Q2 2021 Arcosa Inc Earnings Call
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Good morning, and welcome to the cost of Inc. Second quarter 2021earnings conference call. My name is Gretchen and I will be your.
The conference call coordinator.
A copy of yesterday's press release and the slide presentation for this morning's call are posted on the company's Investor Relations website, Www Dot I R. A R. C O S. Dot com all participants are now in a listen only mode. A question and answer session will follow the company's prepared.
As a reminder, today's call is being recorded instructions for accessing the replay number are included in the press release, a replay of the website will be available for 1 year on the Companys website now I would like to turn the call over to your holistic Gail Peck CFO for Iqos. The Mis pack you may begin.
Good morning, everyone and thank you for joining Arco's. The second quarter 2021 earnings call with me today is the Antonio Carrillo, President and CEO.
The new markets.
That'd be the discourse of you keep baker waste of from the quarter.
The construction folks' business, which now represents more than 50 per cent of our adjusted EBITDA continues to benefit from strong activity in the outlook remains positive.
The segment generated 17 per cent growth in the second quarter adjusted EBITDA, even after the impact of excessive rainfall.
Where men day, we're managing our continued steel price inflation through proactive price increases across our operations.
Or wherever in our bartsch business and 2 of lesser extent winter hours high fuel prices are limiting the conversion of inquiries into new orders weighing on our near term expectations for this business.
Engineered structures continues to experience of healthy healthy level of all of the activity.
Or even by 3 key trends increase increased utility spending to improve the reliability of the electric grid.
The connection of renewable energy sources to the power grid and continuous federal and state the investments in road infrastructure.
Finally, I am excited to announce today, our acquisition of southwest rock products, the transaction, which fellows are.
Purchase of stone materials. This past April exemplifies how we are successfully executing on our long term strategy by evolving our portfolio of towards higher margin faster growth and less cyclical products.
Turning to slide 7 let's look are consolidated results for the second quarter.
Revenue increased 3% from the prior year, reflecting strengthening our construction products and engineers structural segments, partially offset by continued softness in the transportation product segment.
Adjusted EBITDA was approximately even compared to the record level in last year's second quarter benefiting embarked from the contribution from recent acquisitions in construction products unfavorable product mix in engineered structures.
Second quarter adjusted net income declined 18%, primarily due to the increasing non-cash expenses, specifically depreciation and amortization from recent acquisitions.
Please turn to slide 8 we're excited about the acquisition of southwest rock of leading pure play aggregates producing producer of serving the greater Metropolitan Phoenix market.
Aggregates business of Southwest's, Ralph scale and quality are scarce and we couldn't be more pleased that the experienced theme is joining are closer.
With 5 active sand and gravel locations in 1 hard broke or relocation southwest rock produce approximately 5 million tons of aggregates annually and is backed by an attractive reserve profile.
Fabulous rock the expanse of our footprint into 1 of the fastest growing construction markets in the us and strengthens our position as a leading aggregates of player.
The acquisition of should take our cautious production to over 35 million tons of aggregates of specialty materials blows between 3 and 4 million tons of recycled aggregates.
From a financial perspective, Southwest's rock generated trailing 12 months revenue of approximately 36 million and adjusted EBITDA of approximately $14 million as of May 31st 2021.
Even this high level of profitability southwest adjusted EBITDA margins are accretive to our construction probe segment onto our culture overall.
Importantly, the acquisition was sourced from stone points pipeline of bills, highlighting the advantages of our increase scale and the follow on benefits. This acquisition strategy can provide.
Turning to slide 9.
We're particularly enthusiastic about the significant growth opportunities of southwest broke out store construction materials platform.
Had mentioned earlier the Phoenix Metropolitan market is 1 of the fastest growing construction markets in the nation underpinned by robust large scale of investment needs to support population growth.
In fact, Arizona has rung number 1 infrastructure spending on highway contracts over the past 5 years underscoring the compelling growth opportunity for of course as we enter this market at scale.
Since becoming an independent public company almost 3 years ago, we have invested approximately $1.3 billion in strategic construction materials acquisitions that reposition our concept or higher growth and higher margin infrastructure of opportunities.
Having announced 2 sides of of acquisition stone point on southwest rock already this year, we intend to focus our efforts over the next few quarters of integration organic growth opportunities and simplifying our closest overall portfolio.
I will now turn over the call to Gail to the scores are segment performance and then I will return to update you on our outlook for our business.
