Q3 2022 Arcosa Inc Earnings Call

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Good morning, ladies and gentlemen, and welcome to the Arcos <unk>, Inc. Third quarter 2022 earnings conference call. My name is Catherine and I will be your conference call coordinator today. As a reminder, today's call is being recorded now I would like to turn the call over to your host Erin Dray back director of Investor Relations for Arco.

So that's straight back you may begin.

Good morning, everyone and thank you for joining our closest third quarter 2022 earnings call with me today are Antonio Carrillo, President and CEO and Gail Peck CFO of <unk>.

Did that answer session will follow their prepared remark.

Copy of yesterday's press release and the slide presentation for this morning's call are posted on our Investor Relations website, IR dot our Coca dotcom.

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 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 GAAP reconciliations of non-GAAP financial measures to the closest GAAP measure are included in the appendix of the slide presentation.

In addition, today's conference call contains forward looking statements as defined by the private Securities Litigation Reform Act of 1995 forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from such forward looking statement. Please.

Please refer to the company's SEC filings for more information on these risks and uncertainties, including the press release, we filed yesterday and our Form 10-Q expected to be filed later today.

I'd now like to turn the call over to Antonio.

Thank you Erin.

Everyone and thank you for joining today's call.

Starting on slide four I'll begin with our third quarter highlights.

Our coastal delivered strong results led by excellent performance in engineered structures. That's helped drive an 11% increase in consolidated adjusted EBITDA.

Favorable demand and pricing actions along with our continued efforts to improve operational efficiency and effectively managed costs in response to inflationary pressures contributed to strong earnings growth and improved cash flow.

Engineered structural ones. It was a standout segment this quarter.

Generating double digit revenue and segment adjusted EBITDA growth that led to 360 basis points of margin expansion, primarily coming from improved pricing in our utility structures and storage tank business.

Results in construction products reflected continued healthy construction activity and strong pricing gains to address inflationary pressures, although overall volumes in the quarter were impacted by a number of constraints that contributed to essentially flat segment adjusted EBITDA year over year.

We're pleased to maintain segment margins consistent with the second quarter.

Our transportation segment performed in line with our expectations at beta was down as well as growth in steel components was offset by lower profitability embarked.

Cash flow generation and strengthening our balance sheet flexibility continue to be top priority and we have made significant progress this year.

Free cash flow conversion was 120% in the third quarter, a significant improvement from last year.

We ended the quarter slightly below well below our long term leverage target then we further strengthening our balance sheet.

Really the position in October with the completion of the storage tanks divestiture.

Based on our strong year to date financial performance I'm thinking the divestiture into account, we're updating our 2022 financial guidance, we now anticipate 15% adjusted EBITDA growth in the midpoint of our guidance range.

Turning to slide eight we have continued to advance our strategic transformation through focused M&A organic growth initiatives and the optimization of our assets I am pleased with the progress we have made over the past few years to better position our portfolio for long term growth.

With a simplified and more focused portfolio, serving higher growth markets. Many of our businesses are well positioned to benefit from the multiyear tailwind provided by the nearly one four trillion and expected spending from recently enacted federal legislation.

Please turn to slide nine.

The divestiture of the storage tank business for 275 million represented a significant milestone in our evolution toward a more simplified portfolio.

The transaction also underscores our proven ability to improve non strategic business and monetize at a favorable point in time, realizing significant value for stakeholders.

The divesture expanded our balance sheet flexibility, enabling us to utilize a portion of the same.

It's to repay our revolver, while we focus on redeploying the capital into opportunistic bolt on acquisitions and organic growth initiatives.

As we look forward, we remain focused on building a more aggregate centric portfolio that maximizes our existing strengths and capabilities, while generating higher returns through the economic cycle and I will turn the call over to Gail to review third quarter financial performance in more detail Gail.

Thank you Antonio.

I'll begin on slide 11, with our coaches consolidated results third quarter revenues increased 8% driven by solid organic growth adjusted EBITDA improved 11% outpacing the increase in revenues and driving 30 basis points of margin expansion.

Slight inflationary pressures and ongoing challenges within our wind towers and barge businesses.

Turning to construction products on slide 12.

Segment revenues increased 7%, reflecting strong pricing gains, partially offset by lower natural aggregates volumes.

