Arcosa, Inc.

Please stand by. Your program is about to begin. If you need audio assistance during today's program, please press star zero. Good morning, ladies and gentlemen, and welcome to Arcosa Inc. Arcosa Inc. First Quarter 2022 Earnings Conference Call. My name is Corliss, 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 Draback, Director of Investor Relations for ARCOSA. Ms. Draback, you may begin.

Good morning, everyone, and thank you for joining ARCOSA's first 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 we expect to be filed later today. I would now like to turn the call over to Antonio.

Thank you, Erin. Good morning, everyone, and thank you for joining today's call. Starting on slide four, I'll begin with some first quarter highlights. Led by our growth businesses, construction products, and engineer structures, our COSR delivered strong first quarter results with adjusted EBITDA growth of 30% outpacing revenue growth. Our results were driven by healthy infrastructure-led fundamentals and proactive pricing actions supported by solid operational performance. Additionally, we benefited from the contributions of recent acquisitions in construction products where integration is progressing well. During the quarter, we effectively managed the headwinds in our cyclical businesses, and I would like to commend our team for their continued dedication and execution in a challenging market environment. On a positive note, our barge business received $105 million in new orders during the first quarter, benefiting from our ability to secure competitive steel pricing. While these orders come at a lower than historical margin, we see the activity as a positive sign reflecting pent-up replacement demand for hopper barges and extend our backlog into 2023. Earlier in the week, we were pleased to announce that we reached a definitive agreement to divest our storage tank business for $275 million in cash, significantly advancing our strategy to simplify our portfolio of businesses. We continue to have an attractive pipeline of organic and acquisition opportunities with key focus on construction products and engineered structures. And the divestiture enables us to accelerate these opportunities. Overall demand conditions across our growth businesses remain strong, and we continue to see indications of recovery within our cyclical businesses. At the same time, we're focused on closely managing inflationary pressures. Global steel prices remain elevated and following the outbreak of the conflict in Ukraine, we now expect prices to remain elevated at least through the remainder of 2022. Even so, based on our strong start to the year, we're raising the midpoint of our 2022 full year adjusted EBITDA guidance and now expect annual growth in the range of 2 to 8%. Finally, I'm pleased to announce that ARCOSA recently published our second annual sustainability report, which is now available on our website. This report provides a comprehensive view of the many ways in which ARCOSA is incorporating ESG initiatives into our business and our vision for driving sustainable long-term growth. Turning to slide eight, I'd like to provide some additional highlights on our divestiture announcement before we move into quarterly results. The sale of our storage tank business is consistent with our strategy to reduce the complexity and cyclicality of our overall portfolio, and we intend to redeploy the proceeds into our key growth businesses. This investiture is an excellent example of improving a business and then preparing it for monetization when the market conditions are supported, enabling us to realize significant value through a competitive sale process. At SPIN, our storage tank business was underperforming, generating negative EBITDA in 2018. We set out to improve the profitability through lean initiatives and a strategy to accelerate growth. Beginning in late 2020, COVID deurbanization trends and a strong housing market led to significantly improved results for the business, with 2021 adjusted EBITDA pacing ahead of normalized levels. To capture future growth opportunities, we believe the business requires additional capital. making it an opportune time for new ownership. We anticipate the transaction should close in the second half of the year, and we will update our full year 2022 guidance at the time. Our pipeline of investment opportunities is robust and includes attractive acquisitions and organic initiatives that would not only strengthen our current product offerings, but also expand our geographic footprint. From an organic standpoint, we are making solid progress in our growth projects. including the expansion of our specialty materials plaster plant, as well as two new greenfield locations in natural aggregates. In addition, we are expanding our product line in the utility pole business, and earlier in the year, we started production of sprung concrete poles in Alabama. Given the successful launch of that line, we recently approved a new 30 million sprung concrete pole plant in Florida, which will start operations in 2023. The combination of these organic and inorganic opportunities, coupled with the additional capital coming from the divestiture of the tank business, should provide ARCOSA with multiple pathways to further strengthen our business and accelerate growth. Finally, on slide 9, ARCOSA has made significant progress since 2018, creating a less cyclical and more resilient company, with attractive infrastructure capitalists supporting long-term growth. The sale of our storage tank business enhances our capacity to continue expanding our focus growth areas. Gail will now provide detail on our financial results for the first quarter, and I will return to discuss an updated outlook. Gail?

