Earnings Call Transcript - ACA Q2 2021

Operator, Operator

Good morning, and welcome to the Arcosa, Inc. Second Quarter 2021 Earnings Conference Call. My name is Gretchen, and I will be your conference call coordinator today. A copy of yesterday's press release and the slide presentation for this morning's call are posted on the Investor Relations website. All participants are now in a listen-only mode. A question-and-answer session will follow the company's prepared remarks. As a reminder, today's call is being recorded. Instructions for accessing the replay number are included in the press release. A replay of the webcast will be available for one year on the company's website. Now I would like to turn the call over to your host, Gail Peck, CFO for Arcosa. Ms. Peck, you may begin.

Gail Peck, CFO

Good morning, everyone and thank you for joining Arcosa's second quarter 2021 earnings call. With me today is Antonio Carrillo, President and CEO. Let me begin with an important reminder; 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. Antonio will begin today's call with a discussion of our overall second quarter performance and the acquisition of Southwest Rock products that we were pleased to announce in yesterday's release. I would now like to turn the call over to Antonio.

Antonio Carrillo, President and CEO

Thank you, Gail. Good morning and thank you for joining today's call. Starting on Slide four. Arcosa executed well in the second quarter, generating 3% revenue growth over the prior year and reporting adjusted EBITDA in line with last year's record. Despite the headwinds we faced in the quarter, our solid financial performance underscores the resilience of our business and the benefit of strategic investments we have made to expand our business into attractive new markets. Let me discuss a few key takeaways from the quarter. The construction products business, which now represents more than 50% of our adjusted EBITDA, continues to benefit from strong activity and the outlook remains positive. The segment generated 17% growth in the second quarter adjusted EBITDA even after the impact of excessive rainfall. We're managing our continued steel price inflation through proactive price increases across our operations. However, in our barge business, and to a lesser extent, wind towers, high steel prices are limiting the conversion of inquiries into new orders, weighing on our near-term expectations for this business. Engineered Structures continues to experience a healthy level of order activity driven by three key trends: increased utility spending to improve the reliability of the electric grid, the connection of renewable energy sources to the power grid and continued federal and state investments in road infrastructure. Finally, I'm excited to announce today our acquisition of Southwest Rock Products, a transaction which follows our purchase of StonePoint Materials this past April exemplifies how we are successfully executing our long-term strategy by evolving our portfolio towards higher margins, faster growth and less cyclical products. Turning to Slide Seven, let's look at our consolidated results for the second quarter. Revenue increased 3% from the prior year, reflecting strength in our construction products and engineered structural segments, partially offset by continued softness in the Transportation Products segment. Adjusted EBITDA was approximately even compared to the record level in last year's second quarter, benefiting in part from the contribution from recent acquisitions in construction products and favorable product mix in Engineered Structures. Second quarter adjusted net income declined 18% primarily due to the increase in non-cash expenses, specifically depreciation and amortization from recent acquisitions. Please turn to Slide Eight. We're excited about the acquisition of Southwest Rock, a leading pure play aggregate producer serving the greater metropolitan Phoenix market. Aggregates business of Southwest Rock scale and quality are scarce, and we couldn't be more pleased that their experienced team is joining Arcosa. With five active sand and gravel locations and one hard rock quarry location, Southwest Rock produces approximately 5 million tons of aggregates annually and is backed by an attractive reserve profile. Southwest Rock expands our footprint into one of the fastest growing construction markets in the US and strengthens our position as a leading aggregate supplier. The acquisition should take Arcosa's production to over 35 million tons of aggregates and specialty materials, including between 3 million and 4 million tons of recycled aggregates. From a financial perspective, Southwest Rock generated trailing 12 months revenue of approximately $36 million and adjusted EBITDA of approximately $40 million as of May 31, 2021. Given this high level of profitability, Southwest adjusted EBITDA margins are accretive to our Construction Products segment and to Arcosa overall. Importantly, the acquisition was sourced from StonePoint's pipeline of deals, highlighting the advantages of our increased scale and the follow-on benefits this acquisition strategy can provide. Turning to Slide Nine, we're particularly enthusiastic about the significant growth opportunities that Southwest Rock adds to our construction materials platform. As I mentioned earlier, the Phoenix metropolitan market is one of the fastest growing construction markets in the nation underpinned by robust, large scale investment needs to support population growth. In fact, Arizona is ranked number one in infrastructure spending on highway contracts over the past five years, underscoring the compelling growth opportunity for Arcosa as we enter this market at scale. Since becoming an independent public company almost three years ago, we have invested approximately $1.3 billion in strategic construction materials acquisitions that reposition Arcosa toward higher growth and higher margin infrastructure opportunities. Having announced two sizeable acquisitions StonePoint and Southwest Rock already this year, we intend to focus our efforts over the next few quarters on integration, organic growth opportunities and simplifying Arcosa's overall portfolio. I will now turn over the call to Gail to discuss our segment performance and then I will return to update you on our outlook for our business.

