Q3 2020 Arcosa Inc Earnings Call
To begin.
[music].
Good morning, ladies and gentlemen, and welcome to the Arcos that incorporated third quarter, two Centstwenty earnings conference call.
My name is <unk> and I will be your conference call coordinator today.
As a reminder day school is being recorded.
Now I would like to turn the call over to your host Gail Peck Senior Vice President Finance and Treasurer for ARX <unk>.
Dick you may begin.
Good morning, everyone. Thank you for joining our third quarter 2020 earnings call.
With me today are Antonio Creo, President and CEO and Scott be easily CFO, a question and answer session will follow their prepared remarks.
Copy of yesterday's press release and the slide presentation for this morning's call are posted on our Investor Relations website, Www Dot IR dot our co CIO dotcom are.
A replay of today's call will be available for the next two weeks instructions for accessing the replay number are included in the press release a.
A replay of the webcast will be available for one 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 generally accepted accounting principles.
Results continue to highlight the resilience of our business model and the repositioning of our company around infrastructure products. The.
The last few weeks, we have seen significant improvement in inquiries and have closed 32 million of additional order barge orders for 2021.
We're building a strong cashcall throughout our culture. The impressive 93 million of free cash flow in the third quarter brings our year to date total to 170 million.
As we focused on reducing our working capital and operating more efficiently.
This cash culture is helping us deploy growth capital into attractive markets, while maintaining low leverage.
We still have opportunities to improve especially in the inventory and accounts accounts payables management, but I'm excited with the progress made to date.
Finally, we're pleased with the strategic investments, we have made to grow our business centered around construction products on the engineered structures at key accomplishment was the 87 million acquisition of strata materials, a leading producer of recycle natural aggregates in the Dallas Fort worth market that we closed in October.
This transaction adds that adds to the two smaller acquisition, we closed during the quarter first the telecom structural company, we have previously disclosed and the natural aggregates bolt on in Texas, We paid around 53 million for these two acquisitions at very attractive multiples.
Slide eight is an overview of our third quarter performance.
Construction products, followed by energy equipment, what are the key drivers of our 10% year on year revenue growth EBITDA growth and margin expansion would revenue were driven by Cherry acquisition as well as strong operating performances in our aggregates and barge business.
Scott will review the performance of our different segments, and then I will come back to discuss our business outlook Scott.
Thank you Antonio and good morning, everyone.
I'll start on slide nine and review our segment results from the third quarter.
Construction products revenue grew 27% to $147 million and adjusted EBITDA increased 40% to $36.8 million.
Versus last year, but were stable sequentially.
We recorded and impairment charge of $800000 as we right sized or south, Texas footprint and redeployed equipment to more stable demand markets.
Our overall volumes and aggregates, we're roughly flat versus last year as we were placed more volatile oil and gas exposure with more stable construction market exposure.
Our specialty products business has also performed well, but has dealt with pockets of covid related softness or plaster product line is experienced strong demand in certain geography's, but softer demand in the north east and West coast.
Lightweight aggregates revenue has also been lower this year, primarily from delayed overdue demand and large nonresidential construction projects.
Finally revenue from our Trent showing product line was down slightly versus last year, but higher sequentially as customers gained confidence and resume more normal purchasing patterns.
Overall, our construction products team didn't exceptional job executing in the quarter and our strategy to deploy capital into this resilient sector has paid dividends in the midst of covid related challenges.
Moving to energy equipment on slide 10 revenue grew 6% to $223 million adjusted EBITDA of $28.5 million was down from last year, but the margin of 12, 8% was towards the top end of the 12% to 13% margin range that we expected at the beginning of the year.
Within our winters and utility structures revenue line about half of the $22 million of revenue growth was from organic improvement.
The other half was from our newly acquired traffic and telecom structures product lines, which both performed well during the quarter and we're accretive to our segment margins.
While demand remain healthy adjusted EBITDA margins in our utility structures business, where lower than we expected in the quarter due to operational challenges related to covid.
We had lower production in two plants due to hire community rates of COVID-19, but we have since returned a more normal levels and believe we're past the major impact of these issues.
Finally, while revenues were down year over year in our storage tanks business, we've seen improved demand in recent months.
Demand for a residential and commercial propane tanks has remained stable and we have recently won several new orders for large infrastructure projects and Mexico.
Turning to slide 11 transportation products revenue was even versus 2019, but improved margins in our barge business led to 38% adjusted EBITDA growth.
And the barge business Ah revenues were up 28% due to increased dry barge deliveries. The team did a fantastic job driving operating efficiencies and controlling costs during the quarter generating margins ahead of our expectations. All three of our plans delivered exceptional operating results.
