NwpX’s Q3 Wts Revenue Guidance, Q4 Margin Outlook, and Steel Costs Don’t Match in 2026 Q2 Earnings Call

Date of Call: Jul 30, 2026

Financials Results

• Revenue: $159.5 million, up 19.7% YOY
• EPS: $1.62 per diluted share, up 78% YOY from $0.91
• Gross Margin: 21.5%, up 250 basis points YOY

Guidance:

• Q3 consolidated performance expected to be comparable to or stronger than Q2 2026.
• WTS revenue and margins in Q3 expected to be similar to Q2, with strong production volume and product mix, plus contribution from the unplanned NDA project.
• Q3 precast revenue expected to be higher than Q3 2025 and Q2 2026, with stable margins.
• Full-year free cash flow outlook raised to $56-$65 million from prior $50-$56 million range.
• Full-year bidding levels for WTS expected to be stronger than 2025.

Business Commentary:

Record Financial Performance:

• NWPX Infrastructure reported record net sales of $159.5 million for Q2 2026, up 19.7% year-over-year.
• The growth was primarily driven by strength in their water transmission systems business, with a 33.8% increase in revenue for that segment.

Water Transmission Systems (WTS) Segment Growth:

• The WTS segment achieved record revenue of $113.2 million, up 33.8% year-over-year, and record gross profit of $24.2 million, with a gross margin improvement of 360 basis points to 21.4%.
• Growth was due to higher production volume (26% increase), favorable project timing, and a 6% increase in selling price per ton.

Precast Segment Challenges and Recovery:

• Precast revenue slightly decreased by 4.8% to $46.3 million year-over-year, with a 7% increase in selling prices offset by an 11% decrease in volume shipped due to adverse weather and residential market softness.
• Despite the challenges, the segment saw improved momentum in June, ending with a quarter-end order book of $61 million, positioning it well for the remainder of the year.

Backlog and Bidding Activity:

• The WTS backlog, including confirmed orders, ended the quarter at $423 million, slightly down from $430 million but still significantly above the previous year's level of $348 million.
• Strong bidding activity and elevated bidding levels in Q2 2026 indicate continued demand strength, with expectations for full-year bidding levels to be stronger than in 2025.

Sentiment Analysis:

Overall Tone: Positive

• Management described Q2 as an 'outstanding quarter' delivering 'record financial results across revenue, gross profit, and EPS.' They noted 'strong bottom-line performance,' 'exceptionally strong booking quarter,' and 'robust bidding activity.' Outlook is confident: '2026 is shaping up to be a historic year.'

Q&A:

• Question from Julio Romero (Sidoti & Company): Based on your comments, I think that implies the core business did significantly well in the quarter, up about 25% year-over-year... Maybe to start just reconciling that performance with the third quarter water transmission system segment outlook of similar revenue quarter over quarter. Are you implying that for the third quarter that the core WTS segment sales are going to step down sequentially?
  Response: No. The core WTS business in Q3 is expected to be 'a little bit stronger' sequentially than Q2, with Q3 projected to be the biggest quarter of the year for the segment.

• Question from Julio Romero (Sidoti & Company): ...just help us think about what what you see, you know, the backlog shaping up in the back half of the year and how you see yourself entering 27.
  Response: Backlog after the NDA project is run down is expected to normalize to recent historical ranges of $300-$400 million. Bidding levels in 2026 are stronger than 2025, indicating continued healthy demand.

• Question from Julio Romero (Sidoti & Company): ...Any increased visibility as to future phases of that project, you know, as it is now relative to three months ago?
  Response: There is a little more activity and discussion, but nothing definitive.

• Question from Tomo Sano (JP Morgan): On the WTS margin improvement, could you talk about... what is actually driving by execution and efficiency? And if you could talk about how sustainable do you believe those, the gains are in a backup half and so on, please.
  Response: Margin improvement driven by higher production volume (26% YOY), better project pricing/mix, and improved overhead absorption. Trends are expected to continue into Q3, with potential for further improvement as demand remains stable.

• Question from Tomo Sano (JP Morgan): On precast side, precast improvement in June you talk about, and how should we think about exit rates for volumes and activity as you move into third quarters? And if you could talk about the demand outlook...
  Response: Precast revenue in Q3 expected to be stronger than Q3 2025 and Q2 2026, with improving margins. Non-residential demand is strong and a key growth driver, offsetting softness in residential construction.

• Question from Tomo Sano (JP Morgan): You've discussed the ambitions for precasts to become comparable in size to WTS. Could you talk about what milestones, investments, and M&A criteria should we track to gauge that progress, please?
  Response: Progress will be measured by adding precast plants (like the recent acquisition) with strong margins and asset efficiency, ideally near existing plants. M&A is a priority, but opportunities are currently limited.

