Q4 2022 Arcosa Inc Earnings Call
Yeah.
Good morning, ladies and gentlemen, and welcome to the Arcos that incorporated fourth quarter and full year 2022 earnings conference call.
My name is Todd 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 <unk> director of Investor Relations for our co CEO . Mr. <unk> you may begin.
Good morning, everyone and thank you for joining Arco's fourth quarter and full year 2022 earnings call.
With me today are Antonio Carrillo, President and CEO and Gail Peck CFO , a question and answer session will follow their prepared remark.
A copy of yesterday's press release and the slide presentation for this morning's call are posted on our Investor Relations website, IR got arcos that 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 their 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 result to differ materially from such forward looking statements.
Please refer to the company's SEC filings for more information on these risks and uncertainties, including the press release, we filed yesterday and our Form 10-K, we expect to file later today.
I would now like to turn the call over to Antonio.
Good morning, and thank you for joining us to discuss our fourth quarter and full year 2022 results and our outlook for 2023.
We'll start with a few key messages, our costar achieved solid solid financial performance in the fourth quarter and for all of 2022.
Generating strong growth in both revenue and adjusted EBITDA.
I am proud of their cost of team for successfully navigating a challenging operating environment and delivering financial performance consistent with our guidance.
Despite facing persistent inflationary pressures and headwinds are cyclical businesses, we effectively compensated for them, while expanding our growth businesses.
Both organically and through acquisition.
We also achieved significant significant strategic progress in 2022.
Through the divestiture of our storage tank business, we took another step to we're optimizing our asset portfolio and reducing the complexity of our business.
With the proceeds from this transaction, we strengthened our balance sheet and enhance our financial flexibility and realized significant value for shareholders.
For 2022, our Casa grew revenue and adjusted EBITDA in each of our business segments underscoring our ability to execute consistently despite challenging market conditions.
Within our rolls business and construction products have engineered structures adjusted EBITDA improved by a combined 20%, reflecting reflecting brassy about pricing actions to offset inflationary pressures.
At the same time, our cyclical businesses performed better than we had anticipated largely due to our focus on managing costs and generating operational efficiencies not demand constrained environment.
Slide nine summarizes the considerable progress we have achieved in advancing our strategic transformation.
Our ratios, which have included focused M&A, we're running organic growth initiatives and asset optimization hunters and copper enhanced our resiliency and increased our participation in higher growth markets.
Our result, our Casa today is a stronger more focused company that is better positioned to capitalize the multiple long term growth opportunities in front of US. In addition, federal infrastructure spending is expected to provide a multiyear tailwind to many of our businesses.
Turning to slide 11 to review our fourth quarter results.
Excluding storage tanks fourth quarter consolidated adjusted EBITDA increased 13% from prior year period.
Racing revenue growth and driving a 50 50 basis point improvement in margins.
The improvement in adjusted EBITDA reflect growth in each of our business segments led by a more than doubling of transportation probably beat them.
Strong organic pricing gains helped compensate for lower volumes in construction Roes, while engineered structures benefit from elevated steel pricing, even as overall segment volumes declined.
Looking at full year results on slide 12, our course I generated revenue of $2 24 billion, an increase of 14% which met the operator.
Adjusted EBITDA was $345 million up 19% year over year normalizing for the sale of storage stack and was right in line with the midpoint of our updated guidance range I will now turn over the call to Gail to discuss our segment performance and then I will return to update you on our 2023 outlook.
Thank you Antonio.
<unk> product revenues increased 5% did.
Due to accelerated pricing in the quarter, which offset organic declines as well as prediction of Aramco, the southern California recycled aggregates producer we acquired in the second quarter of 2022.
Revenue growth was split roughly evenly between the organic drivers and the contribution from Aramco.
What and extreme cold weather across our footprint along with the continued deceleration in single family residential construction activity, where the main headwind to segment volume during the quarter approximately 45% of segment revenues, our Texas stores, and we experienced a 75% increase year.
For year, and bad weather days and the state during the quarter.
We believe supply chain constraints, while abating also had an impact on segment volumes during the quarter.
Disciplined pricing strategies were successful in mitigating ongoing inflationary pressures.
In addition, our focus on operational efficiency and efficiency enabled a 50 basis point reduction in segment SG&A as a percent of revenue.
As a result, we reported a 6% increase in segment adjusted EBITDA slightly.
Slightly ahead of revenue growth with a 20 basis point increase in margin.