Thank you Antonio I'll start on Slide 10, and review our segment results from the second quarter.
Construction products revenue for the 38 per cent and adjusted EBITDA increased 17% by by the contribution to the store.
<unk> acquisition that closed in early April.
Figment EBITDA margin with 22.1 per cent down from 26% a year ago.
Several factors driving the margin decline as Antonio excessive rainfall in Texas, our largest extent of here and along the Gulf Coast reduced segment, adjusted EBITDA by approximately $3 million to $4 million in the quarter.
Construction activity returned to healthy levels in June once the weather improved we had strong shipment level of on day is not impacted by wet weather, but overall volume to a lower than expected date of rainfall.
Higher diesel costs also impacted margins for the quarter.
Lastly, the inclusion of standpoint with also dilutive to margin as we know include their revenues on of growth basis inclusive of pass through frame in line with our legacy of businesses.
The experienced pricing gains across most market supported by strengthening product demand an attractive fundamental midyear price increases have also been announced which should provide further support heading into the next year.
Or 2 businesses that were most impacted by Covid lightweight aggregate and trench shoring product generates strong results during the quarter with EBITDA above year ago levels and demand tracking at a pre pandemic of pain.
The integration of standpoint is advancing well and our synergy realisation is progressing as planned despite adverse weather in the second quarter standpoint is on track to meet our adjusted EBITDA expectations for 2021.
The integration into our legacy, Texas, and Louisiana footprint is well underway and nearly complete from an operational standpoint of.
Focus area of going forward his systems integration as we move to consolidate our entire construction materials platform onto 1 common ERP.
Turning to engineered structures on flight of 11.
Revenue increased 9% and adjusted EBITDA increased 25% to $38 million.
We were helped during the quarter of by a $7.7 million resolution of of customer dispute from 2019, and our wind towers business.
The associated towers were removed from our backlog in 2020, and we were pleased to reach of settlement agreement.
We are currently building towers for this customer and we maintain of good commercial relationship.
Without the benefit our adjusted EBITDA margin would of been 12.9% in line with our overall expectations for the segment.
We experienced higher sequential EBITDA and margin in our utility structures business from improved net are successful efforts to mitigate high steel prices and further progress on our Mexico plant reopening.
Utilities structure orders were healthy leading to a book to bell above 1 during the quarter.
We also saw favorable order trends in traffic structured and we continue to see positive demand drivers for telecom structures, the order volume toward lower in the quarter.
The wind Tara business performed largely in line with our expectations as Antonio will discuss order.
Order of activity was muted as our customers delayed purchase decisions, taking more clarity on near term fundamental.
The combined backlog for utility wind and related structures with 348, and a half million dollars at the end of the quarter about flat with a year ago levels are.
Storage tank product line in the U S and Mexico continue to perform well with higher margins of year over year as we benefited from strong residential and commercial demand for propane tanks.
Moving to transportation products on slide 12, both revenue and adjusted EBITDA were significantly lower year over year, reflecting the cyclical downturns in both of our barge and rail component businesses.
Revenue was down 47% and adjusted EBITDA decreased 73% as margins compressed do the lower utilization in both businesses.
The Guild prices continued to advance in the second quarter suppressing new order volumes in our barge business.
We received orders of $55 million representing of book to Bill of 1 <unk>, 1 time on a low level of revenue.
Pricing of new orders reflect weak market conditions with orders, helping to provide a base level of of production in 2022 to remain flexible and provide time for of recovery.
Our backlog was $139.4 million at the end of the quarter with approximately $47 million scheduled for delivery in 2022.
We are optimistic regarding a market recovery and are still components business in our recent result exhibit signs of chopping the railcar Oems had a second consecutive quarter of a book to Bell above 1 and third party expectations continue to point of higher North American railcar deliveries next year.
As we wait for a much anticipated recovery, we have been successfully diversifying into new markets, attracting new customers in controlling costs to maintain positive EBITDA.
Wrapping up on slide 13, I'll conclude with a few comments on our balance sheet liquidity in free cash flow.
As we discussed previously we issued $400 million of low coupon longterm that in April to fund the stone point acquisition.
To find yesterday's closing of southwest rock, we used cash on hand, and $100 million of borrowing under a revolving credit facility.
Following the acquisition, our net debt to adjusted EBITDA standard roughly 2.4 times within our long term target of 2 the 2.5 times, even as our transportation product EBITDA is cyclically depressed.
