Good morning, ladies and gentlemen, and welcome to the Arcosa 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 Drabek, Director of Investor Relations for Arcosa. Ms. Drabek, you may begin.

Good morning, everyone, and thank you for joining Arcosa'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.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 and Events tab. Today's comments and presentation slides contain financial measures that have not been prepared in accordance with GAAP. Reconciliations of non-GAAP financial measures to the closest GAAP measure are included in the appendix of the slide presentation. In addition, today's conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the company's SEC filings for more information on these risks and uncertainties, including the press release we filed yesterday and our Form 10-Q expected to be filed later today. I would like to now turn the call over to Antonio.

Thank you, Erin. Good morning, thank you for joining us to discuss our first quarter results, and our updated outlook for 2023. I will start with a few key messages. Arcosa delivered outstanding first quarter results driven by strong financial and operational performance from all three business segments. In what remains a challenging macroeconomic environment, the entire Arcosa 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 businesses generating strong results. Construction Products led the performance in the first quarter. Excluding the gain on a land sale, adjusted EBITDA increased to 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. In Transportation Products, we improved margins by 450 basis points as volumes increased and created significant operating leverage. Our backlog for our barge business at the end of the first quarter is at the highest level in three years and now provides production visibility into 2024. Likewise, in wind towers, our backlog is expanding and this sets the stage for significant upside potential in 2024 and beyond due to the multi-year tailwinds provided by the Inflation Reduction Act. During the quarter, we signed a multiyear agreement to produce wind towers and announced an investment in the brownfield facility in New Mexico, which should start production in mid-2024. Looking ahead to the balance of the year, Arcosa remains well positioned for continued solid financial performance. Even as we increase our investment in 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 Products portfolio, our recycled aggregates producer in Arizona and our shoring manufacturing in Houston. These acquisitions, while relatively small individually, are significant in that they broaden our presence and capabilities in two major southern markets. With our market-leading positions and opportunities across our portfolio to capitalize on increased infrastructure spending, I am very optimistic about our future. Gail will 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 decline. Recent acquisitions contributed approximately one-quarter of the revenue growth, largely attributable to RAMCO which we acquired last May. Adjusted segment EBITDA increased 85% year-over-year or $35 million, due to the $22 million land sale gain in our natural aggregates business and healthy improvement in unit profitability. Excluding the land 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 have reported margins excluding freight, which is a pass-through cost in our construction materials businesses and dilutes reported margins. Higher diesel, process fuels and 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 non-residential activity given the successful transition of volume in certain markets. 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. In recycled aggregates, strength in Texas DOT work drove substantially higher organic volumes in our Houston and Dallas operations. However, unusually wet weather in Southern California adversely impacted the contribution from RAMCO during the quarter. First quarter pricing gains were healthy, leading to solid margin improvement year-over-year for recycled aggregates. Within Specialty Materials, slightly higher volumes and double-digit pricing increases in lightweight aggregates led to mid-single-digit top line revenue growth. Volumes were mixed in our other specialty product lines. Demand for industrial and flooring plaster remained 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. Order inquiry levels were healthy and our backlog remains supportive for growth in 2023. Moving to Engineered Structures. Slide 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 in utility structures where the demand environment continues to be favorable. In addition, we recognized $3.2 million of net benefit from 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 IRA in August 2022, we have received over $1.1 billion in wind tower orders. We also had robust order activity in utility structures resulting in backlog at the end of the quarter for utility wind and related structures of $1.5 billion, up 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 barge orders of $122 million during the quarter, representing a book-to-bill of 1.8. 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% 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 1.1 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 and 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 facility. 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. Our range now anticipates $85 million to $100 million of growth CapEx 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 and equipment. I will now turn the call back over to Antonio for an update on our 2023 outlook.