Higher diesel process feels in cement prices increased segment cost of sales by approximately $8 million or 5% during the quarter.
The full year effect of these cost headwinds was approximately $31 million, reducing segment margins by over 300 basis points in 2022.
Turning to natural aggregates, we experienced broad pricing strength across our markets with average organic pricing up more than 20% in the fourth quarter slightly ahead of volume declines with a disciplined pricing strategy, we achieve strong unit profitability gains in the fourth quarter and higher year over year natural.
Aggregates margins.
For the full year, we had organic pricing growth in the mid teens.
She has favorably for 2023 on a full year basis total volumes increased about 10% with organic volumes down high single digits.
And recycled aggregates.
Total volumes in the quarter benefited from the acquisition of <unk>.
Largely attributed to unfavorable weather in Texas organic volumes in our legacy Dallas and Houston operations declined low double digits.
Fourth quarter pricing gains were healthy.
Within specialty materials, we continued to see favorable momentum in multifamily residential construction benefiting our plaster business, where average selling prices and volumes were up solidly during the quarter, our customers project backlogs remain healthy and the capacity expansion underway at our plaster plant in Oklahoma.
Scheduled for completion early in the second quarter.
Fourth quarter volumes and lightweight aggregates were down slightly but pricing strength compensated for the decline overall, we saw single digit top line growth in specialty materials and flat margins year over year in the fourth quarter. Finally, our trench shoring business reported an 11% increase in revenues on higher volumes in the fourth quarter order inquiry.
<unk> levels were healthy and our customers capex expectations remain supportive for growth in 2023.
Moving to engineered structures Slide 14 shows segment results on an as reported basis and excluding the effect of storage tanks that was sold on the first business day of the quarter.
In connection with the sale, we recognized a pre tax gain of $189 million, which has been excluded from adjusted <unk> adjusted segment EBITDA.
Revenues for our utility wind and related structures businesses increased 18% largely due to elevated steel prices, partially offset by lower volumes adjusted EBITDA for these businesses increased 2%, even as margins declined which was primarily due to a change in product mix and production inefficiencies in our utility.
<unk> business, we have since risen to these inefficiencies enabling segment margins to return to more normalized levels in January .
During the quarter, our wind towers business performed better than our breakeven expectations generating positive EBITDA. We are encouraged to receive wind tower orders of $371 million, which extends our backlog with a base level of production into 2025.
We ended the year with combined backlog for utility wind in related structures of $671 million up 53% from the end of 2021.
Turning to transportation products on Slide 15 segment revenues were down 4% as increased volume and steel components was offset by lower barge revenues on a positive note adjusted segment EBITDA increased and margins expanded to 11, 4% representing the segments highest quarterly margin in two years.
Both are.
Components businesses contributed to the margin improvement by managing costs and generating operating efficiencies our barge business benefited from improved pricing, despite lower volumes exceeding our expectations for the quarter.
We received barge orders of $134 million during the quarter, all for 2023 delivery, which substantially fills our planned production capacity for the year. These orders were primarily for hopper barges.
We ended the year with barge backlog of $225 million up substantially from $93 million at the end of 2021.
Okay I'll conclude on slide 17, with some comments on our cash flow and balance sheet position.
We ended the year with net debt to adjusted EBITDA of one two times down from one eight times at the end of the third quarter during.
During the fourth quarter, we used $155 million of the storage tank proceeds to repay the outstanding borrowings under our revolving credit facility.
We started 2023, when with an exceptionally strong balance sheet with available liquidity of $635 million and no material debt maturities.
In 2022, working capital consumed about $65 million of cash flow, a $15 million increase year over year working capital came in below our initial expectations at the start of the year, primarily due to inflationary impacts.
Capital expenditures in 2022 were $138 million in line with the high end of our annual guidance as we made solid progress on the growth projects underway in construction products and engineered structures for 2023, we see full year capex of $140 million to $160 million, including 40.
<unk> to $50 million for growth Capex projects.
And yesterday's release, we highlighted the $22 million land sale gain that is included in our 2023 guidance range and will be recognized in the first quarter. Although we do not anticipate a sale of this magnitude to repeat in the near term land sales are a normal part of our construction materials operations.
We're pleased to be able to monetize a depleted asset when the timing was right and reinvest the proceeds to help offset gross capex.
Summing it up we generated $36 million of free cash flow in 2022 down from last year, primarily due to the $53 million increase in capex largely related to projects that will enhance our long term growth opportunity.
