Q3 2024 Arcosa Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to the <unk>, Inc. Third quarter 2024 earnings Conference call. My name is Jim and I will be your conference operator today as a reminder, today's conference is being recorded and now I would like to turn the call over to your host Erin Dray back director of Investor Relations for Arco set Ms. Dray back you may begin.

Erin Drayback: Good morning, everyone and thank you for joining <unk> third quarter 2024 earnings call with me today are Antonio Carrillo, President and CEO and Gail Peck CFO of <unk>.

Erin Drayback: <unk> and answer session will follow their prepared remarks.

Erin Drayback: A copy of the press release issued yesterday and the slide presentation for this morning's call are posted on our Investor Relations website, IR Dot arcos the 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.

Erin Drayback: A replay of the webcast will be available for one year on our website under the news and events tab.

Erin Drayback: 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.

Erin Drayback: In addition, today's conference call includes forward looking statements as defined by the private Securities Litigation Reform Act of 1995.

Erin Drayback: Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from such forward looking statements.

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

Speaker Change: I would now like to turn the call over to Antonio.

Antonio Carrillo: Thank you Aaron good morning, everyone and thank you for joining us today.

Antonio Carrillo: And the outcome of U S elections.

Antonio Carrillo: Turning to engineered structures, Idaho continues to perform well with strong execution.

Antonio Carrillo: With respect of wins with respect to wind towers, our new facility in Berlin, New Mexico continues to ramp up production and has contributed positively to adjusted EBITDA.

Antonio Carrillo: Market fundamentals for utility structures remain very healthy.

Antonio Carrillo: Transportation products results were distorted by the impact of steel components divestiture during the quarter.

Antonio Carrillo: Our barge business continues to perform in line with expectation and we were pleased with the <unk> nine times book to build in the quarter.

Antonio Carrillo: As you know during the third quarter federal regions, where we have operations were affected by severe weather events. Our focus during the quarter was to support our employees and local communities. Our people in our plants were not significantly affected by these weather events and they are closer team shown incredible resilience and getting our plants back operating as soon as condition.

Antonio Carrillo: We're safe.

Antonio Carrillo: Overall, our third quarter financial performance reflects strong operational performance and the continued positive impact from the strategic initiatives, we began implementing six years ago.

Antonio Carrillo: Since that time, we have seen improved revenue trends and meaningful.

Speaker Change: Acceleration in our margins I will turn it over the call to Gail to discuss our third quarter results in more detail Gail. Thank.

Gail Peck: Thank you Antonio good morning, everyone I'll begin on slide 10.

Gail Peck: Starting with construction products third quarter revenues were roughly flat year over year.

Gail Peck: Cash flow of $135 million during the quarter up $91 million from the prior period, driven by increased earnings and a $50 million reduction in working capital led by a reduction in accounts receivable year to date working capital was roughly neutral to cash flow.

Gail Peck: Capital expenditures were $34 million down from prior year and on a sequential basis as we near completion on organic projects underway. This translate into the third quarter free cash flow of $107 million of which $60 million was used to pay down borrowings on our revolving credit facility during the quarter.

Gail Peck: We are adjusting our full year capex guidance to $180 million to $195 million from $190 million to $205 million previously at the midpoint of the range. This implies roughly $50 million of Capex for the fourth quarter, which is inclusive of Capex first of all.

Gail Peck: We are prioritizing the completion of large growth capex projects those projects that stable that hasnt flight as well as ongoing maintenance Capex we.

Gail Peck: We ended the quarter with net debt to adjusted EBITDA of one two times pro forma for <unk> net leverage is 334 times down from three seven times, when we announced the acquisition demonstrating our commitment to prudent deleveraging we.

Speaker Change: And we feel that our business is have a really nice tailwind across the board, but I will tell you one of the things that I mentioned.

Speaker Change: Shortly in my brief in my prepared remarks.

I think we're in conversation with customers.

Speaker Change: In the industry I think the impact of the uncertainty around the elections is larger than we are really really it's hard to measure, but I think there is a significant people are gun shy and pulling two big projects and things like that so.

Speaker Change: So and I don't think it's who's going to win is just let's get it over with it.

This lets focus again on business I'm doing doing what we need to be doing so that's one one aspect about it.

