Earnings Call Transcript - ACA Q2 2023

Operator, Operator

Good morning, ladies and gentlemen, and welcome to the Arcosa, Inc. Second 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.

Erin Drabek, Director of Investor Relations

Good morning, everyone, and thank you for joining Arcosa's Second 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 2 weeks. Instructions for accessing the replay number are included in the press release. A replay of the webcast will be available for 1 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 now like to turn the call over to Antonio.

Antonio Carrillo, President and CEO

Thank you, Erin. Good morning, and thank you for joining us to discuss our second quarter results and our updated outlook for 2023. Please turn to Slide 4. I will start with a few key messages. Our second quarter financial performance was consistent with our expectations, driven by growth in the Construction Products and Transportation Products segments. Construction Products benefited from strong unit profitability improvement in natural and recycled aggregates while Transportation Products performance highlighted the significant operating leverage in this segment from higher production volumes. These solid results were partially offset by expected softness from Engineered Structures, reflecting a less favorable mix of utility structures projects booked in 2022. I am pleased with our performance through the first half of the year. We have achieved double-digit growth in revenue and adjusted EBITDA normalizing for storage tanks and expanded margins approximately 100 basis points, excluding the first quarter land sale. This strengthened profitability reflects proactive pricing actions and effective cost management that improved operating leverage in Transportation Products. Through disciplined working capital management, second quarter cash conversion was strong, driving free cash flow up 11%. The strength in our free cash flow generation is especially notable given our expanded CapEx program in 2023 that includes a broad set of organic growth initiatives. As we look ahead, our cyclical businesses are poised for accelerated growth and profitability next year driven by improved production volume. Our Engineered Structures backlog has more than tripled over the last year, while our Transportation Products backlog has more than doubled. Additionally, order inquiries for dry cargo barges remain strong, and hot rolled coil steel prices have retreated from the recent highs. In Construction Products, we remain committed to prioritizing value over volume, focusing on increasing unit profitability and expanding margins. The overall pricing environment remains supportive, aided by favorable demand conditions in our geographic markets, and we continue to work proactively to mitigate inflationary pressures. Our solid first half financial performance and improved visibility for our cyclical businesses has increased our confidence in the second half outlook. As a result, we're raising the low ends of both our revenue and adjusted EBITDA guidance ranges for 2023. Gail will now provide detail on our financial results for the second quarter, and I will return to discuss our updated outlook.