Revenue and rail components declined year over year, but was flat sequentially, new railcars continued to be weak across the industry, but picked up a bit in Q3. So we are hopeful that we have reached a low point in the cycle. We've been EBITDA positive throughout the downturn and have had additional success in winning new orders for the more stable me.
<unk> and non rail markets, we are optimistic about the businesses growth prospects once the railcar market improves.
On page 12, we show several additional financial items from the quarter.
Our corporate expenses of $17 million or higher than our normal $13 million run rate due to $2.5 million of non-recurring legal expenses from a pre spinoff matter as well as $1.4 million of acquisition and integration related expenses, including for the strength of acquisition that we closed in.
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Turning to slide 13 are $93 million, a free cash flow was a highlight of the quarter and reflects the strength of our growing cash culture across our businesses 30.
$38 million of our free cash flow came from working capital improvements.
Are operating teams have been tightly focused on reducing receivables and inventory and extending are payable terms to industry norms.
The very strong cash flow. We've had this year is help fund more than $140 million worth of acquisitions since the end of the first quarter, while maintaining the same level of net debt to adjusted EBITDA.
We ended Q1 with a 0.5 leverage ratio and we remain at roughly the same level. After the strata acquisition still below our long term target of two to two five times.
Our balance sheet gives us a great deal of financial flexibility to continue to invest in the disciplined organic and acquisition growth that Antonio will discuss in more detail I will now turn the call back over to Antonio Thank.
Thank you Scott.
Starting to slide 15 for a discussion of our business outlook.
Starting with construction products.
The overall outlook for this segment Dispulsion and I'll touch on three factors that underpin this outlook attractive and market fundamentals resiliency of margins and a robust pipeline to deploy capital.
First infrastructure.
Infrastructure and residential markets have shown strong demand, which has offset softness in nonresidential construction in covid related capex capex deferrals from our customers.
The majority of the aggregates business is located in.
Growth Geography's, particularly Texas, where construction activity has remained robust in the short term lower state budgets could dump and infrastructure spending, but a federal stimulus spent including infrastructure investment could offer up site. We were pleased to see the one year extension of the fastback.
Taken this margin resiliency.
Large portion of the construction segment costs are variable, which allows the business to adjust their cost approaches as demand fluctuates.
In the markets, where the man has softened because of Covid, primarily lightweight aggregates ensuring products, we have been able to reduce our cost structure maintain healthy margins, even with slowdowns in those businesses, we were able to increase segment margins by 250 basis points in the quarter.
Finally, we continue to be optimistic on our ability to break capital in aggregate send specialty materials, both organically and through acquisitions. I. Am example of these disciplines capital allocation was October acquisition was proud of materials. The bulk Australia revenue comes from recycled aggregates, which is a key area of focus for us that started with the acquisition of.
Cherry earlier this year.
Acquisition is an excellent strategic fit with our current footprint.
As it brings on six new locations in the Dallas Fort worth market, including five recycled aggregates plants in one natural aggregate black.
With this acquisition, we will be able to pull for VFW customers, both recycle that natural aggregates I'm accelerate our growth we continue to build on our pipeline of additional acquisitions with aggregate some specialty materials.
To interview equipment, the utility structure market is extremely strong with the mandate facing our current production capacity utility customers continue to implement greed hardening and reliability initiatives as well as investing renewable connections.
To meet this increased demand we have started delivering products from our planting Mexico, where we have invested roughly 20 million over the last year.
We're very excited about the possibility send the ramp up we expect to see over the next several quarters.
New up with our new acquisitions of traffic and telecom structures and concrete bolts are doing well with strong backlog. Some positive trends were in the beginning stages of this integration that have started to seek to achieve early commercial and operational synergies at the same time or go continues to be to grow by replicating these new product lines across R.
Footprint.
Moving to our winter our business.
As we have discussed before we expected the windpower market to become project based as a production backs right that that's great faces out and this is what we're seeing.
Booked $154 million of new Windpower orders in the third quarter and we continued to see good project based inquiries.
With these orders we have good visibility for the 2021 production plants supporting our theses of an orderly stepped down from Ptc's subsidies.
We have also discussed in the past when powers have gotten much larger in 2021 were scheduled to produce some of the larger windpower in our eating oil plan, which is not set up for those towers.
Therefore over the next few months, we will be investing in retooling the plant.
So we plan to reduce our production in daily no plant during the fourth quarter to ramp up back in the middle of the first quarter.
Having to retool one of our plants do to improve demand for larger winter hours is a positive development for our with our business would we expect this temporary shutdown to impact the fourth quarter results, roughly two or $3 million of additional expenses and lost.
Although we remained optimistic about additional orders in the next few months, we expect 2021 to be a transition year for the industry, giving the expiration of the BPC and we do expect lower windpower deliveries done plenty twin.