As I noted acquisition integration is the key focus area and we will likely take of pot and additional acquisitions near term as we focus on completing those efforts.
We continue to see attractive opportunities to deploy capital organically and we are maintaining our capex guidance of of $110 million to $120 million, which should cover of any anticipated needs from southwest drop.
Post acquisition, we of more than $300 million of available liquidity and no near term debt maturities as.
As we maintain our cash focus culture, we improved our working capital management by $41 million relative to the first quarter. This helped us return to of positive free cash flow position generating $29 million in the quarter.
I will now turn the call back over to Antonio for more discussion on our business outlook.
Thank you Gail.
Please turn to slide 15.
As Gail these calls are cause of the delivered shortly due to results led by growth in our construction products on the engineer's structured businesses. Despite the impact of normal of normally wet weather, nor largest market and convenience softness in our transportation broke segment.
The outlook for construction probes remains positive driven by strong demand for aggregates in our key markets and takes us as well as Tennessee on solid recovery of our specialty materials on the show showing products.
And then of a week was we continue to see is Pennsylvania, where we have some exposure to natural gas infrastructure spending.
Overall, we expect a strong second half 4 of construction broke segment, reflecting continued force positive market for momentum favorable pricing and positive contribution for more O'neill recent recent acquisitions.
And are engineered structure of segment, we expect to see year over year growth in the second half of the year in most of our businesses.
And utility structures, we're seeing strong demand of our customers direct capital spending towards the electric grief hardening of reliability projects.
Department of transportation spending in Florida, and throughout the southeast remains favourable leading to healthy or the growth embracing customer demand for profit structures, while telecom customers continue to build a build out 5 G networks.
Forage Stunk business, we are experiencing strong pricing power, giving steady the man, primarily reflecting continue the housing market growth and the trend towards the eurobond usage.
Windpower business.
We have seen the recent policy of new orders in light of growing uncertainty surrounding potential expansion of the U S provincial tax credit for new wind farm developments high fuel prices of late June expansion of the BTC for wind farms currently under construction. How have also contributed to the delay in customer of decisions of.
As a result, our own salt production of slots for the fourth quarter of expected to remain on the field.
Even more positive view of of the market beyond this anticipated short term slow them, we're working to extend some of some backlog into 2022 to allow time for the market to rebound.
Our main priorities during the spirit will be 2 prudently manage our costs, while at the same time reserve or manufacturing flexibility in order to serve our customers when the mind the month pigs back up.
The long term fundamentals for wind energy remain positive on the <unk>.
Leading manufacturing presence the.
The North American presence positions of as well for the future.
The transportation products segment market conditions remain challenging in their barge business impacted by the COVID-19 related downturn high fuel prices of have reduced or the activity for both drive in liquid tank barges.
In addition to the idling of our Lucien of plant in the third quarter.
Which were previously announced we are extending our bar to related backlog into 2022 to maintain manufacturing continuity.
Of the same time, given the slowdown in the market, we foresee of significant pent up demand.
Therefore, maintaining our manufacturing flexibility during the spirit will be critical to be able to serve the markers of the acidic.
As it recovers.
4 of still components business, serving North American railcar industry. We believe that 2021 is likely to Mike Mark the provost of the cycle. We are encouraged by the signs of improvement we have seen in this business of new railcar orders of outpaced shipments in the second quarter and we expect further growth in the second half of the year and then the risk of 2000.
<unk> 22.
As we look longer term there has been positive movement on the national infrastructure, the debate and the potential for increased stimulus.
We are encouraged by the recent positive traction in the Senate to advance of new infrastructure framework. We're also cautiously optimistic concerning the reauthorization of of the first act of.
Higher spending levels.
Please turn to slide 16.
Turning now to our financial guidance for the year are consolidated adjusted of beat the guidance of 272.290 million for 2021 is unchanged, which keeps us in base to meet or exceed last year's record performance led by strengthening construction products and engineered structures.
We'll know more granular level, our new forecast includes the results of selfless rock from the date of the acquisition. It also includes a reduction in our full year adjusted the beat the outlook in the transportation products segment to approximately $25 million down from $35 million to $40 million, we previously expected.
In summary, I am pleased with the progress, we're making and executing our long term vision of of.
The Investor day in 2018, we communicated of the focus of our culture would be the growing construction broke segment and enhance our engineers structure of business.