Gail Peck, CFO

Thank you, Antonio. I'll begin on Slide 11 to discuss our second quarter segment results. Starting with Construction Products. Revenues increased 8% driven by higher volumes and pricing growth in recycled aggregates as well as organic growth and acquisition-related contribution in trench shoring. Revenues in natural aggregates and specialty materials were roughly flat as higher pricing was offset primarily by lower volumes. Adjusted segment EBITDA increased 5% year-over-year. Strong pricing gains and reduced inflationary cost pressures drove higher unit profitability in our aggregates businesses. Adjusted segment EBITDA margins declined 50 basis points as operating inefficiencies in specialty materials offset margin expansion in our other businesses. Turning to natural aggregates. We continued to experience broad pricing strength across our markets, with average organic pricing up mid-teens on a freight-adjusted basis, led by our West region. Natural aggregates volumes were down mid-single digits, an improvement from the pace of decline over the last couple of quarters. Continued pricing momentum, coupled with an easing in inflationary pressures, particularly lower diesel costs, resulted in higher unit profitability and solid year-over-year margin expansion. In recycled aggregates, we continue to see strong demand, particularly in our Houston and DFW markets, with organic volumes up about 20% and pricing up low double digits. The combination of the two drivers resulted in significant margin expansion for recycled aggregates in the second quarter. Within specialty materials, overall demand remained healthy, particularly for our plaster and lightweight aggregates product lines. However, second quarter profitability was impacted by several items, resulting in lower business unit EBITDA and margins. Skilled labor availability at a few specific locations continued to be a challenge. We have taken steps to address and are seeing improved hiring and retention. Unplanned maintenance and downtime also limited production volumes, which was further impacted by long lead times on certain repair parts. Our expansion at our plaster plant continues to be on budget and on time. As expected, operating inefficiencies occur early in the process as we ramp up production. We are focused on improving business unit profitability in the quarters ahead. Finally, revenues in our trench shoring business grew 27% on higher organic volumes as well as contribution from the Houston acquisition that closed during the first quarter. Margins also expanded, more than offsetting acquisition integration costs. Overall customer confidence is strong, and our backlog and inquiry levels remain supportive of growth in 2024. 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. During the second quarter, revenues for utility wind and related structures were flat as higher volumes in utility structures were offset by lower volumes in wind towers. Adjusted segment EBITDA and margin decreased year-over-year, primarily on less favorable product mix in utility structures. We expect the margin in utility structures to normalize in the second half of this year. Segment margin was positively impacted by $5.9 million of net benefit from AMP tax credits provided for in the Inflation Reduction Act, which more than offset the impact from lower wind tower volumes. Order activity for utility and related structures continued to be healthy and order levels kept pace with shipments. While no new wind tower orders were booked this quarter, customer inquiries indicate strong interest. We ended the quarter with combined backlog for utility wind and related structures of $1.5 billion, unchanged from the first quarter. Turning to Transportation Products on Slide 13. Segment revenues were up 28%, driven by solid volume growth and improved pricing in both our barge and steel components businesses. Adjusted segment EBITDA more than doubled, and margins expanded over 500 basis points, reflecting the significant operating leverage inherent in these businesses. We received barge orders of $81 million, predominantly for hopper barges, which kept backlog about flat and extended our visibility into mid-2024. We ended the quarter with total barge backlog of $287 million, of which we expect to deliver approximately 55% during 2024. I'll conclude on Slide 14 with some comments on our cash flow and balance sheet position. We generated $76 million of free cash flow during the quarter, up 11%, driven by a nearly 50% increase in operating cash flow. Solid working capital management resulted in a $41 million source of cash for the quarter, helping to recover most of the first quarter's $55 million use of cash. As our growth businesses continue to expand and our cyclical businesses recover, we expect working capital to be a slight use of cash for the year. Our second quarter free cash flow generation is all the more impressive considering capital expenditures were $53 million, almost double the prior year level. We continue to make progress on the organic projects underway in Construction Products and Engineered Structures. As a reminder, our full year CapEx guidance is $185 million to $210 million, which includes $85 million to $100 million of growth CapEx in 2023. We ended the quarter with net debt-to-adjusted EBITDA of 1x and available liquidity of $673 million. Our healthy balance sheet and liquidity continue to provide ample flexibility to pursue disciplined capital allocation. I'll now turn the call back over to Antonio for an update on our outlook.

