Good morning, ladies and gentlemen, and welcome to the Arcosa Incorporated Third Quarter 2020 Earnings Conference Call. My name is Nicky 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, Gail Peck, Senior Vice President, Finance and Treasurer for Arcosa. Ms. Peck, you may begin.

Good morning, everyone. Thank you for joining our third quarter 2020 earnings call. With me today are Antonio Carrillo, President and CEO; and Scott Beasley, 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 at our Investor Relations website www.ir.arcosa.com. 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 & Events tab. Today’s comments and presentation slides contain financial measures that have not been prepared in accordance with Generally Accepted Accounting Principles. Reconciliations of non-GAAP financial measures to the closest GAAP measure are included in the appendix of the slide presentation. Let me also remind you that today’s conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the Company’s SEC filings for more information on these risks and uncertainties including our form 10-K, the earnings press release we filed yesterday and our Form 10-Q for the third quarter expected to be filed later today. I would now like to turn the call over to Antonio.

Thank you, Gail. Good morning and thank you for joining today’s call to discuss Arcosa’s third quarter results and our business outlook. Beginning with the key messages on slide 4. First, our highest priority has been the safety of our employees as we continue to operate in the COVID-19 environment. Our businesses remain fully operational as essential services, and we continually update our protocols to meet or exceed CDC guidelines and ensure the safety of every one of our employees. We’re grateful to our employees and our communities for their dedication during this challenging time. Next, Arcosa results continued to highlight the resilience of our business model and the repositioning of our Company around infrastructure products. Double digit growth in revenues and EBITDA was led by strong performance in our Construction Products segment. We executed well in the third quarter despite a record hurricane season causing some revenue and profit headwinds, and ongoing challenges associated with the pandemic. New order activity was mostly positive. Construction activity remained healthy and would have been stronger had weather events not been so prevalent. Additionally, we booked $154 million in wind tower orders, and we have seen increased project-based wind tower inquiries. For utility structures, demand remains robust, and our primary constraint remains production capacity. Demand for traffic structures in our new Florida business has exceeded our expectations. Our Mexico business received good orders for infrastructure projects. In the liquid barge market, utilization rates continue to be low for our customers, but conditions in the dry cargo market have improved, with higher grain volumes and freight rates and very attractive steel prices. Even though we only received $18 million in new orders during the quarter, in the last few weeks, we have seen significant improvement in inquiries and have closed $32 million of additional barge orders for 2021. We’re building a strong cash culture at Arcosa. The impressive $93 million of free cash flow in the third quarter brings our year-to-date total to $170 million, as we focus on reducing our working capital and operating more efficiently. This cash culture is helping us deploy growth capital into attractive markets while maintaining low leverage. We still have opportunities to improve, especially in inventory and accounts payable management, but I’m excited about the progress made to date. Finally, we’re pleased with the strategic investments we have made to grow our business, centered around Construction Products and Engineered Structures. Our key accomplishment was the $87 million acquisition of Strata Materials, a leading producer of recycled and natural aggregates in the Dallas-Fort Worth market that we closed in October. This transaction adds to the two smaller acquisitions we closed during the quarter. First, the telecom structure company we previously disclosed and the natural aggregates bolt-on in Texas. We paid around $53 million for these two acquisitions at very attractive multiples. Slide eight is an overview of our third quarter performance. Construction Products followed by Energy Equipment were the key drivers of our 10% year-on-year revenue growth. EBITDA growth and margin expansion were driven by the Cherry acquisition, as well as strong operating performances in our aggregates and barge businesses. Scott will review the performance of our different segments. And then, I will come back to discuss our business outlook.