Beyond next year, the fundamentals for the winter industry remains strong.
Turning to transportation.
Covid 1919 has slowed the positive barge momentum that we experienced earlier this year, but we're still optimistic on the medium and long term.
Long term fundamentals for both dry a liquid or just remain quite strong, giving an aging fleet. The natural replacement cycle higher grade movements were encouraged by the uptick in dry bartoo inquiries, but we expect that the liquid market will take longer to recover.
Even though our conviction in the long term fundamentals of the market. Our main focus is to maintain our flexibility to efficiently ramp up production with more significant or their activity resumes we have taken steps to extend our backlogs.
To extend our backlog and slowdown production at our three plants in anticipation of lower volumes next year, we have work with customers to extend roughly 27 million in order from Q4 into 2021, which will reduce reduce feel for it.
Q for results, but will allow us.
Time and two four.
Will allow us time for confidence to return on for new orders to materialize.
The same time, we're working to promote new ways of utilizing bar just two more additional karabel on the river system.
Painters have traditionally been moved by rail and truck, but not but only a small percentage percentage by inland barge. We recently completed the design of a concern containers specific barge, which can move up over 50% more containers done traditional corporate barges. This improvement could generate significant cost reductions in container logistics by barge and.
Create a strong incentive to invest in the needed infrastructure over the next few months, we will be making two container barges and have worked with a couple of customers who will start testing them. This as a medium term project that we believe will have very attractive economic benefits for our customers. One at the same time generating significant environmental benefits as well.
For a rail component business, where the month is being week, we continued to expand their products and customer base to non railed markets and expect to benefit from the added volume ones that railcar the man normalizes.
Finishing up on slide 18 in a few days, we will mark are secondary very sorry, as an independent public company in reviewing our overall performance in the first two years three keep Baker waste come to mind.
First we have transformed our business repositioning around core infrastructure products that enhance our resiliency reduce our cyclicality and expand our potential for long term sustainable growth.
He has been accomplished through a combination of organic initiatives and more than 800 million of strategic acquisitions that we targeted for their attractive market characteristics in alignment with ESG initiatives. We have accomplished this transformation using very mother modest leverage, giving a strong free cash flow. We continue to have the balance sheet capacity.
An appetite to pursue additional acquisitions.
Next I would like to highlight that this transformation has progressed successfully despite the backdrop of the economic slowdown of the last seven months that has impacted a number of our businesses.
Democrats made operating and competing deals more challenging, but we have continued to move forward I'll need at a slower pace than we would have liked.
We remain committed to taking further steps towards our long term strategic goal of simplifying our business.
Finally, and most important takeaway is that the fundamentals of our business remains strong there is likely some volatility in front of us, giving you uncertainty covid creates but the markets, where we are focused have strong fundamentals with positive long term sustainable growth.
Or a close up disciplined capital allocations that keep priority and we expect to continue investing in those businesses that help us fulfill a long term vision to growing attractive markets with competitive advantages reduce the complexity cyclicality of our business improve our long term returns and integrate ESG into our business.
With only two years as an independent company. We're just getting started there's still a lot to do and we believe we have tremendous opportunities ahead of us and look forward to continuing to be a lot of course I.
I would like to open the to open the call for questions.
We'd like to ask a question, please springston star and one touchdown selling.
You May ask one question and that's all alone.
Once again.
Question, Please bracing star and one Oh, yeah touchdown Sally.
Questions to Q.
First question from Julia Ramirez.
Please go ahead no my knees open.
Hey, good morning hope you'll Orwell.
Thank you <unk>.
You too.
Wanted to ask about the barge business you mentioned it orders in October we're better than in <unk> in total.
Do you think it's driving the uptick recently and.
Do you expect orders an inquiry activity to kind of remain at that same level in November and December or or maybe better and the pace in October.
Yes Hello.
Let me give you some some color on this.
If you remember we had a very good first quarter in order to theirs and then after Covid heat.
I think like most.
Like most businesses our customers started looking at their capex I'm trying to figure out how to conserve cash and that the first impact. We saw people were trying to avoid large capex.
And then you had of course deal uncertainty of how much the.
Merchandise, we're going to be moving on the on the river system.
So when you have two different dynamics here on the liquid Bartsch, we said we have not seen an uptick in the month, we continue to see very slow inquiries utilization rates are very very low. So that's why we're saying that it's going to take longer to recover on the dry carnival side, you have seen a very healthy crop.
You've seen.
China importing more more green and they are still far away from the targets at that they have set a rates have gone up.
The opening of the Illinois revenue in October is going to help so I think there's a lot of positive signs for the dry cargo market and if you remember over the last five years that dry car will market cause he's the one that has replaced their bar just more slowly so there's more potential for recite replacement in the dry side I mean.
