いていますが、緩和に向かい始めています。経営陣によると、鋼材コストは約1トン当たり1,300ドルで第4四半期に入っており、売上高の比較やプロジェクトの収益性に影響を与える可能性があります。
• 残るNDAプロジェクトの売上計上時期は、施工業者がいかに迅速に製品を受け入れられるかに依存します。経営陣は現時点で、確定した追加入札・後続のNDAプロジェクトを確認していません。
• 第4四半期は、出荷日数の減少、祝日による操業停止、天候による影響など、通常の季節要因に直面します。
• WTSのキャッシュ・コンバージョン・サイクルは約99日へ改善しました（前年同期の150日から）。しかし経営陣は、現在の水準が長期的に維持可能とは考えておらず、ある程度落ち着くと予想しています。

アナリスト質疑応答のハイライト

• データセンターの機会: 経営陣によると、個別の案件規模は従来の約30万〜40万ドルから、最大で300万〜500万ドルのプロジェクトへと拡大しています。市場活動が持続すれば、見積もり、受注、出荷の拡大が続くと見込んでいます。
• プレキャストの構成変化: ジュネーブの拠点では、歴史的に約85%を占めていた住宅比率から、2026年にはおよそ40%（住宅向け）へと移行し、非住宅、公共施設、データセンター向けの需要が生産能力を埋める見込みです。
• 2027年のWTSの見通し: 経営陣は正式な業績予想を示しませんでした。NDAプロジェクトの売上を代替することは「容易ではない（tall order）」ものの不可能ではないとし、受注残や入札活動を背景に、基盤となるWTS事業は引き続き堅調に推移すると見込んでいます。
• 受注残の構成: 経営陣によると、WTSの受注残増加は価格上昇と実質的な数量増加の両方を反映しています。第3四半期の1トン当たり売上高は前年同期比で19%増加した一方、鋼材価格は約12%上昇しました。
• 運転資本: 同社は、前受請求とキャッシュ創出を引き続き優先しながら、WTSのキャッシュ・コンバージョン期間が現在の99日と前年の150日の中間あたりで落ち着くと見込んでいます。

決算説明会文字起こし全文

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決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Greetings. Welcome to the NWPX Infrastructure's Third Quarter 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to Scott Montross, President and CEO. Thank you, Scott. You may begin.

Scott Montross

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'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, October 28, 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 31, 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 long-standing 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 continued 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 a 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 nonresidential 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 projects, 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 customers 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 nonresidential construction, Precast revenue remained above the prior year as we continue to pivot between residential, traditional nonresidential and emerging opportunities such as data centers.

Looking ahead at the broader market, nonresidential 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 nonresidential 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 2 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 lower 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 9 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 nonresidential 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.

With our expanded capabilities, record backlog and attractive opportunities across our businesses, we believe NWPX Infrastructure is exceptionally well positioned to finish 2026 on a strong note and carry that momentum into 2027.

Equally important, none of these results would be possible without our people. Our total recordable incident rate at the end of the third quarter stood at 0.8, reflecting the stability of our manufacturing environment and the continued commitment of our employees to execute our strategy safely.

I want to thank our teams across the organization for their continued execution, their commitment to our strategy and to maintaining a strong safety culture.

As we look ahead, our near-term priorities remain: one, maintaining a safe and rewarding workplace; two, focusing on margin over volume; three, intensifying our pursuit of strategic acquisitions; four, implementing cost efficiencies across the organization; and five, returning value to shareholders when M&A opportunities are limited.

I will now turn the call over to Aaron, who will walk through our financials in greater detail.

Aaron Wilkins

Thank you, Scott, and good morning to everyone joining the call today. Before we begin, I'd like to mention that unless otherwise stated, all financial measures in my remarks refer to the third quarter of 2026, and all comparisons will be year-over-year comparisons versus the third quarter of 2025. I'll begin with our profitability.

We delivered consolidated net income of $18.2 million in the third quarter or $1.86 per diluted share, up 35% from $13.5 million or $1.38 per diluted share, reflecting the benefits of higher operating leverage on record revenue and disciplined execution across the business.

