Okay, great. Morning, everybody, and thank you for joining the Sidoti September Small Cap Conference. My name is Julio Romero. I'm the building products and industrials analyst here at Sidoti. We're really pleased to be able to host Arcosa. The ticker is ACA. With us today is Antonio Carrillo, President and Chief Executive Officer, and Erin Drabek, Director of Investor Relations. The format of this is gonna be a fireside chat, so if you do have any questions, please feel free to type them into the Q&A section at the bottom of your screen, and I'm happy to ask on your behalf. With that, Antonio, Erin, thanks so much for being here. Thank you. Thank you for having us. Yeah, absolutely. Maybe you start, folks, by giving a brief overview of the business, you know, what Arcosa does, and what your primary competitive advantages are? Sure. We have three segments, and we're basically a, an infrastructure focused company, 100% U.S. focused, so most all of our demand is in the U.S. We do have a little presence in Mexican manufacturing, but for the most part, if you want to bet on the U.S. infrastructure, we are a pure play in that. We have three segments: One, our biggest segment and our focus of growth, the most important focus of growth is construction products, where we make natural aggregates, recycled aggregates, and some specialty products. That's been where we have focused most of our capital over the last six years. We're a spin-off from another industrial company here in Dallas called Trinity Industries. The idea was, since the beginning, to basically grow this business, which is the aggregates business, that has very important multiples for our peers. And there are significant opportunities to grow both organically and inorganically, mainly inorganically, and we like the margins, the dynamics of the market. That's where we focus. That's segment number one. Segment number two is engineered structures, has two businesses, the wind tower business. We are the largest manufacturer of wind towers in the U.S. That business right now has significant tailwinds with the Inflation Reduction Act. I think we're just getting started. I think these projects take time, so I think we're just in the early stages of the what seems to be a very long time for projects to be developed over the next eight to ten years. And then the second business in engineered structures is utility structures. We're one of the largest manufacturers of utility structures, so we build poles and towers for cables that move the power around the country, both on the transmission and distribution, mainly transmission. We also make some other poles, like the lighting and traffic structures and other things, but our biggest business by a lot is utility structures. This business has significant tailwinds also with the electrification of the country, with the AI, with all the things that are happening in the country that need to happen. We expect a very long run also of positive demand factors for the business. And the third segment is, transportation. We are the largest barge, builder of barges in the country, river barges, and about 14% of all the load in the country is moved by the Mississippi River system, and we are the largest builder of barges. It's a cyclical business, and again, just like the other two businesses, we see a very positive trend in terms of, demand factors for the business over the next several years. The strategy is very simple: simplify the company. We've sold several businesses to reallocate the capital to the aggregates business and engineer structures. So, I think we still have room to go to continue to simplify the company and reinvest in the business, that we are focused on. Excellent, excellent. And you're here timely, right? Because last month you announced kind of the biggest deal in Arcosa history with Stavola, $1.2 billion acquisition, as well as an agreement to divest your rail business. Can you maybe talk about what drove these portfolio developments and how they position you for long-term success? Absolutely. So when you look at, First of all, Stavola is an aggregates player in New Jersey. It's what we like about acquisitions is they have to have certain conditions. One is they have to be aggregate-centric. This is mainly aggregates. It does have asphalt, but it's aggregate-centric and very highly integrated with their asphalt operations. The second thing we like is the market dynamics. This business has very significant margins, about 35% EBITDA margins, and those margins reflect the competitive situation in the local markets. For those that are not familiar with the aggregates markets, it's not a national market, it's local markets, and finding those local markets where the competitive dynamics are healthy is something we look for. So with this acquisition, of course, we're getting a lot of much higher leverage, and at the same time, what we wanted to do is, again, going back to the strategy, simplify the portfolio. We divested a small rail components business that we had, and that cash will be used to pay in part for Stavola. So when you look at what this acquisition does to Arcosa is, when we spun off the aggregates business, was a very small portion of Arcosa. After this acquisition, about 65% of Arcosa's EBITDA will come from aggregates and aggregates-like products. So that's a very important transformational aspect. The goal is to continue to grow the