Arcosa Inc. (NYSE:ACA) Q4 2021 Earnings Conference Call February 24, 2022 8:30 AM ET Company Participants Antonio Carillo - President, Chief Executive Officer Gail Peck - Chief Financial Officer Erin Drabek - Director, Investor Relations Conference Call Participants Julio Romero - Sidoti & Co. Brent Thielman - DA Davidson Jeff Stevenson - Loop Capital Stefanos Christ - CJS Securities Operator Good morning ladies and gentlemen and welcome to the Arcosa Inc. fourth quarter and full year 2021 earnings confer ...

Part I [Business](index=3&type=section&id=Item%201.%20Business) Arcosa, Inc. provides infrastructure products and solutions across North America through its Construction Products, Engineered Structures, and Transportation Products segments, focusing on growth and strategic acquisitions - Arcosa was established in 2018 following its separation from Trinity Industries, Inc. and is listed on the New York Stock Exchange[5](index=5&type=chunk) - The company's strategy is aligned with key market trends, including aging transportation infrastructure, the shift to renewable power, and the expansion of transmission and telecommunications infrastructure[5](index=5&type=chunk) [Construction Products](index=4&type=section&id=Construction%20Products) The Construction Products segment produces aggregates and specialty materials, with 2021 growth driven by acquisitions and public infrastructure spending, shipping **34 million tons** of materials - The segment's product portfolio includes natural aggregates (sand, gravel, limestone), recycled aggregates from crushed concrete, specialty materials (lightweight aggregates, plasters), and construction site support equipment (trench shields)[8](index=8&type=chunk)[9](index=9&type=chunk) - The company expanded its natural aggregates platform in 2021 through the acquisitions of StonePoint and Southwest Rock[8](index=8&type=chunk) - In 2021, the segment shipped approximately **34 million tons** of aggregates and specialty materials, with Texas accounting for about **50%** of segment revenues[11](index=11&type=chunk) - The company estimates it has **1.2 billion tons** of proven and probable natural aggregates and specialty materials reserves[13](index=13&type=chunk) [Engineered Structures](index=7&type=section&id=Engineered%20Structures) The Engineered Structures segment manufactures steel infrastructure components, benefiting from grid upgrades and renewable energy, with **GE** as a key customer and steel price volatility managed through various strategies - Products include utility structures, structural wind towers, traffic structures, telecommunication structures, and storage tanks[15](index=15&type=chunk) - Demand for wind towers has been supported by the Renewable Electricity Production Tax Credit (PTC), which was extended for projects starting in 2021[18](index=18&type=chunk) - General Electric Company (GE) is a significant customer, representing **9.5%** of consolidated revenues in 2021, down from **15.3%** in 2020 and **18.2%** in 2019[19](index=19&type=chunk) - The primary raw material is steel, and the company mitigates price volatility through contract-specific purchasing, supplier commitments, and price escalation provisions[20](index=20&type=chunk) [Transportation Products](index=9&type=section&id=Transportation%20Products) The Transportation Products segment manufactures inland barges and railcar components, anticipating long-term demand from an aging U.S. barge fleet despite near-term steel price impacts, with rail components showing recovery - The segment holds a leading market position in the U.S. for manufacturing inland barges (dry cargo and tank barges) and fiberglass barge covers[22](index=22&type=chunk) - The barge replacement cycle is expected to be strong long-term, as approximately **35%** of the hopper fleet and **25%** of the tank fleet are over 20 years old[23](index=23&type=chunk) - The steel component business, which serves the North American railcar industry, is showing signs of recovery with an expected increase in new railcar deliveries in 2022[23](index=23&type=chunk) [Unsatisfied Performance Obligations (Backlog)](index=10&type=section&id=Unsatisfied%20Performance%20Obligations%20%28Backlog%29) As of December 31, 2021, Arcosa's total backlog for Engineered Structures and Transportation Products was approximately **$552.2 million**, with utility and wind structures increasing and inland barges decreasing Backlog of Firm Orders as of December 31, 2021 | Segment | Product | 2021 (in millions) | 2020 (in millions) | | :--- | :--- | :--- | :--- | | Engineered Structures | Utility, wind, and related structures | $437.5 | $334.0 | | Engineered Structures | Storage tanks | $22.0 | $15.6 | | Transportation Products | Inland barges | $92.7 | $175.5 | - Approximately **90%** of the utility, wind, and related structures backlog is expected to be delivered in 2022[27](index=27&type=chunk) [Human Capital](index=10&type=section&id=Human%20Capital) As of December 31, 2021, Arcosa employed approximately **6,170 people**, prioritizing employee health, safety, and diversity through initiatives like ARC 100 and the WE~AR Employee Resource Group Employee Headcount by Segment (as of Dec 31, 2021) | Segment | Employees | | :--- | :--- | | Construction Products | 1,755 | | Engineered Structures | 3,470 | | Transportation Products | 855 | | Corporate | 90 | | **Total** | **6,170** | - The company launched the ARC 100 safety initiative in 2019 to improve its safety culture and performance[31](index=31&type=chunk) - In 2021, Arcosa advanced its diversity and inclusion efforts by electing two women to the Board of Directors, naming a female CFO, and establishing its first Employee Resource Group, WE~AR: Women of Arcosa[32](index=32&type=chunk) [Risk Factors](index=14&type=section&id=Item%201A.