This is the highest quarterly earnings per share posted in the company's history, excluding the third quarter of 2018, which included a onetime $21 million noncash bargain purchase gain associated with the Ameron Water Group acquisition. The result demonstrates the earnings power of the business as record revenue translated into a 27.7% increase in operating income.

On the top line, consolidated net sales grew 18.7% to a record $179.4 million compared to $151.1 million in the third quarter of 2025. Our Water Transmission Systems segment also delivered record net sales of $131.9 million, an increase of 27% from $103.9 million.

This growth was driven by a 19% increase in selling price per ton due to changes in product mix and a 7% increase in tons produced resulting from project timing.

Precast net sales increased 0.6% to $47.5 million from $47.2 million. The results reflected a 3% increase in selling prices, primarily due to product mix, which was partially offset by a 4% decrease in volume shipped.

Third quarter results also included $2.1 million contribution from the recently acquired businesses, Boughton and Serpentix, which were not included in the year ago quarter.

As a reminder, the products we manufacture are unique and the average sales prices for both of our operating segments as well as the Precast shipment volumes and WTS production volumes cannot be relied upon as comparable metrics due to variations in product mix between periods.

We also achieved record consolidated gross profit of $38.2 million, up 18.8%. Consolidated gross margin remained consistent year-over-year at 21.3%. In Water Transmission Systems, gross profit increased 23.4% to a record $27.3 million or 20.7% of segment sales compared with $22.1 million or 21.3% of segment sales.

WTS gross margin declined 60 basis points year-over-year, reflecting a change in production mix between periods. Precast gross profit increased 8.6% to $10.9 million or 22.9% of segment sales compared with $10 million or 21.3% of segment sales.

The 160 basis point margin improvement primarily reflected stronger margin performance within the nonresidential portion of the business. Third quarter segment sales also included $0.4 million of gross profit from recently acquired businesses with no comparable contribution in the year ago quarter.

Selling, general and administrative expenses were $13.9 million, up 5.8% from $13.1 million and represented 7.7% of net sales, a 100 basis point improvement from 8.7% of net sales a year ago.

For the full year 2026, we now expect consolidated SG&A to range between $55 million and $56 million. Depreciation and amortization expense was $6.3 million compared to $5.2 million, and we now expect full year depreciation expense to be between $22 million and $23 million, which includes the amortization of acquired intangible assets obtained in the acquisition of Serpentix.

Interest expense declined to $0.4 million from $0.8 million, reflecting lower average daily borrowings. Income tax expense was $5.7 million, resulting in an effective income tax rate of 23.9% compared to $4.7 million or 26% last year.

The effective rate in the quarter was primarily impacted by nondeductible permanent differences, partially offset by return to provision adjustments. For the full year, we now expect an effective tax rate of approximately 23% to 24%.

I'll now turn to our financial condition. At September 30, 2026, cash and cash equivalents were $6.1 million, up from $2.3 million in December 31, 2025. Total debt was $27.7 million, including $18.5 million outstanding under the revolving line of credit.

At quarter end, we had approximately $105 million of additional borrowing capacity under our credit facility. Following the completion of the Serpentix acquisition in September, our balance sheet remains well positioned to support organic growth, disciplined M&A and capital returns to shareholders.

Strong profitability and effective working capital management drove net cash provided by operating activities of $27.4 million during the quarter compared to $21 million last year, bringing year-to-date operating cash flow to $71.1 million.

The year-over-year increase in quarter primarily reflected a $5.6 million increase in net income adjusted for noncash items. In addition, changes in working capital contributed $0.9 million to the increase, demonstrating strong working capital efficiency when considered with the 18.7% year-over-year increase in quarterly revenues.

During the quarter, we deployed capital across several key priorities, including $49.7 million to complete the acquisition of Serpentix, $7 million in capital expenditures and $1.2 million in share repurchases. These investments demonstrate our ability to fund growth while continuing to return capital to shareholders.