Thank you, Antonio, and good morning, everyone. I’ll start on slide 9 and review our segment results from the third quarter. Construction Products revenue grew 27% to $147 million, and adjusted EBITDA increased 40% to $36.8 million. Both revenue and EBITDA were roughly even versus this year’s record second quarter, despite an extraordinary number of major weather events in Houston and the Gulf Coast that impacted construction activity and our operations in those areas. Segment EBITDA margin of 25.1% was up roughly 250 basis points from last year’s third quarter, a result of strong execution by our operating teams. I’ll give a few highlights from the quarter. Our Cherry business in Houston performed well, despite major weather events. Both recycled aggregates and natural aggregates have grown since last year, and we are expanding our reserve positions to continue growing in the attractive Houston market. In our legacy natural aggregates business that serves construction markets, volumes were up at a healthy level versus last year as we supplied major infrastructure projects and the Texas triangle experienced strong residential activity and benefited from several bolt-on acquisitions. We also improved margins significantly through operating efficiencies, lower maintenance costs, and lower fuel costs. Our mix shift resulted in a lower ASP, but gross profit per ton was up nicely. Our aggregate plants in South and West Texas serving the oil and gas markets continued to be down versus last year but were stable sequentially. We recorded an impairment charge of $800,000 as we right-sized our South Texas footprint and redeployed equipment to more stable demand markets. Our overall volumes in aggregates were roughly flat versus last year, as we replaced more volatile oil and gas exposure with more stable construction market exposure. Our specialty products business has also performed well but has dealt with pockets of COVID-related softness. Our plaster product line has experienced strong demand in certain geographies, but softer demand in the Northeast and West Coast. Lightweight aggregates revenue has also been lower this year, primarily from delayed or reduced demand in large non-residential construction projects. Finally, revenue from our trench shoring product line was down slightly versus last year, but higher sequentially as customers gain confidence and resume more normal purchasing patterns. Overall, our Construction Products team did an exceptional job executing in the quarter. And our strategy to deploy capital into this resilient sector has paid dividends in the midst of COVID-related challenges. Moving to Energy Equipment on slide 10. Revenue grew 6% to $223 million. Adjusted EBITDA of $28.5 million was down from last year, but the margin of 12.8% was towards the top end of the 12% to 13% margin range that we expected at the beginning of the year. Within our wind towers and utility structures revenue line, about half of the $22 million of revenue growth was from organic improvement. The other half was from our newly acquired traffic and telecom structures product lines, which both performed well during the quarter and were accretive to our segment margins. While demand remained healthy, adjusted EBITDA and margins in our utility structures business were lower than we expected in the quarter due to operational challenges related to COVID. We had lower production in two plants, due to higher commodity rates of COVID-19, but we have since returned to more normal levels and believe we’re past the major impact of these issues. Finally, while revenues were down year-over-year in our storage tanks business, we’ve seen improved demand in recent months. Demand for our residential and commercial propane tanks has remained stable, and we have recently won several new orders for large infrastructure projects in Mexico. Turning to slide 11, Transportation Products revenue was even versus 2019 but improved margins in our barge business led to 38% adjusted EBITDA growth. In the barge business, our revenues were up 28% due to increased dry barge deliveries. The team did a fantastic job driving operating efficiencies and controlling costs during the quarter, generating margins ahead of our expectations. All three of our plants delivered exceptional operating results. Revenue and rail components declined year-over-year but was flat sequentially. New rail cargos continue to be weak across the industry but picked up a bit in Q3, so we are hopeful that we have reached a low point in the cycle. We’ve been EBITDA positive throughout the downturn and have had additional success in winning new orders for the more stable, maintenance and non-rail markets. We are optimistic about the business’s growth prospects once the railcar market improves. On page 12, we show several additional financial items from the quarter. Our corporate expenses of $17 million were higher than our normal $13 million run-rate due to $2.5 million of non-recurring legal expenses from a pre-spin-off matter as well as $1.4 million of acquisition and integration related expenses, including for the Strata acquisition that we closed in October. Turning to slide 13, our $93 million of free cash flow was a highlight of the quarter and reflects the strength of our growing cash culture across our businesses. $38 million of our free cash flow came from working capital improvements. Our operating teams have been tightly focused on reducing receivables and inventory and extending our payable terms to industry norms. The very strong cash flow we’ve had this year has helped fund more than $140 million worth of acquisitions since the end of the first quarter, while maintaining the same level of net debt to adjusted EBITDA. We ended Q1 with a 0.5 leverage ratio and we remain at roughly the same level after the Strata acquisition, still below our long-term target of 2 to 2.5 times. Our balance sheet gives us a great deal of financial flexibility to continue to invest in disciplined organic and acquisition growth that Antonio will discuss in more detail. I will now turn the call back over to Antonio.