Thank you, Gail. As mentioned in our fourth quarter call, we expect 2023 to be a transition year financially. We foresee our growth businesses benefiting from solid market fundamentals, while our cyclical businesses will undergo significant manufacturing ramp-up and gradually improve before achieving stronger profitability in 2024. We are slightly raising our 2023 revenue guidance to $2.25 billion at the midpoint, which represents a 10% increase compared to 2022, after normalizing for the sale of our storage tank business. Due to outperformance in the first quarter and expectations for improved profitability in our cyclical businesses linked to anticipated tax credits from wind towers, we're increasing our 2023 adjusted EBITDA guidance to $358 million at the midpoint, up from the previous midpoint of $325 million. This updated guidance includes an estimated $20 million in net wind power credits at the midpoint, which were not factored into our prior estimate. We are still awaiting further clarification from the IRS regarding this tax credit. We believe our Construction Products division is well-positioned to take advantage of ongoing significant investment in highway and other infrastructure projects. Infrastructure lending is accelerating across many of our markets, and pricing momentum remains favorable for both natural and recycled aggregates. While the housing market shows weakness across our markets, we are optimistic that improved pricing and demand for infrastructure projects will offset declines in housing volume. Looking ahead, we believe that with stronger pricing, a housing recovery, infrastructure investment, and decreasing inflation, our Construction segment will continue to grow and improve margins. The outlook for Engineered Structures remains positive, driven by ongoing utility and infrastructure investments, healthy spending from the Department of Transportation in Florida and other southern states, and the ongoing 5G wireless expansion. In the electric utility sector, major capital expenditure programs are focusing on grid-hardening, enhancing reliability, and connecting new renewable energy sources to the grid. Utilities are starting to accelerate planning to supply the growing fleet of electric vehicles with new power sources. This wide range of capital expenditure initiatives is reflected in the growth of our utility structures backlog. Regarding our cyclical businesses, market dynamics for our wind tower and transportation segments are improving, supporting our expectation that these businesses are entering the early stages of cyclical recovery. The 10-year PTC extension in the Inflation Reduction Act has provided significant planning certainty, leading to increased demand for wind towers, which we expect to continue as projects commence. The $800 million in wind tower orders in the first quarter is the highest quarterly total in Arcosa's history. To address this demand, we announced an expansion of our wind tower manufacturing capacity in New Mexico, with production expected to start in mid-2024. We believe that 2023 will represent a transitional period for our wind towers business, considering the production ramp-up and additional startup costs at the new facility. In 2024, we expect to see progressively improving profitability from higher volumes, the new plant's production, and increased tax credit benefits. Our barge business is also showing steady improvement, with over $250 million in barge orders received in the past two quarters, indicating strong pent-up demand. We have updated our production process, lowering costs and enabling new orders. With ongoing improvements in orders and high inquiry levels, we are optimistic that the recovery in the barge market is starting. Although steel price volatility poses challenges, some customers are raising their price expectations in response to elevated steel prices and ongoing inflation. Given the strong demand, we will focus on selling our available capacity at attractive margins. Despite signs of a broader economic slowdown, our barge and steel components remain resilient, supported by increased utilization of North American railcars and growth in new railcar deliveries. We do anticipate some moderation in our top line as delivery comparisons become more challenging, but the overall outlook remains positive for growth this year. Arcosa's sustainability initiatives are fundamental to our commitment to creating long-term stakeholder value. I'm pleased to announce the publication of our third annual sustainability report, detailing how we integrate sustainability into our strategy and operations, and our progress toward our ESG goals. I am proud of our progress in strengthening our safety culture, reducing greenhouse emissions, and supporting community sustainability efforts. In closing, 2023 is off to a strong start, and I am excited about the opportunities within our portfolio that will enhance our financial performance this year and into 2024 and beyond. Now I would like to open the call for questions.

Thank you. And we'll take our first question from Julio Romero with Sidoti & Company.

Hey, good morning, Antonio and Gail. I was hoping you could talk about the progress on the rollout of the redesigned barge product, did you just coil steel and how that's performing so far?