For the full year 2026, we now expect capital expenditures in the $21 million to $23 million range, including approximately $6 million for an investment in projects to support our Precast product spread strategy and broader growth initiatives.

Finally, we generated $20.4 million of free cash flow during the quarter compared to $13.2 million last year, bringing free cash flow for the first 9 months of 2026 to $56 million. We now expect free cash flow for the full year 2026 in the range of $62 million to $72 million.

To close, the third quarter marked another period of strong execution, highlighted by multiple company records, including consolidated revenue and gross profit, WTS revenue and gross profit and earnings per share. Our record Water Transmission Systems backlog, including confirmed orders, provides strong visibility where our solid cash generation and ample borrowing capacity preserve flexibility to invest in growth and return capital to shareholders.

Thank you to our employees for their continuing to prioritize safety and commercial and operational excellence and to our shareholders for their continued support.

I will now turn it over to the operator to begin the question-and-answer session.

Operator

[Operator Instructions] Our first question is from Julio Romero with Sidoti & Co.

質疑応答

Julio Romero

I wanted to start on the Precast segment. You mentioned quoting $33.5 million of data center projects and booking over $11 million year-to-date, I believe. Can you expand on that? And how much has shipped versus is in the order book? What the quoting pipeline looks like heading into '27 and how the margin profile of those data center projects and orders compares with the traditional precast work?

Scott Montross

Well, I'll say the margin profile on those is generally higher than what we see on normal precast orders. I think simply because of the speed at which they expect these things to be done, I mean shipment-wise, this is -- I'm going to guess in round numbers, we probably shipped about $7 million of that at this point in this year, but we have a bunch of it still in front of us that we're trying to turn in orders at this point, and there are some relatively large ones that are still going on.

So we have the expectations that as we get through the rest of this year, the quoting level is going to go up, the booking level is going to go up and the shipping levels are going to continue to follow that.

And again, this is something that's kind of an ancillary part of our business, and we're focused on the Precast business at both Park and Geneva. But we've been starting to get to be spec-ed in with some of these data center businesses on some of the products that we're providing.

And as long as we can continue to get those and take advantage of those items, I think we're going to continue to do that. And I think that it's no secret that the residential business has been down a little bit. And even when you look at the momentum index, the nonresidential business is only up slightly, and that's really institutionally-driven.

The commercial side is down about 3% year-over-year, I think, 12 months, but it'd be down a whole lot more if it wasn't for data centers.

So we're filling in the gaps with data centers orders. And the other thing I think that's happened that's a pretty good thing that the people have done at Geneva, generally the Geneva facilities have been about 85% residential business. This year, they're about 40% residential business, and the rest is being filled in by nonresidential business and data center orders.

So we're filling in the gaps with those based on what the environment is for Precast. Obviously, interest rates affect that, fuel costs affect that. But we've been able to pretty effectively fill things in with being able to pivot from one market segment, residential, nonresidential and the data centers to another. So it's worked out really well for our precast business.

Julio Romero

Excellent. Great color there. And then for my follow-up, I wanted to ask about Serpentix a bit. If you could speak to it a little bit and how it complements Boughton in Colorado, which I think is about 2 hours away, I believe, how it complements the broader Precast segment?

And then secondly, I believe based on the cash flow statement that you have roughly $50 million in cash used for that acquisition. So I was hoping you could also speak to maybe the margin profile and what it's expected to contribute. [Indiscernible].

Scott Montross

You've asked a few questions there, Julio. So you may have to remind me which ones you've asked. But the margin profile on that business is what I would say, significantly greater than what we see on the Precast side.

That business is a wastewater business that's a wastewater conveyance business. We already have a wastewater business at ParkUSA. And the majority of the wastewater business we have, ParkUSA, is directed toward really private applications like large grease traps and things of that nature. This is directed more toward the municipal side.

And at Park, we also have a business that's called Park Process that does dewatering, mixing, separation in the wastewater market, specifically in the biosolids and sludge section. And the Serpentix business having the conveyance piece and really a conveyor that is different than with a lot of the competitors because it's a vertical, horizontal and helical, so it's a big space saver. So that's one thing.

