NYSE:ACA Arcosa Q3 2024 Earnings Report $80.13 -0.37 (-0.46%) Closing price 04/25/2025 03:59 PM EasternExtended Trading$79.00 -1.13 (-1.41%) As of 04/25/2025 07:20 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Arcosa EPS ResultsActual EPS$0.91Consensus EPS $0.78Beat/MissBeat by +$0.13One Year Ago EPS$0.73Arcosa Revenue ResultsActual Revenue$640.40 millionExpected Revenue$682.52 millionBeat/MissMissed by -$42.12 millionYoY Revenue Growth+8.20%Arcosa Announcement DetailsQuarterQ3 2024Date10/30/2024TimeAfter Market ClosesConference Call DateThursday, October 31, 2024Conference Call Time8:30AM ETUpcoming EarningsArcosa's Q1 2025 earnings is scheduled for Tuesday, May 6, 2025, with a conference call scheduled on Wednesday, May 7, 2025 at 8:30 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Arcosa Q3 2024 Earnings Call TranscriptProvided by QuartrOctober 31, 2024 ShareLink copied to clipboard.There are 9 speakers on the call. Operator00:00:00Good morning, ladies and gentlemen, and welcome to the Arcosa Inc. Third Quarter 2024 Earnings Conference Call. My name is Jim, and I will be your conference operator today. As a reminder, today's conference is being recorded. And now I would like to turn the call over to your host, Erin Dreybeck, Director of Investor Relations for Arcosa. Operator00:00:17Ms. Dreybeck, you may begin. Speaker 100:00:20Good morning, everyone, and thank you for joining Arcosa's Q3 2024 earnings call. With me today are Antonio Carrillo, President and CEO and Gail Peck, CFO. A question and answer session will follow their prepared remarks. A copy of the press release issued yesterday and the slide presentation for this morning's call are ir.arcosa.com. A replay of today's call will be available for the next 2 weeks. Speaker 100:00:51Instructions for accessing the replay number are included in the press release. A replay of the webcast will be available for 1 year on our website under the News and Events tab. Today's comments and presentation slides contain financial measures that have not been prepared in accordance with GAAP. Reconciliations of non GAAP financial measures to the closest GAAP measure are included in the appendix of the slide presentation. In addition, today's conference call includes forward looking statements as defined by the Private Securities Litigation Reform Act of 1995. Speaker 100:01:28Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from such forward looking statements. Please refer to the company's SEC filings for more information on these risks and uncertainties, including the press release we filed yesterday and our Form 10 Q expected to be filed later today. I would now like to turn the call over to Antonio. Speaker 200:01:52Thank you, Erin. Good morning, everyone, and thank you for joining us today. There are 3 key takeaways I want to highlight as we look at our Q3 progress which you can see on slide 4. First, our Q3 performance and profitability were strong, a result of our success in growing the business with meaningful margin expansion. During the Q3, adjusted EBITDA grew significantly faster than our top line growth. Speaker 200:02:19We also generated free cash flow of $107,000,000 as we prioritized working capital management. Next, we made significant progress on our strategic transformation. During the quarter, we completed the divestiture of our steel components business and on October 1, we closed the acquisition of Stavolla, the largest purchase in Arcosa's history. Stavola expands our aggregates footprint into the nation's largest MSA with increased exposure to lower volatility infrastructure markets. In our press release yesterday, we increased our adjusted EBITDA guidance for 2024 reflecting these portfolio actions. Speaker 200:02:58The midpoint of our revised adjusted EBITDA guidance reflects a 34% increase year over year when normalizing for the steel components divestiture and a large land sale gain in 2023. Finally, we completed these initiatives while implementing financial flexibility that enables us to use our cash flow to reduce our net leverage towards our target of 2 times to 2.5 times over the next 18 months while supporting our capital allocation priorities and growth initiatives. Slide 7 shows the positive results of our strategic transformation. Once we spun off from Trinity in 2018, our Construction Products business represented 1 third of adjusted EBITDA. Today, our cost is much larger than we were in 2018 and the Construction segment represents 2 thirds of our EBITDA. Speaker 200:03:49We have come a long way as we have worked to build a simpler, more focused and less cyclical company. This strategy continues to drive our operations and decisions every day and was a key driver of the transactions we completed throughout this year. Now let me briefly discuss Q3 results on Slide 9. From a profitability perspective, we delivered strong results relative to prior year as the Q3 benefit from recent acquisitions and divestiture progress along with solid organic growth and more efficient operations. 3rd quarter consolidated revenues increased 14% and adjusted EBITDA increased 39% with margin expanded 3 30 basis points to 18.4% after normalizing for the divestiture of Steel Components. Speaker 200:04:36This was driven by organic improvement led by Construction Products and Engineered Structures and supported by accretive acquisitions completed earlier in the year including Amaro. Within Construction Products, we were very pleased with the quarter's strong unit profitability growth and adjusted EBITDA margin expansion. Our operations performed well overcoming weather challenges and recent bolt ons are contributing nicely. Construction activity was stable during the quarter despite overall volumes coming in lower than expected. A portion of the volume weakness reflects our commercial strategy as we continue to value price over volume. Speaker 200:05:15However, we do believe an element is also related to uncertainty regarding both the future path for interest rates and the outcome of U. S. Elections. Turning to engineered structures, Ameron continues to perform well with strong execution. With respect to wind towers, our new facility in Belen, New Mexico continues to ramp up production and is contributing positively to adjusted EBITDA. Speaker 200:05:41Market fundamentals for utility structures remain very healthy. Transportation Products results were distorted by the impact of steel components divestiture during the quarter. Our barge business continues to perform in line with expectation and we were pleased with the 0.9 times book to bill in the quarter. As you know, during the Q3, several regions where we have operations were affected by severe weather events. Our focus during the quarter was to support our employees and local communities. Speaker 200:06:11Our people and our plants were not significantly affected by these weather events and the Arcosa team showed incredible resilience in getting our plants back operating as soon as conditions were safe. Overall, our Q3 financial performance reflects strong operational performance and the continued positive impact from the strategic initiatives we began implementing 6 years ago. Since that time, we have seen improved revenue trends and meaningful acceleration in our margins. I will turn over the call to Gail to discuss our Q3 results in more detail. Gail? Speaker 300:06:44Thank you, Antonio. Good morning, everyone. I'll begin on Slide 10. Starting with Construction Products, 3rd quarter revenues were roughly flat year over year. Before discussing the individual businesses, revenues, which is a pass through reduced segment revenues by approximately 3%. Speaker 300:07:092nd, the divestiture of a small underperforming asphalt business completed in the Q2 decreased segment revenues by roughly 2.5%. Excluding these factors, segment revenues increased 7% year over year with both organic and inorganic contributions. 3rd quarter adjusted segment EBITDA increased 21%, primarily due to the accretive impact of recent bolt on acquisitions, higher unit profitability in our aggregates business and operating improvements in our specialty materials and trench shoring businesses. Freight adjusted segment EBITDA margin was 29%, up 3 80 basis points year over year and 120 basis points sequentially from the 2nd quarter. In our aggregates business, which includes both natural and recycled aggregates, pricing momentum remains strong with average organic pricing up low double digits from the prior year. Speaker 300:08:06Total volumes were roughly flat year over year and organic volumes were down high single digits in the Q3. The accretive impact of recent acquisitions and solid organic expansion driven by unit profitability gains resulted in more than 20% adjusted EBITDA growth. Our aggregates business contributed approximately 2 thirds of the year over year margin improvement for the segment. Within Specialty Materials, freight adjusted revenues increased low double digits driven by strong pricing gains across our product lines and higher plaster volumes. Operational improvements in this business resulted in higher adjusted EBITDA and margin expansion. Speaker 300:08:47Wrapping up the segment with our Trent shoring business, revenues decreased on slightly lower volumes and reduced steel prices. Operating efficiencies resulted in higher adjusted EBITDA and margin expansion. Moving to Engineered Structures on Slide 11, revenues increased 26% due to higher wind tower volumes and the addition of the recently acquired Amaron business. In utility structures, higher volumes and improved product mix were mostly offset by lower steel prices. Adjusted segment EBITDA grew 74 percent outpacing the increase in revenues resulting in 4 50 basis points of margin expansion. Speaker 300:09:27Strong organic growth from the ramp in our wind towers business, improved product mix and utility structures and lower steel costs were supplemented by the accretive contribution from Ameron during the period. Order activity in utility structures remains healthy with attractive margins. In wind towers, we did not book any new orders during the quarter, but we continue to have dialogue with our customers on future needs. We ended the quarter with the backlog for utility wind and related structures of $1,300,000,000 and expect to deliver 20% of the backlog during the remainder of this year and about half in 2025. Turning to Transportation Products on Slide 12, segment results were impacted by the mid quarter divestiture of the Steel Components business. Speaker 300:10:12During the quarter, we recognized revenues of $14,000,000 and an adjusted EBITDA loss of $1,000,000 for steel components, which was below our expectations as the business was impacted by the deferral of certain product shipments and business interruption from the divestiture process. In connection with the sale, we recognized a pre tax loss of $23,000,000 which has been excluded from adjusted segment EBITDA. 