Speaker Change: For the rest I think we are interest rates they are not coming out as fast as we wanted but we would like I'm housing you know, it's still very very slow multi multi.

Speaker Change: Multi.

Speaker Change: Housing is also not doing very well, but then you have a lot of positives no manufacturing is doing very well to data center construction is doing well and the housing recovers I think we'll come into 2025 with positive momentum and the pricing situation that we've been able to build during 2024 really sets up very well for 25.

Speaker Change: No.

Speaker Change: Im optimistic about 25 for construction, but overall as a company.

Speaker Change: I will tell you that.

Speaker Change: Company, what we've been doing over the last six years every time. We go we don't have something that we just overnight we do our thing it's more we're learning also what we bought and that's part of our culture. We're trying to learn and I think early indications are that thinks we can contribute to their operations, but they can also bring some.

Speaker Change: Thanks to our operations that we can improve so.

Speaker Change: I'm excited about what we're seeing.

Speaker Change: Integration is not very complex as only five quarries and asphalt plants, so it's not and it's.

Speaker Change: Very concentrated so that makes it easier.

Speaker Change: So overall I would tell you we're excited and we're very happy with the with what we're doing there.

Speaker Change: Okay, great Yeah that makes sense. Thanks for that and then quickly just on the weather for the quarter was there any substantial impact of the construction products or how did you guys bucket that.

Speaker Change: Okay.

Speaker Change: We have operations in in.

Speaker Change: For many of the Hurricanes and large storms and things we have operations across the border I mentioned in my in my remarks.

Speaker Change: The most important thing our people in our plants were not severely impacted or is the business is always impacted I think our team did an incredible job in bringing by the plants. Many times. What happens is you know in the core as you get Florida do you have to clean them.

Speaker Change: You lose power, we lost power in several of our plants.

Speaker Change: The good news about for US is that we have a formula as we are comfortable when we pass through.

Speaker Change: Significant variations in steel so when steel prices are coming down youll see it in the revenue side, but you also see a margin expansion as Russ spices comes down.

Speaker Change: I think as we go into the fourth quarter and 25, you will see that you will continue to see compared to 24. Early 2014, we will continue to see some volatility on the revenue side based on steel prices.

Speaker Change: Gail mentioned that we are we expect them, we expect a good quarter in the fourth quarter and 2025, we set up nicely, where we expect higher volumes in both utility structures and wind towers.

Speaker Change: And I'll, let her give you a little more detail on that sure. Good morning, Good morning, Brent.

Gail Peck: On wind.

Speaker Change: Really good visibility for next year.

Speaker Change: As we've talked about in the second quarter is when we first started delivering at Berlin.

Speaker Change: We'll have the benefit of Berlin.

Speaker Change: Being ramped up next year.

Speaker Change: That combined with our other two plants.

Speaker Change: Operating probably at relatively consistent delivery rates to this year.

Speaker Change: We expect.

Speaker Change: Solid revenue growth out of the wind business for.

Speaker Change: For 2025 with the backlog that we have in hand.

Speaker Change: So I think maybe I can point you to as you think about.

Speaker Change: Order of magnitude if you look at the first quarter of this year.

Speaker Change: Capex.

Speaker Change: We want to continue operating the plant safely and with all the maintenance we need so we're not cutting maintenance capex, we are only focusing on growth and the reason. That's important is we're finishing all of those growth capex that will contribute to our growth in 'twenty five and beyond so we'll continue to harvest some of those investments we've done over the past years and continue growing.

Speaker Change: Second is is the working capital we're going to be focusing on working capital that hustle a lot more volatility, but that's another tool and finally, we expect to grow in 25. So those three things should help us generate more cash and that will help us reduce our our leverage so I think once we <unk>.

Speaker Change: Get below three times net debt to EBITDA will have a lot more flexibility and we will be able to continue.

Speaker Change: And capital well, but we've said our goal is within 18 months to be there.

Speaker Change: Very helpful. Thank you.

Speaker Change: And that was our final question from our phone audience today, Miss Dray back I'm happy to turn the floor back to you for any additional or closing remarks.

Thanks again, everyone for joining us today, and we look forward to providing our next update at the end of the year you next time.

Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation you may now disconnect your lines.

Speaker Change: [music].

Speaker Change: Hum.

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