Q1 2023 Arcosa Inc Earnings Call
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Good morning, ladies and gentlemen, and welcome to the Arcos that Inc. First quarter 2023 earnings Conference call. My name is Shelby 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 Arcos <unk> Mistry back you may begin.
Good morning, everyone and thank you for joining Arco's first quarter 2023 earnings call with me today are Antonio Carrillo, President and CEO and Gail Peck CFO , a question and answer session will follow their prepared remarks.
A copy of yesterday's press release and the slide presentation for this morning's call are posted on our Investor Relations website, IR dot arcos that dot com.
A replay of today's call will be available for the next two weeks and 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 material materially from such forward looking statements. 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 like to now turn the call over to Antonio. Thank you Aaron Good morning. Thank you for joining us to discuss our first quarter results and update and our updated outlook for 2023.
I will start with a few key messages of course, all delivered outstanding first quarter results driven by strong financial and operational performance from all three business segments.
What remains a challenging macroeconomic environment the entire cost of the team executed exceptionally well operating efficiently and generating record adjusted EBITDA.
Over the past several years, we have undertaken several strategic actions to simplify our portfolio and position our businesses to achieve sustainable long term growth.
Our first quarter results demonstrate the success of our strategy with both our growth and cyclical business is generating strong results.
Construction products led the performance in the first quarter.
Excluding the gain on a land sale adjusted EBITDA increased 32%.
Robust pricing more than offset lower overall volumes and contributed to impressive unit profitability gains.
We plan to remain focused on value over volume staying disciplined on price and effectively combating inflationary pressures.
Our first quarter results also highlighted the potential of our cyclical business.
To support patient approach, we improved margins by 450 basis points as volumes increase and created significant operating leverage.
Our Butler for our barge business at the end of the first quarter is at the highest level in three years and they will provide production visibility into 2024.
Weis and wind towers, our backlog is expanding and they set the stage for significant upside potential in 2024 and beyond due to the multiyear tailwind provided by the inflation reduction Act.
During the quarter, we signed a multiyear agreement to produce wind towers and announced an investment in little brownfield facility, New Mexico, which should start production in mid 2024.
Looking ahead to the balance of the year of course that remains well positioned for continued solid financial performance.
Even as we increase our investment in the organic initiatives the strength of our balance sheet enables us to pursue potential acquisitions that meet our financial criteria and are complementary to our existing operations.
We recently closed on two bolt on acquisitions that further expand our construction brokerage portfolio.
Recycled aggregates for the user and IV, Arizona I'm not sure.
During manufacturing in Houston.
These acquisitions, while relatively small individually are significant in that they broadened our presence and capabilities in two major southern markets.
With our market, leading positions and opportunities across our portfolio to capitalize on increasing prescription spending I am very optimistic about our future gain with now provide detail on our financial results for the first quarter and I will return to discuss our updated outlook.
Thank you Antonio I'll begin on slide 11 to discuss our first quarter segment results.
In construction products revenues increased 12%, primarily due to higher pricing in the quarter, which more than offset overall organic volume declines recent acquisitions contributed approximately one quarter of the revenue growth largely attributable to <unk>, which we acquired last may.
Adjusted segment, EBITDA increased 85% year over year or $35 million.
Due to the 2020 due to the $22 million land sale gain in our natural aggregates business and healthy improvement in unit profitability.
Clothing, the landfill volume sale gain as well as freight and delivery from revenues first quarter adjusted EBITDA margins increased 370 basis points to 26, 5% for the segment.
This is the first time, we've reported margins, excluding freight which is a pass through cost in our construction materials businesses and Duluth reported margins high.
Higher diesel process feels in cement prices increased segment cost of sales by approximately $5 million or 3% during the quarter. This is down from the inflationary cost impact in the fourth quarter of 2022 as diesel prices have moved lower from the peak last year.
Turning to natural aggregates, we continue to experience broad pricing strength across our markets with average organic pricing up more than 20% in the first quarter.
Volumes were down low double digits, primarily due to weakness in single family residential and wet weather that impacted volumes early in the quarter.