We have executed on those strategies of our financial strength and review cyclicality show the results.
Through acquisitions of organic growth, we have the significantly scale of our construction products of business strengthening our market position broadening our capabilities and the enhancing our growth potential while reducing overall cyclicality.
Fabulous rock the some exciting addition to our aggregates business expanding our footprint into 1 of the fastest growing metropolitan regions in the country.
Also the outlook for the engineer's stroke her business remains favorable of our cost of it retains a leading position supplying essential infrastructure to the renewable energy utility Telecom and road construction markets.
In short we continue to advance on a long term plan to growing attractive markets with sustainable competitive advantages, while reducing the cyclicality of our business and improving our returns of the same time, we continue to work on the <unk> efforts.
He is becoming part of our culture and as we evolve and learn we should be able to accelerate our base.
As always the health of the safety of our employees continues to be the most important mastic of of what we do every day.
With the increase go with the cases, we have recently seen in some of the regions, where we operate we will continue to monitor the situation of follow the C. D C guidelines in our operations.
The brighter I would like to open the Gulf of questions.
At this time, if you would like to ask a question. Please pass the star and 1 on your Touchtone phone you may remove yourself from the queue at any time bypassing the pound key we do ask that you only ask 1 question and 1 follow up question. Once again that is star and 1 to ask the question.
Pause for a moment.
Q.
And we'll take our first question from and.
From.
Your line is open. Please go ahead.
Okay great.
Thank you very much.
Just kind of wanted to ask you about.
You know the the barge business.
On the steel side is there of magic number you'll needs to fall to the you think is going to.
Improve the order flow is it a matter of just see directionally that it's going down does it need the ball below a threshold.
How do you kind of think about that.
Yep.
Thank you Ian let me, let me try to give you some more color of amount around this issue. So as you saw in the quarter even at this level of we sauce.
We sold barges, we had a a nice barge.
The order a few large large orders of.
The the probably the selling of these prices of the margins are low.
So I think that the it's not about the magic number.
Every forecast of <unk> most of the 4 of because of that I've seen show price for still slowing down sometime late this year early next year.
And what happens then is we have there's 2 pieces here 1 is we have to make sure.
That the.
I don't think prices will go down to $500 of we were seeing last year, because the economy was shut down.
But at the same day metal think the price is should stay of $1700.
There is a bunch of capacity coming on line in 2022.
Both of them the call on the plate side.
The.
That will lead us to believe that there's going to be a price reduction at some point in time.
So I think 2.2 things to happen first customers need to understand the we're not seeing $500 again in the in the near term.
On second the.
The condition of there's 2 different markets here, the dry carvel barred market them the liquid cargo mark.
And they are of different stages in there in the cycles on the dry cargo side everything looks very positive for significant orders to to come back. There has been very low replacement of barges over the last 4 of 5 years. There is a lot of scrapping going on with highest scrub prices.
At this moment there is a lot of scrapping of bargains happening.
So everything seems to be pointing to a very robust gone back of that book.
On the liquid side.
And the break Carlos didn't see a lot of the impact from coal with the Greens continue to shape I'm everything's happened well on the liquid side, it's a little different story the face 2 different.
Williams 1 is.
Reduction in the oil demand and oil derivatives.
At the same time still price is high so I think as you have seen oil has continued to come back we're still not of the levels were we were in 2019, but it's starting to come back.
And then a steel prices are still high so I think that's going to take a little longer. So we expect the first day recovery of the dry Carbos item then on the liquid site the.
Good news is that we have a pretty strong backlog of that will carry of through this time. This is not a I don't think this is I think that will take the.
Here's to solve itself.
We know how to navigate this down cycles, we know how to manage our costs and I think we're in a really good position as we've moved our portfolio to work construction of gross to withstand this slowdown and then when it goes back it's going to come back very strong that sort of expectation.
Okay, Great and then you know the the second question would be and maybe it's just like a little bit of of 2 part question, but.
I wanted to ask you about guidance cause you know on unchanged here in the evening a line, but then you're adding in stone point, so kind of help US understand you know maybe your outlook dragged <unk> is similar to what you were originally thinking of.
It seems that way, but also maybe you can unpack your comments about the fact that extension or maybe wrapped it around you know and eat the short your bill discussion as well and have that would help the construction of politics business. Thanks.
Yes. Good morning in this is Gail and let me take the first part of that maybe I'll turn it back over the Antonio for the fastback implications of.