Gail Peck, CFO

Thank you, Antonio. I'll start on Slide 10 and review our segment results from the second quarter. Construction Products' revenue grew 38% and adjusted EBITDA increased 17% led by the contribution from the StonePoint acquisition that closed in early April. Segment EBITDA margin was 22.1%, down from 26% a year ago. There were several factors driving the margin decline. As Antonio noted, excessive rainfall in Texas, our largest exposure, and along the Gulf coast reduced segment adjusted EBITDA by approximately $3 million to $4 million in the quarter. Construction activity returned to healthy levels in June, once the weather improved. We had strong shipment levels on days not impacted by wet weather, but overall volumes were lower than expected due to rainfall. Higher diesel costs also impacted margins for the quarter. Lastly, the inclusion of StonePoint was also dilutive to margins as we now include their revenues on a gross basis, inclusive of pass-through freight in line with our legacy businesses. We experienced pricing gains across most markets supported by strengthening product demand and attractive fundamentals. Mid-year price increases have also been announced, which should provide further support heading into next year. Our two businesses that were most impacted by COVID, lightweight aggregates and trench shoring products, generated strong results during the quarter with EBITDA above year-ago levels and demand tracking at a pre-pandemic pace. The integration of StonePoint is advancing well, and our synergy realization is progressing as planned. Despite adverse weather in the second quarter, StonePoint is on track to meet our adjusted EBITDA expectations for 2021. The integration into our legacy Texas and Louisiana footprint is well underway and nearly complete from an operational standpoint. A focus area going forward is systems integration as we move to consolidate our entire construction materials platform onto one common ERP. Turning to Engineered Structures on Slide 11, revenue increased 9% and adjusted EBITDA increased 25% to $38 million. We were helped during the quarter by a $7.7 million resolution of a customer dispute from 2019 in our wind towers business. The associated towers were removed from our backlog in 2020, and we were pleased to reach a settlement agreement. We are currently building towers for this customer and we maintain a good commercial relationship. Without this benefit, our adjusted EBITDA margin would have been 12.9% in line with our overall expectations for the segment. We experienced higher sequential EBITDA and margins in our Utility Structures business from improved mix, our successful efforts to mitigate high steel prices and further progress on our Mexico plant reopening. Utility structure orders were healthy leading to a book-to-bill above one during the quarter. We also saw favorable order trends in traffic structures, and we continue to see positive demand drivers for telecom structures, though order volumes were lower in the quarter. Our wind tower business performed largely in line with our expectations. As Antonio will discuss, order activity was muted as our customers delayed purchase decisions, seeking more clarity on near-term fundamentals. The combined backlog for utility, wind and related structures was $348.5 million at the end of the quarter about flat with year-ago levels. Our storage tank product line in the US and Mexico continued to perform well with higher margins year-over-year, as we benefited from strong residential and commercial demand for propane tanks. Moving to transportation products on slide 12, both revenue and adjusted EBITDA were significantly lower year-over-year reflecting the cyclical downturns in both our barge and rail components businesses. Revenue was down 47% and adjusted EBITDA decreased 73% as margins compressed due to lower utilization in both businesses. Deal prices continued to advance in the second quarter, suppressing new order volumes in our barge business. We received orders of $55 million representing a book to bill of 1.1 times on a low level of revenues. Pricing of new orders reflects weak market conditions with orders helping to provide a base level of production in 2022 to remain flexible and provide time for a recovery. Our backlog was $139.4 million at the end of the quarter with approximately $47 million scheduled for delivery in 2022. We are optimistic regarding our market recovery in our steel components business and our recent results exhibit signs of troughing. The railcar OEMs had a second consecutive quarter of a book to bill above one, and third-party expectations continue to point to higher North American rail car deliveries next year. As we wait for a much-anticipated recovery, we have been successfully diversifying into new markets, attracting new customers and controlling costs to maintain positive EBITDA. Wrapping up on Slide 13; I'll conclude with a few comments on our balance sheet liquidity and free cash flow. As we discussed previously, we issued $400 million of low coupon long-term debt in April to fund the StonePoint acquisition. To fund yesterday's closing of Southwest Rock, we used cash on hand and $100 million of borrowing under our revolving credit facility. Following the acquisition, our net debt to adjusted EBITDA stands at roughly 2.4 times within our long-term target of 2 to 2.5 times. Even as our transportation product's EBITDA is cyclically depressed. As I noted, acquisition integration is a key focus area and we will likely take a pause on additional acquisitions near term as we focus on completing those efforts. We continue to see attractive opportunities to deploy capital organically and we are maintaining our CapEx guidance of $110 million to $120 million, which should cover any anticipated needs from Southwest Rock. Post-acquisition, we have more than $300 million of available liquidity and no near-term debt maturities. As we maintain our cash-focused culture, we improved our working capital management by $41 million relative to the first quarter. This helped us return to a positive free cash flow position generating $29 million in the quarter. I will now turn the call back over to Antonio for more discussion on our business outlook.