magnitude of our EBITDA, improve our margins, and while we're doing that, improve our multiple. Our multiple has grown from six to about 11, but we still have ways to go to match our aspirational peers, like Vulcan and Martin Marietta. ... Yeah, absolutely, and maybe starting with, you mentioned the things you like, the margins, right? All of Stavola are very nice. The trailing 12 month EBITDA margin of 35% is meaningfully accretive to both the construction product segment and Arcosa overall. Just maybe talk about the margin composition and how should investors think about margins going forward? Yes, I think on the aggregate side, when you look at how we will look after this acquisition, our margins will be very similar to those in Martin and Vulcan. When you look at a portfolio composition, we will have about 14% of our EBITDA coming from asphalt, which is very similar to what they have. So we're looking a lot like they are looking. We are still much smaller, we are still, you know, more regional than they are. They are national players, we're still not there. But I think our goal is to try to continue growing through that path and keeping margins. The focus of the construction segment is being able to grow our gross profit per ton every year through volume increases, when volumes are nice, and pricing increases. So the goal is to continue to grow our margins, so that's where we're going. Yeah, and then, you know, there's advantages to being smaller and nimble and more regionally focused, too, I would imagine. So there, there's certainly advantages there. You talked about the margins being similar, the asphalt composition being similar. What about cyclicality? Maybe you could talk about the cyclicality of Arcosa going forward. Yeah. Overall, the cyclicality of... I'm going to start with Arcosa and then go into the construction segment. Starting with Arcosa, when we spun off six years ago, 60% or 65% of our EBITDA was coming from very cyclical businesses like barge, rail components, and wind in some sense. Today, we've divested some of those, and they're and the other ones are becoming smaller, and we've grown in businesses that are a lot less cyclical: engineered structures, utility structures, and aggregates. So I think as we... I think partly the lower multiple, trading multiple of the cyclical businesses, it reflects that cyclicality. So as Arcosa moves towards more less cyclical businesses, I think that's what's going to be reflected in our multiple. Going to construction products specifically, if you look at over the last 17 or 18 years, you know, it's not a volume play, it's a margin play through pricing increases. So there might be some cyclicality in the volumes based on housing and other things, but the beauty of the business is that you can pass those volume reductions through price increase and compensate. And we saw that over the last several years, where volumes came down and pricing increases compensated for that. So the cyclicality of the volumes does not get reflected in the earnings potential of the business, which is a unique feature of this industry. Now, this business that we bought, Stavola, is very stable, very high margins for a long period of time. It does have one thing that Arcosa didn't have, which is seasonality. Because we are now in New Jersey, which we were mainly in the south of the U.S., now we have this large presence in New Jersey. You will see some more seasonality that gets reflected because of the weather, especially the first quarter. It's a very low volume quarter for the business, and that's okay. When you compare ourselves with the Martin and Vulcan, we will still be less seasonal than they are, but we will be more seasonal than we are today, and that's normal. Yeah, that's a good description, and thank you for highlighting the seasonality, you know, will be a little bit different going forward. That's certainly important. What are some other challenges maybe of significantly expanding into the Northeast, right? I think that's a region, you know, you weren't in before or weren't significantly in before, at least. And any challenges from kind of, you know, growing the construction products business kind of this rapidly, at once? Yeah, no, I think when you look at the acquisition, even though it's a large acquisition in terms of dollars, when you look at the footprint, it's five mines and it's 12 asphalt plants. So the good thing is that it's a very small in terms of footprint, very concentrated. It's a relatively easy integration. We're almost treating it like a large bolt-on. It's that simple. There's nothing different in the operations at what we do. We've done asphalt in the past. Asphalt is probably the newer piece for us, but we've done it in the past and we know how to do it. So there's really not a lot of complexity. I would say that the piece that intrigues us a lot is the growth opportunity. A couple of their mines are relatively new, and they're just getting started. A couple of their asphalt plants are just getting started, so have a lot of growth potential, and some products that they don't do that we are very interested in and have grown a lot in other parts of the country, like recycled aggregates and stabilized sand, which are big markets in the Northeast, are very intriguing to us, and that's where we're going to be focusing. Not only growing the aggregates there, but also growing in the other