Earnings Call Transcript - ACA Q3 2022

Operator, Operator

Good morning, ladies and gentlemen, and welcome to Arcosa Inc. Third Quarter 2022 Earnings Conference Call. My name is Catherine 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 third quarter 2022 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 now like to turn the call over to Antonio.

Antonio Carrillo, President and CEO

Thank you, Erin. Good morning, everyone, and thank you for joining today's call. Starting on Slide 4, I'll begin with our third quarter highlights. Arcosa delivered strong results, led by excellent performance in Engineered Structures that helped to drive an 11% increase in consolidated adjusted EBITDA. Favorable demand and pricing actions along with our continual efforts to improve operational efficiency and effectively manage costs in response to inflationary pressures contributed to strong earnings growth and improved cash flow. Engineered Structures was a standout segment this quarter, generating double-digit revenue and segment adjusted EBITDA growth that led to 360 basis points of margin expansion, primarily coming from improved pricing in our utility structures and storage tank business. Results in Construction Products reflected continuous healthy construction activity and strong pricing gains to address inflationary pressures, although overall volumes in the quarter were impacted by a number of constraints that contributed to essentially flat segment adjusted EBITDA year-over-year. We are pleased to maintain segment margins consistent with the second quarter. Our Transportation Products segment performed in line with our expectations. EBITDA was down as growth in steel components was offset by lower profitability in March. Cash flow generation and strengthening our balance sheet flexibility continues to be a top priority, and we have made significant progress this year. Free cash flow conversion was 120% in the third quarter, a significant improvement from last year. We ended the quarter slightly below our long-term leverage target, and we further strengthened our balance sheet and liquidity position in October with the completion of the storage tank divestiture. Based on our strong year-to-date financial performance and taking the divestiture into account, we are updating our 2022 financial guidance. We now anticipate 15% adjusted EBITDA growth in the midpoint of our guidance range. Turning to Slide 8, we have continued to advance our strategic transformation through focused M&A, organic growth initiatives and the optimization of our assets. I am pleased with the progress we have made over the past few years to better position our portfolio for long-term growth. With a simplified and more focused portfolio serving higher growth markets, many of our businesses are well-positioned to benefit from the multiyear tailwind provided by the nearly $1.4 trillion in expected spending from recently enacted federal legislation. Please turn to Slide 9. The divestiture of the storage tank business for $275 million represented a significant milestone in our evolution toward a more simplified portfolio. The transaction also underscores our proven ability to improve non-strategic business and monetize it at a favorable point in time, realizing significant value for stakeholders. The divestiture expanded our balance sheet flexibility, enabling us to utilize a portion of the sale proceeds to repay our revolver, while we focus on redeploying the capital into opportunistic bolt-on acquisitions and organic growth initiatives. As we look forward, we remain focused on building a more aggregate-centric portfolio that maximizes our existing strengths and capabilities while generating higher returns through the economic cycle. I will now turn the call over to Gail to review the third quarter financial performance in more detail. Gail?