Thank you, Scott. Let’s discuss our business outlook starting with Construction Products. The overall outlook for this segment is positive, supported by three key factors: attractive market fundamentals, margin resiliency, and a strong capital deployment pipeline. First, in terms of infrastructure products, both infrastructure and residential markets are experiencing healthy demand, which has compensated for weaknesses in non-residential construction and deferrals of capital expenditures related to COVID from our customers. Most of our aggregates business is situated in high-growth areas, especially Texas, where construction activity remains strong. Although lower state budgets might limit infrastructure spending in the short term, the federal stimulus plan, including infrastructural investments, could provide a boost. We were particularly pleased with the recent one-year extension of the FAST Act. Second, we have observed margin resiliency. A significant part of the costs in our construction segment is variable, allowing for adjustments to our cost structure as demand changes. In markets where demand has declined due to COVID, particularly in lightweight aggregates and shoring products, we have successfully reduced our costs while maintaining healthy margins. Even with slowdowns in those areas, we managed to increase segment margins by 250 basis points in the quarter. Finally, we remain optimistic about our capital deployment capabilities in aggregates and specialty materials, both through organic growth and acquisitions. For instance, our disciplined capital allocation was evident in the October acquisition of Strata Materials, which primarily generates revenue from recycled aggregates, an essential focus area for us, starting with the earlier acquisition of Cherry. This acquisition strategically fits our current operations, adding six new locations in the Dallas-Fort Worth market, comprising five recycled aggregates plants and one natural aggregate plant. This will enable us to offer both recycled and natural aggregates to our DFW customers and accelerate our growth. We are actively building a pipeline of further acquisitions in aggregates and specialty materials. Now, turning to Energy Equipment, the utility structure market is experiencing significant strength, with demand exceeding our current production capacity. Utility customers are advancing grid hardening and reliability initiatives while also investing in renewable energy connections. To accommodate this demand surge, we have begun product deliveries from our plant in Mexico, where we've invested approximately $20 million over the past year. We are excited about the growth potential and the ramp-up we expect in the upcoming quarters. Our new traffic and telecom structures, along with concrete poles, are performing well with strong backlogs and positive trends. We are in the early integration stages and are already seeing initial commercial and operational synergies. Our objective remains to grow by replicating these new product lines throughout our operations. Regarding our wind tower business, as previously mentioned, the market is transitioning to a project-based model due to the phase-out of the production tax credit, which we are currently witnessing. In the third quarter alone, we registered $154 million in new wind tower orders and are observing solid project inquiries. These orders provide us with good visibility for production plans in 2021, aligning with our expectations for a gradual reduction in PTC subsidies. As discussed earlier, wind towers are becoming larger. For 2021, we plan to produce some of the larger wind towers, which necessitates retooling our production plant. This will lead to reduced output during the fourth quarter, but we intend to ramp up production in mid-first quarter. While this retooling process is a positive sign for our wind tower business, the temporary shutdown may impact fourth-quarter results, possibly incurring additional expenses or loss of profit of about $2 million or $3 million. Nevertheless, we are hopeful for more orders in the coming months, but we anticipate that 2021 will be a transitional year for the sector, with lower wind tower deliveries compared to 2020. Looking beyond next year, the long-term outlook for the wind tower industry remains strong. Shifting to transportation, while COVID-19 has hindered the positive momentum in the barge sector we experienced earlier this year, we remain optimistic about medium- and long-term prospects. The long-term fundamentals for both dry and liquid barges are encouraging, supported by an aging fleet, natural replacement cycles, and increased grain movements. We are heartened by the rise in inquiries for dry barges, although we believe that the liquid market will take longer to recuperate. Confident in the long-term market fundamentals, we aim to maintain flexibility to efficiently ramp up production when order activity ramps up significantly. We have taken measures to extend our backlog and scale down production at our three plants in preparation for expected lower volumes next year. We also collaborated with customers to shift around $27 million in orders from Q4 into 2021, which will lessen Q4 results but allow us ample time for renewed confidence in new orders. In parallel, we are exploring innovative uses of barges for transporting additional cargo on the river system. Traditionally, containers have primarily been moved by rail and truck, with only a small fraction transported by inland barge. We have finalized the design for a container-specific barge that can carry over 50% more containers than standard hopper barges. This advancement could lead to notable cost savings in container logistics via barge and encourage investment in the necessary infrastructure. In the upcoming months, we plan to construct two container barges and have engaged a couple of customers who will commence testing. This medium-term initiative promises attractive economic benefits for our customers while significantly enhancing environmental sustainability. For our rail components division, where demand has been lacking, we are actively broadening our product offerings and customer base into non-rail markets, which we anticipate will yield additional volume while railcar demand stabilizes. In conclusion, in a few days, we will celebrate our second anniversary as an independent public company. Reflecting on our overall performance in these first three years, three key observations stand out. First, we have successfully transformed our business by focusing on core infrastructure products that enhance our resilience, reduce volatility, and expand our potential for sustainable long-term growth. This achievement has been bolstered by a combination of organic initiatives and over $800 million in strategic acquisitions, selected for their appealing market characteristics and alignment with our ESG commitments. We have enacted this transformation with minimal debt, leveraging our strong free cash flow. Our balance sheet remains robust, allowing us the capacity and willingness to pursue further acquisitions. Next, it is important to note the success of this transformation, despite the economic slowdown over the past seven months impacting various segments of our business. The pandemic has made operations and competitive positioning more challenging, yet we have persisted, albeit at a slower pace than desired. We are committed to making further strides towards our long-term strategic goal of simplifying our operations. Lastly, and most importantly, the fundamentals of our business are solid. While we anticipate volatility due to COVID-related uncertainties, the markets we focus on have strong fundamentals with promising long-term growth prospects. At Arcosa, disciplined capital allocation is a top priority, and we will continue to invest in businesses that align with our long-term vision of growth in attractive markets with competitive advantages, simplification of our operations, improvement of returns, and the integration of ESG principles. As we mark three years as an independent company, it is just the beginning for us. There is much more to achieve, and we believe we have significant opportunities ahead as we continue to develop our company. I would now like to open the floor for questions.