Antonio Carrillo, President and CEO

Thank you, Gail. Please turn to Slide 16. We're pleased with our performance through the first half of 2023 as our growth businesses have performed well, and our cyclical businesses have outperformed relative to our expectations at the start of the year. As a result, we're raising the low end of our 2023 revenue guidance range to $2.25 billion from $2.2 billion previously. At the midpoint of our revised range, we now forecast 11% revenue growth as compared to 2022. We're also raising the low end of our adjusted EBITDA guidance range by $10 million to $355 million and maintaining the high end of the range at $370 million. This represents a 30% year-over-year adjusted EBITDA growth at the midpoint of our revised range. Consistent with our prior guidance, our 2023 adjusted EBITDA forecast assumes wind-related tax credits of approximately $20 million as we await final clarification from the IRS. Now please turn to Slide 17 to review the outlook for our growth businesses. Increased infrastructure spending at both the federal and local levels support continued positive outlook for construction products. While we have seen some pressure on volume in the single-family residential market, this has been more than offset by robust organic pricing and solid demand from the nonresidential multifamily and public infrastructure end markets. We're encouraged by the recent pickup in single-family permits and starts and are beginning to see that translate into stabilization of volumes. Pendings from the infrastructure deal and Inflation Reduction Act, as well as healthy state budgets, are providing a tailwind for our Construction Products business that we expect to continue to benefit our performance. We continue to actively pursue potential acquisitions. Our current M&A pipeline includes several attractive bolt-on opportunities that would complement and expand our geographic footprint. In Engineered Structures, the strength of our utility structures backlog reaffirms our view that customer demand and pricing remains solid. Utilities continue to invest heavily to strengthen the resilience of the electrical grid as well as to expand their infrastructure to connect new renewable energy sources to their networks. The step-down in second quarter profitability was not indicative of current market conditions, but instead was related to specific orders booked in 2022. Looking at the second half of the year, we expect utility margins to reflect an improved project mix. We're seeing continued demand for telecom towers to support the ongoing buildout of 5G networks, and traffic structures is benefiting from increased service transportation investment. Shifting now to the outlook of our cyclical businesses on Slide 18. This is an exciting time for Arcosa as our cyclical businesses enter into what we believe will be a sustained multiyear upcycle. We're already seeing a glimpse of the financial impact these businesses can deliver as production volume scales and drives improved operating leverage. As we expect our production rates to increase further in 2024, our cyclical businesses are poised to generate strong growth in revenue, margins and cash flow, leading to improved returns on invested capital. In wind towers, our current capacity utilization remains relatively low, consistent with the positive demand that we anticipated for this year. However, through our continued focus on driving operating efficiencies, we now expect the wind towers business to perform above breakeven in 2023 before considering the net benefits of tax credits. As you know, we're currently investing approximately $60 million in our New Mexico facility, which should start delivering wind towers in mid-2024. As production ramps up in New Mexico and other facilities, we should see steady improving profitability. Even as our wind backlog has grown substantially over the past year, customer interest remains strong and the market is very active, reinforcing a view that wind is poised for a sustained period of expansion. Order fulfillment in this market is complex, taking time to negotiate. Therefore, we do not expect to announce new orders every quarter, but we do expect order levels to trend higher. Although we expect to continue to operate with relatively low capacity utilization in 2023, we have the flexibility to increase our throughput to meet improving market demand with minimal operational CapEx. Please turn to Slide 19. With our large backlog having reached nearly $300 million, we are increasingly confident in the near to midterm outlook for this business. Our production visibility now extends well into 2024, allowing us to be more selective with respect to the profitability of orders we pursue. We're focused on driving margin improvement through efficient cost management, generating operating leverage as volume scales. Over the last couple of months, hot rolled coil steel prices have declined while plate steel prices remain elevated. This difference in prices is starting to create attractive market conditions for barges made with coil. Given tight capacity and the aging fleet, we expect customer interest to remain high for these products. Our steel components business continues to perform well despite operating at a relatively low level of capacity. While we do not anticipate a meaningful strengthening in the market demand for the remainder of this year, the forecast for the next several years is promising. One of the main products of our steel components business are railcar coppers. Our cost of profitability in this market has been pressured from railcar coppers produced in China and Mexico. Trade remedy investigations by the federal government led to the recent establishment of duties of more than 400% on imported coppers from China. In the second half of this year, the government is also expected to make final terminations on potential duties for imported coppers from Mexico. These trade remedies help level the playing field and should enable our steel components business to generate higher volumes and drive improved efficiencies. In closing, our first half of 2023 results are a testament to the quality of our talented team as we effectively navigate challenging market conditions. Looking ahead, we're optimistic about the outlook for both our growth and cyclical businesses. Arcosa remains well-positioned given our broad exposure to infrastructure markets that we believe will benefit from multiyear tailwinds. Our strong balance sheet provides ample flexibility as we continue to pursue attractive organic and inorganic opportunities. We remain committed to expanding margins, generating strong cash flow and allocating capital to build long-term shareholder value. Now I would like to open the call for questions.

Operator, Operator

We will now take our first question from Noah Merkousko with Stephens.