This decline was partially offset by increased volume for public and private nonresidential activity given the successful transition of volume in certain markets do.
Due to our disciplined pricing strategy, we expanded unit profitability in the first quarter and achieved higher year over year margins, excluding the land sale gain.
And recycled aggregates strength in Texas D O T work drove substantially higher organic volumes in our Houston and Dallas operation. However, unusually wet weather in southern California adversely impacted the contribution from Aramco during the quarter.
First quarter pricing gains were healthy leading to solid margin improvement year over year for recycled aggregates.
Within specialty materials.
Lately higher volumes and double digit pricing increases in lightweight aggregates led to mid single digit topline revenue growth.
Volumes were mixed and our other specialty product lines demand for industrial and flooring cluster remains strong and we achieved solid first quarter pricing improvements. However volumes were impacted by labor availability challenges, we are working to solve.
In addition, the wet weather in California also had an impact constraining specialty volumes, serving the agricultural market overall, we saw roughly flat EBITDA year over year and lower margins in the first quarter for specialty materials.
Finally, our trench shoring business reported a 6% increase in revenues on higher volumes and contribution from the Houston acquisition that closed during the quarter ordering order inquiry levels were healthy and our backlog remains supportive for growth in 2023.
Moving to engineered structures.
<unk> 12 shows the impact of the storage tanks business that was sold in October 2022 on the prior period results. This quarter, we recognized an additional $6 $4 million gain on the divestiture, which has been excluded from adjusted segment EBITDA and related to the settlement of certain contingencies.
During the first quarter adjusted EBITDA for our utility wind and related structures businesses increased 24% outpacing revenues, primarily due to higher volumes and utility structures, where the demand environment continues to be favorable. In addition, we recognized $3 2 million of net benefit.
On the advanced manufacturing production tax credit provided for in the inflation reduction Act, which helped offset the anticipated decrease in wind tower profitability.
The 180 basis points of margin expansion reflects the benefit of the tax credit as well as incremental improvement in utility and related structures, which is notable given the strong performance in the prior year period.
As previously announced we received wind tower orders of approximately $800 million during the quarter for delivery in 2024 to 2028 since the passage of the eye or a in August 2022, we have received over one $1 billion in wind tower orders. We also had robust order activity and utility structures.
Resulting in backlog at the end of the quarter for utility wind and related structures of one $5 billion.
From $671 million at the start of the year.
Turning to transportation products on Slide 13 segment revenues were up 43% driven by solid volume growth in both our barge and steel components businesses adjusted segment EBITDA increased over 100% and margins expanded to 13, 4%, reflecting the significant operating leverage.
Inherent in these businesses.
We received orders of $122 million during the quarter, representing a book to Bill of one eight these orders primarily for hopper barges extend our backlog into 2024, we ended the quarter with total barge backlog of $279 million and we expect to deliver approximately 70%.
Sent during 2023.
I'll conclude on slide 14, with some comments on our cash flow and balance sheet position.
We ended the quarter with net debt to adjusted EBITDA of one one times and available liquidity of $624 million, we have no outstanding borrowings on our revolver and no near term material debt maturities, our healthy balance sheet and ample liquidity continue to provide flexibility for our capital allocation strategy.
Working capital consumed about $55 million of cash flow in the first quarter, an increase year over year, primarily due to the timing of strategic steel purchases.
As our growth businesses continue to expand in our cyclical businesses recover we expect working capital to be a use of cash for the year.
Capital expenditures were $44 million up $19 million from the prior year, reflecting progress on the organic projects in construction products and engineered structures, including the purchase of a brownfield property for our new Mexico wind tower facilities.
We are revising our full year capex guidance to $185 million to $210 million up from the previous range of $140 million to $160 million to reflect the new wind tower investment a range now anticipate $85 million to $100 million of growth cap.
Next in 2023.
Free cash flow for the quarter was $6 $8 million down from $19 million in the prior year largely due to the increase in net capital expenditures in our calculation of free cash flow. We have netted proceeds from the sale of property and other assets against capital expenditures as the cash received from these asset sales is typically used to.