And we will take our first question from Julio Romero with Sidoti.

I wanted to ask about the barge business. You mentioned that orders in October were better than in Q3 in total. What do you think is driving the uptick recently? And do you expect orders and inquiry activity to kind of remain at that same level in November and December, or maybe better than the pace in October?

Yes. This is Antonio, Julio. Let me give you some color on this. If you remember, we had a very good first quarter in orders and then after COVID hit, I think, like most businesses, our customers started looking at their capital expenditures and trying to figure out how to conserve cash. And that’s the first impact we saw; people were trying to avoid large CapEx. And then, you had, of course, the uncertainty of how much the merchandise was going to be moving on the river system. So, you have two different dynamics here. On the liquid barge side, we said we have not seen an uptick in demand; we continue to see very slow inquiries. Utilization rates are very, very low. So, that’s why we’re saying that it’s going to take longer to recover. On the dry cargo side, you’ve seen a very healthy crop, you’ve seen China importing more grain, and they’re still far away from the target they have set. Rates have gone up. The opening of the Illinois River in October is going to help. So, I think there’s a lot of positive signs for the dry cargo market. And if you remember, over the last five years, the dry cargo market has been the one that has replaced their barges more slowly. So, there’s more potential for replacement on the dry side than on the liquid side. And that’s why, because of this uncertainty regarding the amount of orders that we will receive, and we are positive about the ones that we’re receiving, we continue to see inquiries as of this morning. I think that’s why we said that our priority is to remain flexible in our production footprint, so that we can react when our customers need us to deliver these barges. Because if you remember in 2018, when demand picked up, we were not ready and we were slow to ramp up; we need to ramp up much faster, and that’s the focus we have going forward.

Got it. And nice job on the cash flow in the quarter. I think you mentioned in your prepared remarks about extending payables, working to extend payables to more of the industry norm. So, can you just talk about that? And is days payable in that mid-30s range kind of where you expect to be in the future?

Sure. Julio, this is Scott. I think the biggest thing we’ve done is create focus on cash culture, where everybody is very focused on cash. When we spun off from our former parent company, that hadn’t been a priority. And so, over the last two years, we’ve been trying to build the cultural foundation. We’ve seen a lot of success and we generated about $170 million of free cash flow this year so far, $93 million in the quarter. I’d say we’ve made the most progress in our accounts receivable. We have made progress in accounts payable and have room to go. And then, inventory remains probably the biggest opportunity, where it’s a little harder to get because it involves more operational redesigns, but we think we have opportunities in inventory too. So, across inventory and accounts payable, I think we still have room to improve working capital, and we’re optimistic that we can do that next year.

I appreciate the comprehensive answer. I’ll hop back into the queue.

Thanks.

Yes. Thanks for taking my questions. You made some preliminary commentary on next year in the wind tower business. I was hoping that we could pull it back a little more. And at least for those businesses, where you do have backlog and some visibility, just directionally think about what next year might look like, or at least start like from where we sit today.