The liquid type and that's why it because of this uncertainty on the amount of orders like we will receive and we are positive in the ones that will receiving and we continued C inquiries as of this morning.
I think that that's the way, we said that our priorities to remain flexible in our production footprint. So that we can react when our customers need us to deliver these barges because if you remember in 2018 when demand picked up we were not ready and.
And we were slow at the ramp up we need to ramp up much faster than that because we have going forward.
Got it and nice job on the cash flow and a quarter I think you mentioned in your prepared remarks about extending payables will working to extend payables to more of industry norm. So can you just talk about that in his days payable in that you know mid thirties range kind of where you expect to be.
In the future.
Sure earlier this is Scott.
I think.
The biggest thing we've done is create a a focus on cash culture, where everybody is very focused on cash when when we spun off from our former parent company.
That hadn't been a priority and so over the last two years, we've been trying to build the cultural foundation, we've seen a lot of success and.
We've generated about $170 million, a free cash flow this year, thus far $93 million and a quarter I'd say, we've made the most progress in our accounts receivable.
We have made progress in accounts payable have have room to go.
And then inventory remains probably the biggest opportunity where.
It's a little harder to get because it involves more for kind of operational redesigns, but we think that we have opportunities in inventory too so across inventory and AP I think we still have room to improve working capital and we're optimistic that we can do that next year.
I appreciate.
Right the comprehensive answer all back into Q.
Thanks.
Yeah.
Our next question.
Major Charles Kennedy.
Okay.
Yeah. Thanks for taking my questions Uhm, you made some preliminary commentary on next year and the wind tower business.
I was hoping that you could pull it back a little more in at least for those businesses, where you do have backlog in some visit ability just directionally think about what next year might look like or at least start like from where we sit today.
Sure and basketball.
Let me give you some color.
Oh.
We're still in October almost the end of October so we still have ways to go we haven't even done our budgeting. So it's hard for me to give you a lot of color, but I'll tell you where things are playing out how ICR markets work.
21, just directionally.
We're very very positive will know construction segment.
We will have strategy for the full year, we will have all the small acquisitions, but we did for the full year.
<unk>.
We have organic growth we've invested in the Houston area. Squark mentioned, we are investing around the Dallas Fort worth area, we're investing around some other operations.
The shoring business is looking better than we had we had a really bad ear. It doesn't show in our numbers because some of our business have them fantastic what are lightweight aggregates at our shoring froze did not the well in terms of revenue.
And growth they kept their margins and that's what we like them, but they they did not have a good year and they're struggling because of a lot of Covid project delay, especially in the areas where they're located so I think the construction segment. If you put all of those together, we're very positive without growing it in 2021 very healthy level.
On the energy side.
We have as we say that our you'd think these structures continues to be strong and we continue to see it as a very strong market for 2021, we will have our acquisitions.
For the full year next year, if which will allow us to grow there.
We have this projects to replicate these acquisitions you know there are areas, where will you will seals employ capital letter and we have the new plant in Mexico, which you will be ramping up on that plan should allow us to continue to grow volumes for 2020. Once we're very optimistic the tank and the tank business in Mexico should be relatively stable.
And then the wind power side of what I mentioned this.
That we have said this probably since before we spun off we expected 2021 to be a transition year of the PTC expires.
And my comment there has always been that I expect the industry in general too.
To kind of go through this.
Reinvention of being in an industry with no production tax credit.
It's a it's an industry that's been used to having it I think there are significant differences now that technology is allowing winter hours to compete head to head without the P. P C et cetera, but it's still a big change for the industry. So that's why we're saying we're very happy that we got the orders we continue to receiving Flyers were very.
Optimistic about additional orders were 2021, we don't think that it would.
But we do expect.
That that the 2021 is going to be lower than 2020.
If you remember to.
To deliver a power to to install a wind farm in 2021, you basically need to deliver to the towers.
Way through the years.
So.
So that's why I think we have relatively good visibility things.
Things can change, we can still get a little water or something we are operating or three plants and we still have a plant in Mexico that we're not using so so I think there's opportunities I will tell you directionally. The two areas so big opportunities for for changes or a bar just a win because that's where we have more a little more uncertainty in terms of how big the.
<unk>, we can expect but overall, we're very positive on the windpower fundamentalist for the long term.
2021, we do expect a little slow though.
Then on the transportation side, that's where we have the most of volatility let's say.
Think on.
On the rail component we are at the bottom the business is performing very well at the bottom it's generating positive a beat the Scott said.
And we saw some positive or those compared to the second quarter in the rail industry, we've grown or a non rain customers quite a bit of non whale products quite a bit and we're very optimistic about the prospect of continuing to grow there, but the rail industry cyclical as you very well know so.