3rd quarter revenues for our barge business increased 21%, primarily due to higher tank barge deliveries. Adjusted EBITDA increased 8% and margin declined 190 basis points, primarily due to a planned changeover to tank barge production in one of our barge facilities. We expect margin for the barge business to improve sequentially in the 4th quarter now that the changeover is complete. Speaker 300:11:00We received barge orders of approximately $75,000,000 during the quarter for both tank and hopper barges representing a book to bill of 0.9. Our total barge backlog at the end of the quarter was $245,000,000 of which approximately 70% is expected to be delivered in 2025 giving us good production visibility for next year. I'll conclude with some comments on our cash flow and balance sheet on Slide 13. We generated strong operating cash flow of $135,000,000 during the quarter, up $91,000,000 from the prior period, driven by increased earnings and a $50,000,000 reduction in working capital, led by a reduction in accounts receivable. Year to date working capital was roughly neutral to cash flow. Speaker 300:11:47Capital expenditures were $34,000,000 down from prior year and on a sequential basis as we near completion on organic projects underway. This translated to 3rd quarter free cash flow of $107,000,000 of which $60,000,000 was used to pay down borrowings on our revolving credit facility during the quarter. We are adjusting our full year CapEx guidance to $180,000,000 to $195,000,000 from $190,000,000 to $205,000,000 previously. At the midpoint of the range, this implies roughly $50,000,000 of CapEx for the Q4, which is inclusive of CapEx for Stivola. We are prioritizing the completion of large growth CapEx projects, those projects that Stivola has in flight as well as ongoing maintenance CapEx. Speaker 300:12:38We ended the quarter with net debt to adjusted EBITDA of 1.2 times. Pro form a for Stivola net leverage is 3.4 times down from 3.7 times when we announced the acquisition demonstrating our commitment to prudent deleveraging. We funded Stivolo with a combination of attractively priced fixed and variable rate long term debt that includes ample prepayment flexibility as we intend to return to our targeted long term net leverage range of 2 to 2.5 times within 18 months. I'll conclude with a couple of comments for modeling purposes now that Stivola has closed. First, it is important to revisit the seasonality impact that Stivola is expected to have on our results given its Northeast location. Speaker 300:13:25Looking at recent historical results, Stivola's Q1 revenues generally represent less than 10% of its annual total and Q1 EBITDA is approximately breakeven, of course weather dependent. Similar as our existing construction materials business, the second and third quarters are seasonally the strongest. And second, we included our updated expectation for full year net interest expense in the reconciliation tables accompanying yesterday's press release. At the midpoint, this implies 4th quarter net interest expense of approximately $34,000,000 up $22,000,000 from the 3rd quarter. Roughly $5,000,000 of projected interest expense is non recurring and related to arrangement fees on the acquisition bridge commitment that will not be included in Q4 adjusted EBITDA excuse me, adjusted EPS. Speaker 300:14:21I'll now turn it back to Antonio for an update on our outlook. Speaker 200:14:25Thank you, Gail. Overall, our Q3 performance was consistent with our expectations and we remain optimistic about the opportunity ahead of us. Now turning to our 2024 financial outlook on slide 15. As I mentioned, we are increasing our guidance to reflect our performance year to date, the contribution from Stavola as well as the divestiture of Steel Components Business. We're now estimating 2024 revenues of $2,560,000,000 to $2,63,000,000 and adjusted EBITDA to be in the range of $435,000,000 to 450,000,000 We have been aggressively investing in our growth business over the past 2 years and are starting to see the benefits of these investments. Speaker 200:15:08In 2025, those investments will continue to ramp up and contribute to our growth while we prioritize debt reduction and maintenance projects versus new growth investments. Our approach to capital allocation remains consistent and deliberate. We will continue to successfully balance efficient growth with long term investments while deleveraging the balance sheet and creating value for shareholders. To reiterate what Gail said before, we are firmly committed to quickly returning to our long term net leverage target. Now please turn to slide 16 for a discussion on our business outlook. Speaker 200:15:46The outlook for Construction Products is enhanced by recent portfolio actions, both acquisitions and divestitures and supported by favorable multi year market fundamentals including increased infrastructure spending and overall shortage of housing availability. These fundamentals and the strategic actions we have taken are reflected in our higher revenue and increased margin expectations for 2024. Currently, our Construction Materials business is experiencing lower volumes on an organic basis, which is partly weather driven, but also resulting from some delays in infrastructure spending ahead of the U. S. Election and single and multifamily construction that has been slow to recover. Speaker 200:16:27As a result, for the full year, we now expect volumes for the aggregates business to be down mid single digits on an organic basis. Pricing growth continues to be strong across our product lines. In aggregates, low double digit organic price increases so far this year sets us up for continued momentum next year. During the Q4, Construction Plows will benefit from Stavola, a transformative acquisition for us, which will contribute to both growth and margin expansion. Moving next to Engineered Structures, order activity for utility traffic and traffic structures remains healthy given the grid hardening initiatives and road infrastructure spending. Speaker 200:17:09Other positive long term demand drivers include 5 gs telecoms, street lighting upgrades such as LED and connected renewable energy to the grid. The integration of Ameron is progressing well and is accretive to margin for the business. For wind towers, we continue to ramp up production in the Belem facility and discussions with our customers indicate increased demand for new wind towers deliveries in 2026 and beyond. Current backlog coupled with ongoing negotiations for new business bodes well for increased production volumes and improved profitability as we move forward. Shifting to Transportation Products, we're cautiously optimistic about this business as there has been significant underinvestment in the aging inland barge fleet over the past few years. Speaker 200:17:55Our current backlog along with orders received since the quarter end position us well for 2025 with our plant tank barge capacity already fully booked for next year and about half of our copper barge capacity similarly filled. With the current backlog, we have the flexibility to continue to ramp up production in preparation for what we expect will be a multi year strong cycle given the state and age of the barge fleet. Summing up, 2024 has been an important exciting and transformational year for Arcosa. Our results demonstrated success in executing our strategy of investing in our growth businesses while simplifying our portfolio to become a company focused on expanding in attractive markets with fantastic growth opportunities. Our improved positioning will serve us well as we enter 2025 and we continue to see additional opportunities to enhance our growth and profitability over time. Speaker 200:18:51I want to recognize and thank all of our Arcosa employees for their dedication and contribution throughout the year and welcome the Stavolla team to Arcosa. This ends my prepared remarks. We're now ready to take your questions. Operator00:19:05Thank you. We'll hear first today from Trey Grooms at Stephens. Speaker 400:19:35Hey, good morning, everyone, and nice work in the quarter. Thank you. Thank you. And thanks for all the details on everything. And Antonio, do you have any early thoughts maybe on kind of how the 2025 demand outlook could be across your construction products in markets, even if it's just high level? Speaker 400:20:02Just any color you could give us on your thoughts there would be great. Speaker 200:20:06I'm going to give you a little color. I think and this is not only for construction, I would tell you general. We are very excited about 2025. We feel that our businesses have really nice tailwinds across the board. But I will tell you one of the things and I mentioned it shortly in my prepared remarks. Speaker 200:20:27I think in conversation with customers and in the industry, I think the impact of the uncertainty around elections is larger than we are really it's hard to measure. But I think there is significant people are going shy in pulling to big projects and things like that. So and I don't think it's who's going to win it, just let's get it over with. It's let's get this let's focus again on business and doing what we need to be doing. So that's one aspect about it. Speaker 200:20:59For the rest, I think we are interest rates, they're not coming out as fast as we wanted, but we would like. And housing, it's still very, very slow. Multi housing is also not doing very well. But then you have a lot of positives. Manufacturing is doing very well. Speaker 200:21:19The data center construction is doing well. And as housing recovers, I think we'll come into 2025 with positive momentum and the pricing situation that we've been able to build during 2024 really sets up very well for 2025. So I'm optimistic about 2025 for construction, but overall as a company. Speaker 400:21:39Got it. Okay. Thank you. And maybe this one's for Gail, but the free cash flow, very good in the quarter, working capital management, just all around great showing. How should we be thinking about free cash flow from a flow through standpoint or how are we should be thinking about it kind of going forward, especially with the portfolio changes you've made with Stavola? Speaker 300:22:11Sure. And thank you, Trey. Good morning. We were very pleased with our cash flow generation in the Q3. Really year to date about $130,000,000 of free cash flow that's up about 30% year over year. Speaker 300:22:28A lot of that came in the Q3 and we'll continue to focus on cash generation for the balance of the year. The working capital, we are focused on levers that we can pull and control. So you saw a strong working capital in the quarter, a lot of that coming from 4th quarter effect coming into the 3rd quarter, but very pleased with that. Q4 effect coming into the Q3, but very pleased with that. You saw that we did tweak down slightly our CapEx guidance for the year. Speaker 300:23:03So again, it's levers that we can really control on the cash side. I'd point out as it relates to the Q4, the focus will absolutely be there, but you do see a step up in interest expense. I mentioned in my comments, we see about a $22,000,000 increase in interest expense in Q4 now that we've closed the Stibola acquisition. We'll have a little bit of follow on transaction and advisory fees that you'll see in our EBITDA tables as well. So those will impact Q4 cash flow, but