The guidance topic as the as you pointed out we did maintain our guidance range of 270, the 299 of EBITDA essentially looking at it in total there were some goes in it goes out the balanced out within the range. We're pleased to see the full year EBITDA still tracking on pace of last year's.
Strong results and that's despite more than the 50 million dollar headwind year over year that we're having some transportation products.
Some of the minuses, clearly where the impact of steel continuing to press higher ahead of our expectation that's impacted our order of decision customer's orders decisions is Antonio Saddam barge in and winter of our customers. So leaving some production plot until then in the fourth quarter.
Adverse weather clearly impacted the construction.
We know whether it's always of a variable, but the rain. We had this past quarter was excessive the tier question and the outlook for construction remains very much intact.
We had a very strong June with when the weather is normal and dry we're very pleased with what we're seeing them to the plus we also had the wind tower settlement and then the earnings coming from southwest rock, but the net of all of these essentially I think as falling within the range and and we're very excited about keeping our guidance.
Maintained.
By the end of the the second feasible just to clarify also on the on the guidance is stillborn westphal way in our guidance in the previous quarter. What we added was saw was rock and you see the number of in the presentation that sort of a somewhere I think 45 million that we added to the to the.
The the guidance, but we sort of struck the the the.
March the barge be so.
As Gail said.
We are very pleased with our construction of segment, we had a very very very width April his book, especially may in the in Houston and Dallas.
And that slowed us down and we gave we gave a number of.
$4 million of.
The impact for the quarter.
When when the range subsided and it became of more normal weather of butter, we so incredible the man come back and we have a very very strong June with very strong margins, we saw pricing power to push it through our costs. So we were very pleased with the the rebound in June.
And we see very strong backlog, some very strong demand in most of the regions, where we operate so.
The fact that it has to be extended and we expect it to be extended hopefully the higher level, but what we're seeing both with the fast start the end with the with the.
The infrastructure of packets of been disclosed I think those are really good things, but we are seeing very strong demand.
At the moment with or without them. So.
I'm very encouraged by what we're seeing in the market and we're very happy with the performance of our construction broke segment, especially also of metal duck.
The other 2 pieces of the segment, which we're showing on specialty materials have recovered very well, we saw very nice pricing them very knows volumes for the quarter.
Okay perfect. Thank you very much.
We'll take our next question from Brad.
From the Davidson. Your line is open. Please go ahead.
Hi, good morning.
Antonio and it looks like you've been able to manage to this the steel environment pretty well in the energy structures business.
Can we continue to expect this level of margin conformance against the next day customer dispute.
You know maybe the the second half and and I guess going forward I guess when the mask is there any catch up and.
Steel prices are some of the supply chain constraints that they might impact of the segment got bored.
Yes.
It's sort of really good question I think we've been doing very well with it.
I think in the previous call I described the are 3.3 types of businesses we have.
Let me try to describe them again, each 1 has their own their own special circumstances. So we have I would tell you the the 1 that we've been.
Spending most of our time, it's our engineered structures are transmission business, where we have contracts with customers now allow us to pass through.
The the costs the additional cost of steel, but they allow us to do it normally in a with some of the late so there is some revisions of happen depending on the contract monthly quarterly et cetera.
So what you are seeing we are already we have those impacts already in our in our margins to wait so we've been absorbing part of that increase.
The through the delay so as we.
Price of still has continued to go up but more of a much smaller number. So I think now we're a relatively stable place in steel prices. So I think the margin she'll start normalizing and we should start seeing a.
Probably some positive momentum in our utility structure of business.
The second part is the.
The the.
The second piece of the of the pros of we produce is the ones that we make built towards their nose. So those are of tanks and on the.
The tank side.
As I mentioned, the my prepared remarks, we're seeing very very strong pricing power.
A lot of the month of banks, we are of the low normally during the summer there's not a lot of the month for banks and we're seeing incredible demand. Our backblocks are very strong and pricing is very very strong. So we're very very happy with what we're seeing in our tons of business.
The third pieces, when some barges, which are contracted prices. So we'd normally sell the the towers or the or the or the barges and we have a contract of still attached to it and those there's there's of Passover and I'm not concerned about those margin related to to the to the contracts. So I will tell you if anything we have.
Positive momentum on the utility of structure of banks the other ones I'm not concerned about I don't see any supply issues in terms of volume, but remember that we have said in our in our remarks of that we will we are pushing some of the windpower embarge volume to 2022. So you will see some reduce of all of.