In the rail industry recovers I think we have a very nice up in our in our in our business because we've been able to cover all so much and then they barked industry I think we as I mentioned before in previous question, we're very optimistic on the dry cargo orders, we're keeping our plants flexible and liquid bar just started a different story we are.
We're not so sure that's going to go how long, it's going to take to recover.
Probably some time in 2021, what I can tell you that we will have the capacity to to ramp up as orders materialize and that's why I said that we are building. This.
Container barges in one of our plants that allows us to extend some of our plants operating for longer periods of time to allow time for those orders to materialize. Hopefully I gave you lots of information that hopefully hopefully that's what you were expecting.
Yeah, that's that's tremendously helpful and I appreciate your candid discussion before you've you've gone in your budget.
But one more in then I'll pass it on.
I recall with the nature of a tax free spring, there's some limitations at least at the parent company with the I R. S and what you can do from a capital allocation standpoint until you hit that two year anniversary with that with that two year anniversary for our Kosta Simco.
And was there anything restricted in the last two years and you know starting next week as you laugh at is there more optionality your opportunity on some things you can do with capital location next week that you couldn't do this week.
Yeah, I'm I'm not a lawyer in the room bathroom, but I'll I'll tell you that the.
There are some limitations from the tax tax to allow the spinoff to be tax free.
I will tell you that that that they were they were there's there's quite a bit of limitations. The biggest limitation, we had westland the energy equipment segment, which is west consider our main segment as we spun off because of its size.
But there were some other limitations.
What are we mentioned in my remarks prepared remarks is that we continue to be committed to simplifying the business as we have discussed before.
The.
I I also mention that we have continued to move forward with our initiatives with the pandemic and everything but.
Slowed down and we didn't expect for example to drop in the rail market as fast as it did this year starting last year on some of the things that have slow those down in making some decisions. So.
The comment I can tell you is that I think after November 1st we have a lot of limitations go away, but that has not been the primary.
Let's say bottleneck for us to to do things. So I think it was there but it was not the primary focus I think.
The business conditions have to be what drives us on the business conditions have been.
Relatively on certain over the last year or so so.
But we are still committed with what we said they one from the spindle.
Thank you very much.
I think our next question from Stefan that's correct.
Security. Please go ahead, an airline is open.
Good morning, and thanks for taking my questions.
First.
Talked about operational challenges and utility structures business due to Covid could you go with a little more detail on what those challenges are and maybe how long you expect those to linger.
Sure Stefan Jose Antonio, Let me give you some color and it it.
The challenges were mainly in the first half of the of the third quarter.
They've been improving since then but.
Two of our big plans were in communities, where Covid west.
Cases were going pretty significantly.
And we have to isolate a loaf people because of that.
As you started isolating people you know absinthism, those helpless tremendously and even though you don't realize it but.
We try to operate in a very lean organization. So we don't have a significant backup confused and five people owning a certain area. You don't you don't have people to substitute them. So we really were.
Two of our plans, where basically brought to their knees for a few weeks.
And.
And since then things have improved so those those two plans have started to come back on in September they behave much better than August in July. So I think we're we're we're moving ahead on that we're we're all mostly out of the woods. So things are starting to perform very well again.
But that's one of the examples of what Covid can create for one of your plants and only if something happens in the community. It's mainly in the community and then they bring it into the plant.
So I think that that was the case, but it did impact those pretty significantly in there and you'll keep this structure for the quarter. We are optimistic them that we are very positive on the fourth quarter and or at least structure and the good news.
Is that these are not like hotel rooms, where you don't sleeping there. It goes away. The orders are you still there the customers are still there we need to deliver so that's probably the the good news around us.
No. Thank you that that makes sense and then could you maybe give us a little more color on organic growth and aggregates.
Sure.
So it was caused mentioned we have invested quite a bit in increasing a reserve base around Houston.
Houston still has a lot of potential for us when we bought Cherry They had a very nice Dorothy Bryant, Norway laid out of how to expand the where's the areas, where Houston is growing so Houston has been one of our big.
Organic areas.
VFW again, we continued to expand and we bought it done through some land acquisition, mainly but more the bolt on acquisitions I've been.
Sorry, and organic but have helped us when you start combining a few bold thumbs you'll start generating synergies between them that we consider that part organic and then on the a specialty materials or Scott said I think the highlight these are plaster business that continues to grow we saw a slowdown in the second quarter, but it started to grow.
Again, and we have a nice organic opportunities there. So overall I would say that the.
It's been around Houston, Dallas on some of the special Timothy.
Alright, Thank you and I'll come back in queue.
Sweet.
Opera, how May I. Please go ahead.
Alright, great. Thank you.