Sure. We are still in October and have some time before finalizing our budget, so it’s difficult to provide extensive insights right now. However, I can share my perspective on the current state of our markets for 2021. We are quite optimistic about the construction segment. We will benefit from Strata for the entire year, along with the small acquisitions we've made and our organic growth. We've invested in the Houston area, as Scott mentioned, and are also putting in resources around the Dallas-Fort Worth area and some of our operations. The shoring business is showing improvement; despite a difficult year, our other businesses have performed well. However, our lightweight aggregates did not meet revenue and growth expectations, primarily due to COVID-related project delays in their operational areas. Overall, we are very positive about growing the construction segment in 2021 at a healthy rate. On the energy side, our utility infrastructure remains strong, and we anticipate this segment will perform well in 2021 as we integrate our acquisitions for the full year. We plan to replicate these acquisitions in other regions, which will involve capital investments. Additionally, we are ramping up our new plant in Mexico, which is expected to support our volume growth in 2021, making us optimistic about that area too. The tank business in Mexico appears relatively stable. As for the wind tower segment, we have indicated that 2021 is likely to be a transition year with the expiration of the production tax credit. I believe the industry is undergoing a shift to function without the credit, which could present challenges. Still, there are significant advancements in technology that enable wind towers to compete effectively even in the absence of the tax credit. We are pleased with the current orders and ongoing inquiries, and we remain hopeful for additional orders in 2021, despite expecting a decline compared to 2020. As wind farms require tower delivery by mid-year for installation, we have a clear view of what to expect. Circumstances can change, and while we can still secure more orders, we are operating three plants and have an unused plant in Mexico, providing us with growth opportunities. Major opportunities for change lie within the barge and wind tower segments where there is some uncertainty regarding order sizes. Generally, we maintain a positive outlook on the long-term fundamentals of wind towers, though we foresee a slowdown in 2021. Moving to transportation, this is where we observe the greatest volatility. Our rail components are performing adequately, generating positive EBITDA, and we have seen some improvement in orders from the rail industry. We have also significantly grown our non-rail products and customers, leading us to remain optimistic about further growth. The cyclicality of the rail sector means that if it rebounds, we could see a substantial increase in our business given the cost reductions we've implemented. Regarding the barge industry, we remain hopeful about dry cargo orders and are keeping our plants adaptable. The outlook for liquid barges is more uncertain, and it may take until 2021 for recovery to unfold. Nevertheless, we will be ready to adjust our production capacity as orders come in, which is why we are constructing container barges at one of our plants to extend our operating time while waiting for those orders. I hope this provides you with the detailed information you were seeking.

That’s tremendously helpful. And I appreciate your candid discussion before you’ve gone and set your budget. One more and then I’ll pass it on. I recall, with the nature of a tax-free spin, there are some limitations, at least at the parent company with the IRS and what you can do from a capital allocation standpoint, until you hit that two-year anniversary. With that two-year anniversary for Arcosa as a spin-co, was anything restricted in the last two years? And starting next week, as you lap that, is there more optionality or opportunity on some things you can do with capital allocation next week that you couldn’t do this week?

I’m not alone in the room, Bascome. However, I can say that there were some limitations regarding the tax implications for the spin-off to be tax-free. The most significant limitation we faced was in the Energy Equipment segment, which is considered our main segment as we spun off due to its size. There were other limitations as well. In my prepared remarks, I mentioned our ongoing commitment to simplifying the business, as we have discussed previously. I also noted that we have continued to advance our initiatives despite the pandemic and its challenges. However, progress has slowed down. For instance, we did not anticipate the rapid decline in the rail market that began last year, which has impacted our decision-making. I believe that after November 1st, many of these limitations will be lifted. However, these restrictions have not been the primary obstacles for us. While they existed, the main focus should be on the business conditions, which have been relatively uncertain over the past year. Nevertheless, we remain committed to what we stated from the very beginning of the spin-off.

Thank you very much.

Good morning and thanks for taking my questions. First, you talked about operational challenges in the utility structures business due to COVID. Could you go into a little more detail on what those challenges are and maybe how long you expect those to linger?