Antonio Carrillo, President and CEO

Thank you, Gail. Please turn to slide 15. As Gail discussed, Arcosa delivered solid Q2 results led by growth in our construction products and engineered structure businesses, despite the impact of abnormally wet weather in our largest market and continued softness in our transportation product segment. The outlook for construction remains positive driven by strong demand for aggregates in our key markets in Texas as well as Tennessee and solid recovery of our specialty materials and shoring products. As we continue to see in Pennsylvania, where we have some exposure to natural gas infrastructure spending. Overall, we expect a strong second half for our construction product segment reflecting continued positive market fundamentals, favorable pricing and positive contribution from our two new recent acquisitions. In our Engineered Structures segment, we expect to see year-over-year growth in the second half of the year in most of our businesses. In utility structures, we are seeing strong demand as our customers direct capital spending towards electric grid hardening and reliability projects. Department of transportation spending in Florida and throughout the Southeast remains favorable leading to healthy order growth and rising customer demand for our traffic structures, while telecom customers continue to build out 5G networks. In our storage tank business, we are experiencing strong pricing power, giving steady demand, primarily reflecting continued housing market growth and the trend towards the organization. In our wind tower business we have seen a recent fall in new orders in light of growing uncertainty surrounding potential extension of the US federal tax credit for new wind farm developments. High steel prices and a late June expansion of the PTC for wind farms currently under construction have also contributed to the delay in customer decisions. As a result, our own sold production slots for the fourth quarter are expected to remain unfilled. Given our positive view of the market beyond this anticipated short-term slowdown, we're working to extend some backlog into 2022 to allow time for the market to rebound. Our main priorities during this period will be to prudently manage our costs while at the same time, preserve our manufacturing flexibility in order to serve our customers when demand picks back up. The long-term fundamentals for wind energy remain positive and our leading manufacturing presence in North America positions us well for the future. In our Transportation product segment, market conditions remain challenging in our barge business impacted by the COVID-19 related downturn and high steel prices that have reduced order activity for both dry and liquid tank barges. In addition to the idling of our Louisiana plant in the third quarter, which we previously announced, we are extending our barge related backlog into 2022 to maintain manufacturing continuity. At the same time, given this slowdown in the market, we foresee significant pent-up demand. Therefore, maintaining our manufacturing flexibility during this period will be critical to be able to serve the market as it recovers. For our steel components business serving the North American railcar industry, we believe that 2021 is likely to mark the trough of the cycle. We're encouraged by the signs of improvement we have seen in this business as new railcar orders outpaced shipments in the second quarter, and we expect further growth in the second half of the year and into fiscal 2022. As we look longer term, there has been positive movement on the national infrastructure debate and the potential for increased stimulus. We're encouraged by the recent positive traction in the Senate to advance a new infrastructure framework. We're also cautiously optimistic concerning the reauthorization of the FAST Act at prior spending levels. Please turn to slide 16, turning now to our financial guidance for the year our consolidated adjusted EBITDA guidance of $270 million to $290 million for 2021 is unchanged, which keeps us in pace to meet or exceed last year's record performance led by strengthened construction products and engineered structures. On a more granular level, our new forecast includes the results of Southwest Rock from the date of the acquisition. It also includes a reduction in our full-year adjusted EBITDA outlook in the Transportation product segment to approximately $25 million, down from $35 million to $40 million we previously expected. In summary, I'm pleased with the progress we're making in executing our long-term vision. At our Investor Day in 2018, we communicated that the focus of Arcosa will be to grow the Construction product segment and enhance our engineered structure business. We have executed on those strategies and our financial strength and reduced cyclicality show the results. Through acquisitions and organic growth, we have significantly scaled our construction products business, strengthening our market position, broadening our capabilities and enhancing our growth potential while reducing overall cyclicality. Southwest Rock is an exciting addition to our aggregates business, expanding our footprint into one of the fastest growing metropolitan regions in the country. Also, the outlook for the Engineer Structure business remains favorable as Arcosa retains a leading position in supplying essential infrastructure to the renewable energy, utility, telecom, and road construction markets. In short, we continue to advance on our long-term plan to grow in attractive markets with sustainable competitive advantages while reducing the cyclicality of our business and improving our returns. At the same time, we continue to work on our ESG efforts. ESG is becoming part of our culture and as we evolve and learn, we should be able to accelerate our pace. As always the health and safety of our employees continues to be the most important aspect of what we do every day. With increased COVID cases, we have recently seen in some of the regions where we operate, we will continue to monitor the situation and follow the CDC guidelines in our operations.