And really, the Serpentix business is directly adjacent to the Park Process business. So that kind of fits together and gives us greater access to more products in the wastewater side of the business. So we think it's going to be a pretty solid potential platform for growth going forward, and we're excited about it.

And I think the one thing that we're seeing in the wastewater side, especially in the sludge and biosolids, which is what we're focused on right now is the amount of potential targets out there for M&A are pretty substantial. And it kind of reminds me of the targets that we had when we first got into the Precast business, which are obviously has gotten to be quite a bit less.

But I think we're pretty excited about the ability to grow. We're excited about the margin profile with being as high as it is because it's quite a bit higher than what we see on the normal precast side. And I think it's a great opportunity for another platform to grow along the precast side of the business. So it's a pretty exciting acquisition.

Operator

Our next question is from Tomo Sano with JPMorgan.

Unknown Analyst

This is [ Ethan ] on for Tomo. To kind of start, the 0.8 TRIR, congrats on that. I believe if that holds out, that's like 6 or more years of decline annually. So congrats.

To go off of the previous comments a little bit, Geneva, you mentioned, was roughly 40% residential now, if I'm remembering correctly. Last quarter, you mentioned it was roughly 50/50. If you could talk a little bit more on kind of what you're seeing on both kind of the residential as well as the nonresidential business on an end market basis?

Scott Montross

Yes. I think the residential side, as we've talked about, is slower simply because of the interest rates. And as a result, we've continued to fill in our production schedules and our order book with nonresidential to replace that slowness.

So that's worked out very, very well for us. And we expect that to probably continue for a while, Ethan, especially with the interest rates being what they are. And the idea of is that when residential comes back, then ultimately, you'll be adding that on top of the growth that we've seen on the nonresidential side, ultimately getting to much larger shipping numbers than we've seen in the past out of the Geneva facilities. What was the other part of the question, Ethan?

Unknown Analyst

On the commercial side, what you're seeing, I believe, you mentioned negative 3% year-over-year right now year-to-date and excluding data centers, that's more where -- and I believe you also mentioned earlier in the call that you're seeing some pockets of softness. If you could clarify a little bit more.

Scott Montross

That's really on the residential side and nonresidential is seeing a little bit of pockets of softness on the commercial side. On the institutional side, the institutional side is actually up about 12% or 13% versus where it was last year.

So we've also started spinning into more institutional stuff like hospitals and schools. The amount of that stuff that we're doing right now has grown, replacing some of the softness that we've seen on the residential side.

Unknown Analyst

And then on the Precast side as well, you mentioned on the data centers, and you clarified on that side. When we're thinking about going into next year, you mentioned on product -- project sizes. How much larger could these project sizes be than kind of like the historical comping to maybe historical commercial or institutional side?

Scott Montross

On data center specifically?

Unknown Analyst

On data center specifically.

Scott Montross

I would say that a lot of data center bidding that we've done, we've seen projects that are $300,000, $400,000. But more recently, we've seen projects that are out there in front of us that we're working on trying to convert into orders and get the orders that are as big as $3 million and $5 million.

So as far as how large it could be in 2017 (sic) [ 2027 ], we're just working through our 2017 plan now. But as long as the data center business continues to drive forward, I think that it's a good indicator that it's going to continue to grow.

Right now, just in the state of Texas, there's 49 data centers that are under construction. And there's another 114 that are planned and 72 of those are in the preconstruction phase.

Obviously, there's been a little bit of slowdown with some -- with political issues related to those, but we're still seeing a lot of those in front of us and expect that with all of this stuff coming through that next year could be even larger than this year on the data center side of the business, adding to the total potential of our Precast revenue for the year.

Operator

Our next question is from Ted Jackson with Northland Securities. [Operator Instructions]

Edward Jackson

I'm going to say I have a box full of questions. I'm just going to ask a few of them and then get out of the queue. [Indiscernible]. I just wanted to end the call. I want to make sure I can come back [indiscernible].