absolutely focused on controlling what we can control. Speaker 300:23:44Antonio talked about the outlook for 2025. We are very optimistic and cash is at the very forefront of our minds. Speaker 400:23:53Okay. And last one for me. Strong margin expansion in construction products and other lines as well. But just in the interest of time, just wanted to touch on this one specifically. And you mentioned improved unit profitability. Speaker 400:24:13Directionally, when you kind of think about price cost across the different kind of product lines there within construction products, how are you thinking about this maybe the directionally unit profitability and margins as we kind of go into 25% for Construction Products? I guess maybe both from an organic standpoint, but of course now with Stibola in the mix. Speaker 200:24:39Let me give you a high level and I'll let Gail give you some of the data. But let me if you think about what we've been trying to do as we said, part of the volumes down is our pricing strategy. For this year, we've been talking in every one of our calls about focusing on margins and prioritizing pricing over volumes and margin over volumes. And that's across the board in the company. We've mentioned before that we have included in our compensation margin as part of our compensation. Speaker 200:25:13So that's one of our goals. I think margin is what shows the quality of our business. So that's one of the things that you're seeing behind the scenes here. 2nd is the acquisitions, the small acquisitions we've done this year are all accretive to our margins and we want to continue doing those bolt ons that really from the multiples perspective and margin are really important. 3rd, I think you've seen and we've talked about it, we as we've done a lot of acquisitions over the last 6 years, there's things that are not perfect. Speaker 200:25:43And when you buy a company with a lot of plants and a lot of operations, this year we have focused on pruning the portfolio and making sure that those operations that are not performing and where we don't see a path to having a strong presence or a strong position in the market, we've closed or sold or done things. And this is the 1st year where we focus on that and you're seeing that, Gail talked about it, about the asphalt plant that we sold. We also closed some operations in West Texas and some other things. You're seeing that and that reduces revenue and those operations normally are less profitable than the other one. So you see a portion of the margin increase coming from that. Speaker 200:26:25So and then focusing on the pricing increases. So all of those things together give us I think is what you're seeing in the margin expansion. And that's kind of the big picture view. Let Gail give you some more detail if you need more. Speaker 300:26:41Sure. Maybe just a couple of things I would add maybe parsing the organic from the inorganic. Clearly we expect as we indicated at the announcement of the Stivolo acquisition for that to have an impactful impact on margins next year. Speaker 500:27:00As a Speaker 300:27:00reminder, Stivolo we see as a 35% EBITDA margin business. Of course, I mentioned in my comments some of the seasonality impacts and we will see that on margin in the Q1. But we will we're pleased to see that accretion to the margin next year. And then when you think about organically, Antonio talked about low double digit price increases through year to date 2024, which will help us have good momentum going into 2025 with the easing inflationary outlook. We see that combining to be a nice impact on the organic side as well. Speaker 400:27:47Great. Thanks for the color. I'll turn it over. Thank you very much. Operator00:27:53Our next question will come from Garik Shmois at Loop Capital. Speaker 600:28:01Good morning. It's actually Zack Pacheco on for Derek today. I think to start, obviously, it's early, but any additional color or observations you guys can provide on Stavola within maybe its operations or just perhaps synergies amongst cost or on the commercial side? Speaker 200:28:21Yes, I'll take that. So we're very excited about Stavola. I think we took over just a few weeks ago. So things are going very well. The integration is progressing very well. Speaker 200:28:31We're excited to welcome the Stavola team on board. I think we bought an incredible company, but more importantly, an incredible team of people that know what they're doing. I will tell you that as a company what we've been doing over the last 6 years, every time we go, we don't have something that we just overnight we do our thing. It's more we're learning also what we bought and that's part of our culture. We're trying to learn and I think early indications are that things we can contribute to their operations, but they can also bring some things to our operations that we can improve. Speaker 200:29:06So excited about what we're seeing. The integration is not very complex. It's only 5 quarries and 12 asphalt plants. So it's not and it's very concentrated. So that makes it easier. Speaker 200:29:19So overall, I would tell you we're excited and we are very happy with what we're doing there. Speaker 600:29:27Okay, great. Yes, that makes sense. Thanks for that. And then quickly just on the weather for the quarter, was there any substantial impact within construction products or how do you guys bucket that? Speaker 200:29:39We have operations in where usual many of the hurricanes and large storms and things we have operations across the border. I mentioned in my remarks that the most important thing our people and our plants were not severely impacted. Of course, business is always impacted. I think our team did an incredible job in bringing back the plants. Many times what happens is in the quarries you get flooded, you have to clean them. Speaker 200:30:06You lose power, we lost power in several Speaker 100:30:08of our Speaker 200:30:08plants, etcetera. So it's always a disruption. I think of course there's I cannot quantify it for you, but of course we did have an impact. I wouldn't say it's a material impact in the quarter, but it was an impact. Speaker 600:30:24Understood. I appreciate it. Thanks. Operator00:30:29Our next question today will come from Ian Zaffino with Oppenheimer. Speaker 500:30:33Hi, great. Thank you very much. Also, I'm just trying to think about some of the delays that happened in this quarter, just kind of following up on the last question is, with the election delays and I guess the weather delays, will you be able to make that up in the Q4? Or how should we think about maybe that total impact of all of that? I know it's kind of hard to kind of get, but if you could maybe steer us directionally and what the impact or maybe what the recovery might be in the Q4? Speaker 500:31:08Thanks. Speaker 200:31:09Yes. I think we have a solid Q4 in front of us. I think the business started doing well. Many times, I would say that the weather thing pushes things out. It's never easy to recover over the, let's say, over the next few weeks. Speaker 200:31:27But the projects are there. What's important, I think, for us is that the demand is there and the projects are there and we see demand for our pros out there. So that's the important piece. On the rest of the businesses, I would say, the March Wind are operating well and we have solid backlogs and they're moving along. I would say in the utility structures, one of the things that's happening, you do see projects being moved and moved around. Speaker 200:31:53The positive thing and that's an interesting thing that's happening is for the most part when a project gets moved, we have another project that comes behind it to fill the space and we've seen that throughout this year and that's a new thing in the industry. I think the demand is very strong and therefore we have the capability of moving projects around. There's always some moves in margins and things like that. But overall, I think we're in good shape for the Q4. Our businesses are operating well. Speaker 200:32:20As I said, we don't have any major damage from storms and things like that. And so we are in good shape for the Q4. Speaker 300:32:29Ian, I might add, this is Gail. Good morning. Just on the topic of storms, as I think about our utility structures business, we do have some plants in the Southeast. So you could see as that area is really working hard to recover, you can see maybe some timing where it might be difficult for our customers to take their deliveries on time. And so we're watching that the Q4, certainly not a demand issue, but with that area so hard hit that we have seen some impact there. Speaker 500:33:02Okay, thanks. And then encouraged by the constructive comments you made on the wind tower side, is there a sense of maybe the timing of another order or maybe like the size of another order? How do we actually think about that? And do you think it will be from the same customers or are there new customers coming in? Like any type of color you could give us there would be great. Speaker 500:33:30Thanks. Speaker 200:33:31Let me start with the customers. As you know, there is a it's a very concentrated market. There's not a lot of people. And But the 2 big companies that have a significant share of the market are both our customers. 1 is much bigger than the other. Speaker 200:33:44We're right now building for both. And we have inquiries and conversation happening with both. So that sets us well for access to the market. I'll tell you the one let me try to give you the big picture and that's something that I think when you look at demand and I mentioned in my remarks, I think this is a 26% thing where we will see really installations go up. Therefore, this orders should happen sometime earlier than that, sometime in 2025 that would be our expectation. Speaker 200:34:23I think the biggest thing that you need to keep in mind and this is relatively new. So if you see the Inflation Reduction Act was approved in August of 2022. And what has changed since then and there's a lot of noise around elections and what's going to happen and we can discuss that piece. We're not worried about it. I think there's there's always a possibility of this depending on who wins the election things can go one way or another, but we're not really worried about that. Speaker 200:34:52What has changed is the fundamental aspect of demand has changed dramatically over the last 2 years. If you think about the U. S. Group, they had zero load growth for 20 years. And over the last 2 years with everything that's happening in electrification and data centers and AI and all those things, The projections for load growth have just changed dramatically and there's now significant load growth. Speaker 200:35:18There is no way to meet that load growth without renewable power. There's a lot of talk about nuclear that's going to take a long time. There's a lot of talk about gas. If you want to buy a turbine now it's 4 years. So I think it's what I'm excited about wind is not only about we will get orders sooner or later probably next year. Speaker 200:35:41I think we're setting up the company very nicely. We're still operating at a very