Before I conclude, I’d like to provide an update on the progress we’ve made with the ongoing ERP implementation and material weakness remediation projects. With respect to the ERP implementation, we continue to meet project milestones and remain on schedule. We are working through user testing and broader training of the workforce in advance of our initial deployment of materials resource planning or MRP automation by the end of the year. I’m proud of the team’s incremental gains in data management and business process improvement. Physical inventories are detecting fewer variances, which will reduce our dependency on these labor-intensive events. As for the material weakness remediation, this remains a top priority for management and our Audit Committee.
We have instituted more robust internal monitoring of our manual controls that failed at Park while related to revenue and cost of sales while we continue to focus on addressing specific concerns that arose from system development life cycle control failures noted last year’s audit. Importantly, the internal control deficiencies identified have not impacted the accuracy of our current or historical financial results. In closing, even though we encountered some anomalies that impacted our third quarter financial results, I’m very pleased with the progress our team has made position us well for a solid finish to 2023 and the year ahead. We remain steadfast in our commitment to drive long-term growth and enhance shareholder value. I would also like to thank our employees for their continued prioritization of our safety program and express gratitude to all our stakeholders for their continued confidence in Northwest Pipe.
I will now turn it over to the operator to begin the question-and-answer session.
Q – Brent Thielman: Hey thanks, good morning, Scott, Aaron.
Scott Montross: Hey Brent.
Aaron Wilkins: Good morning, Brent.
Brent Thielman: Hey, on SPP, maybe could you just talk about the nature of the delays you’re experiencing? It doesn’t sound like the isolated cases, but maybe it is. And then I guess, Scott, kind of what gives you the confidence that the schedules into the first quarter are firm?
Scott Montross: Brent, I mean it was a little bit of a massy [ph] quarter on Steel Pressure Pipe, and I think the way to describe it is these are customer-driven changes in contracts and contract scope. And – we have some projects that are design build projects, which means that you’re getting the project generally from the contract or owner before it’s fully designed. So normally, they are probably 90% or 95% designed. And when the case that we had this time was probably 80% to 85% designed. And as a result, I mean you’re going forward with the value that you think you have with the customer going forward, but scope can change as you go through a project, normally, these will go for like a year or year and a half, sometimes even longer with these design build projects – but this was a relatively large project that was design build that actually went off and like five months to six months.
So the changes were happening quickly and ultimately, the project scope changed and reduced what the project was. That was one piece. The other piece was another build project that was design issues that was supposed to be done and made in the third quarter, that end up getting pushed into the first quarter of 2023. And we’d see these once in a while, but these are two relatively large projects that really had an impact. And yes, we don’t see these things reappearing [Technical Difficulty] smaller scale. But generally, the design build projects don’t move as quickly as some of the things are happening now. I think there’s a little bit of a change in the business, Brent, because obviously, we’re trying to promote change and get progress payments on stuff and get advance for steel and things of that nature.
So some of these projects are starting to come out and move a little bit quicker now, which we obviously have to pay more attention to. But that really is what caused the issue in the third quarter. So – and what was the second part of the question, Brent?
Brent Thielman: No. I think you’ve answered that Scott, it was really just the confidence that the schedules for these are kind of firm as we get into the early next year.
Scott Montross: Yes, I think we’re looking pretty firm right now. Obviously, this has been a pretty small bidding year, right? If you think back of when we saw bidding years like this in the past, especially with Steel Pressure Pipe back to 2015, 2016 and 2017, I don’t probably have to remind you too much of what the margins look like in those years. I think one of exciting things is while the quarter was disappointing, one of the exciting things is that even with markets this small, I mean these are not great margins, but they’re okay margins in a market that small, which really kind of speaks that there’s been a little bit of a change in the market resiliency based on the current configuration in the market and ultimately, obviously, due to the consolidation in the market, which we were a big part of, which really bodes well for the Steel Pressure Pipe business as we get into bigger markets, which we expect to do in 2024.
We expect that market in 2024 to be quite a bit bigger than it was in 2023. So – so I think we’re in pretty good shape with that.
Brent Thielman: Okay. Yes. And on that front, Scott, do these delays impede your ability to add new business in SPP just given that even though the production is sort of allocated, you can still fill it in.
Scott Montross: No. Yes. I mean we have more than enough production capacity practical production capacity to probably handle most of what’s coming out in the market. Some of the timing gets a little bit daisy on projects and you can’t handle them based on things being pushed out. But in any given quarter, we might be producing on somewhere between 50 and 100 different projects. So across all of our plants, plus obviously, we have the ability to move stuff around because we’ve got a nationwide footprint and deploy different assets unlike a lot of our competitors.
Brent Thielman: Okay. And then on Precast, I mean the sales line was sort of right as we’d anticipated, and I think you’ve been articulating maybe the margins were a little lighter than what we were thinking about. Maybe if you good just kind of level set us on where you expect the margins for the business to be consideration of look, I mean we understand there’s some slack in some of these markets, but, just be helpful.