All right. So I want to start out with the NDA opportunity. So when you announced that, it was a $50 million opportunity that was going to ship this quarter. You popped $39 million of revenue in the last 2 quarters. So if you were to finish it this quarter, that would say, let's call it, $11 million in the fourth quarter.

You clearly expected to get some revenue out of that and you're expecting to see some revenue in 2027. So I guess the question is it $50 million and some of that remaining $11 million is bleeding into '27? Or is it -- we should still see, call it, the $11 million, call it, $10 million, whatever you will, and the size of that opportunity may be scaled out a little?

Scott Montross

Yes, I would say that the total project value of the NDA project was right around $56 million. And so far, let's call it, $40 million we've done so far through the second and third quarter of the year.

In the fourth quarter, we expect to get some of that $16 million, but it's how fast that the contractor can actually take it. So some of that may bleed into the beginning of 2017 (sic) [ 2027 ].

So as far as what happens after that with the NDA projects, there's been rumors out there that there's additional ones that are out into the future, but we have not seen anything on any of that yet, and we're just focused on getting this one done and moving on and continuing to get more orders on the water transmission side.

Edward Jackson

Okay. Well, that was my follow-up question was any color on the opportunities in the future. They're still out there no movement, though.

Scott Montross

Yes. I think there's stuff that's out there. I think a lot of it's going to depend on the administration and what their stance on those things are. But I would say, even if you pull the data center work out, and look at where we are through the first 9 months of this year, like we're 10% or 12% ahead of where we were last year, which had no data center work -- or no, excuse me, NDA work in it.

And so it bodes well. And I think the bigger thing is when you look at what's going on in WTS, Ted, the momentum in that business is tremendous because coming through the third quarter, we converted about $144 million worth of work into backlog.

And the third quarter was the biggest bidding quarter of the year, but the second biggest bidding quarter of the year for Water Transmission is the fourth quarter. So the fourth quarter continues to be on a pretty breakneck pace for bidding on the Water Transmission side.

And I think I can safely say that I've never seen this much momentum on the Water Transmission System business. Heading through the first -- the fourth quarter and into next year, there's a tremendous amount of momentum in that business. So I mean, we're pretty excited about how that looks.

Edward Jackson

Would you -- with this NDA project, so let's just keep it at $50 million for the year for conversation sake. It was kind of a pig in the python for the year. But at the end of the day, you have these facilities that can produce and you have the huge backlog. And I know you're not giving '27 guidance.

But if you don't get a follow-on for NDA, I think most people are expecting to see a decline in WTS revenue just because of you have that gap. But is there the possibility that you would fill that revenue hole with the strong backlog you have and you can keep your WTS -- well, let's talk about it like on a volume basis, keep it at least flat in '27?

Scott Montross

Well, I mean, a lot of it's going to depend on how the bidding goes in the fourth quarter because we expect that to be relatively large in the fourth quarter. Some of it will have -- the steel pricing will have an impact on what those revenue numbers look like.

And again, as you said it, we're not giving guidance for what we're seeing in 2027. We are currently -- this week, I've met with both groups, the Water Transmission Systems group and the Precast group about expectations for the 2027 time frame.

And I would say that the bidding in 2027 is going to remain very strong. And we're going to carry an order book into 2027, where we have most of this stuff for 2027 already in backlog. And all we can do is continue to grow that potential with booking more orders.

So I'm not going to say that we're going to fill all this in at this point. But I think the strength of the business is going to be substantial as we go through 2027, and we're just going to have to see how the variables play out as we go through the year.

We're going to finish a very, very strong year just without the NDA project for Water Transmission Systems. But the question of whether we can fill that in, that's a tall order, not completely impossible, but we're just going to have to see how the variables play out. But 2027 is going to be from all views at this point in time, it looks like it's going to be another really strong year on the Water Transmission side.

Edward Jackson

I've got a question probably more for Aaron. I don't want to leave him out of all the fun. On the balance sheet, Aaron, you had a good jump up in contract liabilities and assets, which is a good thing because it just means you're getting prepaid for work and improves your free cash flow.