%20Risk%20Factors) Arcosa faces diverse risks including COVID-19 impacts, economic cyclicality, intense competition, supply chain disruptions, raw material price volatility, international operations, regulatory changes, and financial liabilities - The COVID-19 pandemic continues to pose risks to operations, supply chains, and customer demand[48](index=48&type=chunk) - The business is subject to economic cyclicality, intense competition, and potential disruptions from equipment failures or natural disasters[49](index=49&type=chunk)[52](index=52&type=chunk) - Fluctuations in the price and supply of raw materials, especially steel, and reliance on a limited number of suppliers pose significant risks to manufacturing and profitability[60](index=60&type=chunk) - The loss of a major customer, GE, which accounted for **9.5%** of 2021 consolidated revenues, could materially affect results[57](index=57&type=chunk) - Changes in or expiration of government tax credits, such as the PTC for wind energy, could reduce demand for certain products[59](index=59&type=chunk) - The company faces risks related to its operations in Mexico, including political instability, regulatory changes, and trade barriers[55](index=55&type=chunk) [Unresolved Staff Comments](index=29&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that it has no unresolved staff comments from the SEC - None[84](index=84&type=chunk) [Properties](index=29&type=section&id=Item%202.%20Properties) Arcosa owns and leases facilities across the U.S. and Mexico, reporting **1.2 billion tons** of proven and probable mineral reserves and **127.5 million tons** of mineral resources as of year-end 2021 Production Capacity Utilization (FY 2021) | Segment | Production Capacity Utilized | | :--- | :--- | | Construction Products | 70% | | Engineered Structures | 65% | | Transportation Products | 35% | - As of December 31, 2021, the company controlled an estimated **1.2 billion tons** of proven and probable mineral reserves, primarily for natural aggregates and specialty materials[93](index=93&type=chunk)[95](index=95&type=chunk) - The company also controlled an estimated **127.5 million tons** of mineral resources (exclusive of reserves) as of December 31, 2021[96](index=96&type=chunk) [Legal Proceedings](index=32&type=section&id=Item%203.%20Legal%20Proceedings) Information regarding legal proceedings is detailed in Note 15 of the Consolidated Financial Statements - For details on legal proceedings, the report refers to Note 15 of the Consolidated Financial Statements[97](index=97&type=chunk) [Mine Safety Disclosures](index=32&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Information concerning mine safety violations and other regulatory matters is included in Exhibit 95 to the Form 10-K - Mine safety disclosures required by the Dodd-Frank Act are included in Exhibit 95 of this Form 10-K[98](index=98&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=33&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Arcosa's common stock trades on the NYSE under "ACA", with its performance outperforming the S&P Small Cap 600 Index since its 2018 spin-off, and a **$50 million** share repurchase program authorized through December 2022 - The company's common stock is listed on the New York Stock Exchange under the ticker symbol "ACA"[100](index=100&type=chunk) - A **$100** investment in Arcosa stock on November 1, 2018, would have been worth **$194** by December 31, 2021, compared to **$152** for the S&P Small Cap 600 Index[103](index=103&type=chunk) - In December 2020, the Board authorized a **$50 million** share repurchase program effective through December 31, 2022, with approximately **$40.6 million** remaining available as of Q4 2021[104](index=104&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2021, Arcosa's revenues grew **5.2%** to **$2.0 billion**, while operating profit declined **29.3%** to **$107.3 million**, driven by segment performance and strategic acquisitions, maintaining strong liquidity with a positive outlook for construction and engineered structures Financial Highlights (FY 2021 vs FY 2020) | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Revenues | $2.0 billion | $1.9 billion | +5.2% | | Operating Profit | $107.3 million | $151.8 million | -29.3% | | Net Income | $69.6 million | $106.6 million | -34.7% | - The company is incurring less than **$1 million** per quarter in incremental costs related to COVID-19 safety protocols[109](index=109&type=chunk) [Results of Operations](index=37&type=section&id=Results%20of%20Operations) In fiscal year 2021, consolidated revenues increased **5.2%** to **$2.036 billion**, but operating profit decreased **29.3%** to **$107.3 million**, primarily due to an **88.3%** drop in Transportation Products' profitability, with the effective tax rate at **16.7%** Revenues by Segment (in millions) | Segment | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Construction Products | $796.8 | $593.6 | $439.7 | | Engineered Structures | $934.1 | $877.7 | $836.6 | | Transportation Products | $305.6 | $466.5 | $465.7 | | **Consolidated Total** | **$2,036.4** | **$1,935.6** | **$1,736.9** | Operating Profit