business lines that we already have and they have not focused on in the Northeast. Oh, that's great color, and that's really interesting. So when you say the mines are just getting started, you mean the quarries are early, like they're not depleted, they have a long shelf life? Can you talk about that, or...? Not only they have a long reserve life, but they started just a few years ago, so they're just getting their, let's say, customer base started, and they're just in the ramp-up phase. In different regions in New Jersey, but in different parts, not very close to New York, let's say. Gotcha. And you said that they do not sell currently, before you bought them, recycled aggregates, stabilized sand- They, they- And those are products you can possibly-- Okay, go ahead. They have very small presence in recycled aggregates, and no presence in stabilized sand. So, I think they have three or four facilities in recycled aggregates. But it's not been their focus. And when you look at recycled aggregates, which is a business we like for two reasons, three reasons. The demand is very similar to natural. The second reason is the margins are similar to natural aggregates. And the third reason is that the return on capital is fantastic because you don't have the reserves. The only thing that's different is the raw material is your raw material comes from demolition, and demolition comes from maintenance, and repair, and new roads, and things like that. You look at the Northeast compared to Texas, where we are, significant more amount of demolition and repair because the everything's there, they just need to improve it. Here in Texas, you have a lot of more new things being built. So I think the amount of raw material you can get up there is a much larger than what we can get here, which gives it a nicer growth potential, let's say. Yeah, that's a great point. Great point. Maybe any opportunities for maybe using Stavola as the platform to build on some additional players in the Northeast? Yes, I think it's a pretty consolidated market, but there are some small players. And as I said, they have a few mines that are outside of the really consolidated area that are interesting to us. I would say that bolt-ons will continue to be the main strategy of our goals as we continue to grow. When you look at our financials for the second quarter, you see quite a nice margin expansion. Those bolt-ons we did last year are really accretive to our margins, and we see those bolt-ons being not only very good in terms of margin, but also they're much cheaper than buying bigger companies. We buy them at a much lower multiple, so... And there are a lot of them, so it just takes time. But I think what Stavola gives us in the Northeast is more opportunity to deploy capital in bolt-ons. Now we have Florida, we have Texas, we have the Gulf Coast, we have Arizona, we have California, we have the Northeast, we have the Tennessee. So as we grow, we'll have more opportunities. And these things don't come up very often, they're hard to find, so having more opportunities just gives you more opportunities to find better ones. Yeah. No, absolutely. You have to be opportunistic there. So maybe switching gears to engineered structures for a bit, can you maybe talk about your journey on the wind side? I think it was a year ago that President Biden toured an empty warehouse, and then this year, your first wind towers came off the line. You know, how big is the growth opportunity for you guys there? Yes. So two years ago, before the Inflation Reduction Act, we had very little orders. The tax credits had expired, and it was not looking good. The Inflation Reduction Act got approved. I remember that conference call with our investors. I told them, "This is going to take time." Normally, projects take time to start. We are at the end of the development process. You have to get permits, you have to buy the land, you have... And then you order the turbine, and at the end, the tower. So I expected a long time for this to materialize. But just a few months into the Inflation Reduction Act, we got our first order of over $1 billion for towers, and that gives us a very, very good backlog for three of our plants. We have four plants, one is idle. We're still operating at a relatively low capacity, around 40%. When these plants are running at by the end of this year, we'll be around 40%. So, and this business is one that is it doesn't come in little orders. You will not see us get $20 million, $30 million orders. You will see large chunks where the turbine guys go reserve capacity for a certain region, and they come to us and say, "I need capacity in Illinois, or Iowa, or Texas or New Mexico now." And so it'll take time, but we're seeing really positive things. We're talking to our customers, and they're seeing very positive things in the market. This year has been slow for them in getting orders, but as I said, that is normal given the development time of these projects. I think the election is also playing some uncertainty into this thing. We don't have, in our scenarios, any concerns around the Inflation Reduction Act going away, but there's always uncertainty. So I think you will see a 2025 that where you're going to see significant orders for the turbines and towers to be started to deliver in 2026. The all the forecasts I see is that 2026 is the year that really picks up. Very excited where we are. I think we have significant opportunity to grow the business and to expand margins. Give you a sense of perspective, this business made close to a little over $90 million in the best year we've had, and the margins were around 17%. So we still have a lot of room to grow there, and we're just getting started. ... Yeah, for sure. And you mentioned the uncertainty around the Inflation Reduction Act, maybe potentially going away. Can we just talk about that a little bit? 