Gail Peck, CFO

Thank you, Antonio. I'll begin on Slide 11 with Arcosa's consolidated results. Third quarter revenues increased 8%, driven by solid organic growth. Adjusted EBITDA improved 11%, outpacing the increase in revenues and driving 30 basis points of margin expansion, despite inflationary pressures and ongoing challenges within our wind towers and barge businesses. Turning to Construction Products on Slide 12. Segment revenues increased 7%, reflecting strong pricing gains, partially offset by lower natural aggregates volumes. Inflationary pressures led to higher diesel, process fuels, and cement prices in the quarter, increasing segment cost of sales by approximately $9 million. As a result, adjusted segment EBITDA was about flat compared to last year. As the quarter progressed, we experienced consistent improvements in profitability with segment margins up sequentially each month and a strong finish in September. Overall demand trends were healthy and contributed to broad pricing strength. Average organic pricing in natural aggregates increased about mid-teens, and we now anticipate a low double-digit increase for full year 2022, ahead of our previous guidance. Pricing trends were also favorable in recycled aggregates and specialty materials. Overall, volumes in the quarter were strained by several factors: wet weather in Texas, the Gulf Coast, and Phoenix, cement shortages impacting our ready-mix customers, and the timing of projects in certain markets, and a deceleration in single-family residential construction activity that impacted natural aggregates volume. In the third quarter, adjusted organic volumes in natural aggregates were down mid-to-high single digits. As a result, we now anticipate full-year 2022 volumes to be flat to slightly down, below our expectations at the beginning of the year. Total volumes in recycled aggregates benefited from the acquisition of RAMCO, the integration of which is progressing very well. Within Specialty Materials, we continue to see favorable momentum in multifamily residential construction, benefiting our plaster business, where average selling prices and volumes were up significantly during the quarter. Our customers' project backlogs are strong, and the capacity expansion underway at our Oklahoma Plaster facility is going well. Volumes in lightweight aggregates were about flat year-over-year and up sequentially from the second quarter. Finally, our trend shoring business reported a 9% increase in revenues on higher volumes. Order inquiry levels were healthy during the quarter, and customers' CapEx expectations for 2023 remained supportive. Moving to Engineered Structures on Slide 13. Strong outperformance during the quarter was driven by utility structures and storage tanks, which more than offset the headwinds from wind towers. Utility structures benefited from continued solid market demand and strategic pricing measures, leading to significant growth in adjusted EBITDA. While down sequentially from the second quarter, third quarter margins were up year-over-year, driving the majority of the segment improvement. Results for the storage tank business were also up substantially due to strong pricing as well as the completion of certain projects moving into the third quarter, as we prepared for the divestiture to close on October 3rd. As we continued to own the business for the entire year, our expectations for full-year adjusted EBITDA would be approximately $55 million, consistent with the upper end of the range we provided previously. In Wind Towers, we continue to execute well on a low level of volume. At the end of the quarter, the combined backlog for Utility, Wind, and Related Structures was approximately $370 million, down from the start of the year as growth in utility structures was offset by a lapse in wind tower orders due to PTC uncertainty. Turning to Transportation Products on Slide 14. Improved year-over-year performance in steel components was offset as expected by continued challenges in barge. As a result, adjusted segment EBITDA declined by $1 million, leading to lower year-over-year margins. Revenues in our steel components business increased 37%, driven by higher volumes as conditions in the North American railcar market improved. Unusually low water levels on the Mississippi River system fortunately had no impact on financial results for our barge business during the quarter, and we have maintained relatively normal operations thus far in the fourth quarter. We continue to monitor the potential for future shipment delays or production inefficiencies if water levels become too low to launch newly built barges. Our barge backlog stood at $129 million at the end of the quarter, about flat with year-ago levels as we continue to replace shipments with new orders to sustain our manufacturing flexibility while we await a broader cyclical recovery. I'll conclude on Slide 15 with some comments on our cash flow and balance sheet position. During the quarter, we generated $38 million of free cash flow, a fivefold increase year-over-year, driven by strong earnings and better working capital management despite higher growth-oriented CapEx. Working capital consumed about $4 million of cash flow during the quarter, a $31 million improvement from last year, as lower receivables were offset by higher inventory balances. For the fourth quarter, we anticipate working capital to be a source of cash as we remain focused on full-year working capital positively contributing to cash flow in 2022. Capital expenditures were $33 million, a 70% increase compared to last year, as we made solid progress on the growth projects underway in Construction Products and Engineered Structures. For 2022, we see full-year CapEx of $125 million to $135 million, which includes growth CapEx of $50 million to $55 million. Summing it up, we ended the quarter with net debt to adjusted EBITDA of 1.8 times. In October, we received pre-tax proceeds of $264 million from the divestiture and used $155 million to pay down our revolving credit facility. Pro forma for the proceeds, net leverage is about one time, providing Arcosa considerable balance sheet strength. I'll now turn it back to Antonio.