low capacity. We're ramping up our plants and we're setting up the company for a very what I expect to be a very nice period of demand for this business that's coming from real demand for renewable power. So I'm excited about the business overall. Speaker 500:36:03Okay. Thank you very much. Operator00:36:07Brent Thielman at D. A. Davidson, your line is open for our next question. Speaker 700:36:13Hey, great. Thanks. And Tony, just on the Engineered Structures results this quarter, it sounds like when deliveries picked up in the quarter, maybe how do we think about Q4? Should we expect another sequential step up in deliveries? And then any way to give us some sort of guideposts on the growth you'd expect to see and wind in 2025, just given the fact you already have substantial visibility right now in the deliveries next year? Speaker 200:36:44I'll let Gail give you the guide on the growth for 2025. I'll give you a little bit of color. One thing that's important what I mentioned about wind on the load growth I think applies exactly the same for utility structures because all the whatever you do to increase load in the U. S. And production of electricity, you will need transmission. Speaker 200:37:05So I think that's why those two businesses are set up so well for the future. In the short term, I think one thing that you're seeing that is hard to quantify and is when you look at the last 2 years, steel prices have dropped pretty dramatically. And that's hitting a lot of our the good news about for us is that we have a formula as we are accustomed where we pass through significant variations in steel. So when steel prices are coming down, you see it in the revenue side, but you also see a margin expansion as prices comes down. I think as we go into the Q4 in 2025, you will see that. Speaker 200:37:48You will continue to see compared to 2024 early 2024, you will continue to see some volatility on the revenue side based on steel prices. But Gail mentioned that we expect a good quarter in the Q4 and 2025 is set up nicely where we expect higher volumes in both utility structures and wind towers. And I'll let her give you a little more detail on that. Speaker 300:38:16Sure. Good morning, Brent. On wind, really good visibility for next year. As we've talked about in the 2nd quarter is when we first started delivering at Berlin. So we'll have the benefit of Berlin being ramped up next year. Speaker 300:38:35That combined with our other two plants operating probably at relatively consistent delivery rates to this year. We expect solid revenue growth out of the wind business for 2025 with the backlog that we have in hand. So I think maybe I could point you to as you think about order of magnitude. If you look at the Q1 of this year, we had about $400,000,000 of backlog for 2025. And most of that is wind. Speaker 300:39:09We do have some utility in there. So maybe 80% or so is in the wind realm. So that gives you a sense of the potential for revenue next year. But it's really coming from Berlin. And as Antonio said, we're optimistic on the order front, but really see that coming in, in 2026 and beyond. Speaker 700:39:30Okay. And maybe another way to ask this, Gail, in 2025 proportionately, would you expect when to be a larger percentage of sales? And I'm just thinking about it from the standpoint that I think that should be pretty margin accretive to you. Speaker 300:39:51We would we expect, we'll get the full year effect of Ameron. We had Ameron for 9 months. We'll have it for a full year next year. We would expect wind to shift to a slightly larger share of the overall segment. With the efficiencies in Berlin, we would expect to see some margin benefits there. Speaker 300:40:19So we're really optimistic as we look at 2025 for the segment. Speaker 700:40:26Yes. Okay. Appreciate that. And then my other question is just on barge. Maybe if you could talk around your remaining capacity availability for 2025 relative to the I guess the current visibility you have, will you still be able to fulfill new orders next year as they come in? Speaker 700:40:42And I guess, you have lots of talk about election. I'm not sure if any of that was in reference to this business. But do you have any thoughts whether that's impacting order trends or not there? I'd be curious. Speaker 200:40:55Yes. Let me I mentioned in my remarks the backlog and I mentioned that we have after quarter end we booked additional orders. And the reason we thought it was important for us to mention that is we're fully booked for tank barges in 2025. If someone wants a barge, we're now into January of 26. And then on hopper barges, we're into July, so let's say Q3. Speaker 200:41:24So I think that gives us flexibility. And the reason that's important and I'm going to generalize this as a company, given the positive demand trends we see, I believe our capacity is valuable. And we when you have backlog, you have the flexibility to focus on margin again. We want to sell those orders at a margin that's important for the business and for our shareholders. So that visibility of backlog gives us time for us to continue ramping up the plants. Speaker 200:41:57The plants are ramping up because we believe there's a cycle, a strong cycle coming. And but even when we ramp those plants up, we're still running at a relatively low capacity. So I think if the demand comes, we always have the capacity to ramp up capacity. We would be running tank barge at 50% capacity and hover barge also at very low capacity. And when what the beauty of what's happening when you see the margins of that business when it's running at such a low capacity, I think our potential as the business ramps up and we see the cycle, the potential for margin expansion is very interesting. Speaker 700:42:38Yes. Excellent. Thank you. I'll pass it on. Operator00:42:44And we will hear from Julio Romero at Sidoti and Company. Speaker 800:42:50Good morning. This is Alex on for Julio. Thanks for taking questions. Speaker 200:42:55Good morning. Good morning. Speaker 800:42:58Just to start, I wanted to follow-up on an earlier question around Stivola Synergies. You talk about the opportunity to cross sell some of your legacy products such as recycled aggregates into Stavola's geographic footprint? Speaker 200:43:16Sure. This is let me start by Stavola already has a small presence in the recycled business up there. I think they have 5 plants. And I'm excited about it. We're still learning and I don't want to overplay it. Speaker 200:43:35So we're still learning. We only took over a few weeks ago. But when you look at recycled aggregates, there is a the raw material, what changes with between the recycled and natural aggregates is the raw material. The raw material is your biggest bottleneck. And when you look at this infrastructure in the Northeast around where we are located, it's aging infrastructure and that's what part of what we liked about the business. Speaker 200:44:01It's a very repair and replace business, a maintenance business. When you do maintenance, you have a lot of raw material for recycle that you can tap into. So we're excited about the potential of doing that. We've been very successful in Texas doing recycling and in Arizona where it's a much newer infrastructure. So our expectations would be that there will be a very nice market in New Jersey for that and around New Jersey and Pennsylvania where they have also a few plants. Speaker 200:44:29So I think we're excited. I'll be honest, we're learning. We're just new around it. So but I think there's really good potential. There's other potential opportunities in other products that our construction materials business has that they don't have, stabilized sand and some other things that we are researching and trying to understand. Speaker 200:44:50So I think as time goes by, I'll be able to give you a better sense of how big the opportunities. Speaker 800:44:58Great context. Thank you very much. And then one more. Antonio, you mentioned a commitment to quickly returning to net leverage targets. Can you just help me think about the pacing? Speaker 800:45:11Should we expect it to be a little bit more linear? Or are you saying maybe there's some weighting towards the near term or another part? Speaker 200:45:20We said that our goal would be to be at our target sometime between 12 18 months after the acquisition closed. So I think what's important there, when you look at the businesses and we've mentioned a little bit on construction, but overall our businesses are seasonal and seasonality always has a creates volatility in our working capital, which is with one of the tools we need to use to do the delivery. I think if you look at the tools, of course, we have growth, we have working capital and then CapEx. The easiest one is CapEx and we've talked at length about it. We're and you saw it this quarter, CapEx came down. Speaker 200:45:59Most of our growth CapEx is about to be done. We have a few that will go into 2025, but for the most part will be done. And that will and we have a lot of visibility around that. So we will be able to tap into cash through CapEx. We want to continue operating the plant safely and with all the maintenance we need. Speaker 200:46:18So we're not cutting maintenance CapEx. We're only focusing on growth. And the reason that's important is we're finishing all those growth CapEx that will contribute to our growth in 2025 beyond. So we'll continue to harvest some of those investments we've done over the past years and continue growing. 2nd is the working capital. Speaker 200:46:39We're going to be focusing on working capital. That has a lot more volatility, but that's another tool. And finally, we expect to grow in 2025. So those three things should help us generate more cash and that will help us reduce our leverage. So I think once we get below 3 times net debt to EBITDA, we'll have a lot more flexibility and we'll be able to continue allocating capital well. Speaker 200:47:04But we've said our goal is within 18 months to be there. Speaker 800:47:10Very helpful. Thank you. Operator00:47:15And that was our final question from our phone audience today. Ms. Drabek, I'm happy to turn the floor back to you for any additional or closing remarks. Speaker 100:47:23Thanks again everyone for joining us today and we look forward to providing our next update at the end of the year. See you next time. Operator00:47:33Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may now disconnect your line.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallArcosa Q3 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Arcosa Earnings HeadlinesArcosa, Inc. Announces Timing of First Quarter 2025 Earnings Release and Conference CallApril 23, 2025 | finance.yahoo.comArcosa, Inc. (ACA): Among Mid-Cap Stocks Insiders Were Buying in Q1 2025April 18, 2025 | insidermonkey.comTrump’s betrayal exposed Trump’s Final Reset Inside the shocking plot to re-engineer America’s financial system…and why you need to move your money now.April 27, 2025 | Porter & Company (Ad)20 Mid-Cap Stocks Insiders Were Buying in Q1 2025April 17, 2025 | insidermonkey.comBarclays Reaffirms Their Buy Rating on Arcosa (ACA)April 3, 2025 | theglobeandmail.comRSI Alert: Arcosa (ACA) Now OversoldApril 2, 2025 | nasdaq.comSee More Arcosa Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Arcosa? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Arcosa and other key companies, straight to your email. Email Address About ArcosaArcosa (NYSE:ACA), together with its subsidiaries, provides infrastructure-related products and solutions for the construction, engineered structures, and transportation markets in the United States. It operates through three segments: Construction Products, Engineered Structures, and Transportation Products. The Construction Products segment offers natural and recycled aggregates; specialty materials; and construction site support equipment, including trench shields and shoring products for residential and non-residential construction, and specialty/other products, as well as for infrastructure construction. The Engineered Structures segment offers utility structures, wind towers, traffic structures, and telecommunication structures for electricity transmission and distribution, wind power generation, highway road construction, and wireless communication markets. The Transportation Products segment offers inland barges, fiberglass barge covers, winches, marine hardware, and steel components for railcars and transportation equipment; cast components for industrial and mining sectors; and axles, circular forgings, and coupling devices for freight, tank, locomotive, and passenger rail transportation equipment, as well as other industrial uses. 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There are 9 speakers on the call. Operator00:00:00Good morning, ladies and gentlemen, and welcome to the Arcosa Inc. Third Quarter 2024 Earnings Conference Call. My name is Jim, and I will be your conference operator today. As a reminder, today's conference is being recorded. And now I would like to turn the call over to your host, Erin Dreybeck, Director of Investor Relations for Arcosa. Operator00:00:17Ms. Dreybeck, you may begin. Speaker 100:00:20Good morning, everyone, and thank you for joining Arcosa's Q3 2024 earnings call. With me today are Antonio Carrillo, President and CEO and Gail Peck, CFO. A question and answer session will follow their prepared remarks. A copy of the press release issued yesterday and the slide presentation for this morning's call are ir.arcosa.com. A replay of today's call will be available for the next 2 weeks. Speaker 100:00:51Instructions for accessing the replay number are included in the press release. A replay of the webcast will be available for 1 year on our website under the News and Events tab. Today's comments and presentation slides contain financial measures that have not been prepared in accordance with GAAP. Reconciliations of non GAAP financial measures to the closest GAAP measure are included in the appendix of the slide presentation. In addition, today's conference call includes forward looking statements as defined by the Private Securities Litigation Reform Act of 1995. Speaker 100:01:28Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from such forward looking statements. Please refer to the company's SEC filings for more information on these risks and uncertainties, including the press release we filed yesterday and our Form 10 Q expected to be filed later today. I would now like to turn the call over to Antonio. Speaker 200:01:52Thank you, Erin. Good morning, everyone, and thank you for joining us today. There are 3 key takeaways I want to highlight as we look at our Q3 progress which you can see on slide 4. First, our Q3 performance and profitability were strong, a result of our success in growing the business with meaningful margin expansion. During the Q3, adjusted EBITDA grew significantly faster than our top line growth. Speaker 200:02:19We also generated free cash flow of $107,000,000 as we prioritized working capital management. Next, we made significant progress on our strategic transformation. During the quarter, we completed the divestiture of our steel components business and on October 1, we closed the acquisition of Stavolla, the largest purchase in Arcosa's history. Stavola expands our aggregates footprint into the nation's largest MSA with increased exposure to lower volatility infrastructure markets. In our press release yesterday, we increased our adjusted EBITDA guidance for 2024 reflecting these portfolio actions. Speaker 200:02:58The midpoint of our revised adjusted EBITDA guidance reflects a 34% increase year over year when normalizing for the steel components divestiture and a large land sale gain in 2023. Finally, we completed these initiatives while implementing financial flexibility that enables us to use our cash flow to reduce our net leverage towards our target of 2 times to 2.5 times over the next 18 months while supporting our capital allocation priorities and growth initiatives. Slide 7 shows the positive results of our strategic transformation. Once we spun off from Trinity in 2018, our Construction Products business represented 1 third of adjusted EBITDA. Today, our cost is much larger than we were in 2018 and the Construction segment represents 2 thirds of our EBITDA. Speaker 200:03:49We have come a long way as we have worked to build a simpler, more focused and less cyclical company. This strategy continues to drive our operations and decisions every day and was a key driver of the transactions we completed throughout this year. Now let me briefly discuss Q3 results on Slide 9. From a profitability perspective, we delivered strong results relative to prior year as the Q3 benefit from recent acquisitions and divestiture progress along with solid organic growth and more efficient operations. 3rd quarter consolidated revenues increased 14% and adjusted EBITDA increased 39% with margin expanded 3 30 basis points to 18.4% after normalizing for the divestiture of Steel Components. Speaker 200:04:36This was driven by organic improvement led by Construction Products and Engineered Structures and supported by accretive acquisitions completed earlier in the year including Amaro. Within Construction Products, we were very pleased with the quarter's strong unit profitability growth and adjusted EBITDA margin expansion. Our operations performed well overcoming weather challenges and recent bolt ons are contributing nicely. Construction activity was stable during the quarter despite overall volumes coming in lower than expected. A portion of the volume weakness reflects our commercial strategy as we continue to value price over volume. Speaker 200:05:15However, we do believe an element is also related to uncertainty regarding both the future path for interest rates and the outcome of U. S. Elections. Turning to engineered structures, Ameron continues to perform well with strong execution. With respect to wind towers, our new facility in Belen, New Mexico continues to ramp up production and is contributing positively to adjusted EBITDA. Speaker 200:05:41Market fundamentals for utility structures remain very healthy. Transportation Products results were distorted by the impact of steel components divestiture during the quarter. Our barge business continues to perform in line with expectation and we were pleased with the 0.9 times book to bill in the quarter. As you know, during the Q3, several regions where we have operations were affected by severe weather events. Our focus during the quarter was to support our employees and local communities. Speaker 200:06:11Our people and our plants were not significantly affected by these weather events and the Arcosa team showed incredible resilience in getting our plants back operating as soon as conditions were safe. Overall, our Q3 financial performance reflects strong operational performance and the continued positive impact from the strategic initiatives we began implementing 6 years ago. Since that time, we have seen improved revenue trends and meaningful acceleration in our margins. I will turn over the call to Gail to discuss our Q3 results in more detail. Gail? Speaker 300:06:44Thank you, Antonio. Good morning, everyone. I'll begin on Slide 10. Starting with Construction Products, 3rd quarter revenues were roughly flat year over year. Before discussing the individual businesses, revenues, which is a pass through reduced segment revenues by approximately 3%. Speaker 300:07:092nd, the divestiture of a small underperforming asphalt business completed in the Q2 decreased segment revenues by roughly 2.5%. Excluding these factors, segment revenues increased 7% year over year with both organic and inorganic contributions. 3rd quarter adjusted segment EBITDA increased 21%, primarily due to the accretive impact of recent bolt on acquisitions, higher unit profitability in our aggregates business and operating improvements in our specialty materials and trench shoring businesses. Freight adjusted segment EBITDA margin was 29%, up 3 80 basis points year over year and 120 basis points sequentially from the 2nd quarter. In our aggregates business, which includes both natural and recycled aggregates, pricing momentum remains strong with average organic pricing up low double digits from the prior year. Speaker 300:08:06Total volumes were roughly flat year over year and organic volumes were down high single digits in the Q3. The accretive impact of recent acquisitions and solid organic expansion driven by unit profitability gains resulted in more than 20% adjusted EBITDA growth. Our aggregates business contributed approximately 2 thirds of the year over year margin improvement for the segment. Within Specialty Materials, freight adjusted revenues increased low double digits driven by strong pricing gains across our product lines and higher plaster volumes. Operational improvements in this business resulted in higher adjusted EBITDA and margin expansion. Speaker 300:08:47Wrapping up the segment with our Trent shoring business, revenues decreased on slightly lower volumes and reduced steel prices. Operating efficiencies resulted in higher adjusted EBITDA and margin expansion. Moving to Engineered Structures on Slide 11, revenues increased 26% due to higher wind tower volumes and the addition of the recently acquired Amaron business. In utility structures, higher volumes and improved product mix were mostly offset by lower steel prices. Adjusted segment EBITDA grew 74 percent outpacing the increase in revenues resulting in 4 50 basis points of margin expansion. Speaker 300:09:27Strong organic growth from the ramp in our wind towers business, improved product mix and utility structures and lower steel costs were supplemented by the accretive contribution from Ameron during the period. Order activity in utility structures remains healthy with attractive margins. In wind towers, we did not book any new orders during the quarter, but we continue to have dialogue with our customers on future needs. We ended the quarter with the backlog for utility wind and related structures of $1,300,000,000 and expect to deliver 20% of the backlog during the remainder of this year and about half in 2025. Turning to Transportation Products on Slide 12, segment results were impacted by the mid quarter divestiture of the Steel Components business. Speaker 300:10:12During the quarter, we recognized revenues of $14,000,000 and an adjusted EBITDA loss of $1,000,000 for steel components, which was below our expectations as the business was impacted by the deferral of certain product shipments and business interruption from the divestiture process. In connection with the sale, we recognized a pre tax loss of $23,000,000 which has been excluded from adjusted segment EBITDA. 