Inflationary pressures led to higher diesel processed fuel and cement prices in the quarter, increasing segment cost of sales by approximately $9 million.

Suction activity that impacted natural aggregates volumes.

In the third quarter, adjusted organic volumes and natural aggregates, we're down mid to high single digits.

As a result, we know anticipate full year 2022 volumes to be flat.

Slightly down below our expectations at the beginning of the year.

Total volumes and recycled aggregates benefited from the acquisition of Branco, the integration of which is progressing very well.

Within specialty materials, we continue to see favorable minute and multifamily residential construction benefiting our plaster business, where average selling prices and volumes were up significantly during the quarter. Our customers project backlogs are strong and the capacity expansion underway at our Oklahoma plaster facility.

[noise] is going low volley.

Volumes and lightweight aggregates whereabout flat year over year end up sequentially from the second quarter.

Finally, our trench shoring business reported a 9% increase in revenues on higher volume.

Border inquiry levels were healthy during the quarter and customers Capex expectations for 20 twenty-three remain supportive.

Moving to engineered structures on slide 13 strong outperformance during the quarter was driven by utility structures and storage tanks, which more than offset the headwinds from wind towers.

Utilities structure has benefited from continued solid market demand and strategic pricing measures, leading to significant growth and adjusted EBITDA.

[noise] down sequentially from the second quarter third quarter margins were up year over year driving the majority of the segment improvement.

Results for the storage tank business, we're also up substantially due to strong pricing as well as the completion of certain projects moving into the third quarter as we prepared for the divestiture to close on October 3rd had we continued to own the business for the entire year, our expectations for full year adjusted EBITDA would be approximately 50.

The $5 million consistent with the upper end of the range we provided previously.

And wind towers, we continued to execute well on a low level of volume.

At the end of the quarter, the combined backlog for utility wind and related structures was approximately $370 million down from the start of the year as growth and utilities structured was offset by a lapse in wind tower orders due to P. T C uncertainty.

Turning to transportation products on slide 14 improved year over year performance and still component was upset as expected by continued challenges and barge as a result, adjusted segment EBITDA declined by $1 million, leading to lower year over year margin.

Revenues and are still components business increased 37% driven by higher volumes as conditions in the North American realm car market improved.

Unusually low water levels on the Mississippi River system. Unfortunately had no impact on financial results for our barge business.

During the quarter and we have maintained relatively normal relatively normal operations, thus far in the fourth quarter.

We continue to monitor the potential for future shipment delays or production inefficiencies if water levels become too low to launch newly built barges.

[noise] Ah barge backlog stood at $129 million at the end of the quarter about flat with year ago levels. As we continued to replace shipments with new orders to sustain our manufacturing flexibility, while we await a broader cyclical recovery.

I'll conclude on slide 15, with some comments on our cash flow and balance sheet position.

During the quarter, we generated $38 million or free cash flow, a five fold increase year over year, driven by strong earnings and better working capital management, despite higher growth oriented capex.

Working capital consumed about $4 million of cash flow during the quarter 31 million dollar improvement from last year as lower receivables were offset by higher inventory balances.

For the fourth quarter, we anticipate working capital to be a source of cash as we remain focused on full year working capital positively contributing to cash flow and 2022.

Capital expenditures were $33 million or 70 per cent increase compared to last year as we made solid progress on the growth projects underway and construction project products and engineered structures for.

For 2022, we see full year capex of $125 million to $135 million, which includes gross capex of $50 million to $55 million.

Summing it up we ended the quarter with net debt to adjusted EBITDA 1.8 times.

In October we received pre tax proceeds of $264 million from the divestiture and used $155 million to pay down our revolving credit facility pro forma for the proceeds net leverage is about one times, providing a kosta considerable balance sheet strength.

And now I'll turn it back to Antonio.

Thank you Gail please turn bootlegs 70.

I was guilty schools are closest has performed well both in the third.

When are you big basis.

If it could be from the Menthols.

Infrastructure, driven businesses, particularly close broke from broke and you believed strokes.

Managing the cyclicality merwin borrowed some real component businesses.

I am pleased with our solid financial perform a Z or would you rather than to know significantly improve improve earnings and <unk> as well as in the strength of our balance sheet.