by Segment (in millions) | Segment | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Construction Products | $83.2 | $74.7 | $52.7 | | Engineered Structures | $88.0 | $80.2 | $100.7 | | Transportation Products | $6.4 | $54.6 | $46.8 | | Corporate | $(70.3) | $(57.7) | $(47.3) | | **Consolidated Total** | **$107.3** | **$151.8** | **$152.9** | - The effective tax rate decreased to **16.7%** in 2021 from **22.9%** in 2020, largely due to true-ups of apportionment rates impacting prior year state taxes[125](index=125&type=chunk) [Segment Discussion](index=41&type=section&id=Segment%20Discussion) In 2021, Construction Products revenue grew **34.2%**, Engineered Structures revenue rose **6.4%**, while Transportation Products revenue fell **34.5%** with an **88.3%** operating profit decline, and corporate overhead increased **21.8%** due to acquisition costs and a legal settlement - Construction Products revenue increased **34.2%**, with acquisitions contributing approximately **25%** of the growth, and operating profit rose **11.4%**[128](index=128&type=chunk)[129](index=129&type=chunk) - Engineered Structures revenue increased **6.4%** and operating profit grew **9.7%**, driven by utility structures and storage tanks, despite lower wind tower volumes, with backlog growing to **$437.5 million** from **$334.0 million** in 2020[133](index=133&type=chunk)[134](index=134&type=chunk)[138](index=138&type=chunk) - Transportation Products revenue decreased **34.5%** and operating profit fell **88.3%** due to a **43.0%** drop in inland barge revenues, with backlog decreasing to **$92.7 million** from **$175.5 million** in 2020[139](index=139&type=chunk)[140](index=140&type=chunk)[144](index=144&type=chunk) - Corporate overhead costs increased by **$12.6 million** (**21.8%**), primarily due to **$6.9 million** in acquisition-related costs and an **$8.7 million** legal settlement[145](index=145&type=chunk)[146](index=146&type=chunk) [Liquidity and Capital Resources](index=44&type=section&id=Liquidity%20and%20Capital%20Resources) Arcosa's 2021 liquidity was supported by **$166.5 million** cash from operations, offset by **$570.3 million** in investing activities, primarily acquisitions, and **$380.9 million** from financing, including **$400 million** in senior notes, while maintaining a **$500 million** revolving credit facility Summary of Cash Flows (in millions) | Activity | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Operating Activities | $166.5 | $259.9 | $358.8 | | Investing Activities | $(570.3) | $(528.2) | $(109.4) | | Financing Activities | $380.9 | $123.7 | $(108.4) | - In April 2021, the company issued **$400 million** in **4.375%** senior notes due 2029 to fund the StonePoint acquisition[154](index=154&type=chunk)[268](index=268&type=chunk) - As of Dec 31, 2021, the company had **$125 million** outstanding on its revolving credit facility and **$346.4 million** available[154](index=154&type=chunk) Contractual Obligations as of Dec 31, 2021 (in millions) | Obligation | Total | Next 12 Months | Beyond 12 Months | | :--- | :--- | :--- | :--- | | Debt | $669.4 | $7.5 | $661.9 | | Operating leases | $28.1 | $5.9 | $22.2 | | Finance leases | $17.4 | $6.9 | $10.5 | | Purchase obligations | $166.1 | $157.1 | $9.0 | | **Total** | **$881.0** | **$177.4** | **$703.6** | [Critical Accounting Policies and Estimates](index=47&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Arcosa's critical accounting policies involve significant management judgment and estimates, particularly in business combinations, impairment assessments of long-lived assets and goodwill, and the valuation of contingencies and deferred tax assets - Business Combinations: The allocation of purchase price to acquired assets (like mineral reserves and customer relationships) and liabilities requires significant estimates regarding future cash flows, useful lives, and discount rates[161](index=161&type=chunk) - Goodwill: Goodwill of **$934.9 million** was tested for impairment as of December 31, 2021, with no impairment charges deemed necessary, and no reporting units were considered at risk of failing the test[166](index=166&type=chunk) - Long-lived Assets: The company periodically evaluates property, plant, and equipment (**38%** of total assets) and intangible assets (**7%** of total assets) for impairment, recording a **$2.9 million** impairment charge in 2021 for assets held for sale[163](index=163&type=chunk) - Contingencies and Litigation: The company accrued **$9.9 million** for probable and estimable losses from claims and lawsuits as of December 31, 2021[303](index=303&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=53&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Arcosa faces market risk from interest rate and foreign currency fluctuations; a one-percentage-point interest rate increase would raise annual interest expense by **$1.7 million** and decrease the fair value of **$400 million** fixed-rate senior notes by **$24.0 million** - A one percentage point increase in average interest rates would increase annual interest expense by an estimated **$1.7 million**, after considering interest rate hedges[179](index=179&type=chunk) - The fair value of the **$400.0 million** fixed-rate senior notes would decrease by approximately **$24.0 million** if market interest rates rose by one percentage point[179](index=179&type=chunk) [Financial Statements and Supplementary Data](index=54&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Arcosa, Inc.'s