Operator, Operator

I would like to open the call for questions.

Ian Zaffino, Analyst

Thank you very much. Just kind of wanted to ask you about the barge business on the steel side, is there a magic number steel needs to fall to that you think is going to improve the order flow? Is it a matter of just seeing directionally that it's going down? Does it need to fall below a threshold? How do you kind of think about that?

Antonio Carrillo, President and CEO

Thank you, Ian. Let me try to give you some more color around this issue. So as you saw in the quarter, even at these levels, we sold barges. We had a few large barge orders, and the problem selling at this price is that the margins are low. So I think that it's not about a magic number. Every forecast that you see out there, or most of the forecasts that I've seen show prices for steel slowing down sometime late this year or early next year. And what happens then is we have – there are two pieces here. One is we have to make sure that – I don't think prices will go down to $500 that we were seeing last year because the economy was shut down. But at the same time, I don’t think the prices should stay at $1,700. There is a bunch of capacity coming online in 2022, both on the coil and the plate side. And that will lead us to believe that there's going to be a price reduction at some point in time. So I think two things need to happen. First, customers need to understand that we're not seeing $500 again in the near term. And second, the conditions, there are two different markets here, the dry cargo barge market and the liquid cargo market, and they are different stages in their cycles. On the dry cargo side, everything looks very positive for significant orders to come back. There has been very low replacement of barges over the last four or five years. There is a lot of scrapping going on with high scrap prices at this moment. There's a lot of scrapping of barges happening. So everything seems to be pointing to a robust comeback of that market. On the liquid side, it's a little different story. They faced two different problems. One is a reduction in oil demand and oil derivatives, and at the same time, steel price is high. So I think as you've seen, oil has continued to come back. We're still not at the levels where we were in 2019, but it's starting to come back, and then steel prices are still high. So I think that's going to take a little longer. So we expect the first recovery on the dry cargo side and then on the liquid side. The good news is that we have a strong backlog that will carry us through this time. I don't think this is something that will take years to solve itself. We know how to navigate through these down cycles. We know how to manage our costs, and I think we're in a really good position as we moved our portfolio to our Construction Products to withstand this slowdown, and then when it comes back, it's going to come back very strong. That's our expectation.

Ian Zaffino, Analyst

Okay, great. And then, the second question would be maybe it's just like a little bit of a two-part question, but I wanted to ask you about guidance because unchanged here in the EBITDA line. But then you're adding in StonePoint. So kind of help us understand, maybe your outlook for aggregates is similar to what you were originally thinking. It seems that way, but also maybe you could unpack your comments about the FAST Act extension, or maybe around infrastructure bill discussion as well and how that would help the construction products business. Thanks.