Antonio Carrillo, President and CEO

Thank you, Gail. Please turn to Slide 17. As Gail discussed, Arcosa has performed well both in the third quarter and on a year-to-date basis, benefiting from positive fundamentals in our infrastructure-driven businesses, particularly construction products and utility structures, while effectively managing the cyclicality in our wind barge and rail component businesses. I am pleased with our solid financial performance this year, which is evident in our significantly improved earnings and cash flow as well as in the strength of our balance sheet. At the same time, we have advanced our strategic objectives, expanding our geographic footprint in recycled aggregates with the ramp acquisition, while reducing the cyclicality and simplifying our portfolio through the timely divestiture of the storage tank business. Turning to the macroeconomic environment, we continue to monitor and stay ahead of inflationary pressures while still remaining price competitive in our markets. Meanwhile, we have experienced an improvement in labor availability, easing some of the labor-related constraints we faced earlier in the year. We're encouraged by the positive fundamentals in our infrastructure businesses, yet to remain mindful of the potential impacts arising from the heightened economic uncertainty and higher interest rates. In the near-term, we expect the deceleration in single-family residential construction in some of our markets to continue. However, a favorable pricing dynamic should continue to compensate for the volume impact. Our medium-term view on single-family residential remains positive given the shortage in housing supply and attractive population growth trends in our markets. As our spending outlets, largely from the infrastructure bill, become more widespread, we expect to transition volume from residential projects to more infrastructure-oriented ones over the next few quarters. At the same time, we remain focused on value over volume prioritizing our disciplined pricing strategy. We continue to see strong demand for electric utility and telecommunication towers, fueled by utility CapEx for grid hardening initiatives, upgrades to the existing electric infrastructure, and the 5G wireless build-up. We have strong backlog visibility for both utility and traffic structures supporting a favorable outlook for these businesses. Some projects continue to be delayed by supply chain and labor issues our customers are facing. The impact of higher interest rates and the normalization of supply chain bottlenecks should help reduce that problem and accelerate demand for utility structures. I will note that the recent hurricane in Florida demonstrates the need for a resilient electric grid, and we anticipate that utilities will continue to invest in projects to upgrade their infrastructure to better withstand the impacts from future natural disasters. Moving to Slide 18. Continuing with the trends we saw in the second quarter, we have seen encouraging signs in our barge business that point to a less challenging environment as we move into 2023. While orders remain low in the third quarter, the level of inquiries increased, which supports our view that there is significant pent-up demand for dry barges. Our current backlog provides good visibility into 2023, which will allow us to stay disciplined in our pricing strategy as demand returns. Our rail components business benefits from increased deliveries in the North American railcar market, which continue to recover from the low levels seen last year. We anticipate growth in our steel components business in the fourth quarter and into 2023. In wind towers, the passage of the Inflation Reduction Act, which included the long-term expansion of the production tax credit that expired at the end of 2021, is a significant growth catalyst for our culture, although the benefits for business will not be immediate. The last thing in the PTC and associated impact on our customers and the wind industry supply chain has created a near-term lull in projects. As a result, our customers are still working on defining their needs for 2023. In our conversations with them, we see increased optimism around demand for wind towers accelerating as soon as projects materialize. Also, we see our customers planning for a long cycle of sustained demand for wind power. At the moment, our goal is to keep our two plants operating during 2023 at limited capacity to maintain our ability to increase production quickly. Since we anticipate a very fast ramp-up could be required in the second half of 2023 or early 2024. Please turn to Slide 19. At the midpoint of our revised guidance range, we now forecast EBITDA expansion of 15% in 2022 down from our previous guidance as we have removed the projected fourth quarter contribution from the storage tank divestiture. Our growth business on track to deliver a more than 20% increase in EBITDA coming from overcoming challenges in our cyclical business. In closing, I am pleased with our quarter's performance this year. I'm proud of our dedicated team who continue to deliver outstanding results for our stakeholders despite the many obstacles we have faced. We have achieved significant progress in advancing our strategic objectives, expanding our growth opportunities to focus M&A, simplifying our portfolio, and strengthening our financial position. As our culture evolves and simplifies, the increased focus on our strategic businesses will help maximize our growth potential and enhance long-term shareholder value. I would like to open the call for questions.