I don't know if I heard a actual organic growth number four yeah. It's business. So I'm wondering if you could maybe give that and also maybe just.
Can you talk about just the conversations you're having with customers I guess, Texas has a massive rainy day fund is not large enough to maybe you know cover them to the next couple of years or how do we think about it and it should be looked into next year and maybe just some sneakers have budget shortfalls, but then they also have.
I have rainy days, so <unk>, maybe give us some color there how people in the industry like thinking about this and like the customers are saying thanks.
Sure in this is Scott uptick those separately so on the organic growth rate it aggregates.
We had roughly offsetting factor so the the legacy businesses driven by strong construction market.
Exposure was up call at mid single digits in terms of volumes that was offset by the oil and gas exposure that we had primarily south Texas in West, Texas. So the two of those offset each other into roughly flat volumes, but.
We talked about replacing the more volatile oil and gas exposure with more stable construction market exposure. So we think that's a better mix, even though volumes of roughly flat.
On your second question of Texas fundamentals.
I would agree with your premise that Texas is a very good fiscal position. So when we look at indicators, there's a healthy state budget, there's a $9 billion rainy day fund that.
Comptroller said is.
Not expected to have to be used but could be used if it needed to for this fiscal year you.
You've seen healthy population growth, particularly.
As the urbanization has increased in Houston, and Dallas and the outskirts have been a beneficiary of that we've seen major.
Improvement in housing starts, particularly in Houston and Dallas.
And is Antonio said about two thirds of our construction products exposure is in Texas, and we're very bullish on the state and the fundamentals there.
Okay. Thanks, and then just just as a follow up on the in many front you've been doing a lot of acquisitions you know, but at the same time the I'm in the market is.
To be robust here.
Is this an opportunity to take advantage of anything inside the portfolio maybe too.
G. The goals of making a business a little bit more streamlined and a little bit more focused.
Yes, and this Antonio.
As I said, we will remain committed to that so there are opportunities.
I think.
Think there are opportunities to simplify the portfolio at the.
Same time, we have.
Really nice opportunities in the pipeline to deploy.
Based on the phone so if we could get by simplifying so yes, I think there are.
As I've said before and I'm a firm believer MMA have a life of its own and sometimes it happens when you least want it and sometimes it doesn't.
Something happened when you're more one but I'm also.
It's it's there's always.
You need to you need to.
Due to that and that some point.
I'm sure, we're going to have opportunities both of them the buying side on simplifying side, but.
But we remain committed to both and we made without but they put both.
Okay perfect. Thank you very much.
Okay.
Oh My next question from Bill Baldwin.
Anthony Security. Please go ahead.
Oh, Thank you very much and thank you for taking my call.
O'neill can you offer a little bit of insight into the utility structures market.
Regarding.
You know have split between your lives customers or their last market it kind of the bid market.
And where do you see the most opportunity for our our coasts those.
You don't do business growth say over the coming the coming year or so.
Yes Bill.
I will give you some some color on that he.
Historically the business, we have that we bought from.
14, a part of Crazy.
It was mainly concentrated on the lions customers and that has been the focus of the business.
And I think there's.
Several of her.
Three big opportunities one is.
Expanding our lines costumers and we've been focusing on that we have we have great opportunities to expand those and.
And.
I think I'm very excited about what I'm seeing and talking to the theme about expanding that part of the business day.
Second one probably the biggest bye.
By far is the the big market because we have historically participated very little.
As we expand our capacity getting the bid market has to be part of our portfolio, where we play and part of our priorities to deploy some of our capacity there.
It offers a great things is also a low volume.
Less less reassuring, let's say you have less disability around it and therefore, you have to be much more flexible in new manufacturing footprint to attack and then that's what we're building.
And then the third piece of growth is expanding our probe like to offer to bold the alliance and the big market them. That's why we're expanding our <unk> our portfolio with this colloquy bowls with that with distributions bold with with other kind of structures that they need so I think in both markets are important.
And if we add the additional probe like door opportunities I think we're very very excited about our future.
<unk>.
Thank you and Antonio that that does offer some good inside but.
Do you see the with the Hurricanes, you know being a negative obviously for a lot of operations, but do you see that as a yeah, but just to demand for.
<unk>, you're <unk>, you're totally tower products here.
You need to replace what's been destroyed.
Yes definitely.
Meaningful market I guess is what I'm, saying is that gonna be a source of demand here 2021.
That's a really that's a really good question and some something that we don't talk enough about but it's.
Whether events are becoming more and more prevalent and there's a few of our business is there are very well positioned to be very relevant in the rebuilding one is a utility structures on distributional Bulls is you said.
All the structures in general the one that we bought the in Florida for traffic structures also gets.
<unk> with volume.