Fund replacement reserves in equipment.
I will now turn the call back over to Antonio for an update on our 2023 outlook.
Thank you Gail as we indicated in our fourth quarter call. We expect 2023 will be a transition year from a financial standpoint, we anticipate our growth businesses will benefit from generally solid market fundamentals will our cyclical businesses undergo significant manufacturing ramp up on experience gradual improvement before achieving straw.
Profitability in 2024.
Please turn to slide 16.
We're racing racing slightly our 2023 revenue guidance to $2 25 billion.
Midpoint, which represents an increase of 10% compared to 'twenty to 'twenty two normalizing for the sale of the storage tank business.
Based on the outperformance in the first quarter and our expected expectations for improved profitability in our cyclical businesses due to the anticipated tax credits from wind towers, we're increasing our 2023, our adjusted EBITDA guidance to $358 million at the midpoint up from the prior midpoint of 325 million.
Dollars.
This revised guidance includes estimated net wind power upgrades of approximately $20 million at the midpoint, which were not included in our previous range.
Further clarification from the IRS on this tax credit is still pending.
Please turn to slide 17 to review the outlook for our growth businesses.
We believe construction products remains well positioned to capitalize on continued significant federal and state investment in highway and other infrastructure projects.
Infrastructure lending activity is accelerating across many of our markets, while pricing momentum remains favorable for both natural and recycled aggregates.
Although the housing market continues to show weakness across our markets. We are optimistic that improved pricing and demand from infrastructure projects should compensate the volume declines in housing.
As we look further ahead, we believe that with stronger pricing, a recovering housing infrastructure spending and inflation receding our construction segments should be in great shape to continue to grow and improve margins over time.
Turning to engineered structures. The overall outlook for this segment remains favorable driven by ongoing utility infrastructure investment healthy department of transportation spending in Florida, and other southern states and the ongoing wireless <unk> wireless build out.
In the electric utility sector major capex spending programs remain centered on green grid hardening enhancing reliability and connecting new sources of renewable energy to the grid.
Utilities are also beginning to accelerate their planning to bring new sources of power to supply the nation's growing fleet of electric vehicles.
Breath of this capex initiatives is evident in the continued expansion of our utility structures backlog.
Shifting now to our cyclical businesses on slide 18.
Market dynamics impacting our wind tower business in transportation segment are improving supporting our view that these businesses are entering the early stages of a cyclical upturn.
The wind tower of the 10 year PTC expansion included in the inflation reduction that provided significant planning certainty to the industry.
As long term certainty is accelerating demand for wind towers, which we expect to continue to grow as projects get underway.
The $800 million of wind tower orders, we received in the first quarter marked the single largest quarterly total for wind tower orders in our course of history.
To meet this new demand as I mentioned earlier, we recently announced the expansion of our wind tower manufacturing capacity, New Mexico, where we are investing to strategically supply major wind projects in that region.
Manufacturing facility is expected to commence production in mid 2024.
We reiterate our view that 2023, it will represent a transition year from our wind towers business given the production ramp up.
<unk> facilities and additional Starbucks startup costs at the new plant.
In 2020.
2024, we should experience progressively improving profitability from increased volumes additional production from the plant in new Mexico, as well as higher volume driven tax credit benefits.
Turning to slide 19, our barge business is also experiencing steady improving fundamentals.
In the past two quarters, we received large orders totaling 250 million more than 250 million underscoring the significant pent up demand in this market.
With the new production processes that replaces steel plate with lower price corn, we have revitalized customer interest and generated new barge orders.
Supported by the consistent improvement in orders and the high level of inquiries, we're optimistic that the long awaited recovery in the barge market is beginning to take hold.
Although steel price volatility remains a drag on new orders, we're seeing some customers to increase their their barge price expectations, recognizing recognizing persistently elevated steel pricing and ongoing inflationary pressures.
The strong demand, we will continue to focus on selling our available capacity at attractive margins.
Despite signs of a slowdown in the economy the band for a steel components pros have remained resilient aided by higher utilization in North American railcars and growth in new railcar deliveries.