At the same time with I got bounced our strategic objectives, expanding our do roughly food recycled.

It looks like lottery gives me the ramp up position, while reducing the cyclicality I'm simplifying our blood before you remove time.

Do they both drove the store would start a business.

During my Brooklyn, Gnomic environment, we go through.

Stay in a hurry looks inflationary pressures when still remaining Bryce competitive no mortgage.

Meanwhile, we have experienced an improvement.

Really be using some of the labor related so strange we've raised earlier in the year.

We're encouraged by the positive fundamentals nor infrastructure businesses.

You have to remain mindful of the potential impacts arising from if I didn't economic uncertainty I'm higher interest rates.

In the near term, we expect the deceleration in single family residential construction and some of our markets too convenient however.

However, a favorable pricing dynamics you continue to compensate for the volume.

A medium term view on single family residential remains bullshit, given the shortage of housing supply and abruptly population growth brinci nerve markets.

Spending outlets loudly from the infrastructure rebuild become more widespread we expect to <unk> volume from residential projects.

[noise] forest brochure oriented ones over the next few quarters.

At the same time, we remain focused on value over volume prioritizing our discipline pricing strategy.

We convenient to see strong demand for electric utility in telecommunications powers.

By you bleed the graphics were read hardening initiatives or bridge to the existing electric infrastructure under five G wireless buildup.

We have strong backlog disability for both your ability and <unk> supporting a favorable loud look for these businesses.

Some projects continued to be delayed by supply chain and labor issues, our customers are facing the.

The impact of higher interest rates and the Normalisation of supply chain bottlenecks should help reviews that problem I'm accelerate the month for your ability structures.

I will note that the recent encourage any Florida demonstrates the need for a resilient electric greed, and we will dissipate utilities will continue to invest in projects to upgrade their infrastructure to better wisdom the bus from future natural disasters.

Moving July 18th.

Continuing with the trends we saw in the second quarter, we have seen encouraging signs in our barge business. According to a list challenging environment as we move into 2023.

While all of those remain low in the third order the level of inquiries increased which supports our view that there is significant pent up demand for drive barges.

<unk> provide screwed visibility into 2023 would you will allow us to stay disciplined in our pricing strategy as the mummy returns.

Ah ran components business benefit from increased deliveries he knows the north American <unk>.

Which will do to recover from the low levels levels seen last year, we anticipate royalty marciel components business in the fourth quarter I'm into 2023.

And with the passage of the inflation reduction map, which included a long term extension of the production back screwed that expired at the end of 2021. He says significant <unk>, although the benefits floor business will not be immediate.

The lumps in the P. P C and the associated impact on our customers on the wind industry supply chain has created a new term low in projects as.

As a result of our customers are still working on defining their needs for 2023.

You know our conversations with them, we see increased optimism around demand for wind accelerating as soon as projects materialize.

So we see our customers planning for a loan cycle of sustain demand for windfall.

At the moment our goal is to keep our two plans operating during 2023 and unlimited capacity to maintain our ability to increase production quickly.

<unk>, they very fast ramp up could be required in the second half of 23 or early 2024.

Please turn to slide 19.

The meat both of our revised guidance range, we now focus they beat the expulsion of 15% and 2022 down from our previous guidance as we have removed the predicted fourth quarter contribution from the storage tanks divestiture.

Ah rose business, our own tried to deliver a more than 20 per cent, increasing they beat that coming from.

Challenging challenges in our cyclical businesses.

In closing I am please.

With our closest performance this year umbrella of our dedicated team who continued liberals stunning results for stakeholders. Despite the many obstacles. We have months, we have achieved significant progress bouncing our strategic objectives, expanding our world opportunity to focus on my knee simplifying our portfolio and strengthening our primary.

<unk> position.

Ah circles evolves and simplifies the increased focus on our strategic businesses will help maximize our growth potential sounds long term shareholder value.

Would like to open the Gulf request.

To ask a question. Please press star one on your Touchtone phone again that is star and one if you would like to ask a question you confirm my of yourself from the queue at anytime by pressing the pound key we'll take our first question today from Julio Romero, which the Dodian company. Your line is open.

Hi, good morning Antonio.

Okay.

Just started on the engineered structures business. If you could just talk about you know some of the big driver or some too humid it looked like they continued into the third quarter, albeit not at the same rate and just talk about maybe.