'Cause is that something you're hearing from, like, you know, the investor side, or is that more like from your customers, suppliers, the value chain? Like, can you just talk about what, you know, from your side of the you know, how you guys are- I brought it up because most of our investors are asking us if we're concerned about that. I will tell you the more we talk to the industry specialists, to even congressmen and our congressmen and our trade associations, you know, there seems. The big fear is, you know, there is a complete Republican sweep and they do away with the Inflation Reduction Act. First of all, they haven't mentioned that. Second, I think there's more and more support for these tax credits, given the amount of jobs that have been created, especially in red states, and the amount of money that's being invested. So every day, a new senator or a new congressman comes out supporting this. So I don't see... It's always a possibility, but I don't see it as a real risk, but still creates uncertainty. And uncertainty always, you know, it's just, and it's not only here. I think elections in general create uncertainty around many topics. So I think we have a couple of months that we just have to get through and move on. Yeah. No, great call, and thank you for touching on that. Have you guys seen any growth in engineered structures from either IIJA or IRA funding? Just, you know, given the highway improvements and traffic structures or smart grid work and utility structures. Our customers are mainly the utilities, so I think. You know, we sometimes don't get to see where the funding is coming from, and it's hard for us to determine. So what we are seeing is very strong demand, and what we are seeing is that utilities are, you know, getting more and more ambitious about the size of the projects. I also think that as interest rates come down, that's an important piece for utilities. They're trying to deploy all this capital. I think interest rates will also help in deploying that capital. And finally, the other thing that I've seen, you know, there's a lot of concerns, and most investors ask us about the permitting and how we're seeing that. There are some projects that are moving around and things like that. One of the trends that I've seen is higher growth in interstate projects, meaning within the state. I think the permitting inside the states is a lot simpler than when you want to cross lines, where you see cross lines between states. I think that's where you've seen significant reduction in projects is when projects have to cross different states. That's a regulatory problem. But building lines in state, which is what every utility needs to do, I think it's something that will continue to happen, and the problems there are much smaller. Very helpful there. Maybe just touching on your other segment, transportation products. I guess that will remain just the barge segment, from here on out. Mm-hmm. Just maybe, can you talk up to us about the barge market, and give us a quick state of the union there? Absolutely. So for those that are not familiar, the barge market is a very stable market in terms of number of barges that are in the Mississippi River. There's two businesses there. The dry cargo market that's focused on mainly agricultural products. Coal has become, again, an important one again during this last couple of years, and then aggregates and some other products that are being moved in the Mississippi. The other large segment is the liquid barges, which is mainly oil, oil derivatives, and petrochemicals. The age of both fleets is about the same or a little over 17 years. The barges lasts 30-40 years. Liquid barges, for the most part, are normally have a shorter life because, you know, if you have a leak in one of those barges on the river, it's a big problem, and if you drop some grain, it's not such a big problem. So the customers are a lot more careful with them. So, we've seen over the last few quarters, a lot of interest on the liquid side barge. We are starting to see more on the dry cargo side. I will tell you that over the last five years, if you look at the big picture, over the last five to six years, the replacement cycle has been very low. So the pent-up demand for barges is becoming very real, and the biggest concern our customers have is, you know, will you have capacity to produce all these barges? And that's what the conversations we're having with them. Steel prices have been a break for the industry. Steel prices have been very high. They've come down a lot. I think they're starting to be at a range where customers are starting to feel comfortable, and again, interest rates are going to help. So we are very excited about the early part of the cycle we're in, and we expect a very long cycle for this, this time around because of the pent-up demand that we have. So it's a patience game. We have the largest capacity to build barges in the river system, and we're getting