Thank you, Antonio, and good morning, everyone. I'll start on slide 11 and touch briefly on ARCOSA's consolidated results. First quarter revenues increased 22 percent, driven by double-digit sales growth in construction products and engineered structures. Outpacing the increase in revenues, first quarter adjusted EBITDA improved 30%, led by solid top line expansion and stronger profitability in our utility structures business. Overall, adjusted EBITDA margins increased 90 basis points to 13.7% in the first quarter. Turning to construction products on slide 12, this segment performed in line with our expectations for the seasonally slower first quarter. Revenues grew 38% and adjusted segment EBITDA increased 26% due to both acquisition and organic contributions. The decrease in segment EBITDA margin compared to year-ago levels primarily reflected the inclusion of stone point materials with margins below the segment average and operations more exposed to winter weather in the first quarter. We expect overall segment margins to improve in the seasonally stronger second and third quarters of this year and we continue to anticipate higher full-year margins in 2022. Natural aggregate volumes were up significantly with the additions of Stone Point and Southwest Rock. On an organic basis, we generated low single-digit volume growth in line with our expectations, adjusting for certain large projects rolling off in Central Texas. Favorable demand drove broad price increases. across our markets, with average organic pricing up mid-single digits, helping to offset inflationary cost pressures. Turning to recycled aggregates, volumes in pricing increased significantly in the first quarter, reflecting healthy residential, industrial, and infrastructure demand. In specialty materials, volumes in average selling prices were also up in the first quarter, primarily driven by strong demand in building products and infrastructure end markets. We were pleased to see volumes in our plaster products line restore to pre-pandemic levels due to an ongoing recovery in flooring demand. Finally, our trench shoring business reported a 32% increase in revenues on higher steel prices and increased volumes. Border activity was strong during the quarter, providing solid production visibility. Moving to engineered structures on slide 13, first quarter revenue increased 21% and adjusted EBITDA increased 38% to $36 million, resulting in a 14.5% margin ahead of our 12 to 13% targeted range. Benefiting from attractive market fundamentals and a favorable mix, along with improved efficiencies associated with our production ramp in Mexico, our utility structures business began 2022 on a strong note with significant revenue margin growth in the first quarter. Our team has done a fantastic job improving overall profitability. Combined revenues in our traffic and telecom businesses were also up compared to last year on favorable demand drivers and are well positioned for further expansion in 2022. Order activity for utility and related structures was healthy with a book to bill above one times during the quarter. Our storage tanks business also had a strong start to the year with revenues up 39% led by price and growth in our U.S. business. We maintained overall margins despite significant steel price inflation. Turning to wind towers, we executed slightly ahead of plan during the first quarter on significantly lower expected volumes compared to the prior year. Order activity in the first quarter was muted as our customers continued to await a PTC extension. At the end of the quarter, the combined backlog for utility wind and related structures was approximately $421 million, up 11% from the prior year period. Turning to transportation products on slide 14, Although first quarter revenue and adjusted EBITDA declined year over year due to lower barge volume and pricing, our barge business performed better than we had anticipated. The upside relative to our expectations reflected an improved customer mix and associated production efficiency as certain higher margin barge orders scheduled for delivery later in the year moved into the first quarter. Revenues in our steel components business increased 20% in the first quarter on improving fundamentals in the North American rail car market. First quarter order volumes were significantly higher compared to last year's trough levels, and this business should continue to benefit from improved operating leverage throughout the year. Our barge backlog increased to $151 million at the end of the quarter, up from $93 million at the start of the year. The orders we received during the quarter helped fill in our planned production scheduling for 2022. Moving to slide 15, we ended the quarter with net debt to adjusted EBITDA two times at the low end of our targeted range. During the quarter, we generated roughly break-even free cash flow up about $20 million year over year. First quarter cash flow included approximately $20 million in proceeds received from the previously announced sale of a non-operating facility in our utility structures business. While representing a use of cash, first quarter working capital improved from prior year levels, and we continue to expect it to be a source of cash in 2022. Capital expenditures were $26 million in the first quarter. For 2022, we continue to see full year CapEx of $120 to $140 million, with the potential to reach the high end of the range, based on several growth projects we have underway in construction projects and engineered structures. As Antonio indicated, we plan to update our revenue and adjusted EBITDA guidance for the divestiture as we move closer to the sale date. I will now turn the call back over to Antonio for more discussion on our 2022 outlook.