And also.
Business around the glucose Cherry and some of our algorithm business there.
There is significant demand that comes back when when there's windows weather events, you have to rebuilding especially in Houston for example, the levies and all those things there are significant the Amanda comes from those we've been preparing for those I mentioned in the last conference call. We're starting to import Reaper up from Mexico to try to help our business. So I think.
We're we're we're optimistic as I mentioned to Bascom.
In these question around 2021.
The ups and downs of all of our businesses were optimistic 2021.
And you know as weather events call them I think that some additional.
A driver for our demand some of our problems.
Thank you very helpful.
On your acquisitions of traffic structures in telecom structures. Your objective is to replicate that expand that's a threat you know to.
Get some more national marketplace part of the main challenges Tonio.
And taken those are smaller.
Right now, where you have concentration smaller markets and expanding that out to other markets in the country. What's what's the main challenges of doing that.
Oh.
It's also a very good question I think we at the.
The Big Challenge, if you look at the companies to create a.
A different structure as we look at the markets commercially they're very different markets. If you look at the profit structure or the telecom structure, they're very different market from utility.
Commercial face of the company has to be remain very focused on each one of the markets. While the manufacturing piece is where we generate a lot of the synergies by putting this boats through the same similar plan has to be kind of.
A single stores of manufacturing for the free market. So that's the next challenge is to introduce these these new products into our plans to generate the synergies one at the same time.
Keeping the focus on our customers and to focus on the commercial aspect of very folks.
Does it involve having to go out and acquire new customers. As you go into these new markets does involve any kind of a regulatory.
Test you'd have to pass with your products to go into different states and locales. You know do you have any do you have new customer challenges N or regulatory challenges was expanding this business.
Some of the blends depending on the on the product line. Some other plans have to be certified for a certain dot's and some of the things. So there are regulatory aspects that we have to follow that doesn't take some time, but it's nothing nothing that we cannot do and we're not used to doing on the customer side is like everything else, we just have to put or whatever Sudan and I'll get a brief.
Probably will see the customers and I'm convinced them that.
That we are a good option and then prove that we are the best option.
Oh I bet, you could do that.
And lastly, I just it was interesting you mentioned the number of times that the storage business has a large infrastructure projects in Mexico can you can you be more specific are all for color as to what the nature of those projects dog.
Well as you know there's some.
Some strategic projects that the Mexican government is building on those are large.
Specifically around but proclaiming around the refined refining area and there's been some opportunities there that we are starting to capture we're not selling we do not sell directly to the governments, we sell everything through a.
Construction companies large GPC. So that's our main focus is serving the larger species that serve the infrastructure market. So we're not we're not a direct seller do any any specific project sales through large internationally species.
Painful.
Justin.
Right.
Research. Please go ahead airline is open.
Good morning, Antonio Good morning, Scott.
Morning, Justin.
Mm I hopped on the call a bit late so I apologize if anything here's redundant.
On the barge side of the business you know you had positive comments about the outlook for dry barges.
But it doesn't seem like that filter through into orders.
In the corner and so I guess, you know any color there would be helpful. And you know what is the rising steel price mean, if anything for that for the Tri barge market.
Sure.
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Mention that drive us as we said in the prepared remarks, the quarter west very slow in or there's we received additional orders afterwards, and we continued to receive inquiries as I said even through this morning. So so we're.
We're more optimistic on the dry cargo market.
A.
We're still in the in the pandemic so I think.
The customer so I'm still some reservations around went to the blue their capital into additional capex, but the dry cargo market has very specific dynamics that are positive you know bring exports.
They're going to China, China buying more rates are up the daily No river reopening a little positive things are happening there.
Over the last six months, we've have really positive steel prices as you mention.
When you look at the steel prices were going through a very interesting time, where the main when you here still prices are going up it is mainly on the koilocyte. So for the last six months, there's been a complete.
I would say.
Rivers.
The trend of what traditionally has happened bleep bleep has he been historically more expensive than coal.
And the last six months has reversed until they call is the one that's going up on plate has remained relatively flat.
We I I personally believe that Lady's continued to be very very very attractive prices up where we are today.
And that's why we're seeing that's for all steel prices continue to be a positive thing for bargains is still continues to go up I mean reflects on the blade sites then of course.
Hi, still price are not good for bargains, because a significant portion of the of the cost of the barge, but overall, we're very positive on the dry cargo market.
You said, we don't have enough orders yet for 2021 to keep us at full capacity. That's why we said, we're reducing our production.
But at the same time, we also said we're keeping our three planes open because we believe.
So strongly in the fundamentals of the market that we have to be ready wouldn't demand comes back.
Okay that makes sense understood.