Sure. Stefanos, this is Antonio. Let me provide some details. The challenges we faced were primarily in the first half of the third quarter, but things have been improving since then. Two of our major plants were located in areas with a significant rise in COVID cases, leading us to isolate many employees. This isolation resulted in a substantial increase in absenteeism. We operate with a lean workforce, so when five people in a specific area are sent home, we lack substitutes. As a result, those two plants were severely affected for a few weeks. However, they have since started to recover, and in September, their performance improved compared to August and July. We believe we are moving in the right direction, and we are mostly past the difficulties. The situation is improving overall, but this serves as an example of how COVID can impact our facilities due to local community conditions. It did affect our utility structure significantly this quarter. Looking ahead, we are optimistic and have a positive outlook for the fourth quarter regarding our utility structure. Importantly, unlike hotel rooms that can go empty, our orders and customers remain intact, and we need to fulfill those commitments. That is the silver lining in the situation.

Thank you. That makes sense. And then, could you maybe give us a little more color on organic growth in aggregates?

Sure. Scott mentioned that we have made significant investments to increase our reserve base in Houston, which still offers considerable potential for us. When we acquired Cherry, they had a solid strategic plan for expanding into the growing areas of Houston. Houston has become one of our major organic growth areas. In the Dallas-Fort Worth region, we are also continuing to grow primarily through land acquisitions, and while the bolt-on acquisitions are inorganic, they have been beneficial. By combining several bolt-ons, we are creating synergies that we consider partly organic. Regarding specialty materials, as Scott pointed out, our plaster business is a highlight as it continues to grow. Although we experienced a slowdown in the second quarter, growth has resumed, and we see promising organic opportunities there. Overall, our focus has been on Houston, Dallas, and certain specialty materials.

Thank you. I’ll jump back in queue.

Scott, I didn’t hear a specific organic growth number for the aggregates business. Can you provide that? Also, could you share what conversations you're having with customers? Texas has a significant rainy day fund. Is that sufficient to support them over the next few years? How should we consider this as we look ahead to next year, especially regarding some states that may face budget shortfalls while having a rainy day fund? It would be great if you could offer some insights into how people in the industry are feeling about this and what your customers are saying.

Sure. Ian, this is Scott. I’ll take those separately. So, on the organic growth rate in aggregates, we had roughly offsetting factors. So, the legacy businesses driven by strong construction market exposure was up, call it mid-single digits in terms of volumes; that was offset by the oil and gas exposure that we had, primarily in South Texas and West Texas. So, the two of those offset each other into roughly flat volumes. But, we talked about replacing the more volatile oil and gas exposure with more stable construction market exposure. So, we think that’s a better mix even if the volumes are roughly flat. On your second question about Texas fundamentals. I would agree with your premise that Texas is in a very good fiscal position. So, when we look at indicators, there’s a healthy state budget, there’s a $9 billion rainy day fund that the comptroller said is not expected to be used but could be used, if needed to, for this fiscal year. You’ve seen healthy population growth, particularly as de-urbanization has increased in Houston and Dallas, and the outskirts have been a beneficiary of that. We’ve seen major improvements in housing starts, particularly in Houston and Dallas. And as Antonio said, about two-thirds of our Construction Products exposure is in Texas. We’re very bullish on the state and the fundamentals there.

Okay. Thanks. And then, just as a follow-up on the M&A front. You’ve been doing a lot of acquisitions. At the same time, the M&A market is relatively robust here. I mean, is this an opportunity to take advantage of anything inside the portfolio maybe to achieve the goals of making the business a little bit more, I guess, streamlined and a little bit more focused?

Yes, this is Antonio. We remain committed to that. There are opportunities to simplify the portfolio, and at the same time, we have strong prospects in the pipeline for deploying additional funds that could come from simplification. I firmly believe that M&A has a life of its own. It can occur when you least expect it and may not happen when you want it to. There's always a need to address this. I’m confident we will have opportunities both for acquisitions and for simplification. We remain committed to both and are eager to pursue them.

Thank you very much for taking my call. Antonio, can you provide some insight into the utility structures market, specifically the split between your alliance customers and the bid market? Where do you see the most opportunity for Arcosa’s new business growth in the coming year?

Yes, Bill, I'll provide some insight on that. Historically, the business we acquired in 2014 was primarily focused on alliance customers, and that has been our main focus. We've identified several key opportunities for growth. One is to expand our alliance customers, and we are actively working on that. I’m very enthusiastic about what I’m seeing and discussing with the team regarding this expansion. The second opportunity, which is by far the largest, is in the bid market, an area where we have traditionally had minimal participation. As we enhance our capacity, engaging in the bid market must be a priority for us. It presents significant volume potential, but it also has less certainty, requiring more flexibility in our manufacturing approach to tackle it, which is something we are developing. Lastly, the third area of growth involves broadening our product line to serve both alliance and bid markets. We are expanding our portfolio with products like concrete poles and distribution poles, among other structures they need. Therefore, both markets are crucial, and by adding additional products to our offerings, we are very excited about our future prospects.