more and more inquiries. So I'm very excited about the cycle that's coming, and it is coming in the very near future, I think. Got it. Very helpful rundown there. Given that 2024 has been, you know, fairly acquisitive for you with Ameron and Stavola, can you maybe talk to deleveraging plans, and how quickly can you bring down debt levels to the two to two and a half times target range that you've talked about in the past? Our guidance was that we would bring the levels down between 12 and 18 months, which will be after the close of the acquisition. I think we have several levers to pull. Number one, and the one you're going to start seeing faster, is CapEx. We're cutting down on growth CapEx, not on maintenance, but on growth CapEx, and that's a good thing. I think over the last three years, when you look at our cash flow and our CapEx investment, we've invested a lot in growth. We have a lot of plans that are ramping up. We need time to digest them, we need time to improve them, focus on the margins, focus on the efficiency, focus on the internal part of the company, and this time will give us that. The second lever is working capital. We have some levers on there. It's hard to do while you're growing, because we're growing quite a bit, so it's hard to reduce working capital while growing, but we have some opportunities. And the third, you know, we still have some businesses that are, at some point, ready to be sold. We're not there yet, but we still have those levers in the near future. So I'm very confident in our delivering forecast that we gave. I think, you know, I think what I want to go back is to growth. I want to be able to redeploy capital again into the opportunities we're seeing, especially on the bolt-on side. And so I think everyone in the company is tightening their belt to be able to deliver and get back on the growth side. Yeah, it's interesting because we've talked about, for the longest time, a mixed ship story for you guys, and now it becomes kind of a not a long-term, but like a medium-term deleveraging story. But I'm happy you guys highlighted the fact that, you know, there are still levers to pull on the portfolio simplification side that I think should give the investors some comfort that, you know, yeah, you guys have a cash culture. Your free cash flow has always been good for you guys, but if need be, you have other levers to pull on the deleveraging side, for sure. For investors with an ESG focus, you guys published your sustainability report earlier this year with some meaningful changes. Can you give some quick highlights from your efforts in that area? Sure, absolutely. Starting with the emissions part, you know, we've exceeded already our goal of in terms of emissions intensity. And we measure ourselves on intensity per dollar of revenue, because, as you know, we sell and buy businesses, and it's hard to compare against a baseline of 2018 with all the business we had. We've changed so much that that's why revenue intensity is the right measure for us. And we have significant levers to continue to do that. When you look at our businesses, one of our large businesses in specialty materials is the largest contributor of emissions. So as we get those businesses to improve, and we're investing right now significantly in a conversion to gas to one of the plants, we're doing a significant investment in some air emissions control processes. I think we have a medium- to long-term possibility of reducing emissions as a company. That's Scope 1 emissions. On Scope 2, we have not bought really any renewable power. We're focused on internal, on Scope 1, which is more under our control. As we move along, we'll be able to buy some additional power from renewables and get our Scope 2 to start coming down. And then finally, I would say water is another important part, especially on the aggregate side, and we've made a lot of progress there. Diversity continues to be an important piece. I would tell you that, that's been something that our board and everyone in the company has focused on. It's hard for a manufacturing company to make progress at the plant levels and at the operations levels. We have not made a lot of progress. As a company, we've made a lot of progress in functional areas. We have tremendous diversity. We have still a lot of work to do on the manufacturing side. So overall, I think the company is... And then on the product side, so we continue to invest on the recycled aggregates, which is a big thing of our ESG philosophy. Not only because it's good for the environment, but it's a great business. So I think that's the largest piece of ESG. The way we approach it is... It has to be good, but it has to be part of a good business decision, and that's how we're approaching. Can you maybe sum up the Arcosa value prop for investors with the 30 seconds or so that we have left, for you here? Sure. We're still a complex company with incredibly valuable businesses. As we focus the company into the higher value, higher multiple business, while at this, redeploying capital there, at the same time growing our EBITDA and growing our multiple over the next several years, I think there's a tremendous opportunity to generate value for this company, and to simplify and become a much better company. So I think we're just getting started. Antonio, Erin, thank you guys so much. Always a pleasure to have you guys here. Thank you. Thank you.