Shifting to energy equipment again, if he if you've already answered this question or it's in your prepared remarks, just let me know and I'll go back and review the transcript.
The.
Order she predominantly weighted towards windpower deliveries in 2021.
I guess it doesn't imply sort of as much orders on the utilities structure side is that just sort of idiosyncratic quarter to quarter behavior should I read anything into that.
I think the.
Let's say the the thing to remark is the wind.
You've been the structural seem it continues to be very strong I think we have a a good quarter for authors in the field structure on the on the other small businesses. We bought one thing to remember in the utility structure is that.
A lot of the orders we received that I mentioned in the previous call to Bill for my Lions customers.
Because they're blanket orders for the year and they'll have specifics, we cannot consider them part of it.
Backlog, so they become battler ones we.
Once we.
Have enough details for us to consider them. So you think these structures a large portion of the war. We have committed for 2021 for example is not consider in our backlog.
It will be considered as we defined more specific with our customers there needs the timing the pricing et cetera. So on the one side is the other way around me, it's very specifics, where we can consider that as part of the backlog because it's a very specific.
Prices timing deliveries et cetera.
Okay understood and then lastly, I guess, you've done a lot of M&A activity.
The recent 12 months and.
Is are we in sort of a digest fees.
You know is there more that you wanted to do in the near term or is there more you can get done before end of the year to take advantage of any tax oriented shellers any color. There. If you haven't already address this question sorry, she have.
No I think we are.
The good news is that we've done a lot of them and they mostly this year B one was Cherry and then the recent one from Prada.
And those are very similar businesses in locations that are relatively close.
I'm not worried about our ability to digest these things because we're not buying anything outside of our competency or outside of our.
Normal reach let's see we're not buying something that we don't understand.
So I think that as long as you seals continuing to buy things that we understand that we are focused on I think the sizes under deals with one of our very digestible and we are in good shape.
The more time, we give our team to digest them to better, but we also see some opportunities to continue to do in my knee I wouldn't say that for the next few months you should expect something big we need to do they just brought him that's going.
And start pulling it out, but we we still have appetite for emanate.
Okay, and if it looks like the tax regimes gonna change sort of.
[noise] coming you know looking forward a week from now.
Do you think there's some bolton deals that would you know tax raid cellars that you might be able to.
Get done before your and I'm, just sort of curious to hear your perspective fair as an industrial concern.
Let's hope we hope I mean, we that's one of the things we've been discussing how much especially small or medium sized.
Private companies.
We've seen some conversations from from those sellers, saying look that I'd like to get it done before the end of the year.
They might want that but then of course at the same time, we have to be.
Very discipline them very.
I would say cautious about doing our due diligence that those are all the things we need to be doing.
But I can tell you we don't have a line of people outside waiting for us to do it before the end of the year not smoke not the case.
Okay, and then lastly, there are you seeing I mean, when you do these deals who have you competed against to buy the companies you're buying or the bolt ons at your by to the extent you have a reasonable sort of intuition there.
Yes overall in the Balkans, it's more relate.
A relationship oriented for usability a relationship with the seller on.
I would say most of them we've been the only the only company that we reach a fair price that we feel is fair for both sides and we will do it.
When you go to the bigger.
We have seen in some cases some of the big names in the industry.
But it is you go to the smaller and medium sized it's been mostly.
A handshake agreement that we come too and then we come to terms some pricing and then we move alone together or no.
Yeah, I think that's that's been the history and the big deals of course, you see the companies involved when you go to some more once he has more and that's why we like those things because we don't I mean, the prices don't get crazy.
And do we will not next please dang green.
Davidson Please Caroline is open.
Hey, good morning, Antonio and Scott.
Good morning importing.
Children for a quick little follow up color and apologies. If this has already been covered jumping on a little late as well, but can you talk to the construction punished group activity for the corner and specifically looking around the pricing and demand dynamics and how they may have shifted from the beginning of declared again.
Sure. This is Scott so I think the the big headline from construction products in the quarter was are 250 basis point improvement in margins. So we talked a bit about volumes being up in our construction market exposure down in oil and gas exposure some softness related to covid.
And are lightweight aggregates and are showing businesses, but we're most pleased with the margin improvement despite some of those headwinds.
Aggregates, we had strong improvement from operating efficiencies lower fuel costs and maintenance expenses Cherry was able to.
Do very well despite weather events and so overall it shows the resilience of the of the portfolio in the quarter. When you have some softness to be able to improve margins like we did.
Okay definitely appreciate that color.
Yeah, we have no further questions at this time.
Now like to turn to Bergen back in respect for any closing remarks.
Thank you Nicky and thank you everyone for joining US today, we look forward to speaking with you again next quarter.
And these does conclude today's program. Thank you for your ticket agent you may disconnect at anytime.
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