As a reminder, in December we authorized our $50 million share repurchase program for another two years.
Our balance sheet and liquidity strengths are valuable assets and provide considerable financial flexibility for our kosta. During this heightened level of macro uncertainty I will now turn the call back over to Antonio for more discussion on our 2023 outlook.
Thank you Gail.
Turning to slide 19.
As we look forward, we anticipate 2023 will be an important transition year. Despite.
Despite macro uncertainty, we expect consistent expansion in our rolls business and gradually improving fundamentals in our cyclical businesses.
Normalizing for the sale of storage tanks, we predict 2023 revenue at the midpoint of our guidance to be $2 2 billion up 7% compared to 2022 or 2023, adjusted EBITDA forecast at the midpoint of our guidance at $325 million up 17% compared to 2022, excluding the <unk>.
The impact from the land sale gain noted we forecast, 9% adjusted EBITDA growth at the midpoint of our range.
Turning to slide 20 to review the outlook for growth businesses. We believe construction growth will benefit from continued favorable pricing and healthy highway construction activity aided by infrastructure spending at both the federal and state levels I would note that the DLT letting activity is now well above the five year average and many of our key markets.
And Keith.
Reflecting healthy state budgets and federal funding for infrastructure and job site.
We also expect to benefit from continued solid demand in multifamily as well as appearing.
Nonresidential construction, which together with the continued demand from the surface transportation sector has the potential to offset weakness in single family residential volumes in.
In 2023.
Dissipate favorable pricing to continue particularly in the first half of the year as we benefit from the sharp acceleration in prices in 2022.
But we are not providing volume guidance for 2023, we expect to compensate for any volume softness with higher unit pricing and profitability as we demonstrated in the fourth quarter.
We'll continue to focus on driving margins higher in 2023.
We expect utility structures, we will have another strong year at electric utilities continue to invest in upgrading and hardening the electrical grid.
Our positive outlook is supported by a high level of backlog visibility in both our utility and profit structures business.
In addition, we anticipate federal infrastructure funding and increase energy capacity needs will boost demand for our products, especially given the growing shift towards electric vehicles and they need to connect renewable energy sources to the grid.
Based on customer predict timing, we anticipate utility structures revenue will be more heavily weighted towards the second half of 2023, our customers Capex expectations continue to rise however, lingering supply chain constraints may affect the timing of projects.
Turning to slide 21, we anticipate 2023 adjusted EBITDA in our cyclical businesses will be slightly ahead of 2022 as rail components on barge continued to move off their cyclical lows.
As demonstrated by orders received in the fourth quarter, the fundamental fundamentals of our barge and wind towers business continues to improve.
As a result, we expect to ramp up production capacity in 2023 in anticipation of higher growth in 2024.
In barge, we spurred significant customer demand for hopper barges in the fourth quarter by substituting lower cost hot rolled coil for plate steel.
This innovation deliver significant cost savings for our customers on roofs that with reasonable steel prices the demand for barges is strong.
The orders we received.
Are the largest quarterly barge orders in the past two years have allowed us to fill our production ramp up schedule for the year.
With this production ramp.
In 2023, we expect to end the year with higher production capacity to be able to capitalize on the demand. We expect in 2024 I am proud of our team's effort to drive innovation and enhance our manufacturing flexibility.
As additional capacity comes online this year third party forecasts predict steel prices will come down which should help compared highest level of current inquiries into additional barge orders for delivery in 2024 and beyond.
With the average age of the barge fleet at historically high levels, we believe moderation steel prices will help kick start the long overdue barge fleet replacement cycle.
More recently, we're also starting to see significant inquiries for smaller tank barges lower steel prices would also help turn those inquiries into orders.
As we have noted the exploration of the PTC at the end of 'twenty, one created labs in demand for wind towers.
With the passage of the inflation reduction back in August which includes a 10 year extension of the PTC demand for wind towers with speaking ore bodies as Brexit to stay strong for many years, we expect 2023 to be up in an important transition year as we build our backlog to drive earnings growth in 'twenty four and beyond.
The renewed strength in wind tower demand can be seen in the backlog, we booked in the fourth quarter and the additional orders booked in January the <unk>.
Backlog is scheduled to be delivered in the next three years with approximately 40% to be delivered in 2023.
The order profitability in 'twenty, three is low likely leading to breakeven year for wind for our wind tower business, we are preparing for a multi year recovery.