Thank you, Gail. As Gail discussed, our first quarter results provided a strong start to 2022, providing increased confidence in our outlook for the full year. While it is early in the year, we continue to see strong demands for our products in many of our key markets. We're closely monitoring inflationary pressures and proactively raising prices to compensate for higher material and other input costs. At the same time, we're staying in touch with our markets to watch for any signs of economic cooling as interest rates continue to increase. Please turn to slide 17. The overall demand environment for construction products remains strong, reflecting continued positive fundamentals in our key markets. Through a disciplined and focused acquisition strategy, we have significantly expanded our geographic presence, which now includes numerous attractive markets where continued infrastructure investment is required to support local population growth. Our expanded portfolio of products, including natural and recycled aggregates and specialty materials, positions our construction products platform to deliver solid top line growth with improving margins through 2022. In addition to the Federal Infrastructure Bill, which allocated $110 billion in new infrastructure funding for highways and other infrastructure projects, is expected to provide a favorable tailwind for this business starting in late 2022 and continuing into 2023. The outlook for the growth businesses within the engineer structure segment remains positive. reflecting favorable order activity for utility, telecom, and traffic structures. In 2022, we anticipate our engineering structures segment to continue to benefit from significant utility capex for grid hardening and reliability initiatives, continued road infrastructure investment in Florida and other Southeast states, and the build-out of 5G networks. Moving to slide 18, in our cyclical businesses, We were pleased to see an uptick in our barge business, where we secured 105 million of new orders in the first quarter, primarily for hopper barges. As I mentioned before, although these new orders carry margins below historical averages, they nonetheless enable us to fill our planned barge capacity for this year and extend our backlog into 2023. With steel prices anticipated to remain elevated, we expect this extended backlog to allow flexibility for our plans to retain our workforce in anticipation of accelerating demand once conditions stabilize. We believe that these recent barge orders represent an early but important indication of underlying upper barge replacement demand, reflecting an aging fleet and years of underinvestment in new barges. On wind, our long-term outlook remains positive. supported by raising importance of renewable energy. The war in Ukraine and the policy moves towards reducing greenhouse gas emissions indicates a need for a clear and aggressive renewable energy policy. However, at the moment, customer demand for wind towers is low, given the uncertainty surrounding the timing of a new production tax rate. We remain optimistic about a PTC extension. However, timing continues to be uncertain. Following three years of declining North American railcar production, new railcar deliveries are forecasted to increase as much as 50% this year, a trend that should drive significant growth in our rail components business through 2022. Turning now to our updated outlook for 2022 on slide 19. Excluding the impact of plant divestiture of storage tank business in the second half of the year, we are raising the lower end of our adjusted EBITDA guidance to $290 million, up from $280 previously. At the midpoint of our revised guidance range, we anticipate 5% growth in adjusted EBITDA for 2021. The tightening of our adjusted EBITDA range reflects our strong first quarter as well as confidence in the outlook of our growth businesses and a better visibility into our plant production volume within our cyclical businesses. Being able to continue to grow the company while some of our cyclical businesses are operating at or near the bottom of their cycle speaks of the resilience of our cost portfolio businesses. On slide 20, I would like to take a moment to discuss some of the highlights of our recently published sustainability report for 2021, which provides a comprehensive look at how we are incorporating ESG initiatives into our business and long-term strategic planning. First and foremost, we continue to make progress in building our safety culture. Our 2021 total recordable incident rate improved from prior year and has declined 60% since 2019. At the same time, we further improve diversity and inclusion within our overall workforce with focus on expanding roles and opportunities for women at ARCOSA. From an environmental perspective, we achieved reductions in both water usage and water usage intensity, while also reducing greenhouse gas emissions and greenhouse gas emissions intensity. We also reaffirmed our commitment to environmental responsibility by establishing an initial short-term scope one and scope two greenhouse gas emission intensity reduction goal. Let me end my remarks with some concluding comments. We are off to a strong start in 2022, and the outlook for the year remains favorable, supported by continued positive fundamentals in our growth businesses and improved production visibility in our cyclical businesses. The planned divestiture of our storage tank business is consistent with our long-term strategy to reduce the complexity of our cost and enhance shareholder value by allocating capital to those markets where we can generate long-term sustainable growth. Finally, we continue to make important progress integrating ESG into our daily operations and long-term strategies. Operator, I would like to open the call for questions.