3rd quarter revenues for our barge business increased 21%, primarily due to higher tank barge deliveries. Adjusted EBITDA increased 8% and margin declined 190 basis points, primarily due to a planned changeover to tank barge production in one of our barge facilities. We expect margin for the barge business to improve sequentially in the 4th quarter now that the changeover is complete. Speaker 300:11:00We received barge orders of approximately $75,000,000 during the quarter for both tank and hopper barges representing a book to bill of 0.9. Our total barge backlog at the end of the quarter was $245,000,000 of which approximately 70% is expected to be delivered in 2025 giving us good production visibility for next year. I'll conclude with some comments on our cash flow and balance sheet on Slide 13. We generated strong operating cash flow of $135,000,000 during the quarter, up $91,000,000 from the prior period, driven by increased earnings and a $50,000,000 reduction in working capital, led by a reduction in accounts receivable. Year to date working capital was roughly neutral to cash flow. Speaker 300:11:47Capital expenditures were $34,000,000 down from prior year and on a sequential basis as we near completion on organic projects underway. This translated to 3rd quarter free cash flow of $107,000,000 of which $60,000,000 was used to pay down borrowings on our revolving credit facility during the quarter. We are adjusting our full year CapEx guidance to $180,000,000 to $195,000,000 from $190,000,000 to $205,000,000 previously. At the midpoint of the range, this implies roughly $50,000,000 of CapEx for the Q4, which is inclusive of CapEx for Stivola. We are prioritizing the completion of large growth CapEx projects, those projects that Stivola has in flight as well as ongoing maintenance CapEx. Speaker 300:12:38We ended the quarter with net debt to adjusted EBITDA of 1.2 times. Pro form a for Stivola net leverage is 3.4 times down from 3.7 times when we announced the acquisition demonstrating our commitment to prudent deleveraging. We funded Stivolo with a combination of attractively priced fixed and variable rate long term debt that includes ample prepayment flexibility as we intend to return to our targeted long term net leverage range of 2 to 2.5 times within 18 months. I'll conclude with a couple of comments for modeling purposes now that Stivola has closed. First, it is important to revisit the seasonality impact that Stivola is expected to have on our results given its Northeast location. Speaker 300:13:25Looking at recent historical results, Stivola's Q1 revenues generally represent less than 10% of its annual total and Q1 EBITDA is approximately breakeven, of course weather dependent. Similar as our existing construction materials business, the second and third quarters are seasonally the strongest. And second, we included our updated expectation for full year net interest expense in the reconciliation tables accompanying yesterday's press release. At the midpoint, this implies 4th quarter net interest expense of approximately $34,000,000 up $22,000,000 from the 3rd quarter. Roughly $5,000,000 of projected interest expense is non recurring and related to arrangement fees on the acquisition bridge commitment that will not be included in Q4 adjusted EBITDA excuse me, adjusted EPS. Speaker 300:14:21I'll now turn it back to Antonio for an update on our outlook. Speaker 200:14:25Thank you, Gail. Overall, our Q3 performance was consistent with our expectations and we remain optimistic about the opportunity ahead of us. Now turning to our 2024 financial outlook on slide 15. As I mentioned, we are increasing our guidance to reflect our performance year to date, the contribution from Stavola as well as the divestiture of Steel Components Business. We're now estimating 2024 revenues of $2,560,000,000 to $2,63,000,000 and adjusted EBITDA to be in the range of $435,000,000 to 450,000,000 We have been aggressively investing in our growth business over the past 2 years and are starting to see the benefits of these investments. Speaker 200:15:08In 2025, those investments will continue to ramp up and contribute to our growth while we prioritize debt reduction and maintenance projects versus new growth investments. Our approach to capital allocation remains consistent and deliberate. We will continue to successfully balance efficient growth with long term investments while deleveraging the balance sheet and creating value for shareholders. To reiterate what Gail said before, we are firmly committed to quickly returning to our long term net leverage target. Now please turn to slide 16 for a discussion on our business outlook. Speaker 200:15:46The outlook for Construction Products is enhanced by recent portfolio actions, both acquisitions and divestitures and supported by favorable multi year market fundamentals including increased infrastructure spending and overall shortage of housing availability. These fundamentals and the strategic actions we have taken are reflected in our higher revenue and increased margin expectations for 2024. Currently, our Construction Materials business is experiencing lower volumes on an organic basis, which is partly weather driven, but also resulting from some delays in infrastructure spending ahead of the U. S. Election and single and multifamily construction that has been slow to recover. Speaker 200:16:27As a result, for the full year, we now expect volumes for the aggregates business to be down mid single digits on an organic basis. Pricing growth continues to be strong across our product lines. In aggregates, low double digit organic price increases so far this year sets us up for continued momentum next year. During the Q4, Construction Plows will benefit from Stavola, a transformative acquisition for us, which will contribute to both growth and margin expansion. Moving next to Engineered Structures, order activity for utility traffic and traffic structures remains healthy given the grid hardening initiatives and road infrastructure spending. Speaker 200:17:09Other positive long term demand drivers include 5 gs telecoms, street lighting upgrades such as LED and connected renewable energy to the grid. The integration of Ameron is progressing well and is accretive to margin for the business. For wind towers, we continue to ramp up production in the Belem facility and discussions with our customers indicate increased demand for new wind towers deliveries in 2026 and beyond. Current backlog coupled with ongoing negotiations for new business bodes well for increased production volumes and improved profitability as we move forward. Shifting to Transportation Products, we're cautiously optimistic about this business as there has been significant underinvestment in the aging inland barge fleet over the past few years. Speaker 200:17:55Our current backlog along with orders received since the quarter end position us well for 2025 with our plant tank barge capacity already fully booked for next year and about half of our copper barge capacity similarly filled. With the current backlog, we have the flexibility to continue to ramp up production in preparation for what we expect will be a multi year strong cycle given the state and age of the barge fleet. Summing up, 2024 has been an important exciting and transformational year for Arcosa. Our results demonstrated success in executing our strategy of investing in our growth businesses while simplifying our portfolio to become a company focused on expanding in attractive markets with fantastic growth opportunities. Our improved positioning will serve us well as we enter 2025 and we continue to see additional opportunities to enhance our growth and profitability over time. Speaker 200:18:51I want to recognize and thank all of our Arcosa employees for their dedication and contribution throughout the year and welcome the Stavolla team to Arcosa. This ends my prepared remarks. We're now ready to take your questions. Operator00:19:05Thank you. We'll hear first today from Trey Grooms at Stephens. Speaker 400:19:35Hey, good morning, everyone, and nice work in the quarter. Thank you. Thank you. And thanks for all the details on everything. And Antonio, do you have any early thoughts maybe on kind of how the 2025 demand outlook could be across your construction products in markets, even if it's just high level? Speaker 400:20:02Just any color you could give us on your thoughts there would be great. Speaker 200:20:06I'm going to give you a little color. I think and this is not only for construction, I would tell you general. We are very excited about 2025. We feel that our businesses have really nice tailwinds across the board. But I will tell you one of the things and I mentioned it shortly in my prepared remarks. Speaker 200:20:27I think in conversation with customers and in the industry, I think the impact of the uncertainty around elections is larger than we are really it's hard to measure. But I think there is significant people are going shy in pulling to big projects and things like that. So and I don't think it's who's going to win it, just let's get it over with. It's let's get this let's focus again on business and doing what we need to be doing. So that's one aspect about it. Speaker 200:20:59For the rest, I think we are interest rates, they're not coming out as fast as we wanted, but we would like. And housing, it's still very, very slow. Multi housing is also not doing very well. But then you have a lot of positives. Manufacturing is doing very well. Speaker 200:21:19The data center construction is doing well. And as housing recovers, I think we'll come into 2025 with positive momentum and the pricing situation that we've been able to build during 2024 really sets up very well for 2025. So I'm optimistic about 2025 for construction, but overall as a company. Speaker 400:21:39Got it. Okay. Thank you. And maybe this one's for Gail, but the free cash flow, very good in the quarter, working capital management, just all around great showing. How should we be thinking about free cash flow from a flow through standpoint or how are we should be thinking about it kind of going forward, especially with the portfolio changes you've made with Stavola? Speaker 300:22:11Sure. And thank you, Trey. Good morning. We were very pleased with our cash flow generation in the Q3. Really year to date about $130,000,000 of free cash flow that's up about 30% year over year. Speaker 300:22:28A lot of that came in the Q3 and we'll continue to focus on cash generation for the balance of the year. The working capital, we are focused on levers that we can pull and control. So you saw a strong working capital in the quarter, a lot of that coming from 4th