The the outlook for the fourth quarter on those same drivers.

Sure I can only think everything you see around that utility structures business.

Is favorable not only.

It's not only favorable Hulu I would say any for cause you see in the.

The industry trends point to an industry, that's good but it's getting better all the time, though.

You look at forecasting all the all the market studies and you know every every six months or so that the the per cent Newport <unk> famous we get stronger and stronger in terms of the forecast for the next several years is not a one year deal. So.

I think a company where will prepare that we're not operating at full capacity would have capacity to ramp up.

You know as we as our volume grows the plans become more efficient and we are we can do better planning locate the better projects to the plans where they're supposed to be made so very excited about what's going on there.

And the.

The the <unk>.

I will tell you the I mentioned that in my remarks, one of the things that the <unk> is holding <unk>. Some of the projects are getting you know filled up with labor constraints. There has been some shortage of all those <unk>.

<unk> for the industry.

There are holding back some projects so.

Those things get sorted out by seeing the industry setup for acceleration. So so excited about what's going on there.

Excellent and I guess to follow up just to clarify the.

I as I understood it to the second quarter utility structures business benefited somewhat from the availability of from better availability of labor So is that.

How does the availability of flavor and utility structures changed at all.

Yes.

We have we have seen better available it is not perfect, but we're not getting lines with people wanting to work, but we can get the people we need.

I'm, referring more to our customers.

What we are seeing in in discussions where customers is some bottlenecks in their availability for building the projects in the middle of the Rural Rural America No. It's the crews et cetera, that's what's holding it back a little bit.

Understood I appreciate you clarifying all back into Q, thanks very much.

We'll go next to <unk> Oppenheimer. Your line is open.

Okay, Great I just wanted to key in on on wind towers, a little bit you know could you maybe just go go over.

I've rented D D I R a but.

<unk> wanted to see what your take was almost in the I R. A and you know what does that necessarily mean for you I know there's significant tax credits do you think you'll be able to keep the tax credit to me.

Are they gonna go back as far as negotiations with customer how do we think about that in general it maybe even the magnitude. Thanks.

Yeah, No. That's a that's a very good question, let me first start by saying, we're still figuring it out there's there's the rules are still not very clear.

There was there was a there.

There is a period before sending comments that were waiting to four that'd be the tool to to happen and then getting back some clarification. So.

<unk>.

As far as I'll tell you my my point of view as of today with the information that we have today.

First of all I think this this the the I R. A is an incredible got the capitalists for of course because it.

It provides a very long period for for the <unk> for Windows that is the most important pieces the length of the of the of the I R. A because.

Every time, we've seen a longer and longer.

Great <unk>.

Starts rubbing off but it takes a while for the industry to ramp up so the longer the.

<unk> the extension needs the better because it allows our customers in the industry to do planning to do.

The projects, which take a long time.

With better a better plan. So that's the one on the <unk> on the Bedspreads, you'll several things are important one is there is a concept of you have to be able to building in America and.

Again, there's still some clarification that needs to happen but.

The largest windpower manufacturers here in the country and we're very well set up right now we have two plans operating but as you know we shut down one in 2021.

So we have the ability to ramp up capacity relatively easy.

On the <unk>.

This is the first time that one of these.

The Bill contains a tax rate for for the manufacturers. Historically this has been a tax break for the developer.

Now that that spreads includes this.

This this bill includes tax rates for the developer for the turbine manufacturer the blade manufacturer on the dollar amount of et cetera.

They are very significant that spreads.

Eh ebay materialize I mean, they they become real after all the clarification was happened they can be very substantial for the <unk>.

My perception is that we'll be able to if they if they happen like they are right now will be able to keep a substantial part of them there might be some negotiations, but we will be able to keep a substantial portion of those.

And depending on our closest tax situation is the way, we will be able to use it at the time, but it's it's a very significant I tapped the list for our culture.

As I mentioned, let me just be clear about this takes time so the industry.

Developing a project takes 12 Blakey months and that's why I mentioned in my comments I want to keep the plant open we have enough.

Let's say.

We have visibility right now to be able to keep our plants open a low volume for 2023.

And and because I think once once we clear of the process of or uncertainty.