Thank you, Antonio. That provides some good insight. However, with the hurricanes being a negative for many operators, do you see that as a catalyst for demand for some of your utility tower products, as there is a need to replace what has been destroyed?

Yes, weather events are increasingly common. There are several areas of our business that are well positioned for rebuilding efforts. One of these is utility structures and distribution poles. All types of structures, including the traffic structures we acquired in Florida, are expected to see additional demand. Additionally, our business along the Gulf Coast, particularly Cherry and some of our average operations, will experience significant demand following weather events. For instance, in Houston, there’s a need to rebuild levees and other infrastructure, which drives demand. We’ve been preparing for this, and I mentioned in the last conference call that we are starting to import riprap from Mexico to support our business. We are optimistic about this, especially regarding the fluctuations in our businesses. We remain hopeful about our prospects for 2021, and as weather events occur, they will serve as an additional driver for some of our products. On your acquisitions and traffic structures and telecom structures, your objective is to replicate that and expand the footprint to I guess a more national marketplace. What are the main challenges, Antonio? And taken those smaller, right now, where you have concentration in smaller markets and expanding that out to other markets in the country, what’s the main challenges of doing that? That’s a great question. The primary challenge for the Company is to create a different structure as we assess the markets. The commercial sector operates very differently compared to the telecom and utility sectors. It's crucial for the commercial side of the Company to maintain a strong focus on each specific market. Meanwhile, the manufacturing segment is where we can achieve significant synergies by processing these products in similar facilities, aiming for a unified source of manufacturing across all three markets. Therefore, the next challenge is to integrate these new products into our plants to realize these synergies, while also ensuring that we remain focused on our customers and the commercial side of the business.

Does it involve having to go out and acquire new customers as you go into these new markets? Does it involve any kind of regulatory tests you have to pass for your products to go into different states and markets? Do you have any new customer challenges and/or regulatory challenges with expanding this business?

Some of the plants, depending on the product line, have to be certified for certain DOTs and some of the things. So, there are regulatory aspects that we have to follow. And that will take some time, but it’s nothing that we cannot do and we’re not used to doing. On the customer side, it’s like everything else; we just have to put our suit on and get our briefcase and travel to see the customers and convince them that we’re a good option and then prove that we are the best option.

I bet you can do that. Lastly, you mentioned several times that your storage business has significant infrastructure projects in Mexico. Can you provide more details about the nature of those projects?

There are some strategic projects that the Mexican government is developing, particularly in the refining sector, and we are starting to capture some opportunities there. We do not sell directly to governments; instead, we sell everything through construction companies and large EPCs. Our primary focus is on serving these large EPCs that operate in the infrastructure market. Thus, we are not direct sellers for any specific project, but rather we work through large international EPCs.

I hopped on the call a bit late. So, I apologize if anything here is redundant. On the barge side of the business, you had positive comments about the outlook for dry barges, but it doesn’t seem like that filtered through into orders in the quarter. And so, I guess any color there would be helpful. And, what does the rising steel price mean, if anything, for the dry barge market?

So, Justin, this is Antonio. The quarter was very slow in orders as we noted in the prepared remarks, but we have received additional orders since then and continue to get inquiries, even this morning. We're feeling more optimistic about the dry cargo market. Although we are still in the pandemic, which makes customers hesitant about investing in capital expenditures, the dry cargo market has several positive dynamics. Grain exports to China are increasing, and rates are going up. The reopening of the Illinois River in October is also expected to help. There are many positive indicators for the dry cargo market. In terms of steel prices, we have seen particularly positive trends over the last six months. Traditionally, plates have been more expensive than coils, but now that's reversed; coils are increasing in price while plate prices remain stable. I believe plates are still very attractive at current prices. This suggests that rising steel prices can be beneficial for our barge business since they affect the plate size, though high steel prices are generally not ideal as a significant part of barge costs come from steel. Overall, we remain optimistic about the dry cargo market. Although we don't have enough orders yet for 2021 to keep full capacity, which is why we are reducing production, we are keeping our three plants open because we strongly believe in the market fundamentals and want to be prepared when demand increases.