Going forward, we anticipate a moderation in our topline within this business due to the more challenging challenging delivery comparisons as the year progresses, but the overall outlook remains supportive for growth this year.
Please turn to slide 20, our of course, our sustainability initiatives represent a foundational element of.
Our commitment to build long term stakeholder value and I am pleased to announce the recent publication of our third annual sustainability report.
This comprehensive report explains how we are incorporating sustainability into our business strategy and daily operations and how we are continuing to build our sustainability progress in pursuit of our long term ESG goals I am proud of our collective efforts to strengthening our safety culture reduce our greenhouse emissions and support our communities to help build a more sustained.
Future in closing.
Three is off to a great start and I'm excited about the many opportunities across our portfolio that will drive our financial performance not only this year, but into 2024 and beyond now I would like to open the call for questions.
Thank you.
At this time, if you'd like to ask a question. Please press the star and one on your Touchtone phone.
Remove yourself from the queue at any time by pressing star two.
Once again that is star one to ask a question.
We will pause for a moment to allow questions to queue.
And we'll take our first question from Julio Romero with Sidoti <unk> Company.
Okay.
Hey, good morning, Antonio and Gail I was hoping you could talk about the progress on the rollout of the redesigned barge product that uses coil steel and how thats performing so far.
Sure.
Thanks for the question as I mentioned.
In the previous call on you.
It's.
Last year 2022.
The prices between coil umbrella.
<unk> started to diverge significantly historically, there's about $150 a tonne difference between yeah.
Played on a ton of coil.
And last year that number was almost $1000.
And that's when we started looking at the opportunity to redesign dry cargo barges with coil.
And we worked on it during the second half and in December we launched our first coiled barge.
That generated significant demand for the barge is most of the orders we got in the fourth quarter came from coil.
This quarter, we continue to offer our customers are now the beauty of these things that we can offer coal barges were played barges and we'll shift it.
Our production and our sales depending on that.
The difference in prices.
Steel prices started coming this year.
Steel prices have been going up in the second half coil prices went down and this year. It started coming up so that gap has shrunk some but we have the ability now to move between the two probably the biggest message for you is this gives us flexibility on in manufacturing flexibility for sale, but also leverage beta.
Suppliers of steel because we can now shift suppliers based on the difference in the in that price. So things are going well. The barge is fully design and we're building barges today with the call.
Okay really helpful. There and then I guess, just thinking about the order trends in the barge business, you've had two straight quarters of $100 million plus in orders, but you also talked about the steel is still suppressing orders to an extent so just talk about.
How youre managing the current trend line in steel over the last few months and how we should think about the variability in the barge business. If the steel continues on that trend lines.
Yeah, well I think the most important message here is that the inquiries are tremendously strong so we have.
Very strong that we feel the market needing these barges snow.
And I think what youre seeing with disorders.
There's even though it's coil has been cheaper than plate that we sold a few barges with coal and some others with plate.
The price point of these bonds is much higher than it was prior to the steel price ramp.
So I think our customers and I mentioned it in the in the script. Our some of our customers are moving their price point of the Bard yourself, because they really need the bodies and that's what we perceive in the market. So.
I think well you know I.
I don't know about the this quarter on the next week my thought would be a straight line.
But I am confident we will continue to get a bar towards those based on the inquiry levels, we see.
What I also mentioned is we're going to be.
As we sell more barges of course.
As it gets tighter we're going to be focusing like in every other business in our margin. So we're not going to give her a capacity away and and we I think we're having we're in a great position to manage our capacity and their orders because now we have quite a long visibility until the early part of 2024.
Great I appreciate you taking my question and then I'll pass it on.
And we'll take our next question from Garik <unk> with loop capital markets.
Oh, hi, thanks, and congrats on the quarter I'm wondering if you could speak a little bit to the margin expansion.
The construction products segment.
Sure.
Really strong pricing.
Just wondering if you could maybe talk to the sustainability of this type of margin expansion through the rest of the year.
Well. Thank you for the question itself.
You know I think.