In addition to the BTC diarrhea rate also includes a new manufacturers tax credits, which we believe will have a significant positive impact on our wind tower business.
Our assumption is that all of the backlog we have built for 2023 and beyond will qualify for these tax credits, but we have not included the benefits in our guidance as we await further clarification from the IRS.
With strong demand for the foreseeable future and improved economics, we are working with our customers to accelerate our growth in the wind power industry. We expect these efforts will help create significant value for our shareholders.
Finally in our steel components business market forecasts indicate continued growth.
In North American railcar deliveries in 2023.
Although more.
More moderate base following the sharp recovery last year.
With railcar deliveries forecasted to increase 10% in 2023, we anticipate steel components will deliver another year of solid growth.
Given this positive forward looking indicators, we expect to continue to build our order backlogs in our cyclical businesses through 2023 setting the stage for accelerated growth in 2024.
Turning to slide 22, our Consol remains committed to corporate responsibility through the integration of ESG into our long term strategy and culture, our annual sustainability report, which we plan to publish in the next few months will highlight many accomplishments in 2020 due the built on our brokers from the prior year.
In closing 2020, due was a productive and successful year for our culture.
The divestiture of storage stands we monetize our non core asset to deliver significant value for shareholders, while advancing our strategic transformation.
Despite facing challenging market conditions in our cyclical businesses. They are of course, I think navigated these effectively generating efficiencies and delivering solid financial results.
Looking ahead.
We are entering an exciting period for our goals are.
Our growth businesses remain poised for continued solid performance supported by healthy market fundamentals and a tailwind from federal infrastructure spending.
At the same time, we believe our cyclical businesses are on the coastal centering in strong multiyear up cycle driven by growing market demand for both wind towers and barges.
With the strategic actions, we have taken over the past several years, our wholesale centering these exciting periods with a strong balance sheet to be able to support the opportunities ahead of us and I would like to open the call for questions.
Okay.
Thank you at this time, if you would like to ask a question. Please press. The Star then one on your Touchtone phone.
They remove yourself from the queue at any time by pressing star two.
Once again that is star one to ask a question.
We will take our first question from <unk> with Oppenheimer.
Hi, great. Thank you very much.
The court.
Question would be Antonio I know you mentioned that on the pricing side on aggregates.
You talked about the strength of pricing in the first half of the year that just the anniversarying.
Existing price increases and if thats. The case are there any more in store or how do we think about pricing in aggregates into 2023.
Thanks.
Okay.
Good morning, it's Gil I'll take that and let Antonio add if he has anything further.
When we think about pricing I mentioned in my script on the natural aggregates side pricing gains in the fourth quarter were more than 20%. So so clearly a lot of pricing momentum and as you look at how pricing has accelerated.
Accelerated through the year certainly the quarter benefited from the sequential momentum we did have select price increases in the quarter. So that certainly helped as well and I think it's important to note too we have had nice pricing synergies in the acquisitions that we've made so all in all of that.
Really captured a nice.
Come for us in the fourth quarter, and we would expect full year pricing for US was mid teen strength. So we think that sets up well for 2023.
We do have our annual.
Pricing letters in aggregates set and I think we'll continue to watch the market very closely but right now we're planning for our annual increases.
Have a little more color.
Because we believe in this uncertain environment with the volumes down in housing.
Whether we had there's a lot of uncertainty in the volume what I think is important for.
For our investors.
To understand the focus of the company. This year is going to be on margins.
And therefore, the pricing situation is going to be very important not only marriage I think throughout the company and we've added to our compensation philosophy. This year and our short term incentive to hold the business leaders margin into their compensation. So I think it's going to be and therefore, not only now aggregates were across the company.
Okay. Thank you and then just as a follow up.
Have you guys quantified what the.
The headwind was the weather impact was in Texas.
How bad was it any.
Color you could give there would be helpful.
We didn't put a number on it and.
It's a little bit difficult.
Measure and with weather. The good thing is you don't lose the volume, but we did not put a precise number on it I mentioned the step up certainly in Texas and in other areas of our footprint during the quarter.
The freezing temperatures certainly impacted our operations in the Midwest and then the excessive rains in California had an impact on our specialty materials business. If it was it was a meaningful impact I would say.
January .
You hate to talk about weather, we certainly had a to freezing and an ice here in the Dallas area and that had an impact, but I would say when the weather is dry and normal and seasonal our volumes have been as planned.