audited consolidated financial statements for fiscal years 2021, 2020, and 2019, including the independent auditor's report and comprehensive notes on accounting policies and financial details [Consolidated Statements of Operations](index=58&type=section&id=Consolidated%20Statements%20of%20Operations) For the year ended December 31, 2021, Arcosa reported revenues of **$2.036 billion**, operating profit of **$107.3 million**, net income of **$69.6 million**, and diluted EPS of **$1.42** Consolidated Statement of Operations Highlights (in millions, except per share data) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Revenues | $2,036.4 | $1,935.6 | $1,736.9 | | Total operating profit | $107.3 | $151.8 | $152.9 | | Net income | $69.6 | $106.6 | $113.3 | | Diluted EPS | $1.42 | $2.18 | $2.32 | [Consolidated Balance Sheets](index=60&type=section&id=Consolidated%20Balance%20Sheets) As of December 31, 2021, Arcosa's total assets increased to **$3.188 billion**, driven by acquisitions, while total liabilities rose to **$1.235 billion** due to higher debt, with total stockholders' equity at **$1.953 billion** Consolidated Balance Sheet Highlights (in millions) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $767.9 | $664.9 | | Property, plant, and equipment, net | $1,201.9 | $913.3 | | Goodwill | $934.9 | $794.0 | | **Total Assets** | **$3,188.1** | **$2,646.7** | | Total Current Liabilities | $364.0 | $310.3 | | Debt (non-current) | $664.7 | $248.2 | | **Total Liabilities** | **$1,234.8** | **$754.5** | | **Total Stockholders' Equity** | **$1,953.3** | **$1,892.2** | [Consolidated Statements of Cash Flows](index=61&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the year ended December 31, 2021, net cash from operating activities was **$166.5 million**, investing activities used **$570.3 million** (primarily acquisitions), and financing activities provided **$380.9 million**, resulting in a year-end cash balance of **$72.9 million** Consolidated Statement of Cash Flows Highlights (in millions) | Activity | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $166.5 | $259.9 | $358.8 | | Net cash from investing activities | $(570.3) | $(528.2) | $(109.4) | | Net cash from financing activities | $380.9 | $123.7 | $(108.4) | | Net change in cash | $(22.9) | $(144.6) | $141.0 | | Cash at end of period | $72.9 | $95.8 | $240.4 | [Notes to Consolidated Financial Statements](index=63&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed explanations of Arcosa's accounting policies and financial data, covering key areas such as acquisitions, segment information, goodwill, debt, income taxes, and contingencies, essential for comprehensive financial understanding - Note 2 (Acquisitions): Details the 2021 acquisitions of Southwest Rock for **$149.7 million** and StonePoint for **$372.8 million**, both expanding the Construction Products segment[234](index=234&type=chunk)[236](index=236&type=chunk) - Note 7 (Debt): As of Dec 31, 2021, total debt was **$679.5 million**, including a **$144.4 million** term loan, **$125.0 million** on the revolving credit facility, and **$400.0 million** in senior notes issued in 2021[267](index=267&type=chunk) - Note 15 (Commitments and Contingencies): Discloses a legal settlement with T&B (ABB Installation Products) in February 2022, resolving a breach of contract lawsuit related to a 2014 asset purchase, with the company having accrued **$9.9 million** for all contingencies as of year-end 2021[303](index=303&type=chunk)[304](index=304&type=chunk) [Controls and Procedures](index=87&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that Arcosa's disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with the independent auditor issuing an unqualified opinion, though recent acquisitions were excluded from the assessment - Management concluded that disclosure controls and procedures were effective as of December 31, 2021[308](index=308&type=chunk) - Management's assessment of internal control over financial reporting excluded the recently acquired StonePoint and Southwest Rock businesses, which represented **17%** of total assets and **7%** of revenues for 2021[309](index=309&type=chunk) - The independent registered public accounting firm, Ernst & Young LLP, provided an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2021[313](index=313&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=91&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section incorporates by reference information from the company's 2022 Proxy Statement regarding its directors, executive officers, and corporate governance practices, including the audit committee and code of ethics - Information regarding directors, executive officers, the audit committee, and the Code of Business Conduct and Ethics is incorporated by reference from the company's 2022 Proxy Statement[320](index=320&type=chunk) [Executive Compensation](index=91&type=section&id=Item%2011.