Sure, Julio. Thank you for the question. As I mentioned in the previous call, last year 2022, the prices between coil and plate started to diverge significantly. Historically, there's a $150 a ton difference between a ton of plate and a ton of coil. Last year that number was almost at $1,000. That's when we started looking at the opportunity to redesign dry cargo barges with coil. We worked on it in the second half, and in the summer, we launched our first coil barge, and that generated significant demand for the barges. Most of the orders in the fourth quarter came from coil. Throughout this quarter, we continue to offer our customers. Now, the beauty of this is that we can offer coil barges or plate barges and we'll shift our production and our sales depending on that difference in prices. This year, steel prices started coming up. The last few years, steel prices have been going up in the second half. Coil prices went down and this year 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 in manufacturing and sales, but also leverage between suppliers of steel, because we can now shift suppliers based on the difference in that price. So things are going well. The barge is fully designed, and we are building barges today with coil.

Okay. Really helpful there. And I guess just thinking about the order trends in the barge business you had two straight quarters of $100 million plus in orders. But you also talked about the steel still suppressing orders to an extent. So just talk about how you're 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 steel continues on that trend line?

Yes. I think the most important message here is that the inquiries are extremely strong. So we have a very strong market needing these barges. Some of our customers are moving their price points to the barges because they really need them. So I don't know about this quarter and the next; it might not be a straight line. But I'm confident we will continue to get barge orders based on the inquiry levels we see. What I mentioned is we're going to be focusing on our margins as we sell more barges, of course, as capacity gets tighter. We have quite a long visibility until the early part of 2024.

Great. Appreciate you taking my question, and I’ll pass it on.

And we'll take our next question from Garik Shmois with Loop Capital Markets.

Thanks and congrats on the quarter. Wondering if you could speak a little bit to the margin expansion in the Construction Product segment. Certainly, you're getting a new lease on pricing. Just wondering if you can maybe talk to the sustainability of this type of marketing expansion through the rest of the year?

Thank you for the question. This industry has always been marked by this behavior. You can see that pricing can be adjusted even when volumes decrease. I believe we will continue to balance volume declines with pricing increases and by reallocating our capacity towards infrastructure. It may be a bit unstable, but I am confident that we can keep pushing prices up while compensating for any volume declines.

Okay, great. I wanted to just follow up real quickly just on the weather impacts in the quarter. You cited some of the weakness being due to the rains in California. I was wondering, maybe is there a way to size the headwind that you saw due to weather? Are you seeing any pent-up demand here in the second quarter as a result of some of those project push-ups?

It's challenging for us to quantify, but when you examine the figures for recycled aggregates, we experienced two effects in California. One pertains to recycled aggregates and the other to specialty materials. The only recycled aggregate market that faced significant issues was California. Now that the rain has subsided, we are in strong condition, and the volumes are increasing steadily. There’s nothing wrong with the business; it was merely a significant rain event. We remain very optimistic about the future of recycled aggregates in California.

Good morning, Garik, this is Gail. I want to mention that a couple of months ago in January and February, we experienced some rain and colder weather here in the Dallas area. Looking at the quarter, we were pleased that March brought typical weather, and we were happy to see that the volume pace during that month met our expectations. Weather certainly had an impact, but as Antonio mentioned, when the skies are clear, everything seems to be on track from a volume perspective.

Okay. That’s great to hear. Thanks, again, and I’ll pass it on.

And we'll take our next question from Noah Merkousko with Stephens Inc.

Good morning. Thanks for taking my questions and congrats on the strong results.

Thank you.

I wanted to start on the wind towers business. You've seen increases in orders there. What's the typical lag in terms of getting an order and being able to deliver on those? I think, you continue to see this year as a transition year for wind. So, is that early '24 that you start to see? And just given your capacity plans, how much of the backlog can you deliver on in that?

Let me start with the first part of the question. Reflecting on where we are, six months ago this business was not looking pretty. We didn't have orders for 2023, we had no orders. We took some orders with very low margins to get the year started and keep our people working. As the Inflation Reduction Act picks up pace, we’re seeing very strong demand. Our ability to ramp up will depend on how fast we can hire. For 2024, we are not at capacity by any means. I think the message I would like to leave you with is, we're going to be dialing our labor and our capacity based on how we see the orders.

Got it. That's helpful. And then for my follow-up continuing to look at the Engineered Structures segment, some really nice margins during the quarter 14.5, somewhat higher than your typical 12% to 13%. Can you help us understand the margin drivers there and again how sustainable this is as we look forward?