quarter effect coming into the 3rd quarter, but very pleased with that. Q4 effect coming into the Q3, but very pleased with that. You saw that we did tweak down slightly our CapEx guidance for the year. Speaker 300:23:03So again, it's levers that we can really control on the cash side. I'd point out as it relates to the Q4, the focus will absolutely be there, but you do see a step up in interest expense. I mentioned in my comments, we see about a $22,000,000 increase in interest expense in Q4 now that we've closed the Stibola acquisition. We'll have a little bit of follow on transaction and advisory fees that you'll see in our EBITDA tables as well. So those will impact Q4 cash flow, but absolutely focused on controlling what we can control. Speaker 300:23:44Antonio talked about the outlook for 2025. We are very optimistic and cash is at the very forefront of our minds. Speaker 400:23:53Okay. And last one for me. Strong margin expansion in construction products and other lines as well. But just in the interest of time, just wanted to touch on this one specifically. And you mentioned improved unit profitability. Speaker 400:24:13Directionally, when you kind of think about price cost across the different kind of product lines there within construction products, how are you thinking about this maybe the directionally unit profitability and margins as we kind of go into 25% for Construction Products? I guess maybe both from an organic standpoint, but of course now with Stibola in the mix. Speaker 200:24:39Let me give you a high level and I'll let Gail give you some of the data. But let me if you think about what we've been trying to do as we said, part of the volumes down is our pricing strategy. For this year, we've been talking in every one of our calls about focusing on margins and prioritizing pricing over volumes and margin over volumes. And that's across the board in the company. We've mentioned before that we have included in our compensation margin as part of our compensation. Speaker 200:25:13So that's one of our goals. I think margin is what shows the quality of our business. So that's one of the things that you're seeing behind the scenes here. 2nd is the acquisitions, the small acquisitions we've done this year are all accretive to our margins and we want to continue doing those bolt ons that really from the multiples perspective and margin are really important. 3rd, I think you've seen and we've talked about it, we as we've done a lot of acquisitions over the last 6 years, there's things that are not perfect. Speaker 200:25:43And when you buy a company with a lot of plants and a lot of operations, this year we have focused on pruning the portfolio and making sure that those operations that are not performing and where we don't see a path to having a strong presence or a strong position in the market, we've closed or sold or done things. And this is the 1st year where we focus on that and you're seeing that, Gail talked about it, about the asphalt plant that we sold. We also closed some operations in West Texas and some other things. You're seeing that and that reduces revenue and those operations normally are less profitable than the other one. So you see a portion of the margin increase coming from that. Speaker 200:26:25So and then focusing on the pricing increases. So all of those things together give us I think is what you're seeing in the margin expansion. And that's kind of the big picture view. Let Gail give you some more detail if you need more. Speaker 300:26:41Sure. Maybe just a couple of things I would add maybe parsing the organic from the inorganic. Clearly we expect as we indicated at the announcement of the Stivolo acquisition for that to have an impactful impact on margins next year. Speaker 500:27:00As a Speaker 300:27:00reminder, Stivolo we see as a 35% EBITDA margin business. Of course, I mentioned in my comments some of the seasonality impacts and we will see that on margin in the Q1. But we will we're pleased to see that accretion to the margin next year. And then when you think about organically, Antonio talked about low double digit price increases through year to date 2024, which will help us have good momentum going into 2025 with the easing inflationary outlook. We see that combining to be a nice impact on the organic side as well. Speaker 400:27:47Great. Thanks for the color. I'll turn it over. Thank you very much. Operator00:27:53Our next question will come from Garik Shmois at Loop Capital. Speaker 600:28:01Good morning. It's actually Zack Pacheco on for Derek today. I think to start, obviously, it's early, but any additional color or observations you guys can provide on Stavola within maybe its operations or just perhaps synergies amongst cost or on the commercial side? Speaker 200:28:21Yes, I'll take that. So we're very excited about Stavola. I think we took over just a few weeks ago. So things are going very well. The integration is progressing very well. Speaker 200:28:31We're excited to welcome the Stavola team on board. I think we bought an incredible company, but more importantly, an incredible team of people that know what they're doing. I will tell you that as a company what we've been doing over the last 6 years, every time we go, we don't have something that we just overnight we do our thing. It's more we're learning also what we bought and that's part of our culture. We're trying to learn and I think early indications are that things we can contribute to their operations, but they can also bring some things to our operations that we can improve. Speaker 200:29:06So excited about what we're seeing. The integration is not very complex. It's only 5 quarries and 12 asphalt plants. So it's not and it's very concentrated. So that makes it easier. Speaker 200:29:19So overall, I would tell you we're excited and we are very happy with what we're doing there. Speaker 600:29:27Okay, great. Yes, that makes sense. Thanks for that. And then quickly just on the weather for the quarter, was there any substantial impact within construction products or how do you guys bucket that? Speaker 200:29:39We have operations in where usual many of the hurricanes and large storms and things we have operations across the border. I mentioned in my remarks that the most important thing our people and our plants were not severely impacted. Of course, business is always impacted. I think our team did an incredible job in bringing back the plants. Many times what happens is in the quarries you get flooded, you have to clean them. Speaker 200:30:06You lose power, we lost power in several Speaker 100:30:08of our Speaker 200:30:08plants, etcetera. So it's always a disruption. I think of course there's I cannot quantify it for you, but of course we did have an impact. I wouldn't say it's a material impact in the quarter, but it was an impact. Speaker 600:30:24Understood. I appreciate it. Thanks. Operator00:30:29Our next question today will come from Ian Zaffino with Oppenheimer. Speaker 500:30:33Hi, great. Thank you very much. Also, I'm just trying to think about some of the delays that happened in this quarter, just kind of following up on the last question is, with the election delays and I guess the weather delays, will you be able to make that up in the Q4? Or how should we think about maybe that total impact of all of that? I know it's kind of hard to kind of get, but if you could maybe steer us directionally and what the impact or maybe what the recovery might be in the Q4? Speaker 500:31:08Thanks. Speaker 200:31:09Yes. I think we have a solid Q4 in front of us. I think the business started doing well. Many times, I would say that the weather thing pushes things out. It's never easy to recover over the, let's say, over the next few weeks. Speaker 200:31:27But the projects are there. What's important, I think, for us is that the demand is there and the projects are there and we see demand for our pros out there. So that's the important piece. On the rest of the businesses, I would say, the March Wind are operating well and we have solid backlogs and they're moving along. I would say in the utility structures, one of the things that's happening, you do see projects being moved and moved around. Speaker 200:31:53The positive thing and that's an interesting thing that's happening is for the most part when a project gets moved, we have another project that comes behind it to fill the space and we've seen that throughout this year and that's a new thing in the industry. I think the demand is very strong and therefore we have the capability of moving projects around. There's always some moves in margins and things like that. But overall, I think we're in good shape for the Q4. Our businesses are operating well. Speaker 200:32:20As I said, we don't have any major damage from storms and things like that. And so we are in good shape for the Q4. Speaker 300:32:29Ian, I might add, this is Gail. Good morning. Just on the topic of storms, as I think about our utility structures business, we do have some plants in the Southeast. So you could see as that area is really working hard to recover, you can see maybe some timing where it might be difficult for our customers to take their deliveries on time. And so we're watching that the Q4, certainly not a demand issue, but with that area so hard hit that we have seen some impact there. Speaker 500:33:02Okay, thanks. And then encouraged by the constructive comments you made on the wind tower side, is there a sense of maybe the timing of another order or maybe like the size of another order? How do we actually think about that? And do you think it will be from the same customers or are there new customers coming in? Like any type of color you could give us there would be great. Speaker 500:33:30Thanks. Speaker 200:33:31Let me start with the customers. As you know, there is a it's a very concentrated market. There's not a lot of people. And But the 2 big companies that have a significant share of the market are both our customers. 