Noah Merkousko, Analyst

First, I wanted to talk about the Construction Products segment and how you're thinking about that in the back half of the year. It sounds like pricing continues to be very strong. And granted, there are some volume headwinds there, but I think the expectation also for the back half is some of the costs to ease. So ultimately, I'm just trying to figure out how you're thinking about margins in the back half and if we should see year-on-year expansion.

Antonio Carrillo, President and CEO

Sure. Let me give you some color. I think since the beginning of the year, even from last year, we expected the second half of the year to start seeing some volume pickup as housing is expected to start recovering. So we're optimistic about the housing recovery starting sometime in the second half. We continue to see strong pricing momentum in our business. Ideally, as volume recovers and pricing keeps its strength, we should continue to see some margin expansion in natural aggregates and recycled aggregates. And our goal for the second half of the year is to improve our margins in Specialty Materials, which hit us hard in the second quarter. So I think we're optimistic. The fundamental aspects of the market are strong. So we do expect a strong second half of the year. Of course, we're going through a summer that's been extremely hot. That creates issues, such as some projects shutting down early to ensure people stay healthy, etc., but those are temporary issues. Overall, the pricing environment and the volume recovery should help us in the second half.

Noah Merkousko, Analyst

Got it. That makes sense...

Antonio Carrillo, President and CEO

The second half, sorry. Second half.

Noah Merkousko, Analyst

Yes. And for my follow-up, could you share what the EBIT or EBITDA margins for the wind towers segment looked like during previous cycles of higher demand? Alternatively, how should we be considering the margins for that segment as you begin to fulfill the increase in orders?

Gail Peck, CFO

This is Gail. I'll take that. Yes, as we think about the wind business, we're certainly in a ramp-up. We've taken, as you're aware, more than $1 billion of orders since the passage of the Inflation Reduction Act almost a year ago. So our backlog is strong. We have $1.5 billion of backlog for wind utility. Most of that being for our wind business, as we don't book long-term backlog for utilities. So we're in a strong position. As I look to 2024, about 25% of that backlog is coming out in '24. Our plants, based on the backlog that we have today, certainly aren't at full utilization. So we would expect from a margin perspective to see improvements in our wind margin next year. And as Antonio mentioned in his script, our anticipation is with the Inflation Reduction Act to have additional potentially larger orders over the course of this Inflation Reduction Act, which will certainly help to increase our volumes and push our margins up, regardless of the tax credit. When we think about normalized margins that we've seen for the wind business in the past, they're in that healthy kind of 10% plus range. The tax credit certainly would be additive on top of that. So as our volume builds and our efficiencies improve, we would expect to see our wind margins continue to improve.

Antonio Carrillo, President and CEO

To give you a sense, the highest EBITDA number we reported for wind is around $90 million when we were at the peak of the previous cycle, potentially with slightly higher margins. This business is very sensitive to volume, which is why we're excited about the volume in this sector.

Operator, Operator

We'll take our next question from Ian Zaffino with Oppenheimer.

Ian Zaffino, Analyst

I actually just wanted to kind of follow up on that question. We're deeper into discussions on the wind side. How are you thinking about the tax credits and maybe the sharing mechanism of those tax credits? And then also the discussions that you're talking about on wind, what's typically the lead time? So when will we see it hit the backlog?

Antonio Carrillo, President and CEO

Yes. Let me start with the tax credits. We previously mentioned that in our current backlog, we allocated a smaller portion of the tax credits to our customers as part of our negotiations. Ideally, the portion we share going forward will decrease, allowing us to retain most of the tax benefits. I believe the tax credits will enhance our markets. Historically, when factoring in tax rates or margins, the outcomes should be significantly improved this time, and you will begin to see this reflected in our results starting from this quarter. To your second question, when you get orders, if you look at the orders we received in the first quarter, these are larger orders. That's why I mentioned in my remarks that they take time to negotiate. We're not a company that typically builds multiple towers of different types. We usually excel in repetitive manufacturing, so we prefer longer-term orders. If you consider the time frame, if we have a backlog this quarter, my expectation is that production would start sometime in the middle of next year or in the first quarter of next year. It takes at least six months from when we receive an order to actually begin delivering on it. Keep in mind that we already have a backlog. Any order we receive implies that we need to hire people, train them, and so on. Therefore, it requires a ramp-up to get us to that point.