This industry has always been a characterized by these are the thought is that that you can move pricing, even when volumes come down and I think that's that's been proven with what we're seeing in the market no.
Yeah, I would tell you that.
We have many touch points to the market, but the area, where we're seeing really strength is in the infrastructure side to know when some of our business have more exposure to housing that all those aggregates probably the one that has the most but the ones that have it but we still saw very significant improvement in pricing in aggregates.
In recycled aggregates that has less and less and less.
The exposure to housing we saw.
We saw pricing also very strong but volumes are.
Noticed that's affected us as as natural aggregates so.
Our perception and what were our goals for this year is to continue to offset volume declines with pricing increases and refocusing our capacity into infrastructure.
We will be able to continue to do that no. It's.
That is it going to be a perfect alignment is it going to be choppy, probably some areas in the country have more.
A higher declines than others in volumes.
In those areas, that's where we're pushing pricing higher so it's I think it's a tight balance he say area by area. It's a mine by mine, but we're confident we can continue to push pricing and offset volume declines.
Okay, great. Thanks for that wanted to just follow up real quickly just on the weather impacts.
The quarter.
Sighted some of that.
Weakness being due to.
The rains in California, and I was wondering if maybe there's a way to size. The headwind that you saw due to weather and you know are you seeing any pent up demand here in the second quarter as a result of some of those project push outs.
It's difficult for us to size it but I'll tell you.
When you look at the numbers and recycled aggregates, which is we've had two impacts in California. One is recycled aggregates in so many specialty materials.
I think it's probably the the issue visa one it's a it's a.
The projects the pent up demand this is hard to measure because the projects get delayed and you have got about the same demand. After after after the rain receipts, but what I can see they'll use of all our recycled aggregates.
In the markets the only one that Wes.
Let's say not in great shape was California, It was clearly a.
Clearly tied to the rain that we have there.
When the rain receded, we are in great shape and the volumes are coming up very steadily so nothing wrong with the business I think it's it was just a really outstanding rain suddenly rain event, but we are very optimistic about our recycled aggregates in California.
Good morning Garik. This is this is Gail I guess I would even just add we did you know on that.
On the weather topic, we did you know when we were sitting here a couple of months ago January and February we had certainly had some rain and colder weather here in the Dallas, Texas area and I think you know as we look at the quarter. We're very pleased to see what March came to bring when we had it.
You know a very normal.
Weather months for the for the quarter and we were.
He used to say that the volume pace that we had during the month of March so so weather definitely had an impact but.
But as Antonio said one.
When the skies are clear things seem to be according to plan from a volume perspective.
Okay, that's great to hear thanks, again, and then I'll pass it on.
Yeah.
And we'll take our next question from Noah <unk> with Stephens, Inc.
Good morning, Thanks for taking my questions and congrats on the strong results.
<unk>.
I wanted to start on the <unk>.
Wind towers business, you know you've seen a nice.
Kris and orders there and I guess, just what's the typical lag in terms of getting an order and.
To deliver on those I think you continue to see this year is a transition year for wind.
So I guess is that you know early 24 that you start to see that and then just given your capacity plans.
Much of the backlog can you deliver on that.
Sure.
Okay. Let me, let me start with the first part of the question.
And just just to reflect on where we are six months ago. This business was not looking pretty I mean, we didn't have orders for 2024.
Unfortunately, <unk> sorry for this year, we have nothing almost so.
We took some orders with very low margins to get the year started and keep our people working.
The inflation reduction Act.
Let's say pick up space.
And the projects are developed we're seeing very strong demand.
And you.
I think right now what what you will see is our ability to ramp up will depend on how fast we can hire people, it's really that simple.
How fast we can hire and train our people.
And we have orders I think for 2023 were basically set in what we can produce because we're ramping up for 'twenty to 'twenty. Four we are not at capacity by any means we have a plant that's idle.
Two plants that are not operating at full capacity in the plant in new Mexico that will start in the second.
Mid 'twenty 'twenty four will not be at full capacity. So that is I think the message I would like to leave you with is were going to be dialing our labor and our capacity based on how we see the orders with the idea that the capacity. We have available. We believe is very valuable given the strength of the wind Mark.