So but to put to put a dollar impact on it.
Welcome tore down slightly.
Slightly less than our price increases so we did see some significant volume declines in the quarter.
<unk> you have several problems first you shut down the plants and your cost structure starts to start seeding into your soy took pretty significant.
But we also had us Gail said in the fourth quarter in December <unk> across our operations. We had the dropdowns based on natural gas curtailments, we have several plans et cetera. So it was a pretty significant impact I would say in the fourth quarter.
Okay. Thank you very much.
Thank you. Our next question comes from Brent Thielman with D. A Davidson.
Hey, Thank you good morning, congrats on the quarter here as well.
Just a question just on the I guess, both wind in barge I mean the order.
Pick up here.
Notable.
And it seems like I guess in particular Antonio Theres, some real momentum in the industry building in the wind side I know the IRI does a lot to the industry.
I guess I would've thought more of an impact later this year, maybe 2024 in terms of kind of demand recovery.
Would you characterize the levels of interest out there I guess on the wind and barge side and do you feel like we're sort of in a sustained.
Under recovery right now or maybe customers just being opportunistic.
Let me they are different markets, let me take one each one.
Let's start with wind.
When do you see a business that's very sensitive due to tax credits.
We've seen we've seen it go from very strong demand to nothing.
Periods, where the tax rate goes away.
The IRA what what is the most important thing. It does is it provides long term visibility gives you 10 years of visibility, which is when people are investing in long term projects when they have visibility. So that's an incredible thing.
Having 10 years of visibility gives us.
Let's say a very good visibility into what the business should be doing for a long period of time, so the fundamentals for.
Long up cycle are there.
This time for the first time the irate included tax credits not only for the developer which used to be that the traditional tax credit. This time the turbine manufacturer the blade manufacturer on the tower manufacturer, who get something called the manufacturer stock split.
And that's a unique situation.
It improves the economics for wind, that's our perception today and that's everything we've analyzed telcos that however, we're still waiting for the IRS to come back with specific rules sometime later this year.
That's why I mentioned in my remarks that I didn't we did not included in the in the in our projections and our guidance any impact from these tax.
Tax credits, but we believe it's going to be very significant so when you add long term fundamentals of the business improving and the economics improving.
We went from a period.
In July we're our view for 2023 was basically we could see.
Think about shutting down their business there was no demand for 2023.
To a situation where there is significant.
Discussions with customers about how can we increase capacity how can we get more towers into the market.
Of course, what I said is 2023 is going to be probably a breakeven year, because we're going to be ramping up on the orders we sold half low profitability, but the goal is to end the year with stronger, let's say production capacity run rates to be able to capitalize on these over the next several years so very exciting.
The position to be in the wind.
Barge March a little different barge as I mentioned before the age of the especially the dry cargo fleet the hopper barges.
The historical high levels very few have been replaced over the last several years scrapping has has continued.
And we were able in the fourth quarter to redesign our barges with cheaper steel and immediately we were able to get customers to buy so the demand is there. The inquiries are there. We believe that demand is going to be very strong we need prices to stabilize right now theyre going to move back up again, a little bit.
Certainty in Ukraine, and the war always creates this issue, but there's significant capacity coming online in the U S. In the next couple of years that leads not only ours, but every forecast to believe that steel prices are coming down.
Steel prices come down we are setting up our barge business also for several years of good recovery, that's our expectation we'll see no.
Hope I answered your question.
Yes, I guess as a follow up I appreciate all that and maybe just back to to win I mean, it seems like a lot of the projects.
And you can see what the utilities are planning on doing are sort of slated for.
2024.
And beyond.
Should we and I know quarter to quarter Youre going to see some gyration in your backlog in orders, but as we sort of get towards that and considering all of that and what youre seeing out there as we get towards the end of the year do you anticipate that wind backlog to be even higher.
Yes, I think you should expect our wind backlog to be higher before the end of the year.
To be honest I was surprised how fast the industry started.
Let's say, giving us orders I always expect the projects to be to take longer for them to start turning into actual orders for us.
And it's accelerating fast so I do I do think that we don't have anything at the moment, but I do think that we you should expect us to have higher backlog.
We received more orders, let's put it that way.
Well this year.
Yes.
Okay. Thank you I'll pass it on.
Thank you. Our next question comes from Trey Grooms with Stephens.
Hey, good morning, everyone and.
Congrats on the nice quarter.
Thank you.
Antonio you pointed out that the <unk>.