• Question from Ted Jackson (Northland Securities): ...can you tell me like it's a percentage of revenue what steel was for the quarter?
  Response: Steel as a percentage of cost of sales was about 34-35%.

• Question from Ted Jackson (Northland Securities): ...I would suggest that pricing is up, you know, another 18, 20% year to year... How does steel factor into that?...
  Response: While steel prices increased more in percentage terms, the dollar value of the 6% revenue per ton increase was higher, and the 26% higher production volume drove significant overhead absorption, contributing more to margin than steel alone.

• Question from Ted Jackson (Northland Securities): ...when you look forward for the remainder of this year, kind of next year, you know, in your deck for cost of steel, kind of what are you viewing it as at a per-ton basis?
  Response: Expect steel prices to continue inching up, potentially reaching $1,400 per ton or more, due to limited supply from tariffs and mill outages.

• Question from Ted Jackson (Northland Securities): ...What is your utilization rate at this point within your plants?...
  Response: Current utilization rate is about 65%, with capacity available to handle more volume, though projects may be shifted between plants to optimize.

• Question from Ted Jackson (Northland Securities): On expenses, operating expenses, SG&A, and this is just against my model, it was actually higher than... And I was kind of curious, within, you know, that line, I'm on the P&L, you know, what was driving within there?...
  Response: Higher SG&A driven by incentive compensation and related benefits, which have now topped out, leading to expectations of relatively consistent performance through Q3 and Q4.

Contradiction Point 1

Q3 WTS Revenue Guidance Characterization

Contradictory framing of Q3 revenue guidance despite sequential strength, impacting expectations for core business performance.

Julio Romero (Sidoti & Company) - Julio Romero (Sidoti & Company)

2026Q2: The Q3 outlook is cautious due to weather patterns but anticipates Q3 to be the biggest quarter of the year for both WTS and precast, with better profitability. - [Scott Montross](CEO)

How should we interpret the strong Q2 WTS performance against the Q3 outlook of similar revenue, and does this suggest a sequential decline in the core WTS business? - Julio Romero (Sidoti & Company)

2026Q2: Barring severe weather disruptions, Q3 2026 is expected to be the largest quarter of the year for WTS, both in revenue and profitability. - [Scott Montross](CEO)

Contradiction Point 2

Q4 WTS Margin Outlook

Contradiction on whether Q4 margins are typically slow or may not be as slow, affecting financial forecasts for the segment.

Tomo Sano (JP Morgan) - Tomo Sano (JP Morgan)

2026Q2: This trend is expected to continue as demand remains stable or upward trending. Q4 margins may be lower as it is typically the slowest quarter. - [Scott Montross](CEO)

What is driving the WTS margin improvement and how sustainable are these gains in the second half? - Tomo Sasano (J.P. Morgan)

2026Q2: This trend is expected to continue through Q3, with margins potentially inching up further... Q4 is typically slower but may not be as slow this year. - [Scott Montross](CEO)

Contradiction Point 3

SG&A Expense Forecast

Contradiction on the expected trend for SG&A expenses through the year, impacting cost structure expectations.

Ted Jackson (Northland Securities) - Ted Jackson (Northland Securities)

2026Q2: SG&A is expected to remain relatively consistent with Q2 levels through Q3 and Q4. - [Aaron Wilkins](CFO)

What factors contributed to the higher-than-expected SG&A expenses and what is the outlook for the rest of the year? - Ted Jackson (Northland Securities)

2026Q2: Performance is now topping out on incentive comp, and SG&A is expected to remain relatively consistent with Q2 levels through Q3 and Q4. - [Aaron Wilkins](CFO)

Contradiction Point 4

Workforce & Capacity Utilization

Conflicting statements on current utilization levels and capacity constraints, affecting understanding of operational flexibility.

Ted Jackson (Northland Securities) - Ted Jackson (Northland Securities)

2026Q2: Current utilization is around 65% across six WTS plants... There is ample capacity and the ability to add shifts... - [Scott Montross](CEO)

What is the current plant utilization rate, and are capacity constraints limiting your ability to handle increased volume? - Julio Romero (Sidoti & Company)

20260430-2026 Q1: Capacity utilization in the WTS segment is at a high point of around 70-72%... The company is ready and able to take on substantial additional work. - [Scott Montross](CEO)

Contradiction Point 5

Steel Cost as Percentage of COGS

Contradiction on steel cost percentage of COGS between quarters, impacting cost structure and margin analysis.

What were the key factors driving the company's performance in the quarter? - Ted Jackson (Northland Securities)

2026Q2: Steel was approximately 34-35% of cost of sales. - [Scott Montross](CEO)

What percentage of cost of sales was steel in the quarter? - Ted Jackson (Northland Securities)

2025Q4: For the Q4 2025 quarter specifically, it was approximately 25%. - [Aaron Wilkins](CFO)