Then we're going to be focusing on selling it at a nice margin.
We will ramp up I think we will.
Happy where we are but we are even happier with the capacity we have that we'll be able to sell and focus on increasing margins for 'twenty four and beyond DCC. Then your PTC. So that's giving significant visibility to the industry. So I think it's a week, we can thinking out a nice space.
Got it got it that's helpful. And then for my follow up you know continuing to look at the engineered structures segment.
Your question really nice margins during the quarter Fortunately.
Somewhat higher than your typical 12 to 13 I think you typically look for there I'm guessing tax credits played a role but can you help us understand sort of the margin drivers there and again how sustainable this is as we look forward.
Yeah.
I'll take that one this is Gail yeah, we had I'm pleased with the margin performance you're right. If you look at the.
Segment.
You know year over year, you had probably about 170 basis points of margin improvement in this segment to your point you know part of that was that the tax credit. We did recognize 3 million of the advanced manufacturing production tax credit, but even even outside of that as I said in my script, we did see margins up against what was yeah.
Pretty tough comp from last year or so.
Consistent yeah, we we benefit from long run. So we had some you know your order pattern will vary from quarter to quarter. So we had some nice leverage from some longer production runs in the quarter.
Yeah, we expect.
To continue to have healthy margins throughout the year I would note, though from a cadence perspective, and we we talked about this a little bit on our last call as we see yeah, we affirmed backlog, which gives us very good visibility for the utility structures business and as we look at our backlog for Q2, notably we talk about our own clients and our bed Cup.
<unk> as we look at the mix of customers for the second quarter, we expect to have a slightly higher.
Component of bed, which will impact the margin for the second quarter, but full year outlook for the business continues to be very strong strong demand drivers we had nice volte.
Volume increase in the quarter expect stronger volumes year over year, and so you know outlook remains favorable I did want to point out though is as we think about the cadence.
We do anticipate a little bit of a step down in Q2, and as we progress through the year.
If you think a little beyond the quarter in this year right. That's good. So I think we're very comfortable where we are for this year.
But if this this segment has always been is a combination of two businesses.
These structures and unrelated and wind.
And since we spun in four five years ago utility structure has been going up and on the wind tower has been coming down.
And as wind ramps up again, I think youre going to be a combination of margins that should lead to improvements in margins in this segment.
As wind tower ramps up and we continue to gain momentum on utility. So I think the segment as a whole will start looking very very nice as we ramp up wind towers.
I just might add on that too it's important to highlight them, particularly as we look at 'twenty three and then it helps with Antonio's view 'twenty three and beyond our 24 and beyond we do still anticipate wind tower to be breakeven from an EBITDA perspective in 2023 ex the tax credit. So the tax credits will certainly help but we.
Do see breakeven for wind, we did perform a little bit better in the first quarter, but as we've announced the new Mexico facility. We do anticipate additional startup costs for that facility that will impact wind tower profitability. This year.
Got it that's really helpful detail. Thanks, I'll leave it there.
Yeah.
And we'll take our next question from Brent Thielman with D. A Davidson.
Great. Thanks.
Hey, and Tony.
A quarter ago.
Suggested that you thought the backlog in and when could grow which was valid.
I guess, maybe I'll ask you the same question from the.
Standpoint.
Expectations from went for wind orders through the rest of the year I imagine there is not another.
$800 million order elephant out there but.
At these levels you anticipate building off other inquiry levels quite high because you've got a lot of available capacity out there elsewhere.
Yes, it's a good question, yes, we continue to see inquiry levels high.
This business is very regional until depending on where the projects are being developed you will see the demand with what's interesting to me the most interesting to be to be absolutely honest, we've been surprised at the speed of this.
Industry, how fast it picked up.
When the inflation reduction that was approved in August of last year.
You know I always said it would take 12 to 18 months for us to start seeing the impact in our in our specific orders and that's what I thought at the time.
And it's surprising that it's ripe faster, which leads me to believe that many of the projects that are really being developed based on the inflation with doctor.