Focus of the company this year will be on margin and you mentioned pricing clearly, but can you talk about some of the other levers that you can pull to improve margin and then as you look across the segments, where do you see the most opportunity on the margin front this year.
Sure.
Its margin is a combination of your pricing and your cost of snow and so of course pricing is going to be important.
Ideally.
Yeah.
We should be able to compensate for inflationary pressures that are continue to be present and at the same time.
Company, we've always been a company focused on costs as you have seen when we have very cyclical businesses and every time the cyclical businesses go down they go down in a very deep way and we've always been very focused on that you saw that we mentioned in our cyclical business has exceeded our expectation last year.
Basically the way they control their costs you saw construction segment, having a tough quarter with the weather and everything and focusing on their cost on the CMA also so I would say the airports are pricing cost at the plant level on the business level and even at the corporate level. This year for our corporate level. We've included.
UCLA is part of our compensation, so we're going to be focusing on.
Across the company.
So.
On the business I think the businesses that are ramping up that have come from very low cyclical.
Times rail components barge and a little bit of wind this year, it's going to be tougher because we're just getting started.
Those businesses are very sensitive to volume so as use as we ramp up.
Should see some improvement in our margins, we get operational leverage real fast and the return on capital is incredible and those businesses once they get going.
The construction segment.
It's tougher know the volatility is not as high so it's much more detail my mind My mind plan by plan focusing on pricing and costs on an individual level, but there is there's a lot of levers we can pull their steel.
And finally.
So some of the transmission structures utility structures over there our view has changed over the last few months, we expected a faster reduction in steel prices three months ago steel prices have stabilized right now so our goal right now is to try to keep our margins and increase our margins as steel prices.
It's come down.
Sulfur sulfur one because of steel prices come down your margins are pulled down a little bit so.
Overall, I feel very confident as a company we can do at each one of their business and has different levers and different ways of approaching it we have a lot of tools inside.
Alright, Thanks for that Antonio was Super helpful and then.
Sorry, if I missed it but.
What are you targeting for Capex this year and any color on the.
Free cash generation this year.
The gain of the sale and land.
Sure Yeah I did in my comments try give the capex.
Capex guidance for the year. So we're looking at a $140 million to $160 million in Capex.
Yeah, we will get some offset to that from the 20 million.
Give or take proceeds from the large land sale that we have in the first quarter in construction.
Let's call. It on 21 40 net of that.
We've got about $40 million to $50 million of growth Capex included in that.
Yeah, I'd say the most significant of that is the continuation of our concrete pool that we have going in Florida in our utility structures business.
It's why finishing out our greenfield in aggregate and.
Looking at ways to increase efficiency and site capacity adds within our utility structures business.
And as a reminder, Trey we finished 2002 at $138 million of Capex.
So looking at free cash flow for the year you have are.
Our EBITDA guidance, if I kind of just start at the midpoint there at $325 million.
Net off of 130 of Capex at the midpoint after the landfill throw an interest you're somewhere around $165 million.
135, maybe after tax and then I think the question Mark is really on working capital.
Working capital came in.
Below our expectations. So it was a use in 2022.
We're very focused on managing that inflationary impacts have had certainly had impacts in 2022 and.
We ended with are a little bit higher at the end of the year.
So I think we'll have a good cash flow year, I think working capital.
Neutral to a use is is where we're going to come out we were about 20% of revenue in 2022. So if we if we keep that clip when we wanted to do better that could be about a 40 million drain next year. So.
So you sum all that up free cash flow and $100 million range.
Let me just add something because I think it's important to understand at the stage, where we are.
So the good news we're also we have a.
A lot of organic projects going on.
Every time, we allocate capital we go through the exercise of where is the best use of our capital.
The returns on the organic growth are far greater than acquisitions at the moment.
And we have a lot of projects on the drawing board. So that's good news.
Second piece is as we think about the cyclical companies recover cyclical business recovering.
They consume working capital because we are buying inventory generating a R et cetera. So it should also be good news that we are growing the businesses they might consume some working capital, but it's basically good news.
All makes sense. Thanks for all the great detail I'll pass it on thank you.
Yeah.
Thank you. Our next question comes from Garik, <unk> with loop capital markets.
Great. Thanks for having us today and congrats on the quarter I'm. Just wondering if you could speak a little bit more on aggregates volumes different moving pieces. It sounds like youre expecting infrastructure non res to mostly offset.