But as we think about that on a go-forward basis, at some point, it has to flip itself around, I would think. Can you talk a little bit about like how we should think about those line items as you kind of maybe march through really, really probably more '27 you get going with this. Just thinking about it really from a free cash flow perspective and how that should flow through over, I don't know, the next 12 or 18 months?

Aaron Wilkins

Yes, sure. I mean, if I'm going to be honest, we have prebilled the WTS business significantly better than we even expected to, and we had a pretty aggressive plan as we set the year. That is something that I do just kind of naturally think will kind of moderate a little bit.

I mean, we currently have a cash conversion cycle for that business that's around 99 days. To put in perspective, a year ago, for which I thought we were pretty strong on the prebills and really kind of driving those contract liabilities through, we were at 150 days.

So I don't think the 99 days is sustainable long term, but it will kind of depend on the types of projects that we have in front of us, who those are with and the size of the contracts that we see bidding in 2027.

But all in all, I think the thing that I'm, I think, proud of, regardless of whether we can kind of keep this pace, I feel like we have fundamentally changed the way that we think about cash flows for that business, and we have made extremely good progress on prioritizing that.

And so I don't think that sentiment is going to change at all. We still have that kind of now ingrained, I think, in that business that we talk about it every single week during staff meetings. And the commercial team is highly conscious of the fact that this is part of everybody's compensation as far as our incentive compensation package, and they are really driving that.

So I don't want to -- I'm certainly proud of the 99 days. I don't want to promise anything about that like that again. But I think it will be somewhere between the 150 and the 99 as we go forward.

Edward Jackson

So kind of taking all that and putting it in a base term, it's not like there's a pig in the python, we would expect to see that kind of reverse itself out. It might just trend down to something a little more sustainable.

Aaron Wilkins

I think so, yes. I think it just kind of moderates back a little bit, yes. But we're still focused on it. We're still trying to drive it. And like I say, they surprised me this year. So never would have thought we would have got here. They may surprise me again next year.

Edward Jackson

Well, I hope they do. I'm going to ask one more, then I'm going to -- I'm going to step aside after this next question, and it's a simple one. It's just kind of can you give me a sense with regards to the amount of steel that was in the COGS line item for this quarter?

Aaron Wilkins

For this quarter, I believe it was rated around 28%.

Edward Jackson

And I'm going to step back and see if anyone else has any questions. Then I have a couple more of that.

Operator

[Operator Instructions] Our next question is from Ted Jackson with Northland Securities.

Edward Jackson

Great. It's good to be back. So Scott, in the guidance, when you talk about Precast basically being steady in the fourth quarter, I don't have my model in front of me, but are you juxtaposing that against prior year or against third quarter?

Scott Montross

I think it's probably more against the third quarter is the way we're looking at it right now. It looks like it's pretty steady. I mean, there's fits and starts in the Precast business right now, Ted, because of interest rates and fuel costs and stuff like that.

But we continue to fill in with data center stuff, with moving from residential to nonresidential, and that's worked out pretty well. You never can tell what's going to happen because, obviously, there's a lot in the air with what the administration is doing and things that are going on.

But it still looks pretty strong to us, and it looks like it's going to be pretty strong into 2027, too. So I think we're in pretty good shape on the Precast side as we sit right now.

Edward Jackson

Okay. And then on the -- you said before that with the current quarter, you had some delayed shipments in the quarter that had affected the revenue number. So would we -- would those kind of -- I mean, those are delays, but not cancellations. So that's stuff that's kind of slipping into fourth quarter, maybe first quarter kind of thing?

Scott Montross

Right. I would say, Ted, the thing -- the statement I would make is that both with WTS and Precast, the fourth quarters are -- the fourth quarter is really validated by the orders that we have in hand right now for the first -- for the fourth quarter. It's not -- it's -- the orders are in hand.

I think what you get with some of the delays that we've seen in Precast with the interest rates and like I said, fuel charges and fuel costs, you get some -- a little bit of nervousness amongst the owners and the contractors that make them take pause for a bit of time, and then it just seems to come back. So yes, I think we're in pretty good shape.