Gail Peck, CFO

Yeah, good morning, Ian. This is Gail. Let me take the first part of that and maybe I'll turn it back over to Antonio for the FAST Act implications. You know, on the guidance topic, as you pointed out, we did maintain our guidance range of $270 million to $290 million of EBITDA. Essentially looking at it in total there were some goes in and goes out that balanced out within the range. We're pleased to see the full year EBITDA still tracking on pace with last year's strong results. And that's despite more than a $50 million headwind year-over-year that we're having from transportation products. Some of the negatives are clearly where the impact of steel continuing to press higher ahead of our expectations, that has impacted our order decisions, customer's orders decisions, as Antonio said on barge and wind tower customers. So leaving some production slots unfilled in the fourth quarter. Adverse weather clearly impacted construction. We know weather is always a variable, but the rain we had this past quarter was excessive. But to your question and outlook for construction remains very much intact. We had a very strong June when the weather was normal and dry, we're very pleased with what we're seeing. To the plus, we also had the wind tower settlement and then earnings coming from Southwest Rock. But the net of all of these essentially I think, is falling within the range and we're very excited about keeping our guidance maintained.

Antonio Carrillo, President and CEO

Ian, the second piece, just to clarify also on the guidance, StonePoint was already in our guidance in the previous quarter. What we added was Southwest Rock and you see the number in the presentation itself summarizing $4 million to $5 million that we added to the guidance, but we subtracted the barge piece. So as Gail said, we are very pleased with our construction segment. We had a very, very, very wet April and especially May in Houston and Dallas, and that slowed us down. We gave a number of $3 million to $4 million of impact for the quarter. But when the rain subsided and it became a more normal weather pattern, we saw incredible demand come back, and we had a strong June with very strong margins. We saw pricing power to push through our costs. So we were very pleased with the rebound in June, and we see very strong backlog, some very strong demand in most of the regions where we operate. So the FAST Act, it has to be extended; we expect it to be extended, hopefully at a higher level. But what we're seeing both with the FAST Act and with the infrastructure packets has been discussed, I think those are really good things, but we are seeing strong demand at the moment with or without them. So I'm very encouraged by what we're seeing in the market and we're very happy with the performance of our Construction Products segment, especially also now that the other two pieces of the segment, which were shoring and specialty materials have recovered very well. We saw very nice pricing and very nice volumes for the quarter.

Brent Thielman, Analyst

Hi, good morning. Antonio, it looks like you've been able to manage through this steel environment pretty well in the energy structures business. Can we continue to expect this level of margin performance, I guess X the customer dispute, ended the second half and I guess going forward, I guess what I'm asking is there any catch up and higher steel prices or some of these supply chain constraints that might impact the segment going forward?

Antonio Carrillo, President and CEO

It's a really good question. We've been doing very well with it. In the previous call, I described our three types of businesses, so let me explain them again. Each has its own circumstances. The area where we've been focusing most of our efforts is our Engineered Structures, specifically our transmission business. We have contracts that allow us to pass through the increased costs of steel, typically with some delay. Depending on the contract, there are periodic revisions, monthly or quarterly. Currently, those impacts are already reflected in our margins. We have been absorbing some of the increase due to this delay as steel prices have risen, but the increases have been smaller recently. We are now in a relatively stable period for steel prices, so we anticipate that margins will start to normalize and we should see some positive momentum in our utility structured business. The second part involves the products we manufacture, particularly tanks. As I mentioned earlier, we are experiencing very strong pricing power in that segment, with high demand for tanks. Typically, demand is lower during the summer, yet we are seeing exceptional demand and strong backlogs, which is encouraging. The third part consists of wind towers and barges, which have contracted prices. We usually sell these items with steel contracts attached and I am not worried about margins for these contracts. Overall, I see positive momentum in utility structures and tanks, while I don't have concerns about the other segment. Although there are no supply issues regarding volumes, we have planned to shift some of the wind tower and barge volume to 2022. This means you can expect reduced volumes in the second half of the year, which will affect margins, not because of cost management issues, but simply due to the decreased volume.

Brent Thielman, Analyst

Okay. I appreciate that. And then I guess the second question would be on the acquisition you just completed Southwest, it looks like it produces exceptionally high margins relative to your core construction product segment. Is there something in particular they're doing or just a really strong environment in Phoenix right now, any color that would be helpful?

