It’s a good time to be in the water transmission business. Northwest Pipe Co., headquartered in Vancouver, has been enjoying consistent positive financial results in recent years, buoyed by a series of major infrastructure projects contributing to a record-breaking backlog of orders.
“This is probably the strongest and best bidding environment that we’ve seen in many years,” CEO Scott Montross said during an August investor conference call.
Some of the company’s biggest project contracts include the Lower Bois d’Arc Lake project in north Texas, the Navajo-Gallup Water Supply Project in New Mexico and a portion of the North Valley Regional Recycled Water Program in California.
There’s also work underway closer to home: The Willamette Water Supply Program is a $1.2 billon project from the Tualatin Valley Water District and the City of Hillsboro, Ore., intended to allow the region’s water supply to keep pace with anticipated population growth.
The breakneck pace of project bidding and manufacturing has continued even as Northwest Pipe has had to deal with a fire in a Texas warehouse in April. The building and much of its inventory were lost. A replacement is scheduled to open this month, Montross said.
The strong and steady bidding environment is a welcome change following several tumultuous years that saw the company abandon a push into the energy sector in favor of a return to its roots in the steel water piping industry, where it enjoys a much stronger market position.
“We are the big guy in this business,” Montross said.
Now the company is turning its eye toward expansions that will allow it to diversify its product lineup, Montross said, but without stretching all the way outside of its core business of water transmission.
The company’s 2018 acquisition of California-based Ameron Water Transmission Group is an example: Although Ameron was primarily a competitor in the welded steel pressure pipe market, the merger allows Northwest Pipe to test other types of pipe that could give it access to new markets like stormwater and sewer piping.
Founding and expansion
Northwest Pipe was founded in 1966, initially operating three spiral steel mills in Clackamas, Ore. The company’s primary product is steel pressure pipes that carry “raw” water from the source to a treatment plant.
Northwest Pipe’s pipes range from 2 to 13 feet in diameter. The mills twist steel sheets into helixes and weld them together in a spiral pattern to make pipes (think of a paper towel core, but huge and metallic).
The company pushed beyond the Portland market in the 1980s and began building its current nationwide network of manufacturing facilities in the 1990s. It went public in 1995, trading on the Nasdaq under the symbol NWPX.
Northwest Pipe moved its corporate headquarters from Portland to Vancouver in 2008. The company maintains a manufacturing plant in north Portland, along with six others throughout the U.S. and one in Mexico.
Location is a critical piece of the company’s manufacturing strategy. Its 13-foot steel pipes are too big to transport in a cost-effective way, Montross said, so the company’s eight facilities are all located as close as possible to large demand centers.
Business tends to be driven by big clients, Montross said. Most often a municipality will hire a contractor to build a new treatment plant or some other big piece of water infrastructure, and the contractor will seek out Northwest Pipe to build the necessary pipes.
Despite the scale, every pipe is built to order. Every project has its own requirements for wall thickness, pipe diameter, rate of flow, linings and coatings, Montross said, and the water system’s design must contend with the unique geographic features of the site.
“What we make is an engineered system,” he said. “It’s not just pipe.”
As it grew, the company also branched out into other “tubular product” categories like the metal poles in highway road signs. In 2006, the company began supplying piping for fracking operations, and the energy business became one of the company’s two biggest markets, alongside water.
By the end of the decade, the Northwest Pipe employed about 1,200 across 10 plants.
A decade of ups and downs
Northwest Pipe faced a turbulent year in 2010 after discrepancies came to light with the company’s accounting practices. That led to an investigation by the Securities and Exchange Commission, threats of delisting its shares from the Nasdaq exchange and class-action lawsuits from investors.
Accounting errors and legal trouble continued to plague the company in 2011, although it returned to profitability following a reported loss of $5.4 million in 2010. In 2012 it settled a set of four lawsuits for a combined $13.25 million.
But the company slipped back into the red in 2014, and even with its internal operations stabilized, it faced a slow climb to profitability. In 2016, Northwest Pipe closed a factory in Denver in the face of shrinking local demand.
Demand for transmission pipes fell in part due to a regular industry downtown — water market cycles are long, Montross said, but they happen. Relatively high demand from 2000 to 2013 was followed by a low period from 2014 through 2017, with sales dropping nearly by half at one point.
“The market really got slow for us for a number of years,” Montross said.
The 2008 recession was also partly to blame, Montross said, even though business remained brisk during the actual recession years. Most of Northwest Pipe’s orders are for projects that are planned years or sometimes more than a decade in advance, so there’s a long lag before the company starts to feel the effects of an economic downturn.
Montross joined Northwest Pipe as chief operating officer in 2011 after a previous career in the steel industry. He became CEO in 2013. He embarked on a plan to back out of the energy sector, reasoning that Northwest Pipe’s expansion into that arena had left the company struggling to keep up with much larger competitors.
That transition wrapped up in 2017. Since then, Northwest Pipe has focused on making its steel pressure pipe manufacturing more efficient.
The company was able to return to a profitable balance sheet in late 2017. The market began to pick up in early 2018, and later that year Northwest Pipe acquired Ameron in a $38.3 million deal.
The next few years
In the current favorable market, Montross said Northwest Pipe’s backlog of projects has grown to a size that provides a level of certainty about the next 3 to 5 years.
The Willamette Water and Bois d’Arc Lake projects are big new investments, but Montross said the company is also seeing a growing demand for upgrades and replacements as legacy water systems reach the end of their operational lifespan — and that demand is only going to increase. It’s especially pronounced in East Coast cities where the piping tends to be much older.
“It’s becoming crisis-level,” he said. “Pipe is becoming obsolete about twice as fast as we can replace it.”
Moving forward, Montross said Northwest Pipe will explore more opportunities for rehabilitation jobs.
The company will also work to diversify its project portfolio to include a better mix of big long-term projects and smaller-scale orders that need to be completed rapidly.
Another recession could slow things down, Montross said, but in the long run it will only delay necessary projects, leading to even greater demand for piping down the road.
Northwest Pipe is also one of many American companies that have felt impacts in recent years from tariffs and the ongoing trade war, but Montross said the company has been able to adjust its prices to compensate for more expensive steel.
The more important consideration is long-term price stability, he said, because the company needs to be able to provide estimates to contractors years in advance.
With the current project boom providing some breathing room, Montross said he’s focused on again diversifying the company’s offerings, but with a focused approach that targets other segments of the water market.
One example is PermaLock, which was acquired by Northwest Pipe in 2014. The technology allows segments to be snapped together rather than welded or connected using gasket joints. Permalock pipes can serve as a protective layer around a smaller set of pipes. The California project, for example, utilizes a Permalock line to protect a steel line that runs underneath the San Joaquin River.
The acquisition of Ameron last year also points toward expansion opportunities. The immediate goal was to maximize Northwest Pipe’s business in the steel pressure pipe sector, Montross said, but the acquisition also gives the company the ability to manufacture precast and reinforced concrete pipe.
In contrast to spiral-welded steel, Montross describes reinforced concrete pipe as “like a rolled up sidewalk with rebar.” The technologies give Northwest Pipe a potential entry point into the stormwater and sewer system markets.
Northwest Pipe currently employs about 50 people at its Vancouver headquarters and about 750 in total, about 230 of whom came from Ameron.