Absolutely. At this time, if you would like to ask a question, please press star 1 on your touchtone phone. You may remove yourself from the queue by pressing the pound key. Once again, that's star 1 to ask a question. We'll take our first question from Ian Zaffino. with Oppenheimer. Your line is open.

Hi, great. Thank you. Very nice quarter. Nice to see the midpoint of guidance being increased. I just wanted to kind of go through maybe your philosophy on the storage tank sale. I know you want to reduce the non-cyclicality of the business, and I understand that. I think that's great. But why was this the first cyclical business to go you know, maybe walk us through how this this now happened. And then your view on the remaining cyclical pieces of the business as far as maybe timing or just value kind of recognition. Thanks.

Sure. Yeah, this is Antonio. So You know, I've said several times in these calls that the M&A, both buying and selling, takes a life of its own based on conditions in the market and the conditions of each business. As I mentioned in my remarks, and if you look at our documents from our first investor day before SPIN, in the energy segment at that time, the engineer structures today, One of our priorities said fixed businesses. We had a lot of businesses that had to be fixed, and the storage tank business was one of them. We tend to forget, but before spin or right at where we were spinning, we sold two businesses, very small business. One was an oil services business in Canada, and another one was a small cryogenic business that we had in the U.S., both of them losing money. The tank business we just sold was losing money. in 2018. So we needed to fix the business before we thought about selling. As I mentioned in my remarks, the business improved throughout this period. We had a very strong 2021, given the conditions COVID created. And to continue to grow the business, we need to deploy a lot of capital into it. At the same time, we were starting to look at diversities and simplification, and the conditions were right. We found what we think is a great buyer for the business and for our employees, and the timing was just correct. In the philosophy of how we think about it, I think it has to do with when we can monetize the business the best for our investors, It doesn't have to be necessarily the highest price at the peak of the cycle. I think in this case, we caught the peak because the business can do more, but it needs capital. But in the rest of the businesses, we're going to evaluate combination of price and also the impact to the overall portfolio of Arcosa. I think it's a combination of different factors. I think in this case it's something, the business is a great business. There's nothing wrong with it. It's a great business. It's the original business where Trinity started the company, and it's a fantastic business. There's nothing wrong with it. So I'm not sure if I answered your question.

No, I thought that was very helpful. And, you know, I guess dovetailing on that question is, You're sitting here with a nice amount of proceeds from it. I know you mentioned putting it into construction, but can you maybe give us a little bit more color on that? Does that mean we see all of the proceeds maybe plowed into that? Would it be larger than that where you would take on a little bit more leverage to buy something bigger? And maybe what multiples are you seeing or would you anticipate to pay in this market? Thanks.