We were going to need to ramp up capacity very fast when is that I cannot tell if it's in the second half of 23 early 24, but I I'm very excited about what's going on in that industry.

Okay. Thank you.

And then also glad glad to hear that indications of interest on the barge side is improving I mean, it looks like maybe can you comment on your steal input costs, you mean, I'm able to follow a lot of the pricing the services, but it seems like steel price.

These are pretty close to where they were <unk>.

Oh insurance <unk>, a steel are pretty close to pre COVID-19 is that the level need to stimulate you know that you're pre COVID-19 demand.

How do we think about where input costs are visa the what your your demand and an order book might look like X.

Yeah. It's so is still prices, there's really two markets for carbon steel flat.

<unk>, there's more than two but the two that we follow our.

<unk> <unk>.

They are different markets historically, what we what we used to build a bar Dizzy split.

The capacity in the U S is much smaller foot played them for coil and historically, there's a difference of about $150.

Between the plate price on the call your price played being more expensive by $150.

Right now the coil prices for the last six months have been dropping very fast and they are relatively close to brikho with levels with <unk>.

As I mentioned, we don't use calls for building barges, we used mainly played.

Played largest state stubbornly high during this period until about maybe a month or a month and a half they started falling ah relatively good pace.

There's capacity coming on line in the fourth quarter.

On the the decision of the meals is falling so breakfast my expectation is that they will continue to fall a relatively fast pace over the next few months.

And in the next few months, we should be able to get to a place where for prices are are becoming a become a.

An appeal for our customers to start ordering.

What's exciting about the industry again is.

Wireless are very strong.

We we have a significant capacity to ramp up and our experiences at once once it or they're start coming and everyone jumps in because they want to secure their capacities locked so.

That's what I mentioned in my remarks that I. The good news is we have good backlog that piece of disability and allows us to make the right pricing decisions, we are not going to be giving away over capacity.

And that's going to be our focus trying to sell over there since the beginning with good margins.

Okay. Thank you very much.

We'll take our next question from catch choice with two capital your line is open.

Oh, hi, Thanks for taking my question I'm, just wondering if you could buy them a little bit more is to wardrobe a sequential improvement.

Function product margins.

[noise] progressed wizard additional pricing actions receipt cause pressure started trying to I'm just wondering if you could back in a little bit more.

Okay. Thank you that'd be.

Honest with you I think we had a we had a very slow start July was was not a good month.

Lots of things and I don't want to go into all the details they'll mention a few constraints and rain and other things.

But we had a mini things that we did not perform well in July .

Internally externally, we have some other factors like rain and all the things. So I think we had a very slow start the team <unk> fantastic job in almost too big.

The rhythm back up and then in September without cut off phenomenon month. So.

So I think you know the quarter I think reflects a little bit of the external factors, but we had a really slow start then let's say it was not are those those are our best hour July So I think part of part of it is it our pricing started kicking in with the pricing increases part of it was that we perform better.

And the during the quarter will increase by the several times in several of our businesses. So I think the pricing momentum for the fourth quarter is very strong.

Great Thanks for that.

I know we're not.

2023, just wondering if you can maybe just ketchup, how you're starting to think about.

Instruction products for next year.

Plus you would be on both on the ball you know the emergence so I'd give you anticipate.

Group infrastructure to offset residential weakness and Conversely would be interested to big margins to expand just do too.

Based on the momentum that you have from your domain quarter performance.

Mmm.

We're not we're not ready to give guidance for 23 that I think I'm still early we're still going through our budget process. So we don't have numbers for 2023.

But I'll tell you my my perspective is that the residential will continue to slowly mentioned needing the comets.

I'm optimistic that we're going to be able to locate it.

Partially or all the volume to infrastructure projects as the infrastructural bill starts kicking in.

A R.

I believe it is businesses of all of the construction segment that is the one that has the most housing exposure. The rest of the business are more infrastructure oriented. So I think that's the infrastructure Bill.

It becomes more of a reality in terms of projects I think we have a lot of opportunity to to grow it with all those projects. So it's going to take some time I think over the next few quarters will know more how how fast we can really ploy Ah the volume stores infrastructure and as I mentioned in housing I think is going to be as Lola.

We're very optimistic about the medium and long term housing project.