New residential declines you also have some weather here sounds like first quarter, maybe if you could just flesh out how you can start.
So you can be sure to look would you expect volumes to be weighted just given the timing of it.
The structure, just any more clarity on the aggregates volumes would be helpful.
I'll take that one at scale.
Yes, clearly we had deceleration in single family and that continued in the fourth quarter you look at some of our.
Our key markets and you look at the housing starts and you've seen some momentum in the year over year declines in the back half relative to the first half of the year. So clearly that had an impact and we've.
We've seen an impact in <unk>.
I guess, maybe before I leave that point, we have had and it's important to note we've had success.
In the quarter transitioning our volumes from the single family into infrastructure and commercial non res. So you know good success going on there and we're seeing a pick up in the bidding for infrastructure projects, we shared a little bit of color on in our IR materials with the.
D O T lettings and the strength in our key markets.
As you look at the numbers compared to the five year averages so a lot of activity and positivity there. So.
And we're starting to see a pickup in the heavy non res side as well in certain of our key markets all of that points to the potential for these volumes to compensate for single family I would say as I think about that trajectory or the cadence for 2023, just given the fact that our volumes were up in Q1 and Q2 of this year.
We probably have more.
Hum.
Comp challenges in the first half of the year than we would in the second half of the year and that that tracks well with our expectations that we would see infrastructure volumes to continue to sequentially pick up this year.
Perfect that's helpful.
Okay.
Thank you for that I'm going to follow up on the capacity ramp to the cyclical side of the business matures.
<unk>.
Adding capacity.
The increase in backlog or are you anticipating the capacity to service from <unk>.
Kris.
Here in the Bakken.
Cogs as well and also just from a timing standpoint would you anticipate that you.
Our capacity ramp would be complete.
By the end of 'twenty three.
So it says.
Complex question, because so I'll give you the status of our plants and to start with when we have three plants at the moment one is shut down.
That plant is not.
It's not the it's not planned in this ramp up capacity. So we're only ramping up the plants that are operating.
So there's not a lot of capex. He says it relatively easy ramp up it's not something that we are going to have to put a lot of money and things like that.
So it's another ramp up like many of the ones we've made before now.
I mentioned that with the current orders we are full for that ramp up meaning we're going to be ramping up and there is a little more capacity, we could we could extract this year not a lot, but there is a little more than we could extract if we get the orders in time, but as time goes by that that window shrinks.
So, but what I think is important is as we ramp up.
We should end the year in those two plants relatively on a really good place to be able to continue to ramp up there is more capacity that we could ramp up for 'twenty four and five.
So it's a it's a it's a I would say a trend that we expect.
To start picking up and depending on the orders we received.
We see more orders before the end of the year that I expect to receive more we can accelerate the ramp of Duane the year at a higher production rate. So that's where we're going to be moderating our ramp up.
Barge a little different we also have three plants one is shut down.
Two plants also running up low capacity.
The orders we got right now are for running those plants are relatively low capacity still so we still have a lot of a lot of room to go up.
We received more orders and we're going to be dialing it up and down depending on the orders we received through the year. So.
I would say that.
Positive news is that both on barge and wind these.
These orders provide a floor lets say a consistent production.
And for the company that allows us to then modulate a ramp up as we as we see fit depending on the backlog we generate through the year.
Okay. That's helpful. Thanks for that and our customers.
Thank you. Our next question comes from Julio Romero with Sidoti and company.
Hey, good morning Antonio Gail.
Good morning.
So I wanted to ask about the barge business and you guys substituting hot rolled coil for plate steel.
I guess.
Why why Hasnt narcos or other industry players kind of done that in the past what are the pros and cons of the substitution to the end customer.
And does the margin profile of profit profile change for our <unk>.
By doing that.
Okay. They can get a whole new sites.
Really good question.
We have never done it before first of all this is for pulp per barge is still and we've only done it for hopper barge.
A.
And Theres, a whole reason for why but for hopper barges.
Historically, the difference between coil and plate is somewhere between.
Spending on the time of $100 $150. That's the historical difference between the two.
Two products.
And.
When you make the numbers.
You have to increase your labor content to substitute calling for fleet. When you do the numbers, we've got a small difference it's tight.
He has never made a lot of sense to put a lot of money and time behind this.
When the pandemic hit steel prices go down and then they go nuts.
2022, historically has been the year with the most volatility in steel prices in history.
Based on CRE.
CRE.
Published a few months ago.
