Arcosa, Inc.

Please stand by. Your program is about to begin. Good morning, ladies and gentlemen, and welcome to the ARCOSA, Inc. Second Quarter 2019 Earnings Conference Call. My name is Bree, and I'll be your conference coordinator today. As a reminder, today's call is being recorded. I would now like to turn the call over to your host, Gail Peck, SBP Finance and Treasurer for ARCOSA. Please go ahead.

Good morning, everyone. Thank you for joining our second quarter 2019 earnings call. With me today are Antonio Carrillo, President and CEO, and Scott Beasley, 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 at our website, www.arcosa.com. You can access the presentation by going to the Events tab under the Investors section of the website. 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. Today's comments and presentation slides contain financial measures that have not been prepared in accordance with generally accepted accounting principles. Reconciliations of non-GAAP financial measures generally accepted accounting principles. Reconciliations of non-GAAP financial measures to the closest GAAP measure are included in the appendix of the slide presentation. Let me also remind you that 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, including its Form 10-K, for more information on these risks and uncertainties. I would now like to turn the call over to Antonio.

Thank you, Gail. Good morning, and thank you for joining today's call to discuss our COSA's second quarter results and our business outlook. We are pleased to report our strong second quarter and first half results, which exceeded our initial financial forecasts and have positioned us to raise our guidance for full year 2019. The overall business climate has remained positive for our three business segments – which serve diversified end markets within the infrastructure sector. Our business model provides us with significant growth opportunities, as well as the resiliency associated with a broad portfolio of products and solutions. Please turn to slide four. We had a number of successes in the second quarter, advancing on both our Stage 1 priorities and other key operational initiatives. First and foremost, we posted 38% adjusted EBITDA growth on a 23% revenue increase, with all three business segments contributing to this strong performance. While there were some quarter-specific factors, such as wet weather on the negative side and increased throughput allowing for additional owners to be produced in energy equipment, on the positive side, on balance, our results reflected organic growth, the benefit of our December 2018 acquisition of ACG materials, and operating margin improvements in several key areas of the business. Based on first half results and our current visibility, as outlined in the press release, we are raising our 2019 adjusted EBITDA guidance 7% at the midpoint. In the second quarter, we completed two Bolton acquisitions that are aligned with our stated objectives, one in the aggregate business and one in the marine components business. Both transactions are good examples of what we're looking for. The acquisitions fit well into the existing portfolio. They bring immediate synergies while broadening our geographic footprint. They add complementary product lines. They reduce the overall cyclicality, and they were completed for an attractive price. While these two acquisitions were small, representing an aggregate cash consideration of roughly $23 million, our pipeline remains robust. We expect to complete one or more deals between now and the end of the year, taking advantage of the growth platform we can offer smaller producers of aggregates and specialty products. Importantly, we remain disciplined in our M&A approach. We will continue to look for small bolt-on acquisitions, but we'll also pursue larger opportunities when available at reasonable prices to advance our long-term strategy. Finally, we continue to work hard on ESG, which is top of mind for our COSA. We completed an important materiality assessment in the second quarter to identify the ESG topics that will be integrated into the long-term strategy. I will provide additional deep color on this at the end of the call. To sum up, we have been actively addressing the near-term strategic priorities that we have reiterated in all investor meetings, namely growing the construction products business, improving margins in energy equipment, and capitalizing on the cyclical recovery in our transportation group. Supporting those operational objectives have been our commitment to operate a lean, flat organization. Please turn to slide five. Here we have an overview of second quarter results. As I mentioned earlier, revenues increased 23% company-wide. We also benefit from margin improvement and operating leverage as evidenced by adjusted EBITDA growth of 38% and net income growth of 41%, both significantly outpacing revenue growth. I will now turn the call over to Scott Beasley, our CFO, to provide the second quarter financial review. Scott?