Understood. Thanks for the help.

We'll go next to prep Thielemann with da Davidson Your line is open.

Alright, Thank you good morning.

And Antonio it looks like the core engineered destruction structures business next door, just done EBITDA margins around 14% year to date, which is up from.

11 per cent last year and notable given the challenges and wind, but could you just talked about your ability to maintain.

Maintain a low teens EBITDA margin.

You know in the quarters ahead for what's now the core business in that segment.

Yes, so so one thing to keep in mind that our storage tank business had performed extremely well during the year and that that that was pushing our margins up in the whole segment.

Significantly.

For the fourth quarter, you know as we slowed down wind to stay open let's say for next year I think of the wind industry. The wind dollars going to weigh more on the margins from the business in the very short term.

Until we started getting let's say more volume through the wind power business.

Goal would be to try to offset as much as possible with already building structures on traffic in telecom. That's horrible that's what we want to do to be able to keep our.

Target margin for this segment.

Even with wind.

Place, but but I think the wind is going to be a heavyweight for the next few quarters as we as we as we get through this very slow times preparing for what's going to be very strong time <unk>.

Very strong pain with so.

Our goal is to try to stay as close as possible tour guidance in terms of margins.

Let's see if we can stay close to it but it's going to be a heavyweight the winter hours.

Breakfast is can I, just add to just a little bit more color on queue for I mean, we we would probably see wind and we've we've given for your guidance for wind EBITA $12 million to $13 million for 2022, we'd see Q for closer to break even for win so that's gonna have some impact on to foreign markets, but yeah to a point the year to date X.

Storage at 14 per cent were really proud of it strengthened margin, but you're you're you're likely going to see a little step down in queue for with with the wind <unk>.

Compression thank you for.

Okay. Thank you and then the second question just seems.

Seems like you sort of become that.

T J Mcguire choice, then recycled aggregate now delivered the balance sheet in a position to.

Look at a lot more opportunities here maybe.

Just talk about the breadth of the pipeline and recycled are there other opportunities out there at scale like you like you've already done or does that lets shrinking and or are you more focused on natural aggregates now.

That's a really good question you know the way I see aggregates and we see it in the company I think recycling natural or a complement to each other.

As you know this this this is G culture now on the recycling it has to be part of the way, we think about the future. So.

Our goal is to play blow for our customers a combination of natural and recycle lottery, where it makes sense, There's places where it makes sense, there's places where it doesn't make sense.

Ah, but ah so.

We have a pipeline of acquisitions, we are working we just hired a new them in the first one so we're excited about about where we are and over there we've been working for the last three years on on the metropolitan areas, we like to try to develop a pipeline of opportunities.

<unk> said before but you know in my knee doesn't happen when you wanted exactly task.

A life of its own, but we're going to be pushing hard over the next few quarters to redeploy the capital.

Into projects that makes sense.

Neatest, one more aggregate centers and whether they need me to aggregate centric is more aggregate recycled aggregates and as a company at the same time, we have an incredible the organic growth opportunities. We went through a strategic planning and we have a lot of ideas I've.

I've mentioned before I think the company's guilty when you have more ideas ideas ammonia in where in that spot still so I think between organic and inorganic growth over the next several quarters were going to be really pulling the capital it might take a little while but the good news is when you have a lot of projects in the pipeline you can choose the best ones and the ones that you want and you don't have to do that.

One that is in front of you. So so that's where we are.

Okay very good thank you.

Okay now to Stefan has crashed with C. J S Securities and your line is open.

Hey, good morning, Thanks for taking my questions.

And and aggregates outside of weather are you seeing any differences in demand across your geography.

Yes, it's definitely yes. Good morning, yes, we are seeing a different demands profiles across the country.

You think where they're away.

Probably where we saw the sharpest decline was in Arizona.

Yeah.

That's where it was seen more.

Let's say volumes come down faster.

The rest were more.

Even completed the thrill of the regions were more even in terms of volumes.

Pricing on the other hand has been consistent across the the the.

Contrary with being able to raise prices and and have very strong price momentum across across the country, but Ah, yes, we're seeing different different demands profiles I would say here in the Texas region.

Around Dallas.

<unk> biggest bottlenecks is more production done then the volumes we have we have we're running at full capacity here in the a W.