Well, as you know, again, M&A has a life of its own. So if we had something already very close, we would announce it at the same time. So we are working with different projects. As I mentioned, our pipeline is relatively full, both in organic and inorganic opportunities. The first one, I will mention the organic side. We have three projects going on that we announced at the beginning of the year, a new plaster plant. two greenfield locations in aggregates. In my remarks, I mentioned we just approved another $30 million for a concrete pole plant in Florida. So the good news is we have a lot of projects to deploy capital organically. And then on the inorganic side, it would be mainly on the construction of aggregates and recycled aggregates are our two main focus. We have good opportunities. Based on the problems we have right now, I don't foresee us doing something enormous that would take us beyond the guidance we have given on our targeted net debt to EBITDA. I think we have flexibility right now, and it would have to be something really, really important for us to go beyond our guided targets in terms of net debt to EBITDA for several reasons. We still have cyclical businesses, even though they're operating at the low part of the cycle. We want to be conservative. Second, there's uncertainty around the economic cycle that's approaching, so we want to be conservative as we approach that uncertain period, no?

Okay, great. Thank you very much for the call.

And we will take our next question. from Brent Tillman with DA Davidson. Your line is open.

Hey, thank you. Good morning. Good morning. Hey, Antonio, in the aggregates business, is it your expectation that margins can sort of return to prior year levels or better as we move into the construction season? Are these higher costs for diesel and other inputs going to prevent that in the short term?

Hey, Brent. Good morning. This is Gail. Why don't I take that and I'll let Antonio add on. As I said in my comments, we did see our expected, we did see our first quarter construction margin lower than the prior year, but we do expect, and that is a seasonal flow quarter for us, as you know, and we would expect to see margins, particularly in the seasonally stronger second and third quarter, accelerate, and we do anticipate higher margins for the segment year over year on a full year basis. So we've been pleased with the ability to offset pricing pressures, excuse me, inflationary pressures, whether that's diesel, raw material inputs, with strong pricing leverage that we've had against what continues to be. And, you know, as Antonio said, we're watching for for signs there on the economy, but continues to be very strong construction activity.

Yes, and I'll add to Cale's comment. I think since we bought Stone Point, it creates noise because it's a lower margin business given their business conditions in the regions where they are, especially the first quarter. The first quarter, they're more exposed to cold weather, to snow, and things like that. but also they still have a portion of the asphalt business that we run, and it basically shuts down during the first quarter. So it creates a lot of noise, but we do expect improvement as we go through. Our team is very focused on price increases to compensate for inflation. So I think up to now they've been able to manage it very well, and we continue to expect margins to go up as we progress through the year. And we saw it. as we progress through the quarter. We saw a margin improvement. So what you see is a combination of January, February, and March. If you dig deeper, you would see improvement as we went through it.

Okay, I appreciate that. And then I get second questions on the barge business. I'm encouraging to see some orders coming in here in the first quarter. Just wondering, where inquiry levels are at. You continue to take new orders since the end of the quarter. It looks like expectations haven't changed for the business through the course of the year. Maybe just an update there. Sure.

Our previous conference call was held the day the war in Ukraine broke. At that time, every forecast had still dropping very significantly this year. uh with the war in ukraine i think it's more on the supply side of raw materials that's hitting the industry and prices remain high and so what what really what these orders do for us which is very important is it allows us to plan a longer planning period so that we can keep our workforce and make sure that we keep our plants open and operating in good conditions. It also gives us some margin that we were not expecting, so it improves our numbers some. But the most important piece is we continue to see significant pent-up demand, especially on the hopper side. Inquiries continue to be very strong. Every customer we talk to needs barges. Scrapping continues to happen, and scrap prices have gone up pretty significantly and stayed high. upper barge a scrapping has continued so that is creating under investment on one side and scrapping on the other side is creating what we consider pent-up demand that's going to come so once this stabilizes a little bit i think we're going to see significant demand when is that going to happen there's several things that need to happen there need to be some more clarity around how this uh Ukrainian war gets resolved the only thing that's coming there's significant capacity on plate coming online later this year and um and that's going to have I we expect significant impact in in the demand supply supply demand factors starting in 2023 So these orders allow us to plan into early 2023 and will give us better capacity to make decisions at the end of the year. We do see additional orders in the next few months based on the inquiries we're having, both on hopper barges, And the smaller tank barges, which are 10Ks, what we call mainly for petrochemical industry, with oil prices where they are and gas prices where they are, the petrochemical industry in the U.S. is going to do fantastic, and they are going to require barges.