Thank you, Antonio, and good morning, everyone. Starting on page six, I'll walk through the second quarter results for each segment and then give additional color on our increased guidance. Construction products performed well despite challenging weather conditions in Texas, Oklahoma, and California. Revenues increased 38% to $115.6 million. Segment EBITDA of $26.5 million was $3.8 million higher than last year. This segment EBITDA margin of 23% reflects the strong geographic and competitive advantages of our construction products businesses. As expected, our second quarter margin was lower than last year. Two main factors contributed to the decline. First, as we have discussed on the last several calls, while ACG margins are accretive to our overall business, they are lower than our legacy segment margins. Additionally, ACG's operations in Oklahoma were negatively impacted by heavy rainfall, which lowered their margins from historical levels. Second, volumes in our legacy aggregates business were lower, as the Dallas-Fort Worth market lost a higher number of days to weather than normal. When weather has been clear, customers have been purchasing at more normalized levels, so we're confident that the fundamentals of the market remain strong. Pricing was modestly lower, but volume was the bigger driver. In our other two businesses, specialty lightweight aggregates and construction site support, EBITDA improved slightly in each business, demonstrating the strength of our broad-based exposure to infrastructure and markets. Overall, we continue to be pleased with our performance at construction products. and are actively looking for additional ways to grow the business organically and through disciplined acquisitions. Please turn to slide seven. Energy equipment had another very strong quarter of performance, where our team drove organic revenue growth and operating margin improvements. Revenue increased 15% to $204.3 million from a combination of factors. First, unit volumes were higher in our wind towers business, as the team did an excellent job ramping up to a higher level of production. Additionally, pricing improved in both our utility structures and storage tank businesses, reflecting healthy demand in these markets. Utility structures has benefited from increased spending on grid hardening and reliability initiatives across North America. Adjusted EBITDA for this segment was $32.3 million, more than doubling from last year's second quarter. Similar to the revenue growth in this segment, This was driven by a broad base of margin improvement across wind towers, utility structures, and storage tanks. Our energy equipment team is doing an outstanding job executing on our stage one priority of improving energy equipment margins. Please turn to slide eight. Moving to transportation, revenue increased 26% to $115.3 million as our barge business continues to ramp up to meet increased tank barge demand. Components' revenue was roughly flat, as higher unit volumes were offset by lower contractual pricing than 2018. Adjusted EBITDA margin of 14.5% improved sequentially from the first quarter's 12.4%, but was still lower than last year's margin. During the quarter, we had $1.3 million of startup expenses from the reopening of our Louisiana barge facilities. Margin was also hampered by the delivery of barges taken in a weak pricing environment in the first half of 2018, which should improve in future quarters. Please turn to slide nine. Given the strength of our first half performance and our continued confidence in our second half outlook, we are raising our adjusted EBITDA guidance by $15 million to $230 to $240 million. The increase in our guidance is the result of several factors, including faster than expected improvement in our energy equipment margins, continued confidence in the health of construction products markets, including from the ACG acquisition, and a barge ramp-up that is progressing well, evidenced by our first barge delivery from Madisonville last week. The midpoint of our guidance range is 26% above 2018's adjusted EBITDA, and our higher estimate includes a healthy mix of organic growth, the impact of the ACG acquisition, and sustained operating margin improvements. Moving to slide 10, I'll recap a few other numbers from the quarter and discuss our expectations for the full year. Capital expenditures were $39 million in the first half, and we reiterate our expectation of $70 to $80 million for the year, which is a combination of maintenance capex as well as some high return growth projects to expand capacity in a number of our business. We generated $23 million of cash from working capital in the first half and expect to be roughly working capital neutral for the year. The barge business in particular will continue to consume working capital as it ramps up production, but we are working hard to reduce working capital and have incorporated it as an incentive metric for a number of our businesses. Corporate costs were $23.3 million in the first half, and we continue to expect roughly $50 million for the full year. Finally, We've raised our cash tax projection slightly on new higher guidance. Putting those pieces together, you can see the very healthy cash generation from our business, likely in excess of $120 to $130 million this year. As an update on our balanced capital allocation strategy, we paid a dividend of $0.05 per share in the quarter, and allocated $23 million of capital to the growth-focused acquisitions that we discussed. We have $39 million remaining under our $50 million share repurchase program. I'll now turn the call back over to Antonio.