And reduction Act classing have really not come to market. So what we're seeing is projects that have been developed before and we're ready shovel ready.
What's interesting about this is I think the inflation reduction that the impact we have really not seen it we've seen part of the certainty, but we have not seen the impact of new projects and that's really exciting for the future is going to be this quarter, probably not but we'll see that over time I think we're building this business not for one year for several years.
But then.
I think it gives us a lot of optimism for the future.
Okay.
Thanks for that and I guess my follow up is we're all trying to kind of understand the implications of these tax credits to your P&L.
Which is obviously based on the number of structures here.
So, which I know you don't report.
Can you can you help us understand.
You've given us some guidance here for this year, but can you help us understand I guess, even qualitative what are your expectations for.
Structures produced and sold this year relative to last year, just as we're trying to understand kind of the future impact as you get into more robust production years.
Yeah, Brent I'll I'll I'll try that one you know.
We've said before you know, giving volume from a competitive perspective, we havent havent really elected to do but I, but I get the conundrum with this tax credit that that's based on volume at all I'd also point out. It's it's it's based on units sold and produced its also based on the megawatts of the installed turbine.
At the end of the day, so theres kind of two variables that impact it we've given our best.
I put forward here with the estimate we have in our.
Our EBITDA guidance of about $20 million of incremental EBITDA related to the tax credit.
So you know the other thing I guess I would mention to kind of help a little bit is.
We've always said.
Commercially that we would maintain a significant majority of the tax credit and what we've included in our EBITDA guidance reflects that.
So when we refer to the EBITDA pick up we're talking about a net benefit to EBITDA. So.
From an accounting perspective, the gross credit well will flow through cost of sales than anything that we've negotiated commercially it would be a slight deduct to revenue but.
As we've said we were retaining and the significant majority of the credit and from a from a math perspective, I think you know many people are familiar that its three cents for installed what.
That is the credit that we.
Are a beneficiary of that.
And you know today, the average megawatt per install towers somewhere around $3 million and so I think I'll probably stop there. That's that's probably the extent of what I could give from a from a P.
Respective 'twenty three relative to 2022 you know a slight decline in volume, but then as we think about our backlog.
Yeah, we certainly we have the long term order with them the new Mexico facility that extends our backlog into 2028 now right now based on the backlog we have in place 24, and 25 are the higher years and then you have the new Mexico facility filling out in in the last three years there if that's helpful.
Yes.
Just quickly follow on that.
Given that Theres still some uncertainty still awaiting IRS guidelines, you've obviously got these commercial arrangement.
Fair to kind of think that this outlook you've put out for this year just related to the credit just kind of your most conservative approaches you're still trying to kind of fine tune these things.
I I'd say Brent.
I mentioned that the variables certainly units produce we felt pretty good about our backlog theres always some some some wiggle room there.
Nearer term, we feel a little bit more confident about the size of the turbines. So those things still you know relatively certain I'd say you know.
Youre looking at or could there be a little bit of conservatism since they're there hasnt been finalization and the rules, yes, I would say that there there is a little bit, but we've really tried to put our best foot forward and giving a sense of what we expect for the year.
Yes, Okay, alright, thanks for that follow up I appreciate it.
Well one comment on the tax rate.
A lot of rules that we expect I think the main thing that we're waiting for.
Of course.
How it's going to be.
When it starts and things like that but the most important piece is the rule of law.
Bye America, what what does it mean.
And that's the piece that we're waiting for that needs to be clarified more specifically.
And the main reason is that this thing is being bundled between wind and solar and they're very different industries, but we're.
Trying to do here is.
The wind tower industry as you saw with the new Mexico plant there is enough capacity and if not we can build it. It's it's something we can do really fast and we're willing to do it and it's it's not obviously someone else, but there is capacity the solar industry is in a very different position. So I think that's what we're waiting for the IRS to make sure that.
We put our best arguments forward that these are not the same thing and I think we're doing that in the industry is doing that.
Yes interesting point, thank you Antonio Thanks Neal.