Okay. Thank you. Appreciate all the answers. Best of luck.

Thank you. We'll take our next question from Gerich Chamoyas. With Loop Capital, your line is open.

Oh, hi, thanks. Congrats on the quarter. I wanted to follow up on aggregates, natural aggregates in particular. Just wondering if you could provide an outlook for volumes the rest of the year, considering if you had the large project roll off in Central Texas, it weighed a little bit on Q1. Do you think that volumes can grow just considering the... that large project is, I guess, a shortcoming.

Good morning, Garrick. This is Gail. Yeah, I think our performance in Q1 from a volume perspective was right in line with our expectations. As we look to the full year on organic volumes, as we had indicated on our call last quarter, we did give similar guidance with that same adjustment for the larger projects rolling off. So tracking very well against our full year of low single-digit volumes. You know, what could change that? You know, it's a very healthy construction market right now. Of course, the weather could move more favorable on our side. You know, also a general loosening of, you know, supply logistic constraints. It's hard to put a number on what that might be doing to volumes, but it's certainly present out there in the market. So I think if we could see some loosening there, and have some good weather on our side, our outlook for the year continues to be very favorable and in line with what our thoughts were when we provided initial guidance last quarter.

Got it. That's helpful. One of the follow-up on engineered structures and the margin performance there, how much of the strength on a year-on-year basis was price, cost, timing, how much was mixed, and then if you could just comment on how you expect margins to trend in that business for the rest of the year.

I'll take that one as well. Yeah, we were, as I said in my comments, you know, extremely pleased with the performance of our, you know, engineered structures segment in general and particularly our utility structures business. We did have, you know, mix can matter in a particular quarter. We did have a favorable mix. and efficiencies associated with that. I mentioned our ramp up in our Mexico facility is going very well, so we saw some margin benefit to that in the quarter. We do target a 12 to 13% margin for engineered structures based on Q1's performance. We're very focused on having that full year be towards the higher end of that targeted 12 to 13% range.

Let me provide some additional. Gail mentioned, I think, the tank business for the quarter was flat in terms of margins. So most of the, or really all of the improvement in margin came from our utility structures and other engineer structures. And, you know, when you talk to our team, they are very, very happy with the way the plant in Mexico has run top, but also in the way the U.S. plants are performing. We are not close to where they need to be. There's still a lot to do, and there's still a lot of improvements that need to happen. They're implementing their lean initiatives all over the company. So I think there's a lot of work to do and improvements to still capture in terms of margin. But demand is there. The important piece is that the demand is out there, and we are able to continue to pick and choose some of the projects where we believe we are in better position to capture additional margins.

Great, that's helpful. Best of luck. Thank you.

We will take our next question from Julio Romero with Sabatian Company. Your line is now open.

Hey, good morning. Wanted to stay on construction products and ask about any progress update on the systems integration you have going on in the segment.