Thank you, Scott. Now I will share with you our outlook on the business conditions in our key markets. Starting with construction products, please turn to slide 11. We continue to see strong underlying factors driving growth for the construction product segment, as the private and public sector spending trends are favorable in our markets. While wet weather constrained our first half results, assuming normal weather conditions prevail, we expect a stronger second half of the year for the construction segment. Weather conditions since the end of the second quarter have normalized, and we have seen an increase in volume when weather has been dry, which suggests continuing strong fundamentals. Pricing is another sign of market strength. During the second quarter, even as volumes dropped due to bad weather, pricing remained at healthy levels. As we discussed at the time of the ACG acquisition, in addition to fitting nicely, the business brought along a pipeline of small acquisition candidates that could be bolted on at attractive pricing. We completed one aggregate acquisition during the quarter at mid-single-digit EBITDA multiple, and we continue to advance a pipeline of attractively priced deals. So we remain optimistic that we can expand our construction segment through a healthy combination of organic and inorganic growth while maintaining price discipline. Please turn to slide 12. Moving to energy equipment, we continue to make good progress on lean manufacturing initiatives which have significantly increased our throughput in utility structure business. Building activity for utility structures remains healthy, and we have seen an increase in grid hardening and reliability spending across the country. This improvement in activity should provide our business with increased visibility on projects and allow it to continue building momentum in the implementation of the lean programs. In addition to organic growth in our traditional product lines, we see opportunities to expand our portfolio of products organically and through acquisitions into markets that require similar core competencies. Shifting to wind towers, we booked 36 million of new orders in the quarter and now have three different customers in our backlog. These new orders are a good reflection of the new market dynamic we expect after the PTC expires. Smaller, project-driven orders and pricing set by supply-demand factors rather than tax incentives, just like we experience in every other business. For the second half of this year, we will have two marketing headwinds that we did not have in the first half. First, pricing on the towels we produce in the second half will be lower. Additionally, we will have a line changeover cost related to the building of different tower packs for multiple customers. Together, these headwinds will likely create 200 to 300 basis points of margin headwinds for the segment overall compared to our normalized margin in the first half of the year. We continue to see strong backlogs in our storage tank business that serves the U.S. and Mexico. We see healthy demand for replacement in the U.S. and continue to actively bid on a number of oil and gas related infrastructure projects in Mexico. Please turn to slide 13. Our transportation products business continues to be a story of ongoing recovery, and we are pleased to announce the delivery of our first barge from our reopened Madisonville facility. I'm extremely proud of our team who was able to turn a building which was empty eight months ago into a vibrant manufacturing plant which delivered a beautiful barge last week. This type of fast response to cycle is what makes our team special. On the sales side, we booked 32 million of orders during the quarter and now have a backlog of 350 million. Roughly half of that will be delivered in 2020. As a reminder, we received an exceptionally high number of orders for $203 million in the first quarter of this year. While flooding along the Mississippi River contributed to a temporary slowdown in orders, since the start of the third quarter, inquiry activity has picked up nicely. We also expect lower steel prices to drive additional dry barge replacement demand. Continued improvement in barge transportation fundamentals together with barge replacement cycles should drive additional demand for our products. Also of note, margins on the orders we received in the quarter are higher than those delivered, setting the stage for margin improvement over the next several quarters. As for rail components, while our volumes have held steady, there is potential for a slowdown in volumes in the fourth quarter if the industry backlog for new rail cars continues to shrink. in the fourth quarter if the industry backlog for new rail cars continues to shrink. We will know more about these volume trends in the coming months. Please turn to slide 14. As I mentioned earlier, I would like to update you on an important action underway at ARCOSA, progress on our ESG initiatives. As we mentioned last quarter, we have begun the process of ensuring that we advance environmental, social, and governance practices across the organization. We recently completed the first step, a materiality assessment, where we identified a set of ESG initiatives that will be integrated into our COSA's long-term strategy. The second step of this process is to start measuring performance in several of these initiatives in order to set a baseline and internal goals. So this is a long-term project we are committed to, but I'm happy to report that we have started the process and should be able to build forward momentum. We look forward to discussing our progress on these initiatives in the coming quarters. Please turn to slide 15. I would like to close with a reminder of the long-term plan for our COSA, which remains unchanged. To grow our business in attractive markets where we can achieve sustainable competitive advantages, to reduce the complexity and cyclicality of the entire portfolio, to improve long-term returns on invested capital, and to integrate ESG initiatives into our long-term strategy. The second quarter was an excellent example of making progress in each of these areas towards our long-term goals. We're optimistic about our portfolio, market demand, and continued operating improvements. Operator, I would like to open the call for questions.