And we'll take our last question from Ian Zaffino with Oppenheimer.
Hi, great. Thank you very much.
Just wanted to kind of ask one more question on on the tax credits.
How do you think about I know you touched upon this a little bit but how are you thinking about pricing in this business are you going to price. It so that the unit is.
Breakeven and then all your EBITDA would come from the uplift of the a M P.
Or do you think youre going to be you're going to run the business as a standalone profitable.
And then you.
I'll take the A&P on top of that I'm, just trying to make.
You know, we're thinking about the sharing of this and how it all works I'm just trying to understand you know, particularly.
Particularly with your pricing might be or how youre thinking about the business.
Given that the A&P kind of comes back to you or may not come back to you.
Sure. That's a that's a that's it's a really good question.
Split it in two pieces and let's let's put 23 aside.
23.
Think about the pricing we have for 2023 and we priced this thing in August of last year when the when the when the eventual reduction that's what.
What's being approved and we thought it would take 12 to 18 months for it to get started.
So we priced this this year based on the assumptions, we need to keep our people we need to keep the plants operating we need to keep our capacity because it's going to get really good after 'twenty two 'twenty three.
So the pricing this year is not reflective of the way we're pricing our towers going forward.
The business needs to be profitable by itself.
Hey.
We do we see the tax rate is additive to our two our margins will we be able to keep 100% of it we've already said, we're giving some for customers, but the majority will keep so the idea of the business is to have strong margins in the business added tax rates on top of.
Okay that makes sense and then on the barge side can you give us a little bit color between dry and liquid I don't know if you mentioned that I can.
Combined it anywhere.
Maybe it got some a dynamic job.
Sure you know.
Most of our orders right now are our dry cargo barge in the market, where we're seeing really pent up demand is in the dry cargo barge.
That's the market that's been slower for the longer period of time, that's where the aging of the barges is it is higher.
But we are seeing so most of the demand we're seeing in most of the barges were getting our dry cargo we are getting some smaller.
Liquid barges I think as we call them our board before petrochemical.
Well believe it or not we're seeing.
Some demand for the larger liquid barges in for some more smaller liquid barges, but we are seeing the markets out there.
And when you see the utilization rates of the liquid barges are very high.
The fleet is not all of it.
The dry cargo, but it's getting there and it's it's not old on average, but you have some very new barges on you have some very old barges. So there is there is replacement that's going to happen in the liquid maybe not as strong as the dry cargo, but it's it's happening so probably over the next year or so where you will see us grow them.
Most of us in dry cargo.
Okay, and then if I could just sneak one more in.
So I guess the way I'm looking at this is construction is doing quite well barges is really coming out of its trough.
Wind towers is really showing up that as each year.
So those are three.
Big important growing businesses, but then you have a couple of other businesses that are much smaller in and especially as these three businesses could you get larger.
Relatively speaking in those other businesses become smaller I know you got rid of the storage tank business are there any plans.
To get rid of some of these other noncore businesses I know you've talked about it before but.
Given the strength that you're seeing in cross each other.
The segments.
Does that encourage you or kind of reached your desire to shed some of those businesses.
Sure No I think we've been very clear that we will simplify the company and as the businesses get ready to them.
Some let's say in the attractive position to be disposed of so we've been we've been clear about that there are certain things that need to happen for each business to be ready.
I've been clear that I don't expect to sell them at the peak of their cycles.
So so yeah I.
I think like I've always said M&A has a it takes a life of its own but we are where we're going to continue to push the idea that these companies too complex for our size and we're going to continue to simplify it and.
Monetize some assets and continue to reinvest in our rolls business, especially oh, eliminating construction and organic and construction on engineered structures. So that's going to continue to happen timing I cannot tell you, but it's it's it's up there in our main priorities.
Okay. Thank you very much.
Thank you. It appears that we have no further questions. At this time I will now turn the program back over to our presenters for any additional or closing remarks.
Yeah.
Thank you for joining us today, and we look forward to speaking to you again next quarter.
Yeah.
That concludes today's teleconference. Thank you for your participation you may now disconnect.
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