<unk> in the in the second half of the year to try to maintain our flexibility.
And what you will see the impact of that margin because of that not because we're seeing we can look balance of our cost of simply because the volume is going to come down a little bit there.
Okay. I appreciate that can I get the second question would be on the acquisition you just completed southwest.
It looks like it produced is exceptionally of high margin with relative to the.
To your core construction product segment.
The thing in particular of they're doing or just a really strong environment in Phoenix right now any color that would be helpful.
Sure the milk.
Give you currently a bigger picture, we've mentioned need our calls before in the meetings with the analysts.
The next stage 4 of growth.
But we developed probably a year and a half ago first stage was growing takes us.
Jason sees and then we worked on the strategic plan to the.
A metropolitan areas would be our next stages for growth and that's why we came up with stone point in the.
Arizona Western wear in that list of the.
Bulletin areas, we were very interested in when we evaluate the metropolitan areas. We go through a rigorous analysis of why we like them and there is many things, including population growth and infrastructure spending, but also what's the competitive environment in that region.
And those sort of the things that make the metropolitan areas have better or worse a market conditions.
I think of Resona in Phoenix specific in that region has all of those things looking very positive and we allow.
Like the Mark with like the population growth, we liked the infrastructure spending we liked the competitive environment better and all of those things are shown in the in the margin and that's why when we look at our long term strategy say went to growing in in the attractive markets with competitive advantages I think that's how.
They get reflected in the margin. So the we like Phoenix has great conditions and the margin is hi, 1 of the things I would.
Tell you is that as of.
Public company when we come in we normally add some costs because of it.
Simply of reporting on things, we will probably drive that margin of little down based on some of it in a few additional controls over the that operation, but it's not major.
But it's something we normally.
We normally see but it very very attractive very good acquisition, great great market.
Okay. Thank you.
He kind of next question from me.
On the line.
Oh.
Yes, hi, good morning Antonio Gale.
Good morning.
Just wanted to follow up on on the last question for the front there on the the trailing 12 month margin for southwest of all of it it looks really strong in it I don't know if you can speak to the you know I wanted to dig a little more on the kind of margins you expect southwest to contribute to our kosta.
The ramp to get the 3.9 percentage.
In Europe sides of 39% of it and just to kind of help us understand.
No.
What are normalized margins in the southwest kind of when it's once it's under the of course umbrella.
Hulu, where this antonio.
As as you know, we just closed on the yesterday was a it.
It was a process that we started a few months ago as I said in my remarks.
This acquisition game, what's in the pipeline coming from stone points. So we bought stone point in April and we're in the in August closing this 1.
So.
The margins have been relatively steady for them for the last several quarters. So it's not it's not something that it's a unique circumstances they performed very well.
Over the last.
Several several quarters.
They have different that they have southern gravel and they also have hard rock.
But what I would I would like to.
Offer to you that we're going to take the operation of and understand it will understand what additional costs, we're going to have to add to simply for control for our control environment and maybe come.
Come back to you with some additional of color on the margins, we do not expect of significant reduction, but I will say that and.
And we've seen that in Dallas at some point in time, when there's high demand we can get to the 39.40 per cent, but in the long term I think the margin should be more in line with our with our peers. So they should be probably in the mid thirty's in that region.
I think the 39 would be the the the higher the higher end of the of the range of that I would <unk> for that for the operation.
<unk>.
Great. Thank you for the color of their and I guess my My second question is just.
On barge can.
Can you maybe give a little more granularity on the evolution of customer of thinking about capital of the appointment for barges I'm just.
Yeah, I would think there was a reasonable application to maybe steel.
Might even go up from here, so I just wanted to kind of.
Asked about how customers are thinking of some customers capitulating or some still holding out and has that mix of customers accepting the new normal of steel vs holding out.
Evolved at all in the last 6.9 months.
Yes, that's a good question so.
As you can imagine.
Still prices.
On the acceptance of steel price really has to do with our customers business model.
Let me give.
Give you a couple of of examples from the utility structures of our customers are able to pass of that additional still cost through the <unk> to the customers.
In the case of barges, it's of different scenario of theirs relatively stablish bartsch rates for the river system.
The when you plug those barge rates in the river system that allows you to calculate how much you can pay for of art.
So.