%20Executive%20Compensation) This section incorporates by reference information from the company's 2022 Proxy Statement regarding executive and director compensation, compensation committee interlocks, and the compensation committee report - Information regarding executive compensation is incorporated by reference from the company's 2022 Proxy Statement[321](index=321&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=92&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership is incorporated by reference from the 2022 Proxy Statement, detailing **1,191,840** securities to be issued and **1,815,062** available for future issuance under equity compensation plans as of December 31, 2021 Equity Compensation Plan Information as of Dec 31, 2021 | Plan Category | Securities to be Issued Upon Exercise (a) | Securities Remaining for Future Issuance (c) | | :--- | :--- | :--- | | Approved by security holders | 1,191,840 | 1,815,062 | | Not approved by security holders | 0 | 0 | | **Total** | **1,191,840** | **1,815,062** | [Certain Relationships and Related Transactions, and Director Independence](index=92&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) This section incorporates by reference information from the company's 2022 Proxy Statement regarding related person transactions and director independence - Information regarding related party transactions and director independence is incorporated by reference from the company's 2022 Proxy Statement[326](index=326&type=chunk) [Principal Accountant Fees and Services](index=92&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) This section incorporates by reference information from the company's 2022 Proxy Statement regarding the fees paid to and services provided by the principal accountant - Information regarding principal accountant fees and services is incorporated by reference from the company's 2022 Proxy Statement[327](index=327&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=93&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed with the Form 10-K, including key agreements like the separation agreement, acquisition agreements, debt indentures, and compensation plans - This section provides a comprehensive list of all exhibits filed with the Form 10-K, including governance documents, material contracts, and certifications[329](index=329&type=chunk)[330](index=330&type=chunk)[331](index=331&type=chunk)[332](index=332&type=chunk)

Financial Data and Key Metrics Changes - Arcosa reported strong third quarter results with double-digit growth in revenue and adjusted EBITDA, driven by Construction Products and Engineered Structures segments, offsetting lower results in Transportation Products [7][12] - Adjusted EBITDA increased at a 21% compounded annual growth rate since becoming an independent public company, with a margin improvement of 240 basis points [9][10] - The company expects adjusted EBITDA for 2021 to be in the range of $272 million to $280 million, reflecting a 22% increase year-over-year in growth segments [26][27] Business Line Data and Key Metrics Changes - Construction Products segment revenues grew 55% and adjusted EBITDA increased 48%, with a segment EBITDA margin of 24% [12][13] - Engineered Structures revenue increased 12% and adjusted EBITDA rose 13%, maintaining flat margins year-over-year [15] - Transportation Products saw significant declines, with revenue and adjusted EBITDA down due to a 41% decrease in barge revenue [18] Market Data and Key Metrics Changes - The combined backlog for utility wind and related structures was approximately $466 million, up from $349 million, indicating strong order activity [17] - The company noted healthy market fundamentals in key regions such as Texas, Gulf Coast, Arizona, and Tennessee, with positive infrastructure spending trends [22][26] - High steel prices continue to impact order volumes in the barge business, while demand for propane tanks in the storage tank product line remains strong [15][23] Company Strategy and Development Direction - Arcosa is focusing on integrating recent acquisitions and simplifying its portfolio to reduce complexity, with a commitment to growing Construction Products and Engineered Structures segments [11][22] - The company is implementing a new ERP system to enhance operational efficiencies and reporting capabilities [63][71] - The long-term strategy includes capitalizing on infrastructure investments and the shift towards renewable energy sources [26][28] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the demand factors in utility, telecom, and traffic structures, despite short-term challenges in the wind tower business [32][23] - The company anticipates a recovery in the Transportation Products segment starting in 2022, with positive signs in the North American rail car market [25][27] - Management highlighted the importance of federal investment in infrastructure as a potential growth catalyst starting in late 2022 [26] Other Important Information - The company generated approximately $6 million of free cash flow during the quarter, below expectations due to higher working capital use [20] - Arcosa is committed to ESG initiatives and has welcomed a new board member with extensive experience to advance its long-term strategy [28] Q&A Session Summary Question: Will utility, telecom, and traffic offset the decline in wind business? - Management is encouraged by demand in other areas and believes they can sustain EBITDA margins despite the weaker wind business [32][33][34] Question: What is the current customer sentiment in the barge business? - Management noted strong market fundamentals and pent-up demand, but high steel prices are causing customers to delay orders [36][37][38] Question: How frequently can price increases be implemented in the aggregates business? - Price increases have been implemented mid-year, with expectations for further increases in 2022 [41][42][44] Question: What is the significance of the wind towers portion of the business? - Wind towers were previously about half of the segment sales, but utility structures have taken a larger share as the wind market has declined [49][50] Question: What are the expectations for Construction Products pricing in 2022? - Management expects to continue raising prices in line with competitors, driven by inflationary pressures [55][56] Question: How is the integration of recent acquisitions progressing? - Integration is going well, with a focus on implementing a new ERP system and leveraging synergies from the acquisitions [62][63] Question: What is the outlook for Construction Products EBITDA margins? - Management is optimistic about expanding margins, despite inflationary pressures, and expects a positive outlook for 2022 [80][82]