And what happened is that plate prices stayed high at $2000 or so in coal prices started falling real fast.
In the second quarter of last year, a cyclical third quarter of last year.
So by September October the gap between those two prices wasn't normal so almost $1000.
And then we said are deemed loosened our team in barge to start redesigning the barges to take advantage of that and be able to offer our customers.
Okay.
A large desk just as good as a blade barge just with some more wells when.
When you see the barge he has a few more wells with exactly the same quality of product with no disadvantages at all its just you have to put more wells in it.
So you put more labor. So we launched our first barge in December with coil and the customers liked it and immediately started to place orders. So.
Corn prices have come up a little bit against so right now we are not selling many more of them, but what's important about this is two things first I think we are reactive to market conditions second <unk>.
We have flexibility depending on steel prices, we can modulate and decide how we build the barge we'd call or blade.
And third it also keeps us negotiating strength with our steel suppliers depending on.
Hum.
Oil prices, so I think it's a really good development.
Let's see where steel prices come but I think this allows us to move between two very complicated markets, let's see.
Got it I appreciate all the color there.
Maybe turning to the steel components business you guys sounded overall positive on the demand outlook there in 'twenty three.
Is that affected at all by maybe what's going on with the East Palestine derailment in.
Any safety concerns within the industry, just trying to think if theres any impact at all from our Costar.
We don't see it at the moment as you know, we only make a copper some axles.
So we don't see it at the moment I'm not sure what the what our regulatory changes could happen based on this.
What I would tell you is that at the moment, where our coffers.
We don't even finished the axles, we sell the access to people who finish it and then the mounted on the wheels and axles.
The bearings and everything so we don't see a big impact any impact on our business, but as you know this situation is very fluid and there's changes happening in the news happening every day. So I don't know what the regulatory changes could happen at the moment, we are optimistic about it.
Mention that the ramp for 23 is not as sharp as it was in 'twenty two but we are.
We are seeing in our business significant operational leverage and we saw it in the fourth quarter as Gabe mentioned, we had a significant increase in our EBITDA compared to the previous year and we were optimistic about 23.
Really helpful. Thanks, very much for taking the questions.
Thank you. Our next question comes from Stefanos Crist with CJS Securities.
Good morning, Thanks for taking my questions.
Could you just can you just talk about the customer dynamics and the large orders for margin wind, where they're large orders and those are multiple customers across thank you.
Let me start with barge with largest multiple customers.
So what they eat.
Good list of customers.
Not only the ones, we got orders booked inquiries, we're receiving I think it's a wide variety of customers.
Wind as you know, it's a much shorter list of companies that build wind at the moment, we only have with one customer.
The order was basically with one we do have quotes out there.
The other two.
Two companies so.
It's a much shorter list of potential customers. So that you should expect a much wider concentration though.
We are seeing bolt on Wyndham barge is that the.
I'd say the majority of the customers are enquiring about additional orders no.
No that's great. Thank you.
And then just on M&A can you just talk about what youre seeing in the market right now multiples just opportunities. Thanks.
Sure.
We are seeing opportunities we have.
Mainly more bolt on opportunities.
Thing here and there.
As we've said before this is mainly on the barge side on the sorry on the aggregates seismic.
And the way we've approached this we like to build it.
Hubs.
Large crops in certain regions for example, in Arizona, where we bought and then we look for bolt ons around it.
So we are seeing smaller bolt ons in many of our regions multiples on the smaller side a reasonable when we could have seen a few of the larger ones multiples continue to be too high and one of the things. That's important we're going to stay disciplined even though we have a strong balance sheet, we're going to stay disciplined and continue to measure the return on capital in each project.
The organic ones are seem to be.
Better options for us to allocate capital, but we will do M&A, mainly bolt ons.
As an example, not only in terms of.
Recently, we believe is a very small bolt on in Arizona, Maryland recycled aggregates, a very small one that came with some land and at the same time were real we're opening recycled aggregates in Arizona around our natural aggregates. So what we're looking for is to try to complement our presence in each one of the markets.
Petroleum recycle them do bolt on some larger some smaller but mainly bolt ons at the moment.
Thank you.
Thank you at this time I show no further questions in queue I'll turn the call back over to Aaron <unk> for any additional or closing remarks.
Thank you for joining us this morning for our fourth quarter and full year earnings call and we look forward to talking to you again next quarter.
This concludes today's call. Thank you for your participation you may disconnect at any time.
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