And those sort of things that don't move overnight. So I think if the still price are staying of this level of over the medium of long term, which I don't believe they are going to stay at this level of but they're going to be higher than than they were in the past.
There needs to be some adjustment to the to the tariffs and the river system for the to be able to invest and that that that should should happen. It just takes longer time and that's the the mental mental aspect that they're going through what how much can I pay for of barges based on the of rates in the river at the moment.
That's the 1 the other 1 is the demand side, how many barges are idle and how many bodies are being used on.
On the dry cargo side I would tell you. It's the the river is busy.
There is a lot of movement of course right now it's not the the the main crop see some book, but it's going to the BC soon and everything points out to be a very strong Margaret coming from the green side of the coal believe it or not the call of the gold market has been busy with Metro price is going up there is a low cold movement happening I don't expect the cold bar.
The market to be at any point growing but it's not of I wouldn't say to noise anymore. If you think about it if you take up the barge it the the cold barges from the equation of you. If you were really negative on them.
The replacement cycle for the barges is several times, what we've seen over the last few years. So there has been several years of very very low dry cargo barge as being billed compared to what what the market of needs to be so we are very encouraged him. That's what the the the customers are telling US. There is there is a need for barges there so I need to.
Place those barges, we just need to make the numbers work for them.
On the liquid side.
I would say this the same the same mentality is there is there is the rates in the river, but they'll shows of the demand side of the mindless coming back slowly I would say the petrochemical is coming of back very strong, but the the oil side is a little slower.
So that's along the answer to your question, but I think the mentality is there is a need for the barges we need to make the economics work and they're trying to figure out what the what the numbers looked like.
Thank you I like low answer so I appreciate that and thanks for taking the questions and congrats again of the acquisition.
Thank you.
Oh I'll take our next question from.
From C J S. Your line.
Please go ahead.
The morning of congrats on the corner.
Thank you.
Could you on the.
Aggregates can you give us some more color on pricing and volume and then 1 organic growth is built in your guidance.
Good morning, and such as this is Gail yeah sure I'll take that 1 and on the volume side and clearly we had the weather impact. So when we're there was dry our volume was tracking ahead of us.
I think as I mentioned earlier, we saw strong aggregates volume growth in June.
And unit profitability. So encouraged with the attracted fundamental encouraged with our ability to drive price in most markets. We had price increases early in the air and we implemented additional midyear pricing increases. So good good momentum on the pricing side I'd say very much in line with with with the market and and our peers on that.
Front.
So whether being the biggest impact on natural and recycled aggregates really kind of moving away from aggregates for a bad our specialty materials.
And to ensuring.
They are more nationwide businesses of not is impacted by the localized weather effects in Texas and on the coast that we had so we we saw strong lightweight volume.
And with demand as I mentioned at at pre pandemic pay so very encouraged with what we're seeing their ability to drive price there as well and same on our on our to ensuring side. So.
So all in a quarter of perspective coming back to aggregate ex. The addition of stone points of clearly we had good growth in volume with the quarter with with bringing standpoint into the portfolio, we did see volume growth.
I'd attribute that some to some bolt ons that we completed late in the year last year, but we did see a small amount of organic growth. Despite the weather.
Definitely the simple.
The 1 more thing that we did not touch on the on the remarks, but the the.
The only thing that we saw in the quarter was there was a.
1 of the bottlenecks in the industry specifically in Texas was there was Samantha locations. After the the storms in February there was a.
Shutdown of a couple of cement plants of created a significant problem of the cement industry hearing takes us in the royal locations.
We consume cement in our specialty materials in the Cherry business, but also a lot of our customers, which are the are ready mix companies the by cement where allocations so that created the bottleneck for the quarter.
The allocation has gone away, there's the importance coming into the port of Houston and others.
There is no 1 location of any more so I think we should be a much more conducive environment in the second half of the year to be able to grow organically in Texas.
That's a great color. Thank you.
And then just on the southwest acquisition.
Is the strategy going forward to to build more in Phoenix or do you think the strategy is more focused on finding other metropolitan areas, how should of investors think about that.
Yes, that's a great question as I've said in my prepared remarks, I think we we've done a lot of acquisitions.
We've used our balance sheet to a point, where we feel very comfortable where we are as Gail said in the air prepared remarks were measuring the 2.4 times after the acquisition net debt.
Beat the but at the at a very low point in our cyclical businesses the barge in the rail components et cetera.
So we are very comfortable where we are but at the same time.