Okay. That makes sense. Understood. Shifting to Energy Equipment. Again, if you’ve already answered this question or it’s in your prepared remarks, just let me know and I’ll go back and review the transcript. The orders seem predominantly weighted towards wind tower deliveries in 2021. I mean, I guess, it doesn’t imply sort of as much orders on the utility structure side. Is that just sort of idiosyncratic quarter-to-quarter behaviors? Should I read anything into that?

Yes. The key point to highlight is the wind towers. The utility structure remains very strong. We had a solid quarter for orders in the utility structure and the other smaller business we acquired. It's important to note that many of the utility structure orders I mentioned in the previous call to Bill, which came from alliance customers, are blanket orders for the year and have specific details. We cannot count them as part of the backlog until we have enough information to do so. Consequently, a significant portion of the work we have committed for 2021, for example, is not categorized in our backlog until we clarify more specifics with our customers regarding their needs, timing, pricing, and so on. In contrast, for the wind tower side, the details are very specific. Therefore, we can include it in the backlog because it has defined prices, timing, deliveries, and more.

Okay, understood. And then, lastly, I guess, you’ve done a lot of M&A activity in the recent 12 months. And, are we in sort of a digest phase? Is there more that you want to do in the near-term? Or is there more you can get done before end of the year to take advantage of any tax-oriented sellers? Any color there, if you haven’t already addressed this question? Sorry, if you have.

No. I think the good news is that we’ve done a lot of mergers and acquisitions, mostly this year; the biggest one was Cherry, followed by the recent acquisition of Strata. These are similar businesses in relatively close locations. I’m confident in our ability to integrate these acquisitions because we’re only pursuing opportunities within our expertise and comfort zone. We are not acquiring anything that we do not understand. Therefore, as long as we continue to acquire companies we understand and are focused on, the size of the deals we’ve completed are manageable, and we are in a good position. Naturally, the more time we allow our team to integrate these acquisitions, the better it will be. However, we also see opportunities to pursue further acquisitions. I wouldn’t expect anything significant in the next few months as we need to integrate Strata and get that organization running smoothly. Nonetheless, we still have an appetite for mergers and acquisitions.

Okay. If it seems like the tax regime might change soon, do you think there are some smaller deals with tax-oriented sellers that you could complete before the end of the year? I’m interested in your thoughts on this from an industrial perspective.

That’s what we hope. I mean, that’s one of the things we’ve been discussing, how much especially small or medium sized private companies, we’ve seen some conversations from those sellers saying, look, I’d like to get it done before the end of the year. They might want that. But, of course, at the same time, we have to be very-disciplined and very, I would say, cautious about doing our due diligence, and those are the things we need to be doing. But, I can tell you, we don’t have a line of people outside waiting for us to do it before the end of the year; that’s not the case. And then, lastly, are you seeing who you have competed against to acquire the companies or bolt-ons you are purchasing, to the extent you have a reasonable intuition there? Yes, we are focused on smaller acquisitions, which are more relationship-driven. We typically establish a good rapport with the seller, and for most of these transactions, we have managed to agree on a price that feels fair to both parties. In contrast, with larger companies, we often see higher-profile players in the industry involved. However, for smaller and medium-sized acquisitions, it usually comes down to informal agreements where we negotiate pricing and proceed together. This has been our history. With larger deals, major firms participate, but we prefer the smaller ones, as it helps keep prices in check.

Juggling for a quick little follow-up color and apologies if this has already been covered, jumping on a little late as well. But, can you talk to the Construction Products Group activity for the quarter? And specifically looking around the pricing and demand dynamics of how they may have shifted from the beginning of the quarter to the end?

Sure. This is Scott. So, I think the big headline from Construction Products in the quarter was our 250 basis-point improvement in margins. So, we talked a bit about volumes being up in our construction market exposure, down in oil and gas exposure, some softness related to COVID in our lightweight aggregates and our shoring businesses. But we’re most pleased with the margin improvement despite some of those headwinds. Aggregates, we had strong improvement from operating efficiencies, lower fuel costs, and maintenance expenses. Cherry was able to do very well despite weather events. And so, overall, it shows the resilience of the portfolio in the quarter when you have some softness to be able to improve margins like we did.

We have no further questions at this time. I would now like to turn the program back to Ms. Peck for any closing remarks.

Thank you, Nicky. And thank you everyone for joining us today. We look forward to speaking with you again next quarter.

And this does conclude today’s program. Thank you for your participation. You may disconnect at any time.