Certainly. At this time, if you would like to ask a question, please press star and 1 on your touch-tone phone. You can remove yourself from the question queue by pressing the pound key. Again, that's star and 1. We'll take our first question from Bascom Majors from Susquehanna. Please go ahead.

Yeah, thanks for the update and congratulations on the results here. Can you guys first of all kind of directionally break down the EBITDA increase to 2019 between how much the acquisitions may have added and what's more organic based on the performance you've had this year?

Sure, Bascom. This is Scott. So the acquisitions really won't have a big impact in 2019. We talked about about a $23 million purchase price, mid-single-digit multiple. So you're talking about annualized maybe $4 to $5 billion of EBITDA contribution. Make that a half year, and you're kind of at two. But in the first year, we've got integration costs and some ramp-up costs, so really not much from the acquisitions this year. The primary increase was both our outperformance in the second quarter and some continued confidence in the second half from where we were a quarter ago.

That's great news. On the share repurchase plan, you weren't particularly active in the second quarter. Can you talk a little bit about that as a use of capital as you look out versus the M&A opportunities that you talked about earlier?

Sure. So we've talked about our balanced capital allocation strategy across organic opportunities, acquisitions, and return of capital to shareholders. And so if you look in the first half of the year, we spent about $40 million on CapEx, $23 million on acquisitions, and then for return of capital, shareholders paid $5 million in dividends and then repurchased about $11 million since the authorization of the program in December. So I think we'll continue to try to be balanced. We're really excited this quarter to have been able to deploy capital into the growth acquisitions, but we still have $39 million in the share repurchase program, and we'll deploy that when it makes sense.

Okay, and as we look forward, I mean, you gave a lot of comments on the second half. You talked a little bit about the barge backlog and, you know, sequential improvement in the profitability of that business as the ramp completes and better pricing rolls through. Any high-level thoughts you can give us on the business as you get out of this year and into next year? I mean, You mentioned some potential headwinds in rail related to what's a declining backlog in the industry there for rail cars. But, you know, anything else that we should think about kind of puts or takes directionally as we think about your business transitioning into next year? Thank you.