Focus over the next few quarters is going to be free.
Finishing the integration of this acquisitions, we have a lot of things to do there extracting all of the value from them, making sure we fund them well, we understand their needs and their organic needs also the all of them come with the very strong management teams, but also with a lot of ideas of how to grow organically.
When we put all of those ideas together, we have the good news is we have a lot of projects that we can choose to continue to allocate capital. So over the next few quarters I think you should see us I look at the capital to finish in the integration.
Organic growth, we have some very nice organic projects that are getting.
Getting to be finished and then the <unk>.
Day, you should see each 1 of our platform of Phoenix.
The C. Pennsylvania takes US is there is going to be some of bolt on surround them normally we have been able to find those bottles of relatively attractive prices easy to integrate in the irl's to grow faster.
And you will see them do that before we jump into another.
To another a metropolitan area no those are larger.
And we need to generate cash to be able to the though again. So the short term is more on the Bolton organic growth and integration.
That's great. Thank you and congrats again.
Thank you.
And our next question comes from Justin.
Cavalli fun.
Uh-huh.
The morning Antonio of the morning Gail.
Good morning.
A few questions on the southwest some quick ones first was at an auction.
Second.
What would you say is it's competitive advantage and third given sort of the low revenue per.
Fun sort of what's the backdrop. There you know what is it mode of transportation costs and what are the capex needs.
Yes.
Let me take a step so.
The the there was not of process.
As I said, when we bought standpoint, they have developed a relationship with the majority shareholder.
And they were already in talks.
We were able to to let's say.
The continue building that trust with the owner and with the management team and and we I think.
I think we reeks of and a good.
The agreement with the with the shareholders. So it was not of process and that's what we like we normally we prefer acquisitions, where there is not of process involved.
At the end of control, we were very happy with that please.
The.
The company has the competitive advantage I would say like every other.
Every over the other aggregates businesses the location of where the reserves are it's always the the biggest thing and they have really good locations they've been in depth market forever.
Both the owner and the operator.
The management team are very experienced in the region very experienced in the area.
We're inheriting a very capable of management team that knows the area very well and it comes down to location in the that's the competitive advantage of also they have incredibly a well kept and will run operations.
When you go there I cabello scene of look.
These are as good as it gets no. They they had an incredible the clean.
A well maintained well.
Well capitalized business, we do not see significant.
The need for any capex like always what you should <unk> do in Phoenix out of it like in all of the areas are folks is going to be as we grow this business of continuing to file reserves.
Look for the additional growth in the in the region, but overall no no.
No no no big needs for Capex.
Yeah, just and I would say the scale I would say on the Capex front their historical run right, it's been about $3 million to $4 million, a year and they're from Ah and equipment and property plant perspective.
In Fabulous shape, they've been investing in the company keeping up on maintenance. So we really don't see anything near term other than the normal annual needs from of Capex perspective.
Great. Thank you and.
1 other question if I may.
I know you discuss sort of input cost pressures in regards to steal earlier, but at the same to say that you know considering the puts and takes to your maintained and 270.290 million EBITDA guidance. The increased cost pressure is not.
1 of the.
<unk> or larger headwind in the current guidance and when it was sort of of.
David are maintained a quarter ago or has cost pressure become more of a headwind in your.
<unk> guide.
No I think you're right.
I think we've been able to manage the cost of pressure well and I think we've found.
We are let's say, we've found the way to do it and do it well in our team is doing a fantastic job passing those true.
The the thing.
The biggest headwind for us is volume in barges in with the dollars those are the 2 headwinds for the second quarter.
We believe the temporary and they are going to come back in the good news is we built an incredible platform of construction segment is the size of our of course in terms of the beat the when we spoke to him of half years ago. So we build a very strong base on when the cyclical business has come back we've mentioned the rail components.
I'm in Baton, we're going to start seeing that in the second half little by little So I think.
I'm very comfortable where we are happy with the what we see for the future and the.
Happy with the way we were passing through the the price increases.
Once we solve this.
Still steal issue of keeping our customers volumes I think we're going to be in the arena nice truck.
Thank you the best of luck in the second half.
<unk>.
And it appears that we have no free net questions. At this time I will now share in the program back of Ritchie Gail.
The remarks.
Thank you Gretchen and thank you everyone for joining US today, we look forward to speaking with you again next quarter.
That does conclude today.
Thank you for your participation you may disconnect at any time.
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Mhm.
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