Of course housing slowing down, but we were still running at full capacity. So the west is probably where we saw the most.

If you were to.

If you're out of luck just at start in the Phoenix area, I mean that that contraction in in the Phoenix area for US was more single family residential related otherwise you know public and.

Away from single family in demand drivers continue to me you know remain very very healthy and that looks very part, but we did we did feel that in in the Phoenix area during the quarter.

Got it. Thank you and then just following up on on M&A.

Do you have more focus or intention on a bigger acquisition or maybe smaller bolt ons.

Well.

Now that the balance sheet is in good shape.

We're willing to explore larger acquisitions it's.

Is it only matters if there's not many there's not a lot.

But if something comes up we'll we'll take a look at it no.

We've also mentioned that when you look at the bigger reputation, especially in the aggregate side.

They're not pure agony cause they come with a lot of other stuff and we want to remain I would simply so we're going to be very careful not to not to buy something that takes us away from that if it comes with a little bit of something else will take it but if it's a lot of something else is not something we want to do we want to stay on the.

On the upstream of that value chain.

Perfect. Thank you so much.

We'll go next to new on Mercury, Scott with Stevens to your line is open.

Good morning, and thanks for taking my question.

Good morning.

First can you remind us of the end market mix between residential nonresidential an infrastructure for the construction products business and.

You know I understand that you know residential is facing some headwinds today, probably continue to see weakness there at least partially offset by infrastructure, but maybe could you also touch on you know what you're seeing on the nonresidential side and how you're thinking about that for next year.

Good morning, this is Gail.

You know when we look at our makes me look at it you know, it's you know over a period because there can be ebbs and flows so when we look at the segment.

We'd say you know about half as infrastructure for the construction product segment and then the other split is really more of last twenty-five rez twenty-five non rats and when you look into the individual businesses that make up the segment, though I would say natural aggregates is a little bit more residential single family residential you know if you.

[noise] about our our lightweight aggregate yeah, no residential exposure there are showing business no residential exposure. There you know our specialty we have some multifamily, but you know our single family exposure is is more than our natural and to an extent in a recycled aggregates business. So.

That's why you saw on our commentary about volumes, we saw it on the natural aggregate probably what we saw some deterioration. So hopefully that that's helpful. I I guess I'd also say when we think about that the.

Acquisitions, we've made and we're in and you know.

Very good addition to our portfolio I would say the southwest rock acquisition that came with the new Phoenix geography, which we remain very very positive on the outlook did probably have a closer to maybe 40 per cent ish type residential exposure and and in that one particular geography.

On your second question, what we're seeing you know we we we we met with our team late last weekend and we're asking about how they are seeing the redeployment of the volumes into into infrastructure and they're very focused on that.

And they will say the four regions are very optimistic about what they're seeing in terms of actual projects being.

B then let out so I I think that what we're seeing is we're starting to see more and more of the reality of the infrastructure I've become become too. So a again it might not be this quarter, but it's going to is going to be little by little we're going to see that kicking and it should be good for our aggregate sing in terms of volumes being.

Subsidy to the to the market and it's going to be great for the other businesses within the segment.

Got it that'll make sense and it's helpful.

Follow up you know sticking with aggregate shortages.

Negatively impacting volumes.

Is that a widespread issue or is it limited to certain geographies and you know, it's not getting any better.

Continue to be tight in your market.

It was mainly in the Houston area that takes us that takes us, but mainly Houston.

We have a product vehicles stable eisen, that's where we make sand with cement then.

It's a very nice business for us and throughout the month of July and August we weren't my location, we couldn't get.

Couldn't get Smith.

And but not the amounts we wanted at least.

A but it's not only on us if you think about our customers are ready mix companies know they they buy cement so the whole industry, what's on their location in in in Houston and around that area. So a lot of the projects simply got delayed because they couldn't get the cement in September these things.

Became a non issue again, there's enough cement that you can you can count on some into right now so it was a temporary thing.

Got it. Thank you thanks for taking my questions I'll leave it there.

At this time I would like to turn the program back to Aaron Dream extra closing remarks.

Thank you everyone for joining us today and I look forward to speaking with you again next corner.

This does conclude today's program. Thank you for your participation you may disconnect at anytime.

Okay.

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