Operator, Operator

We'll take our first question today from Julio Romero with Sidoti & Company. Your line is open.

Julio Romero, Analyst

Just start on the Engineered Structures business. If you could just talk about some of the big drivers in Q2, it looks like they continued into the third quarter albeit not at the same rate, and just talk about maybe the outlook for the fourth quarter on those same drivers?

Antonio Carrillo, President and CEO

Sure. I think everything you see around the Utility Structures business is favorable. Not only favorable, Julio, but I would say any forecast you see in the industry trends point to an industry that's good, but it's getting better all the time. You look at forecasting all the market studies, and every six months or so, they present new forecasts. The industry gets stronger and stronger in terms of the forecast for the next several years. It's not a one-year deal. So, I think as a company, we will prepare for that. We are not operating at full capacity. We have the capacity to ramp up. And as our volume grows, the plants become more efficient. We can do better planning and allocate the better projects to the plants where they are supposed to be made. So, I am very excited about what's going on there. One of the things that is probably holding back the industry somewhere is that some projects are getting held up with labor constraints. There has been some shortage of other inputs for the industry that are holding back some projects. So, as those things get sorted out, I think the industry is set up for acceleration. So, I am excited about what's going on there.

Julio Romero, Analyst

Excellent. To follow up and clarify, the second quarter Utility Structures business benefited from the availability of better labor. Has the availability of labor in utility structures changed at all?

Antonio Carrillo, President and CEO

Yes. I mean, Julio, we have seen better availability. It is not perfect. We are not getting lines of people wanting to work, but we can get the people we need. I'm referring more to our customers. What we are seeing in discussions with our customers is some bottlenecks in their availability for building the projects in the middle of rural Latin America. That’s the cruise, etc., that's what's holding it back a little bit.

Operator, Operator

We'll go next to Ian Zaffino with Oppenheimer. Your line is open.

Ian Zaffino, Analyst

Great. I just wanted to key in on wind towers a little bit. Can you maybe just go over that? I've read the IRA, but wanted to see what your take was on what's in the IRA and what does that necessarily mean for you? I know there is significantly tax credit. Do you think you will be able to keep the tax credits? I mean, are they going to go back as far as negotiations with the customer? How do we think about that in general or maybe even the magnitude? Thanks.

Antonio Carrillo, President and CEO

Yes, that's a very good question. Let me start by saying we are still figuring it out. The rules are not entirely clear yet. We are in a waiting period for comments and clarifications. From my perspective today, the IRA is a tremendous opportunity for Arcosa because it extends production tax credits for wind towers over a long period. This extension is crucial because historically, longer tax credits have encouraged the industry to ramp up production, which takes time. The longer the tax credit lasts, the better it is for our customers and the industry, as it allows for better planning on their projects. Regarding the tax credits, a few things are important. There is a requirement to build in America, and we still need some clarifications on that. However, we are the largest wind tower manufacturer in the country and are well-positioned. Currently, we have two plants operating, although we shut down one in 2021. We can ramp up capacity relatively easily. This legislation marks the first time a tax rate for manufacturers is included; historically, tax credits were for developers. This bill now includes tax credits for developers, turbine manufacturers, blade manufacturers, and power manufacturers. If these credits come to fruition after clarifications, they could be very beneficial for the Company. I believe we will be able to retain a substantial portion of these credits, although negotiations may come into play. Our ability to utilize these credits depends on our tax situation at the time, but they represent a significant opportunity for Arcosa. It’s important to note that developing industry projects takes 12 to 18 months, which is why I emphasize the need to keep our plants open. We currently have enough visibility to maintain low-volume operations in 2023. Once we navigate through the uncertainty, we will need to ramp up capacity quickly. I can't specify whether that will occur in the latter half of 2023 or early 2024, but I’m optimistic about the industry's direction.