Ian Zaffino, Analyst

Okay. So I guess just to clarify, roughly speaking, we could probably take historical margins and, let's just say, an incremental $85,000 per tower, it seems like. Okay. And then also, it seems like most of the businesses now are really recovering and doing very well. How are you now thinking about portfolio optimization in this new environment that you're seeing significantly improved fundamentals?

Antonio Carrillo, President and CEO

Certainly. To address your first point about the $85,000, keep in mind that the tax rate varies depending on the tower's size. The actual amount may fluctuate based on the terminal's power on top of the tower. So while there's a general range, $85,000 is approximately accurate. Regarding your second question, it's a pertinent one because our strategy remains unchanged. We will continue to invest the majority of our capital into Engineered Structures and Construction Products, as we see significant growth potential there. As this segment of our business strengthens, it becomes increasingly valuable to us, and our focus is definitely moving in that direction. Although we may consider optimizing our portfolio in the short term as our business improves, my objective is to simplify our narrative so that it’s clearer for analysts. We acknowledge that our story is quite complex for a company of our size.

Operator, Operator

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

Garik Shmois, Analyst

I was hoping you can quantify the impact of the inefficiencies in the Specialty Aggregates business. How much of a margin drag was it specifically in the quarter?

Gail Peck, CFO

I'll take that one. Garik, as you know, we didn't put a number in the press release or our comments on that. I will comment that margins were down in the segment, 50 basis points year-over-year, despite some meaningful margin expansion within our aggregate natural recycled as well as our shoring business. So we spent some time talking through some of the challenges there because they had a meaningful impact on the performance of the segment overall for the quarter. So an exact number, the Specialty Materials business, it's about 1/3 of our revenue, around that ballpark. We were not happy with the margin performance year-over-year, and it resulted in a 50 basis point decline for the segment.

Garik Shmois, Analyst

Okay. Looking to the second half of the year and the steps that you're taking to remedy some of the inefficiencies in the second quarter, would you anticipate that margins in the segment will still be challenged in the second half of the year? Or do you anticipate margin expansion in the back half, just given some of the pricing and hopefully improving volumes and the lower costs that you're seeing on the broader part of the Construction Products business?

Gail Peck, CFO

Well, I guess I'd maybe quickly summarize some of the comments Antonio already made with regard to Construction's performance in the second half. We're very optimistic about our potential in the second half. The market dynamics are favorable. We certainly have pricing strength. We've talked about some challenges with some tough comps in the back half. I think we're probably high teens pricing that we're comping against for the second half. But we've had select July price increases and some August ones announced. So I think we feel pretty good from a pricing perspective. We're continuing to manage costs well. With regard to Specialty, as we said, we're taking steps to address. We have taken a number of steps, and our expectation is we'll see profitability improve in the quarters ahead. So we're very optimistic about the back half in Construction.

Garik Shmois, Analyst

Okay. Great. My follow-up question is related to Engineered Structures. Just want a little bit more clarity on the margin outlook there as well. I think you mentioned that you expect to return to normalized margins in the second half of the year. Is that related to wind specifically? Or is that also related to the broader segment?

Antonio Carrillo, President and CEO

This is Antonio. To clarify, the profitability in the second quarter for this segment did not reflect the current market conditions in utility structures. Last year, when some customers had unmet needs, we had to fulfill the backlog with lower-margin products from the bid market, which is what we produced in the second quarter. As we moved into the third quarter, those orders have been completed, and we returned to a more profitable backlog with our traditional customers. We anticipate improved profitability in our utility structures business, and wind tower production continues to enhance and accelerate. As mentioned, we now expect that business to be above breakeven for the year, and as efficiencies improve, it should benefit Engineered Structures. Additionally, with the tax credit, we expect to see improved margins in the second half of the year.

Operator, Operator

And we'll take our next question from Julio Romero with Sidoti.