1 is much bigger than the other. Speaker 200:33:44We're right now building for both. And we have inquiries and conversation happening with both. So that sets us well for access to the market. I'll tell you the one let me try to give you the big picture and that's something that I think when you look at demand and I mentioned in my remarks, I think this is a 26% thing where we will see really installations go up. Therefore, this orders should happen sometime earlier than that, sometime in 2025 that would be our expectation. Speaker 200:34:23I think the biggest thing that you need to keep in mind and this is relatively new. So if you see the Inflation Reduction Act was approved in August of 2022. And what has changed since then and there's a lot of noise around elections and what's going to happen and we can discuss that piece. We're not worried about it. I think there's there's always a possibility of this depending on who wins the election things can go one way or another, but we're not really worried about that. Speaker 200:34:52What has changed is the fundamental aspect of demand has changed dramatically over the last 2 years. If you think about the U. S. Group, they had zero load growth for 20 years. And over the last 2 years with everything that's happening in electrification and data centers and AI and all those things, The projections for load growth have just changed dramatically and there's now significant load growth. Speaker 200:35:18There is no way to meet that load growth without renewable power. There's a lot of talk about nuclear that's going to take a long time. There's a lot of talk about gas. If you want to buy a turbine now it's 4 years. So I think it's what I'm excited about wind is not only about we will get orders sooner or later probably next year. Speaker 200:35:41I think we're setting up the company very nicely. We're still operating at a very low capacity. We're ramping up our plants and we're setting up the company for a very what I expect to be a very nice period of demand for this business that's coming from real demand for renewable power. So I'm excited about the business overall. Speaker 500:36:03Okay. Thank you very much. Operator00:36:07Brent Thielman at D. A. Davidson, your line is open for our next question. Speaker 700:36:13Hey, great. Thanks. And Tony, just on the Engineered Structures results this quarter, it sounds like when deliveries picked up in the quarter, maybe how do we think about Q4? Should we expect another sequential step up in deliveries? And then any way to give us some sort of guideposts on the growth you'd expect to see and wind in 2025, just given the fact you already have substantial visibility right now in the deliveries next year? Speaker 200:36:44I'll let Gail give you the guide on the growth for 2025. I'll give you a little bit of color. One thing that's important what I mentioned about wind on the load growth I think applies exactly the same for utility structures because all the whatever you do to increase load in the U. S. And production of electricity, you will need transmission. Speaker 200:37:05So I think that's why those two businesses are set up so well for the future. In the short term, I think one thing that you're seeing that is hard to quantify and is when you look at the last 2 years, steel prices have dropped pretty dramatically. And that's hitting a lot of our the good news about for us is that we have a formula as we are accustomed where we pass through significant variations in steel. So when steel prices are coming down, you see it in the revenue side, but you also see a margin expansion as prices comes down. I think as we go into the Q4 in 2025, you will see that. Speaker 200:37:48You will continue to see compared to 2024 early 2024, you will continue to see some volatility on the revenue side based on steel prices. But Gail mentioned that we expect a good quarter in the Q4 and 2025 is set up nicely where we expect higher volumes in both utility structures and wind towers. And I'll let her give you a little more detail on that. Speaker 300:38:16Sure. Good morning, Brent. On wind, really good visibility for next year. As we've talked about in the 2nd quarter is when we first started delivering at Berlin. So we'll have the benefit of Berlin being ramped up next year. Speaker 300:38:35That combined with our other two plants operating probably at relatively consistent delivery rates to this year. We expect solid revenue growth out of the wind business for 2025 with the backlog that we have in hand. So I think maybe I could point you to as you think about order of magnitude. If you look at the Q1 of this year, we had about $400,000,000 of backlog for 2025. And most of that is wind. Speaker 300:39:09We do have some utility in there. So maybe 80% or so is in the wind realm. So that gives you a sense of the potential for revenue next year. But it's really coming from Berlin. And as Antonio said, we're optimistic on the order front, but really see that coming in, in 2026 and beyond. Speaker 700:39:30Okay. And maybe another way to ask this, Gail, in 2025 proportionately, would you expect when to be a larger percentage of sales? And I'm just thinking about it from the standpoint that I think that should be pretty margin accretive to you. Speaker 300:39:51We would we expect, we'll get the full year effect of Ameron. We had Ameron for 9 months. We'll have it for a full year next year. We would expect wind to shift to a slightly larger share of the overall segment. With the efficiencies in Berlin, we would expect to see some margin benefits there. Speaker 300:40:19So we're really optimistic as we look at 2025 for the segment. Speaker 700:40:26Yes. Okay. Appreciate that. And then my other question is just on barge. Maybe if you could talk around your remaining capacity availability for 2025 relative to the I guess the current visibility you have, will you still be able to fulfill new orders next year as they come in? Speaker 700:40:42And I guess, you have lots of talk about election. I'm not sure if any of that was in reference to this business. But do you have any thoughts whether that's impacting order trends or not there? I'd be curious. Speaker 200:40:55Yes. Let me I mentioned in my remarks the backlog and I mentioned that we have after quarter end we booked additional orders. And the reason we thought it was important for us to mention that is we're fully booked for tank barges in 2025. If someone wants a barge, we're now into January of 26. And then on hopper barges, we're into July, so let's say Q3. Speaker 200:41:24So I think that gives us flexibility. And the reason that's important and I'm going to generalize this as a company, given the positive demand trends we see, I believe our capacity is valuable. And we when you have backlog, you have the flexibility to focus on margin again. We want to sell those orders at a margin that's important for the business and for our shareholders. So that visibility of backlog gives us time for us to continue ramping up the plants. Speaker 200:41:57The plants are ramping up because we believe there's a cycle, a strong cycle coming. And but even when we ramp those plants up, we're still running at a relatively low capacity. So I think if the demand comes, we always have the capacity to ramp up capacity. We would be running tank barge at 50% capacity and hover barge also at very low capacity. And when what the beauty of what's happening when you see the margins of that business when it's running at such a low capacity, I think our potential as the business ramps up and we see the cycle, the potential for margin expansion is very interesting. Speaker 700:42:38Yes. Excellent. Thank you. I'll pass it on. Operator00:42:44And we will hear from Julio Romero at Sidoti and Company. Speaker 800:42:50Good morning. This is Alex on for Julio. Thanks for taking questions. Speaker 200:42:55Good morning. Good morning. Speaker 800:42:58Just to start, I wanted to follow-up on an earlier question around Stivola Synergies. You talk about the opportunity to cross sell some of your legacy products such as recycled aggregates into Stavola's geographic footprint? Speaker 200:43:16Sure. This is let me start by Stavola already has a small presence in the recycled business up there. I think they have 5 plants. And I'm excited about it. We're still learning and I don't want to overplay it. Speaker 200:43:35So we're still learning. We only took over a few weeks ago. But when you look at recycled aggregates, there is a the raw material, what changes with between the recycled and natural aggregates is the raw material. The raw material is your biggest bottleneck. And when you look at this infrastructure in the Northeast around where we are located, it's aging infrastructure and that's what part of what we liked about the business. Speaker 200:44:01It's a very repair and replace business, a maintenance business. When you do maintenance, you have a lot of raw material for recycle that you can tap into. So we're excited about the potential of doing that. We've been very successful in Texas doing recycling and in Arizona where it's a much newer infrastructure. So our expectations would be that there will be a very nice market in New Jersey for that and around New Jersey and Pennsylvania where they have also a few plants. Speaker 200:44:29So I think we're excited. I'll be honest, we're learning. We're just new around it. So but I think there's really good potential. There's other potential opportunities in other products that our construction materials business has that they don't have, stabilized sand and some other things that we are researching and trying to understand. Speaker 200:44:50So I think as time goes by, I'll be able to give you a better sense of how big the opportunities. Speaker 800:44:58Great context. Thank you very much. And then one more. Antonio, you mentioned a commitment to quickly returning to net leverage targets. Can you just help me think about the pacing? Speaker 800:45:11Should we expect it to be a little bit more linear? Or are you saying maybe there's some weighting towards the near term or another part? Speaker 200:45:20We said that our goal would be to be at our target sometime between 12 18 months after the acquisition closed. So I think what's important there, when you look at the businesses and we've mentioned a little bit on construction, but overall our businesses are seasonal and seasonality always has a creates volatility in our working capital, which is with one of the tools we need to use to do the delivery. I think if you look at the tools, of course, we have growth, we have working capital and then CapEx. The easiest one is CapEx and we've talked at length about it. We're and you saw it this quarter, CapEx came down. Speaker 200:45:59Most of our growth CapEx is about to be done. We have a few that will go into 2025, but for the most part will be done. And that will and we have a lot of visibility around that. So we will be able to tap into cash through CapEx. We want to continue operating the plant safely and with all the maintenance we need. Speaker 200:46:18So we're not cutting maintenance CapEx. We're only focusing on growth. And the reason that's important is we're finishing all those growth CapEx that will contribute to our growth in 2025 beyond. So we'll continue to harvest some of those investments we've done over the past years and continue growing. 2nd is the working capital. Speaker 200:46:39We're going to be focusing on working capital. That has a lot more volatility, but that's another tool. And finally, we expect to grow in 2025. So those three things should help us generate more cash and that will help us reduce our leverage. So I think once we get below 3 times net debt to EBITDA, we'll have a lot more flexibility and we'll be able to continue allocating capital well. Speaker 200:47:04But we've said our goal is within 18 months to be there. Speaker 800:47:10Very helpful. Thank you. Operator00:47:15And that was our final question from our phone audience today. Ms. Drabek, I'm happy to turn the floor back to you for any additional or closing remarks. Speaker 100:47:23Thanks again everyone for joining us today and we look forward to providing our next update at the end of the year. See you next time. Operator00:47:33Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may now disconnect your line.Read morePowered by