Ian Zaffino, Analyst

And then also glad to hear that indications of interest on the barge side are improving. I mean, maybe can you comment on your steel input costs? I mean, I'm able to follow the pricing through the services, but it seems like steel prices are pretty close to where they were. Unsure inputs of steel are pretty close to pre-COVID. Is that the level need to stimulate the pre-COVID demand? Or how do we think about where input costs are vis-à-vis what their demand and order book might look like? Thanks?

Antonio Carrillo, President and CEO

Yes. There are two primary markets for carbon steel, particularly flat carbon steel, which are hot roll coil and plate. While there are more markets, we focus on these two since we use plate to build barges. In the U.S., there is significantly more capacity for plate than for coil. Historically, plate prices have been about $150 higher than coil prices. Currently, coil prices have been decreasing rapidly over the past six months and are nearing pre-COVID levels. However, we primarily use plate for building barges. Plate prices remained high until about a month or a month and a half ago, when they began to decline at a good pace. With new capacity coming online in the fourth quarter and mill utilization decreasing, I expect prices to continue to drop swiftly in the coming months. We should reach a point where prices become attractive enough for our customers to start placing orders. The strong interest in the industry is encouraging. We have significant capacity to scale up, and historically, once orders begin to flow in, many competitive players jump in to secure their production slots. This reinforces my earlier point about the positive backlog we have, which enhances visibility and helps us make informed pricing decisions. We are not planning to compromise our capacity, and our main focus is to achieve profitable margins while selling our capacity.

Operator, Operator

We'll take our next question from Garik Shmois with Loop Capital. Your line is open.

Garik Shmois, Analyst

I'm just wondering if you could dive in a little bit more as to what drove the sequential improvement in construction product margins as the third quarter progressed? Was it additional pricing actions? We see cost pressures started to alleviate, just wondering, if you can dive in a little bit more?

Antonio Carrillo, President and CEO

I'll be honest with you. I think we had a very slow start. July was not a good month, lots of things, and I don't want to go into all the details. Gail mentioned a few constraints and rain and all the things, but we had many things that we did not perform well in July, internally. Externally, we had some other factors like rain and other things. So, I think we've had a very slow start. The team really did a fantastic job in order to pick the rhythm back up. And then in September, we had a phenomenal month. So, I think the quarter reflects a little bit of the external factors. But we had a really slow start, and let's say, it was not our best in July. So, I think part of it is our pricing started kicking in; we did pricing increases. Part of it was that we performed better. During the quarter, we increased prices several times in several of our businesses. So, I think the pricing momentum for the fourth quarter is very strong.

Garik Shmois, Analyst

I know we're not formally in 2023 yet, but I was wondering if you can maybe sketch out how you're starting to think about construction products for next year. The question would be on both on the volume and on the margin side. Would you anticipate growth and infrastructure to offset residential weakness, and conversely, do you anticipate margins to expand just based on the momentum that you have from the late quarter performance?

Antonio Carrillo, President and CEO

We're not ready to give guidance on for '23 yet. I think it's still early. We're still going through our budget process, so we don't have numbers for 2023. But I'll tell you, my perspective is that residential will continue to slow, we mentioned it in the comments. I'm optimistic that we're going to be able to allocate partially all the volume to infrastructure projects as the infrastructure bill starts kicking in. Arrival to the businesses of the construction segment is the one that has the most housing exposure. The rest of the businesses are more infrastructure-oriented, so I think that the infrastructure bill becomes more of a reality in terms of projects. I think we have a lot of opportunity to grow with all those projects. So, it's going to take some time. I think over the next few quarters, we will know more about how fast we can redeploy the volumes towards infrastructure. As I mentioned, housing I think is going to see a slowdown, but we are very optimistic about the medium and long-term housing projects.

Operator, Operator

We'll go next to Brent Thielman with D. A. Davidson. Your line is open.