Unidentified Analyst, Analyst

Antonio and Gail. This is on for Julio. My first question is around Transportation Products. Could you talk about the inquiries that you're seeing in the barge business? With steel prices trending lower, what's your sense of whether that helps inquiries convert into orders in the near future?

Antonio Carrillo, President and CEO

Sure. Yes, the inquiries are high, especially on the dry cargo side. As you know, there are two different markets, dry cargo and liquid. Liquid has been quieter. Most of the orders we have right now are for dry cargo. But we are seeing inquiries for both liquid and dry, mostly dry but some liquid also. Different dynamics are going on. On both markets, the utilization rate for barges is extremely high. And as you know, we've had several years of very low production, well below the replacement needed just to keep the fleet where it needs to be. So the demand, we perceive it, is out there, and we'll see it in inquiries. As steel prices come down, and I mentioned in my prepared remarks that oil prices have come down quite a bit over the last few months, and plate prices continue high, this is starting to create that wider gap between those two prices that allows us to start producing and bidding barges with coil and plate, and that should help us in converting inquiries into orders. At the same time, as I mentioned, we have backlog until mid-2024. And we are focused on margin. We don't want to give the barges away. We believe that there is strong demand coming. We are being very disciplined about the pricing we use and the timing for delivery. We're planning a ramp-up in our facilities in a way that we can improve efficiency. So I think we're in a really good position to be able to capitalize on the market conditions, our current backlog, and the steel pricing that's becoming more beneficial to convert inquiries into orders.

Unidentified Analyst, Analyst

Noted. And quick follow-up on transportation. Is the strong margin performance that you're seeing in the segment solely a function of operating leverage? Or are there other tailwinds or efficiencies that you're seeing with the segment margins?

Antonio Carrillo, President and CEO

I think it has mostly to do with operating leverage. It's not only in barge. If you look at our margins, they're still components, even though, as I mentioned, they're operating at a relatively low capacity. The margins have been very nice. As we ramp up, and I mentioned the trade case against China right now, that should help us improve our volumes over the next several quarters. So as volumes trend up, there's significant operating leverage in these businesses. The other thing that happens with this business is you increase margins; they also don't require a lot of CapEx. So their cash flow profile is very, very good. So return on capital should be helped by the recovery in these businesses by a significant amount.

Unidentified Analyst, Analyst

Got it. And looking at another segment, Engineered Structures, can you talk about the project mix in utility structures? How does the component of bid customers in the third quarter compare to what you realized in the second quarter?

Antonio Carrillo, President and CEO

We don't give specific guidance on the type of customers. But historically, the majority of our orders go to a group of customers that are what we call our alliance customers. The way that works is you have an agreement with this customer for a certain amount of backlog for a certain period of time. But it's not defined, so you don't have a definition of what type of towers you're building. That backlog is pretty large, but we don't consider it backlog until it converts into an actual design and actual pole we're going to deliver. That's the majority of our backlog. That's what we report once we have clarity on the type of pole we will be delivering. We also produce a certain number of smaller portions to the bid market each quarter. In the second quarter specifically, the portion of the bid market was much larger than normal. Starting in the third quarter, as I mentioned, that should normalize, and we expect the second half to be much stronger than the second quarter margins.

Unidentified Analyst, Analyst

Very helpful context around alliance first bid. My last question is around the balance sheet. I noticed that you're holding around $200 million of cash, which is somewhat higher than what you typically carry. How should we think about capital allocation over the next few quarters?

Gail Peck, CFO

Yes, that's a great question. We're certainly pleased with the strength of our balance sheet and the strength of our liquidity position. I think we've been, as you've seen in our track record since then, very active allocators of capital. Most of our capital has been allocated towards acquisitions and organic investments. So that's where we see the focus. At the same time, we continue to maintain a $50 million share repurchase. So we'll be opportunistic there. But the liquidity is something we view as an asset, and we'll continue to allocate our capital towards acquisitions and organic growth. We've got a number of large projects that you know we have underway on the organic side in Construction and Engineered Structures. As Antonio mentioned, we have an active pipeline of bolt-on acquisition opportunities that we're considering.