Edward Jackson

And then my last question, it kind of ties into steel and backlog. I mean, the simple fact is that the price of steel is as we go forward in time, just continues to elevate. And I know that's good for revenue and profitability for you.

But when we think about the increases that you have had with WTS backlog, can you give us some kind of sense, I wouldn't expect you to be able to really take it down to the wire, but like how much of that is volume-based as opposed to price-based? But I assume that higher steel cost is helping you on the dollar value of that backlog too? That's my last question.

Scott Montross

It does help a little bit. But when we're dealing with -- we're looking at an average steel cost and backlog across all of 2026. Right? So steel has risen to a different level as we're going into the fourth quarter now.

We're at about $1,300 a ton as we go into the fourth quarter. But a lot of those projects that we bid were at lower steel prices. So I would also say that the volume in backlog is higher than normal, along with the project value because when you look at what's going on in the Water Transmission Systems business, our revenue per ton, if you will, is up about -- quarter-to-quarter, third quarter this year versus the third quarter of last year, the revenue is up 19% and the steel price is up 12%, okay?

So steel prices helped, but it's the revenue side and a lot of that's being driven by higher volumes. And the prices on these projects right now are pretty high.

So I mean, you really have to tear it down to its basic level. But we have really strong volume in backlog along with price. So -- and like I said, I think with that, we've got most of the stuff that we're going to be producing in 2027.

We've got a lot of it in backlog already. And we expect to have even more of it in backlog as we get through the fourth quarter. So I mean, it's a long way to answer the question, but it's -- our volume is up in backlog.

Edward Jackson

No, no, I think that was really good for me. So if I think about it, I just want to put some words in your mouth so you can spit them out if you don't like it. But you're saying that like -- so you book revenue earlier in the year that you haven't recognized revenue on.

And when you book that revenue, you're already locking in your steel prices. So inside of that backlog, let's just say, like if I was to go back to say you had stuff in there still that's left over from bookings in the first quarter, you could have had -- that stuff could have been at $1,000 a ton where stuff that you had in the third quarter is more like $1,200 a ton, I'm going with this. And hence, when I look at that, I need to understand. I just want to make sure.

Scott Montross

That's true.

Operator

We have reached the end of the question-and-answer session. I would like to turn the floor back over to Scott Montross for closing comments.

Scott Montross

Yes. Just a few comments before we wrap up today. Obviously, we had another very, very strong quarter, setting a lot of records, including revenue, gross profit, earnings per share. Water Transmission continues to be, what I would say, generating very strong momentum and that business right now is booming, and we're hitting booking levels in this year that we've never seen before.

And obviously, some of it is the NDA project, but a lot of it is just straight-line Water Transmission Systems business. So we have really good visibility into the future.

So -- and again, even without the NDA project, we would be -- through 9 months of this year, we'd be 10% or 12% ahead of where we were last year at the same time. So I think that, that's a big deal.

The other thing is, as I said before, we converted $144 million into our backlog into the third quarter and the fourth quarter is going to be another strong bidding quarter, the second biggest bidding quarter of the year, only second to the third quarter.

So we've got still strong bidding in front of us. I think the Precast business continues to deliver strong results even with various softness in various areas, up 160 basis points versus where we were last year with an increasing margin. So those things are all positive.

The data centers continue to add to the Precast business. And we've advanced our long-term strategy with the acquisition of Serpentix, which fits right alongside our Park Process business at ParkUSA.

So we're very excited about the opportunities for that. And looking ahead into the fourth quarter, we expect stronger performance in 2025 fourth quarter and stronger performance in the first quarter of 2026 despite some of the seasonal factors that we see with the 2 major holidays and always, always the weather-related things.

So we're very positive about finishing the 2026 year at an all-time record level and very excited about the amount of momentum that we're carrying into 2027. So we will see you again in February, we'll talk again in February or early March, whatever the next call is. I'd like to thank everybody for joining us and be well. Thank you.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.