Brent Thielman, Analyst

Hey, thank you. Good morning. Antonio, it looks like the core Engineered Structures business ex-storage has done EBITDA margins around 14% year-to-date, which is up from all 11% last year, and notable given the challenges in wind. But could you just talk about your ability to kind of maintain a low teens EBITDA margin in the quarters ahead for what's now the core business in that segment?

Antonio Carrillo, President and CEO

Yes. So one thing to keep in mind is that our storage tank business had performed extremely well during the year, and that was pushing our margins up in the whole segment very significantly. For the fourth quarter, as we slow down wind to stay open, let’s say for next year, I think the wind industry, the wind tower is going to weigh more on the margins on the business in the very short-term until we start getting more volume to the wind tower business. Our goal would be to try to offset as much as possible with our retail structures and traffic and telecom. That's our goal; that's what we want to do to be able to keep our target margin for the segment even with wind towers in a really bad place. But I think the wind towers are going to be a heavy weight for the next few quarters as we get through this very slow time preparing for what's going to be a very strong period. So, our goal is to try to stay as close as possible to our guidance in terms of margins. Let's see if we can stay close to it, but it's going to be a heavyweight to wind towers.

Gail Peck, CFO

Brent, this is Gail. I want to provide some additional insight on Q4. We have set a full-year guidance for wind EBITDA between $12 million and $13 million for 2022. We expect Q4 to be closer to breakeven for wind, which will impact our Q4 margins. However, as you mentioned, we are proud of the year-to-date margins of 14% excluding storage, but we anticipate a slight decrease in Q4 due to wind compression.

Brent Thielman, Analyst

Okay. Thanks, Gail. And then second question, just it seems like you would sort of become the strategic acquirer of choice in recycled aggregate. You have now deleveraged the balance sheet in a position to look at a lot more opportunities here. Maybe can you just talk about the breadth of the pipeline in recycled? Are there other opportunities out there at scale like you have already done? Or is that list shrinking and/or are you more focused on natural aggregates now?

Antonio Carrillo, President and CEO

That's a really good question. The way I see aggregates and we see it in the Company, I think recycled and natural are a complement to each other. As you know, this ESG culture now and their recycling has to be part of some of the way we think about the future. So, our goal is to try to offer our customers a combination of natural and recycled aggregates where it makes sense. There are places where it doesn't make sense, but we have a pipeline of acquisitions we are working on. We just hired a new M&A person, so we're excited about where we are. I know that we've been working for the last three years on the metropolitan areas. We like to try to develop a pipeline of opportunities. As I've said before, your M&A doesn't happen when you want it exactly; it has its own timeline. But we're going to be pushing hard over the next few quarters to redeploy the capital into projects that make sense that lead us to a more aggregate-centric focus. What I mean by aggregate-centric is more aggregate and recycled aggregate. As a company, at the same time, we have incredible organic growth opportunities; we went through strategic planning and we have a lot of ideas. I've mentioned before, I think a company is healthy when you have more ideas than you have cash, and we're in that spot still. So, I think between organic and inorganic growth over the next several quarters, we're going to be redeploying the capital. It might take us a little while, but the good news is when you have a lot of projects and a pipeline, you can choose the best ones, and the ones that you want, and you don't have to do the ones that are in front of you. So, that's where we are.

Operator, Operator

We'll go now to Stefanos Crist with CJS Securities. Your line is open.

Stefanos Crist, Analyst

In aggregates outside of weather, are you seeing any differences in demand across your geographies?

Antonio Carrillo, President and CEO

Good morning. Yes, we are seeing different demand profiles across the country. Big weather away, probably, where we saw this sharpest decline was in Arizona. That's where we've seen more, let's say, volumes come down faster. The rest were more even compared; the three other regions were more even in terms of volumes. Pricing, on the other hand, has been consistent across the country. We've been able to raise prices and have very strong price momentum across the country. But yes, we're seeing different demand profiles. I would say, here in the Texas region, around Dallas, the biggest bottleneck is more production than the volumes we have. We're running at full capacity here in the DFW. Of course, housing is slowing down, but we are still running at full capacity. So, the west is probably where we saw the most drop.