So, this is Antonio Vascon. So, let me give you some thoughts. I mentioned that about half of the backlog we have in barges will be delivered in 2020. And we had slower orders this quarter in barges than the first quarter. The first quarter was incredibly high. And this quarter was very complicated for our customers. The river system was flooded, and they were basically trying to keep their business going with all those variables moving around them. Since the end of the quarter, I mentioned, we continue to see good inquiries for barges. Both on the end of the quarter, I mentioned, we continue to see good inquiries for barges, both on the liquid and the dry side, more on the liquid side. And if you look at the barge replacement cycle, both on the dry side and the liquid side, there's a you know on the liquid side about 25 percent of the barges in the fleet are over 20 years old we've seen a trend in barges being built being let's say replaced with shorter periods so some of the larger companies are replacing their barges at 20 years rather than 30 years so if you see the fleet there's there's i think a very very good indication that the demand for tank barges is going to be good over the next few years. On the dry cargo side, of course, we know the declining coal, but also the fleet size and the fleet replacement cycle seems to be a good indicator that there's going to be – we should expect some additional demand in the future. Also, steel prices I mentioned should help that demand come through. The steel price has peaked a few months ago close to $1,000, now they're closer to $700. So there's, I think, good economic factors that should also help drive demand for barges. On the rail component side, let me just continue on the barge side, also the dynamics in the fundamentals of the shipping industry in the barge, you know, rates have become better, the river system is becoming more efficient as the water recedes, so things are looking better. On the component side, I mentioned the backlogs for the rail OEMs have continued to go down. So as those volumes come down, we'll know more in the next few months. Volumes for our components could be lower. I think the pricing, we already are having some impact this year, and we'll see, depending on how those volumes look, how pricing looks for the following years. But overall, we're happy with the way the ramp-up is going in our barge group. We've been able to get the people. We launched our first barge. We are really optimistic of how things are going.

And could you give some high-level thoughts on energy? I mean, you had a very good margin outcome in the first half of the year, but we're pretty transparent that that won't be sustainable as you make some changeovers and get into tougher price backlog in the second half. Any high-level thoughts on the trend in the energy business overall as we get into 2020? Thank you.

Sure. In my first quarter conference call, I mentioned that the lean implementation had increased our throughput significantly. And one of the reasons we thought we were going to have a lower margin in the second quarter was the increased throughput had created some holes in our production schedules in the second quarter. So we went out into the bid market. As I mentioned also, there has been a very good bidding activity in the transmission business. So we were able to fill those holes with good margin orders, and our team has done an incredible job in working through the throughput and those orders. So we were very happy with what's going on in our transmission business. The headwind comes really on the wind tower side. In the second half of the year, we have some lower pricing coming through our business. And we also sold some additional orders, which are good orders, relatively good margins, but lower margins than the average we have. As I mentioned, we believe that's going to be the market of the future in terms of smaller orders, and we have to become good at it. So the second half is going to be kind of our entry into this new market. And it's counterintuitive because we are going into 2020 and a strong 2019 to strong 2020 in terms of orders. The wind industry is going to sell a record amount in 2020. And I'm lowering my forecast for margins. And that's the reason we launched our anti-dumping case a few weeks ago against several countries, Canada, Vietnam, Korea, because we believe in fair trade, but we believe in fair competition. And that's why I think a lot of the margins in the future will depend on not only the demand factor, which seems to be better. If you look at all the forecasts on the wind industry, they're getting better. But we also need to have fair competition from the supplier side. So that's one of the things that we are going to be watching, how the ITC and the Commerce Department responds to our anti-dumping case.

Last one. Is the revenue split between wind towers and utilities still fairly even, or has that started to break in one way or the other? Thank you.

Sure. This is Scott. Yeah, it's still roughly even. It depends a bit on the quarter, but still about the same size.

And our next question will come from Ian Buffino with Oppenheimer. Please go ahead.

Hi, great. Great, great quarter. You know, the question would be on the bar side. Great, great quarter. You know, the question would be on the bar side, the pricing. What's the actual real pricing that you're seeing, you know, over material costs? Thanks.

Sure. This is Scott. So, you know, we're, We don't disclose direct gross margin. I'd say if you look at the history of the barge business, peak cycle EBITDA margins were roughly in the 20% range. If you look at the bottom of the cycle, the past few years, they were kind of high single digits, five to seven. So we would expect to see in the third, fourth quarter, and then into next year, EBITDA margins come off of that bottom back up towards, higher margins, still not at a peak yet. Peak margins occurred when the business was doing probably $650 million of revenue. We had all the plants very full. We're not even back close to a peak-type level. So you're talking about coming off the lower margins, headed towards a higher one, but still not there.