Operator, Operator

And we'll take our last question from Jean Ramirez with D.A. Davidson.

Jean Ramirez, Analyst

This is Jean for Brent Thielman. I'll start with a 2-part question. So looking at aggregates this quarter, to what degree was growth constrained by weather in Texas versus other factors like housing? And when do you expect to see an inflection in volume?

Gail Peck, CFO

Yes, that's a good question. In Texas, specifically, we were pleased with how we saw our volumes for the quarter. Overall, for aggregates, we were down mid-single digits. I'd say Texas, we were probably a little closer to flat. So encouraged with what we're seeing in Texas. From a weather perspective, all we can think about right now is heat in Texas, but we did have a little bit of wetness, I guess, at the beginning of the quarter, but I'd say we're encouraged by the pace of lettings on the infrastructure side. We're still continuing to see some good commercial health in Texas. Overall, as it relates to housing, we're starting to see some stabilization. Our comps, unlike price on the volume side, are a little bit in our favor in the second half. So we're optimistic. But I'd also say that we continue to focus on price and continue to focus on value over volume. Overall, the Texas market performed well for us in the second quarter.

Jean Ramirez, Analyst

So regarding then that volume, so is it more heavily weighted like towards the fourth quarter? Or is it just evenly throughout the second half, where you see a gradual growth?

Gail Peck, CFO

Yes. Well, I mean, just as you think about seasonality, the fourth quarter can be a little seasonally slower just with weather getting a little bit cooler in the approach to the winter months. Generally, you see volumes are better in Q2 and Q3. But I would say at the same time, you've got some momentum going on that you didn't have earlier in the year as it relates to infrastructure lettings and some stabilization on the single-family side.

Jean Ramirez, Analyst

Got it. And I know there's been a lot of questions about wind, but I want to touch a little bit about your production. I know you don't mention how many wind towers you produce. But just ballpark, do you expect to finish 2023 at levels of 2022 production, just based on what we think you produced in that year?

Gail Peck, CFO

We view wind in terms of the orders we've secured and the backlog we currently have. When looking at 2024, we anticipate an increase in volume compared to 2023. Additionally, we expect that by the end of 2023, our production capacity will be higher than at the start of the year as we continue to ramp up in our barge and wind sectors. I want to ensure I address this adequately.

Antonio Carrillo, President and CEO

Let me give you some color comparing '22 and '23. So 2022 until July of...

Jean Ramirez, Analyst

For 2020...

Antonio Carrillo, President and CEO

'20 or '22?

Jean Ramirez, Analyst

Yes. Sorry, 2020 versus 2023. That's what I wanted to...

Antonio Carrillo, President and CEO

2020 was still a challenging year, and our wind business has been declining significantly since we were spun off in 2018. When we initially separated, our wind business accounted for nearly 70% of our EBITDA, but this year it will be below 10%. Wind falls under our cyclical businesses category. While barge experienced a minor increase temporarily, the overall growth at Arcosa has primarily come from our Construction Segment and Engineered Structures. We have seen a major reduction in the wind segment since our spin-off. As we approach 2023 with the implementation of the Inflation Reduction Act, we anticipate a notable increase in orders. Currently, our backlog does not indicate a sharp rise in orders, but we are laying the groundwork for future demand, which is why we are optimistic about the business.

Jean Ramirez, Analyst

Got it. And regarding the Engineered Structures, are the margins that we're seeing right now a stable floor? Or should the mix be more of a benefit for the rest of the year?

Antonio Carrillo, President and CEO

As I mentioned, the second quarter is not reflective of the current margins. The project mix for the second half is much healthier. We should see some improved margins in the utility structures. With the improved ramp-up in wind towers, plus the tax credit, ideally, you should see the second half of the year with stronger margins.

Operator, Operator

Thank you. That concludes today's teleconference. Thank you for your participation. You may now disconnect, and have a wonderful day.