Gail Peck, CFO

Stefanos, if you were to look, just that starts in the Phoenix area, I mean that contraction in the Phoenix area for us was more single-family residential related. Otherwise, public and away from single-family demand drivers continue to remain very, very healthy. The outlook is very positive, but we didn't feel that in the Phoenix area during the quarter.

Stefanos Crist, Analyst

And then just following up on M&A. Do you have more focus or intention on a bigger acquisition or maybe smaller bolt-ons?

Antonio Carrillo, President and CEO

Well, now that the balance sheet is in good shape, we're willing to explore larger acquisitions. As you know, in aggregate, there aren't many opportunities. But if something comes up, we'll take a look at it. We've also mentioned that when you look at bigger acquisitions, especially on the aggregate side, they're not pure aggregates; they come with a lot of other stuff. We want to remain aggregate-centric, so we're going to be very careful not to buy something that takes us away from that. If it comes with a little bit of something else, we will consider it, but if it's a lot of something else, it's not something we want to do; we want to stay upstream of that value chain.

Operator, Operator

We'll go next to Noah Merkousko with Stephens. Your line is open.

Noah Merkousko, Analyst

So, first, can you remind us of the end market mix between residential, non-residential and infrastructure for the construction products business? And I understand that residential is facing some headwinds today, probably continue to see weakness there, at least partially offset by infrastructure. But maybe could you also touch on what you're seeing on the non-residential side and how you're thinking about that for next year?

Gail Peck, CFO

I'd say, when we look at our mix, we look at it over a period because there can be ebbs and flows. So when we look at the segment, we'd say about half is infrastructure for the construction product segment. The other split is really more or less 25% residential and 25% non-residential. When you look into the individual businesses that make up the segment, though, I would say natural aggregates is a little bit more residential, single-family residential if you think about our lightweight aggregate, no residential exposure, there are shoring business, no residential exposure there. Our specialty, we have some multifamily. But our single-family exposure is more in our natural and, to an extent, in our recycled aggregates business. So, that's why you saw in our commentary about volumes, we saw it on the natural aggregate side, what we saw some deterioration. Hopefully, that's helpful. I guess I'd also say when we think about the acquisitions we've made, they were a very good addition to our portfolio. I would say the Southwest Rock acquisition that came with the new Phoenix geography, which we remain very, very positive on the outlook, did probably have a closer to maybe 40%ish type residential exposure in that one particular geography.

Antonio Carrillo, President and CEO

On your second question, what we're seeing, we met with our team late last week, and we were asking about how they are seeing the deployment of the volumes into infrastructure, and they're very focused on that. I will say the four regions are very optimistic about what they're seeing in terms of actual projects being beat and laid out. So, I think what we're seeing is we're starting to see more and more of the reality of the Infrastructure Act become true. So again, it might not be this quarter, but little by little, we're going to see that kick in, and it should be good for our aggregates in terms of volumes being substituted to that market. It's going to be great for the other businesses within the segment.

Noah Merkousko, Analyst

And then just as a follow-up sticking with aggregates here, you pointed out cement shortages negatively impacting volumes. Is that a widespread issue or is it limited to certain geographies? And is that getting any better or will cement continue to be tight in your markets?

Antonio Carrillo, President and CEO

It was mainly in the Houston area, but mainly Houston. We have a bulk they're called stabilized sand that we make sand with cement, and it's a very nice business for us. Throughout the month of July and August, we were on allocation, and we couldn't get cement, not the amount we wanted at least. But it's not only on us. If you think about our customers, ready-mix companies, they buy cement, so the whole industry was on allocation in Houston and around that area. A lot of the projects simply got delayed because they couldn't get cement. In September this issue became a non-issue again, and there is enough cement that you can count on right now. So, it was a temporary thing.

Operator, Operator

At this time, I would like to turn the program back to Erin Drabek for closing remarks.

Erin Drabek, Director of Investor Relations

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.