PART I [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for the three and nine months ended September 30, 2021, showing increased revenue but decreased net income, significant balance sheet growth from acquisitions, and reduced operating cash flow [Consolidated Statements of Operations](index=3&type=section&id=Consolidated%20Statements%20of%20Operations) For Q3 2021, revenues increased to $559.1 million from $490.0 million year-over-year, but operating profit declined to $37.5 million from $42.1 million, leading to a net income decrease to $23.7 million ($0.49 per diluted share) from $31.2 million ($0.64 per diluted share) Consolidated Statements of Operations | Financial Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | $559.1M | $490.0M | $1,514.6M | $1,476.7M | | **Total operating profit** | $37.5M | $42.1M | $91.7M | $135.0M | | **Net income** | $23.7M | $31.2M | $60.4M | $96.1M | | **Diluted EPS** | $0.49 | $0.64 | $1.23 | $1.97 | [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) As of September 30, 2021, total assets increased to $3.30 billion from $2.65 billion at year-end 2020, primarily driven by acquisitions which increased Goodwill and Property, Plant, and Equipment, with total debt also rising sharply to $743.8 million to fund these activities Consolidated Balance Sheets | Balance Sheet Item | September 30, 2021 (unaudited) | December 31, 2020 | | :--- | :--- | :--- | | **Total current assets** | $810.9M | $664.9M | | **Property, plant, and equipment, net** | $1,273.0M | $913.3M | | **Goodwill** | $932.6M | $794.0M | | **Total Assets** | **$3,301.2M** | **$2,646.7M** | | **Total current liabilities** | $389.4M | $310.3M | | **Debt** | $743.8M | $248.2M | | **Total Stockholders' equity** | $1,940.9M | $1,892.2M | | **Total Liabilities and Stockholders' Equity** | **$3,301.2M** | **$2,646.7M** | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2021, net cash from operating activities significantly decreased to $76.8 million from $226.7 million, while investing activities used $569.3 million primarily for acquisitions, and financing activities provided $462.8 million largely from new debt issuance Consolidated Statements of Cash Flows | Cash Flow Activity (Nine Months Ended Sep 30) | 2021 | 2020 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $76.8M | $226.7M | | **Net cash required by investing activities** | ($569.3M) | ($409.7M) | | **Net cash provided by financing activities** | $462.8M | $131.6M | | **Net (decrease) in cash and cash equivalents** | ($29.7M) | ($51.4M) | [Note 2. Acquisitions and Divestitures](index=10&type=section&id=Note%202.%20Acquisitions%20and%20Divestitures) In 2021, the company aggressively expanded its Construction Products segment through two major acquisitions, StonePoint for $374.8 million and Southwest Rock for $149.9 million, funded by cash, revolving credit, and new senior notes - Completed the acquisition of StonePoint, a top 25 U.S. construction aggregates company, for **$374.8 million**, funded by a new **$400.0 million** senior unsecured notes offering[29](index=29&type=chunk) - Acquired Southwest Rock, a natural aggregates company in the Phoenix area, for **$149.9 million**, funded with cash and **$100.0 million** from the revolving credit facility[29](index=29&type=chunk) [Note 4. Segment Information](index=14&type=section&id=Note%204.%20Segment%20Information) For Q3 2021, revenue growth in Construction Products and Engineered Structures was offset by a significant decline in Transportation Products, leading to a sharp drop in operating profit for Transportation Products and impacting overall profitability Segment (Q3 2021 vs Q3 2020) | Segment | Revenues | Operating Profit | | :--- | :--- | :--- | | **Construction Products** | $227.4M vs $146.9M | $26.8M vs $20.8M | | **Engineered Structures** | $250.1M vs $222.6M | $23.6M vs $20.7M | | **Transportation Products** | $81.6M vs $120.7M | $1.5M vs $17.6M | Segment (Nine Months 2021 vs 2020) | Segment | Revenues | Operating Profit | | :--- | :--- | :--- | | **Construction Products** | $585.1M vs $444.5M | $60.5M vs $61.9M | | **Engineered Structures** | $699.6M vs $668.6M | $70.2M vs $66.5M | | **Transportation Products** | $230.0M vs $365.9M | $6.9M vs $47.8M | [Note 7. Debt](index=17&type=section&id=Note%207.