I'll take that one. This is Gail. Yes, we had – pleased with the margin performance. If you look at the segment year-over-year, you had probably about 170 basis points of margin improvement. Part of that was the tax credit. We did recognize $3 million of the advanced manufacturing production tax credit. But even outside of that, we did see margins up against a tough comp from last year. We expect to continue to have healthy margins throughout the year. I would note that we expect to see a slightly higher component of bid, which will impact the margin for the second quarter. But the full-year outlook for the business continues to be strong.

If you think a little beyond the quarter of this year, I think we're very comfortable where we are for this year. This segment has always been. Engineered Structures and related and wind. And since four or five years ago utility structures have been going up, and the wind tower has been coming down. As wind ramps up again, I think there's going to be a combination of margins that should lead to improvement in margins in this segment.

I want to point out though as we think about the cadence, we do anticipate a little bit of a step down in Q2 as we progress through the year.

Got it. That’s really helpful detail. Thanks. I’ll leave it there.

And we'll take our next question from Brent Thielman with D.A. Davidson.

Thanks. Hey, Antonio, I think a quarter ago you suggested that you thought the backlog in wind can grow, which was valid. I guess maybe I'll ask you the same question from the standpoint of expectations for wind orders to the rest of the year. I imagine that had another $800 million order often out there. But are these levels you anticipate building off of 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. The inflation Reduction Act’s impact we haven't really seen. We’ve seen part of the certainty, but we have not seen the impact of new projects and that’s extremely exciting for the future. Is it going to be this quarter? Probably not. But we will see that over time. I think we’re building this business not for one year for several years. The 10-year act 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 you sell which I know you don't report. Can you help us understand qualitatively your expectations for structures produced and sold this year relative to last year?

As we've said before, we haven't really elected to report volume from a competitive perspective. Many factors impact it, including the megawatts of the installed turbine. We've given our best foot forward here with the estimate we have in our EBITDA guidance of about $20 million of incremental EBITDA related to the tax credit. From a perspective, we anticipate a slight decline in volume. But based on the backlog we have in place, 2024 and 2025 are higher years.

Okay. All right. Thanks for that follow-up. I appreciate that. I’ll pass it on.

One comment on the tax rate. There are a lot of rules that we expect. The most important piece is the rule of Buy America, which we are waiting to be clarified. This will impact both the wind and solar industries very differently. The wind tower industry as you saw with the New Mexico plant, there is no capacity, and we can build it really fast. I think we're doing that and the industry is doing that.

Interesting point. Thank you, Antonio.

And we'll take our last question from Ian Zaffino with Oppenheimer.

Hi, great. Thank you very much. I just wanted to kind of ask one more question on the tax credits. How are you thinking about pricing in this business? Are you going to price it so that the unit is quite even? And then all your EBITDA would come from the uplift of the AMP, or do you think you're going to run the business as standalone profitable and then you'd take the AMP on top of that?

It's a really good question. 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. We will see the tax credits as additive to our margins. We’re giving some to our customers, but the majority we will keep.

Okay. That makes sense. And then on the barge side, can you give us a little bit of color between dry and liquid? I don't know if you mentioned that. Can you cut some of the dynamics there? Thanks.

Sure. Most of our orders right now are a dry cargo barge. The market where we are seeing pent-up demand is in dry cargo. The aging of the barges is higher there. We are seeing some demand for the larger liquid barges.

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 are really coming out of their trough. Wind towers are really a benefit here. So those are three big important growing businesses. But then you have a couple of other businesses that are much smaller. Are there any plans to get rid of some of these other non-core businesses? Given the strength that you're seeing across these other three segments does that encourage you or kind of increase your desire to shed some of those businesses?

We have clearly stated our intention to simplify the company as certain businesses prepare for and are positioned for divestiture. Mergers and acquisitions have their own dynamics. We will keep simplifying, monetizing some assets, and continue reinvesting in our growth areas, particularly in mergers and acquisitions as well as in construction and engineered structures.

Okay. Thank you very much.

Thank you for joining us today, and we look forward to speaking to you again next quarter.

That concludes today's teleconference. Thank you for your participation. You may now disconnect.