Okay. And then on the dry side, is there a particular – price level for steel where customers will kind of hit the bid. And also maybe give us an idea of what the sensitivity is of, you know, every $100 per ton change. You know, what does that change kind of the selling price of the barge? I'm trying to understand what the impact would be to the customer as they decide whether or not to purchase a new barge. Thanks.

Yeah. I think it's a combination of two things. You know, like every customer makes their numbers, and the combination is both the rates and the cost of the barge and make a decent return on their investment. You look at the rates, they have been very, very low, and they've been coming up. So it's a combination of the cost of the barge and the rates. And that's why I said I think the fundamentals are moving in the right direction, both of them. And it will depend also on the type of commodity they're moving. I will tell you that the steel price where it is right now, I would consider it a good level of steel pricing if you look at history for plate. So we've seen inquiries pick up in the dry side. If you look at the amount of barges that need to be replaced, there are a very high number of barges. If you just make the numbers on our production, just our causes production for the last 20 years, we produce probably on average 400 barges a year. Over the last three years, we haven't produced 100. So this year we're producing very few barges. So I think there's a good case for both sides. On one side, the fundamentals are getting better. On the other side, you know, at some point someone needs to replace their barges, right?

Okay, thanks. And then one final question. Scott, how much did ACG add in the quarter?

So we combined that with our legacy businesses. You know, I'd say we said ACG performed roughly in line with our expectations minus a delta for weather. So if you look at kind of historical $32 million of EBITDA that they did when we bought them, roughly in line with that by quarter minus some weather.

Okay, perfect. Thanks, guys. Good quarter.

Our next question will come from Brent Thielman with DA Davidson. Please go ahead.

Great. Thanks. Good morning. Great quarter. Thank you. On the energy business, I want to ask about the pickup and kind of grid hardening, fire restoration activity, I guess, and whether or not that's driving a pickup in pricing in that business? Are you seeing more appealing bid margins? I guess, you know, are you factoring in some offset to the, obviously, the issues in the wind business from that?

Yes, Brent, this is Antonio. And, you know, as I said in the second half where the headwinds we see are really on the wind tower side, if you look at the numbers and the results for our transmission business, they're doing really well. As Scott mentioned in his remarks, they're exceeding our expectation for margin improvement that we had last year. Last year, this was a business that was severely underperforming our competitors, and now it's doing much better. We are seeing some increase in the grid, both from our traditional customers, but also from the bid market, which is where we have not been playing. So if you look at one of the issues we had in the past, we were basically concentrated on our traditional customers. We were basically concentrated on our traditional customers. We were not playing in the market, and we were kind of full. As we've increased our throughput, we've become more active with new customers. We've become more active in the big market, and we see opportunities, as I mentioned, to expand our product line. So I think it's a combination of a good market, and the dynamics of the lean implementation we're doing and the team that we've put together that's doing a great job.

Okay. And then on the construction business, we often hear from the other public participants about sort of the traditional aggregates market. I'd love to get your views in terms of the varying demand pieces on the specialty business, what you're seeing there, and I guess it's been common on, just pricing in general within the business?

Yeah, so overall, I think we share the view of the other participants that the residential mark building continues to be strong. The non-residential continues to be particularly strong. we have a disadvantage that we are more concentrated in certain markets, and we were probably the hardest hit in terms of weather because we have so much of our assets here in Texas and Oklahoma. But at the same time, we're also fortunate that we are in a strong market. The Texas market continues to see strength, both in terms of public and private spending, but also we have a great position here. And as I said in my remarks, As soon as the dry weather came back, we continued to see strong volumes. On the specialty side, we're really happy with what we're seeing in ACG. Scott mentioned we had weather impacts. Yes, that was from our traditional aggregate business, but also there is some on the specialty products. We have some plasters and some specialty things coming from our gypsum plants that have done extremely well. We're expanding capacity in ACG. quite of capex going on into ACG going forward, both in our western facilities and also in Oklahoma to expand.