%20Debt) Total debt nearly tripled to $755.8 million as of September 30, 2021, from $254.5 million at year-end 2020, driven by the issuance of $400 million in senior notes and increased revolving credit facility borrowings to finance acquisitions Debt Component | Debt Component | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Revolving credit facility | $200.0M | $100.0M | | Term loan | $147.2M | $149.1M | | Senior notes | $400.0M | $0.0M | | **Total debt** | **$755.8M** | **$254.5M** | - On April 6, 2021, the Company issued **$400.0 million** of 4.375% senior notes that mature in April 2029 to fund the StonePoint acquisition[29](index=29&type=chunk)[51](index=51&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's performance, highlighting strong demand in construction markets but significant weakness in transportation, with Q3 2021 revenues increasing 14.1% but operating profit falling 10.9% due to the Transportation Products segment [Executive Overview](index=24&type=section&id=Executive%20Overview) The company highlights a 14.1% revenue increase for Q3 2021, driven by Construction Products and Engineered Structures, partially offset by a decline in Transportation Products, with operating profit decreasing due to lower volumes in the transportation segment - Revenues for Q3 2021 increased **14.1%** to **$559.1 million**, while operating profit decreased by **$4.6 million** to **$37.5 million** compared to the same period in 2020[81](index=81&type=chunk) Backlog (Unsatisfied Performance Obligations) | Backlog | September 30, 2021 | September 30, 2020 | | :--- | :--- | :--- | | **Utility, wind, and related structures** | $465.9M | $429.3M | | **Inland barges** | $130.2M | $177.5M | [Segment Discussion](index=28&type=section&id=Segment%20Discussion) The segment discussion reveals mixed performance, with Construction Products seeing a 54.8% revenue increase and Engineered Structures growing 12.4%, while Transportation Products revenue fell 32.4% with operating profit plummeting 91.5% due to weak barge demand and high steel prices - **Construction Products:** Q3 revenues rose **54.8%**, with acquisitions contributing approximately **40%** of the increase, and operating profit grew **28.8%**[92](index=92&type=chunk)[93](index=93&type=chunk)[94](index=94&type=chunk) - **Engineered Structures:** Q3 revenues increased **12.4%** due to higher pricing and volumes in utility structures and storage tanks, and operating profit rose **14.0%**[96](index=96&type=chunk)[98](index=98&type=chunk) - **Transportation Products:** Q3 revenues decreased **32.4%**, driven by a **41.2%** drop in inland barge revenues, and operating profit fell **91.5%** due to lower volumes and reduced efficiency[102](index=102&type=chunk)[103](index=103&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity position remains solid despite a decrease in operating cash flow to $76.8 million for the first nine months of 2021, with major financing activities including issuing $400 million in senior notes and borrowing an additional $100 million under the revolving credit facility to fund acquisitions - Net cash from operating activities for the nine months ended Sep 30, 2021, was **$76.8 million**, a significant decrease from **$226.7 million** in the prior year period[110](index=110&type=chunk) - The company issued **$400 million** in senior notes and borrowed an additional **$100 million** under its revolving credit facility to fund acquisitions[111](index=111&type=chunk) - As of September 30, 2021, the company had **$271.8 million** available under its revolving credit facility[111](index=111&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company reports no material changes in its market risks since the end of the previous fiscal year, as detailed in its 2020 Annual Report on Form 10-K - There has been no material change in the company's market risks since December 31, 2020[119](index=119&type=chunk) [Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2021, with the assessment of internal controls excluding recently acquired StonePoint and Southwest Rock businesses - The Chief Executive and Chief Financial Officers believe the company's disclosure controls and procedures are effective[121](index=121&type=chunk) - The assessment of internal control over financial reporting excluded the StonePoint and Southwest Rock businesses, acquired in April and August 2021, respectively[122](index=122&type=chunk) PART II OTHER INFORMATION [Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 15 of the Consolidated Financial Statements for detailed information regarding the company's ongoing legal proceedings - For details on legal proceedings, refer to Note 15 of the Consolidated Financial Statements[124](index=124&type=chunk) [Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) The company states that there have been no material changes to its risk factors from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020 - There have been no material changes in the Company's risk factors from those set forth in the 2020 Annual Report on Form 10-K[125](index=125&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q3 2021, Arcosa repurchased 98,456 shares of its common stock at an average price of $50.68 per share as part of its publicly announced repurchase program, with approximately $40.6 million remaining available for future repurchases Unregistered Sales of Equity Securities and Use of Proceeds | Period | Total Shares Purchased | Average Price Paid | Shares Purchased as Part of Program | Approx. Dollar Value Remaining in Program | | :--- | :--- | :--- | :--- | :--- | | **Q3 2021 Total** | **99,304** | **$50.69** | **98,456** | **$40,625,892** | - The company's Board of Directors authorized a **$50 million** share repurchase program effective from January 1, 2021, through December 31, 2022[127](index=127&type=chunk) [Exhibits](index=39&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including agreements related to recent acquisitions, certifications by the CEO and CFO, and XBRL data files

