Arcosa, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Strategic Initiatives: Acquired STAVOLA and Ameren to expand portfolios; organic initiatives included utility structures, concrete pole plant in Florida, wind tower facility in New Mexico, and construction materials expansions. Divestitures included steel components, subscale asphalt, and small aggregate locations.
• Financial Results: Record full-year revenues, adjusted EBITDA, and margin in 2024. Fourth-quarter adjusted EBITDA grew, margin expanded by 408 basis points (excluding steel components), STAVOLA contributed accretive EBITDA, free cash flow $199 million in Q4, fully repaid revolver, net leverage 2.9 times.
• Cash Flow and Balance Sheet: Operating cash flow $248 million in Q4, up from $62 million prior year. CapEx $53 million in Q4, free cash flow $330 million full year. Net debt to adjusted EBITDA 2.9 times, targeting 2-2.5 times within 18 months of STAVOLA closing.

Segment Performance

• Construction Products: Fourth-quarter segment revenues increased 31%, adjusted segment EBITDA grew 52%. STAVOLA contributed 25% of segment revenues, 34% of adjusted segment EBITDA, and 290 basis points of margin expansion. Organic segment revenues declined 4% due to lower freight and divestiture, but strong pricing gains in aggregates and specialty materials partially offset. Full-year pricing grew ~10%, volumes down ~8% organic, total volume flat inclusive of acquisitions. Construction products accounted for about 62% of adjusted EBITDA in 2024.
• Engineered Structures: Revenues increased 11% due to higher wind tower volumes and Ameren acquisition. Adjusted segment EBITDA increased 41%, margins expanded 380 basis points. Utility structures revenues declined due to reduced steel prices, but organic growth from wind tower ramp-up and Ameren contributed. Combined backlog for utility, wind, and related structures was $1.2 billion, expecting to deliver 64% in 2025.
• Transportation Products: Revenues up 28%, adjusted segment EBITDA doubled (excluding steel components). Barge business saw higher volumes and improved plant efficiencies, with $128 million in orders, book-to-bill of 1.4, and backlog of $280 million, up 10% year over year.

Guidance

• 2025 Outlook: Anticipate revenues $2.8 billion to $3 billion, adjusted EBITDA $545 to $595 million (30% growth midpoint). Growth from growth businesses, backlogs in cyclical businesses, organic projects, and acquisitions. Construction products expect significant adjusted EBITDA growth from STAVOLA and high single-digit organic growth. Engineered structures expect double-digit adjusted EBITDA growth. Wind towers backlog supports growth from New Mexico facility. Transportation products backlog positions for 2025.
• CapEx: $145 million to $165 million in 2025, down from $190 million in 2024.
• Depreciation: $230 to $235 million in 2025, predominantly due to STAVOLA step-up.

Risks

• Trade and Tariffs: Uncertainties in trade policies and potential retaliatory impacts, including from Mexico.
• Regulation: Heavy regulatory burdens in markets, potential impact on infrastructure growth, not incorporated in 2025 guidance.
• Weather: Cold and wet weather impacted operations in January and February, affecting volumes in construction products.

Question and Answer

• **Q: How much did decline in steel prices impact revenues in engineered structures?

A: Gail Peck attributed revenue miss mostly to steel prices, high single-digit impact, with some slowness at year-end border affecting revenue.

• **Q: What's hearing from customers on wind outlook?

A: Antonio Carrillo said demand for wind is there, sentiment optimistic, need for clarity on regulatory environment, backlog supports 2025 growth.

• **Q: CapEx step down and impact of completed projects?

A: Antonio Carrillo said CapEx stepping down to focus on delevering, completed projects like concrete pole plant, wind tower facility, plaster plant expansion contributing to 2025 results.

• **Q: STAVOLA seasonality and depreciation impact?

A: Gail Peck said 200 basis point headwind from STAVOLA in first quarter, depreciation increase predominantly due to STAVOLA step-up.

• **Q: Barge feedback on steel price impact?

A: Antonio Carrillo said different feedback for hopper and tank barges, tank barges with more regulation, concern about capacity to supply needed barges.

• **Q: Specialty materials growth vs aggregates?

A: Antonio Carrillo said specialty materials more infrastructure-driven, plaster plant expansion doing well, expecting solid growth from expansion.

• **Q: Utility structures volume decline in Q4?

A: Antonio Carrillo said normal volatility due to product mix (size and complexity of poles) causing volume fluctuations.