I guess coming out of the first quarter, you said that you expected them to be modestly better than the 10% from last year in the second quarter, the fourth quarter. Obviously, you did something on the order of 15%. in the second quarter and are guiding, you know, something in the 12% to 13% range for the second half. So I was wondering if all of the strength was being driven by this bid activity. I guess it seems like kind of more of a spot market for you, or if there are other factors as well that are contributing to that step up.

I think it's a, you know, Sometimes these calls and everything, they're short to talk about things we're doing, but it's a combination, I would say, of four things. Let me start with wind towers. Wind towers, even though the market environment is uncertain and we have imports, et cetera, all those things that I mentioned, the team is doing an incredible job and they have a very mature lean system, but they've been just simply outstanding in the way they have been performing. Every one of our plants is doing an incredible job in throughput, in cost reductions, in running their business, and that's why I'm very certain that, you know, in normal conditions, we can go head-to-head with any company in the world and be the best in class in wind towers. So very happy with what's going on there. On the transmission side, I mentioned already the throughput is increasing. And that's allowing us to penetrate markets we were not playing at. So it's a combination of volume and new markets. And then we have the two businesses we don't talk much about, which is the tank business, both in the U.S. and Mexico. I think part of the margins are coming from almost turnaround type businesses. Our Mexico business was losing money last year. It's making money this year and every quarter is looking better. They are doing a great job. They're costing costs. They're increasing their production. They're focusing on their market. And the tank business in the U.S. is also healthy and they're doing a very nice job. I would say the four businesses that we have in this segment are doing really well. The margin ahead when we see in the second half is really coming from the wind towers, as I mentioned, because of pricing and some of the learning curve we're going to go through as we build towers for three customers.

Thank you. That's very helpful. Shifting to the barge business, two quick ones there. Why are barges beginning to be replaced sooner? And was the pricing on the orders, did that step up occur in the second quarter, or did you enjoy that as well in the first quarter when you had the large amount of orders?

We've been, let's say, gradually raising prices as we've seen demand going up. So we started since early in the year, and we've been little by little gaining momentum on that. On the tank barges that I mentioned, they're being replaced shorter times now. These are some of the larger companies we have been dealing with. Barges are very different than rail or some other tanks, let's say, where you keep oil. When you have oil or other chemicals being moved through the river, if there's a spill or something, there's a bigger environmental impact. And we are seeing... from some of our customers a significant focus on safety and improvements being made on the barge design to increase safety, increase the amount of safety features to avoid leakage, et cetera. And I think that's one of the drivers that's happening in the tank barge. When you see the river system like you saw it in the first half with all the flooding and you see some of the videos of the barge sometimes getting loose, et cetera, you need a very, very robust safety barge to handle liquid. So I think that's one of the biggest things happening.

Okay, that's helpful. So I assume when they need to make these safety upgrades, they – replace the barge rather than try and refurbish it for the most part.

Yeah, those are the, let's say anecdotally the comments we're getting from our customers.

Okay. Lastly, I just wanted to clarify one or two numbers. You mentioned the startup costs in the barge facility in the second quarter. I think that came at me a bit fast. And then the line change for the wind towers, is there sort of a dollar amount that that's going to be a headwind for the second half?

Sure, this is Scott.

For the second half.

Sure, this is Scott. So the second quarter ramp-up cost at Madisonville, we said were $1.3 million. Those kind of lessened over time, even though we're producing revenue there by shipping barges, there's still lower margin as we're ramping up the learning curve. So that's the barge facility. On the wind tower margin, the headwind, we didn't break out the combination of the pricing and the inefficiencies, but said total would be about 200 to 300 basis points of the margin headwind.

Okay, great. And then the bad debt recovery of $3 million, that's in your 230 to 240 now, the bad debt in the first quarter?

Correct.

Okay. Thanks for taking all my questions.

Thank you. Thanks, Justin.

And there are no further questions at this time, so I'll turn it back to Gail Peck for closing remarks.

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

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