Financial Data and Key Metrics Changes - Arcosa reported a 3% revenue growth year-over-year, with adjusted EBITDA remaining consistent with last year's record levels [4][6] - Adjusted net income declined by 18% primarily due to increased non-cash expenses, particularly depreciation and amortization from recent acquisitions [6] Business Line Data and Key Metrics Changes - The Construction Products segment, which now accounts for over 50% of adjusted EBITDA, saw a 38% revenue growth and a 17% increase in adjusted EBITDA, despite adverse weather conditions [11][12] - Engineered Structures revenue increased by 9%, with adjusted EBITDA rising by 25% to $38 million, aided by a resolution of a customer dispute [14] - The Transportation Products segment experienced a significant downturn, with revenue down 47% and adjusted EBITDA decreasing by 73% due to lower utilization [16] Market Data and Key Metrics Changes - The Phoenix metropolitan area is highlighted as one of the fastest-growing construction markets in the U.S., with strong infrastructure spending supporting growth opportunities [9][21] - Arizona ranked first in infrastructure spending on highway contracts over the past five years, indicating a favorable market environment for Arcosa [9] Company Strategy and Development Direction - The company is focusing on integrating recent acquisitions and pursuing organic growth opportunities while simplifying its overall portfolio [10][19] - The acquisition of Southwest Rock Products is part of a strategy to enhance margins and growth potential in less cyclical markets [5][9] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the construction market's recovery, driven by strong demand for aggregates and infrastructure projects [21][22] - The outlook for the Engineered Structures segment remains positive, with expectations for year-over-year growth in the second half of the year [22][23] - Management acknowledged challenges in the Transportation Products segment but noted signs of recovery in the railcar OEM market [25][26] Other Important Information - The company maintains a consolidated adjusted EBITDA guidance of $270 million to $290 million for 2021, reflecting a strong performance despite headwinds in the Transportation Products segment [27] - The company has over $300 million in available liquidity and no near-term debt maturities, indicating a strong financial position [19] Q&A Session Summary Question: What is the impact of steel prices on the barge business? - Management indicated that while steel prices are high, they expect a reduction in prices due to increased capacity coming online in 2022, which should improve order flow [31][33] Question: How does the guidance reflect the addition of StonePoint and the outlook for aggregates? - The guidance remains unchanged, with the addition of Southwest Rock contributing positively, while challenges in the Transportation Products segment are acknowledged [36][38] Question: What are the expected margins for Southwest Rock under Arcosa? - Management expects Southwest Rock's margins to align with industry peers in the mid-thirties, with potential for higher margins during periods of strong demand [54] Question: How are customers approaching capital deployment for barges? - Customers are assessing the economic viability of new barge orders in light of high steel prices, with expectations for a gradual recovery in demand [55][58] Question: What is the strategy for future acquisitions? - The focus will be on integrating recent acquisitions and pursuing organic growth, with potential for bolt-on acquisitions in existing metropolitan areas [68][69]

Arcosa, Inc. (NYSE:ACA) Q1 2021 Earnings Conference Call April 30, 2021 8:30 AM ET Company Participants Gail Peck - SVP Finance and Treasurer Antonio Carrillo - President and CEO Scott Beasley - CFO Conference Call Participants Ian Zaffino - Oppenheimer Brent Thielman - DA Davidson Julio Romero - Sidoti Justin Bergner - G. Research Operator Good morning, ladies and gentlemen, and welcome to the Arcosa, Inc. First Quarter 2021 Earnings Conference Call. My name is Mallory, and I will be your conference call c ...

Financial Performance - Q1 2021 results exceeded expectations due to strong Construction Products performance[8] - Winter Storm Uri negatively impacted Adjusted EBITDA by $4-5 million in Q1 2021[15] - The company is raising Full Year Adjusted EBITDA guidance to $270 million - $290 million to incorporate StonePoint[8] - Q1 2021 Adjusted EBITDA was $56.5 million, with an Adjusted EBITDA Margin of 12.8%[72] - Net debt / Adjusted EBITDA ratio was 1.9x after issuing $400 million of senior notes at 4.375% to fund the StonePoint acquisition[8, 30] Segment Performance - Construction Products Adjusted Segment EBITDA was roughly flat compared to Q1 2020, with a margin of 21.5%[18, 21] - Engineered Structures revenues declined, and Adjusted Segment EBITDA margin was 12.8%[22, 25] - Transportation Products maintained margins above 10% despite operating well below capacity[26] Strategic Initiatives - StonePoint Materials acquisition was completed on April 9, expected to generate ~$125 million in revenues and ~$30 million in Adjusted EBITDA in 2021[36, 37] - The company published its inaugural full year Sustainability Report in April 2021, highlighting a 12% reduction in GHG Emissions Intensity and a 16% reduction in municipal water intensity in 2020[8, 53, 54]