Antonio Carrillo, President and CEO

Sure. I'll give you a broader perspective. In previous discussions with analysts, we've talked about our growth strategy that started about a year and a half ago. The initial phase focused on expanding in Texas and nearby regions, and we then devised a strategic plan to target metropolitan areas for our next growth phase. This led us to StonePoint, with Arizona included in our list of target metropolitan areas. When assessing these areas, we conduct an analysis of why we find them attractive, considering various factors such as population growth, infrastructure investment, and the competitive landscape in the region. These elements influence the market conditions in metropolitan areas. Specifically, Arizona and Phoenix showcase positive indicators. We are optimistic about the market, driven by population increase, infrastructure spending, and a favorable competitive environment, all of which positively impact our margins. That's why our long-term strategy emphasizes growth in appealing markets with competitive advantages, which is evident in our margins from Phoenix. It has excellent conditions and a high margin. I should note that as a public company, our entry might incur some additional costs due to reporting requirements and controls we implement, which could slightly reduce the margin. However, it is not significant, and we still view this as a very attractive acquisition in a great market.

Julio Romero, Analyst

I wanted to follow up on the last question from Brent regarding the trailing 12-month margins for Southwest Rock, which appear to be very strong. Can you elaborate on the margins you expect Southwest to contribute to Arcosa? Is there a ramp to reach 39%? Is there potential for upside beyond 39%? Additionally, could you clarify what the normalized margins for Southwest might be when it's part of the Arcosa umbrella?

Antonio Carrillo, President and CEO

Julio, this is Antonio. We just completed the acquisition yesterday, which has been in progress for a few months. As I mentioned earlier, this acquisition was on the agenda following our purchase of StonePoint in April, and now we're closing in August. The margins have remained quite steady for them over the past several quarters, so this is not a situation with unusual circumstances. They have performed well consistently. They deal with various materials including sand, gravel, and hard rock. Our plan is to take charge of the operation to fully understand it and assess any additional costs necessary for our control environment. We may provide you with further insights on the margins later. We don’t anticipate a significant decline, but historically in Dallas, during periods of high demand, margins can reach 39% to 40%. However, looking at the long term, I believe margins will align more closely with our peers, likely settling in the mid-thirties. The 39% figure would represent the upper limit for that operation.

Julio Romero, Analyst

Great. Thank you for the color there. And I guess my second question is just on barge. Can you maybe give a little more granularity on the evolution of customer thinking about capital deployment for barges? I'm just thinking there's a reasonable expectation that maybe steel might even go down from here. So, I just wanted to kind of ask about how customers are thinking? Are some customers capitulating, are some still holding out and has that mix of customers accepting the new normal steel versus holding out evolved at all in the last six to nine months?

Antonio Carrillo, President and CEO

That's a good question. Steel prices and the acceptance of those prices are closely tied to our customers' business models. For example, customers in the utility structures can pass additional steel costs through their tariffs to end customers. However, the situation is different for barges, where established barge rates for river transport determine how much can be paid for a barge. These rates do not change quickly. If steel prices remain at their current levels over the medium to long term, which I don't believe will happen, they will still be higher than in the past. Adjustments to tariffs in the river system will be necessary for investment, and although this process takes time, I believe it will occur. Customers face challenges in determining how much they can afford to pay for a barge based on current river rates. Additionally, demand plays a role; we need to consider how many barges are idle versus in use. On the dry cargo side, there is significant river activity despite it not being the peak crop season, but it will soon ramp up, particularly in the grain market. Interestingly, the coal market has seen increased activity due to rising natural prices, although I do not expect growth in the coal barge market. However, if we exclude coal barges from consideration, the replacement cycle for barges is much larger than what we have seen in recent years, as there has been a prolonged period of low dry cargo barge construction relative to market demand. Customers are expressing a need for barges and acknowledging the necessity for replacements. We just need to ensure that the economics work for them. The same mentality applies to the liquid side; while river rates and demand are factors, demand is gradually recovering. The petrochemical sector is bouncing back strongly, although the oil sector is a bit slower. So, in summary, there is a clear need for barges, and we are working to align the economics with customer expectations.

Julio Romero, Analyst

Thank you. I like long answers, so I appreciate that. And thanks for taking the questions and congrats again on the acquisition.

Gail Peck, CFO

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

Operator, Operator

This does conclude today's program. Thank you for your participation. You may disconnect at any time.