Sure. I think it's going very well. We went live in a couple of our businesses in the last couple of months, and things are progressing very well. I would say, as we said, it would take us the whole year, but I think the team is happy with the way things are working. I think they're happy with the way the project's going, and that's why, you know, as we... As we divest this tank business, we said we would take some time. We've taken the time. Now we're starting to look at projects and M&A again, now that we feel more comfortable with the project going on. So overall, very happy. The team is very happy. We have a great structure. We have defined the team. We have split the company into four different regions and have a full staff in each one. this is becoming a very important part of our strategy because you know pricing decisions within its inflationary pressures and everything i think we have a much better structure than we had a year ago to to face this environment we're facing so very happy with where our team is and where the integration is going very helpful and then you know just thinking about where the portfolio is going forward um

You obviously divested storage tanks. You're putting money towards construction. And you talked about a lot of projects to choose from within construction on the organic side. I guess, you know, are you more inclined to prioritize organic spend versus acquisitions on the construction side going forward? And, you know, what kind of return on capital would you expect from some of those organic projects?

Sure. I mean, the... The answer is, ideally, organic projects are always higher return on capital than acquisitions. That's always the best way to do it if you can find good projects where you can deploy capital. The key to the construction business is sometimes you have organic projects that that have negative synergies. If you start a new greenfield location in a place, you might destroy the market. So you have to be very careful with organic projects and the organic in construction products. But we do have a couple that we are working on. In the construction side, I think you will see us do some organic, but mostly inorganic. We've talked a lot about the multiples in Bolton acquisitions that are not as high as large platform acquisitions. My expectation is that we should be able to do some bolt-on acquisitions in the near future and continue to evaluate additional platform acquisitions as time goes on, and some organic projects. Where you will see us do a lot of the organic projects is on the engineer structure side. That's mainly an organic growth business. That's the way we are approaching it.

Great. Thanks very much for taking the questions.

And we'll take our next question from Trey Grooms with Stephens. Your line is open.

Yeah, good morning, everyone, and thanks for taking the question.

Thank you.

So I guess sticking to the construction products theme here for a minute, Antonio, you pointed out increased demand for single-family homes. and also kind of, you know, an improved infrastructure outlook. So I guess a few questions on that first. On your in-market mix for this business, can you give us or maybe remind us roughly how much of your business is driven by, you know, the residential versus non-res versus infrastructure? Just a ballpark on that.

So we've said, and this is sometimes hard to know, I mean, I know everyone tells you exactly what it is, but it's a rough estimate because many of our, if you remember, many of our aggregate mines where we sell to is to ready mix companies, and so we don't know exactly where it goes. But more or less what we estimate is about 50% of our volumes go to infrastructure projects. About 25% is non-residential, and about 25% is residential. Okay. So up to now we've seen strength in all of them. We believe based, depending on what interest rate to us, probably the residential market is the one that might be a little more uncertain. On the infrastructure side, I think we see a lot of strength, and then you have the infrastructure package coming behind it that should provide additional tailwind for that portion of our business, which is the large majority.

Yeah, that's helpful. And so on the last point there, So what do you think on the passage of IJA and the increased funding there? Looking at both the construction products but also engineered structures, when do you think that that will start to translate into demand for products in those two segments?

Yeah, we mentioned in my remarks that we think at the end of the year we should start seeing some of those projects that are more tied to that package start rolling in. The beauty of the package is not only that it will start rolling in this year, late this year hopefully, but that it has a long, long, it's a long package. So it will provide several years of certain consistency And not only that, if the economy decelerates, then you have almost like a safety net in terms of a bottom-up for the market. So I think it's going to be very good. I think it's additional. I'm excited about all markets without that package, but if you add it up on top of it, it's – It's really exciting where we see our products going and our businesses going. I think when you look at the infrastructure bill, you take water out. Most of our products, you can tie something in that infrastructure bill to one of our product lines. So I think you're going to see it across the board.

Perfect. I appreciate that. Thanks for taking the question. Congrats on the nice performance.

Thank you.

We'll take our next question from Daniel Wang with Barenburg. Your line is open.

Hey, thanks for taking my question. Just a quick question on the barge side. Can you remind us of the split within your inland barge business between dry hopper versus tank and how that compares versus how it's looked historically?

Good morning, Daniel. This is Gail. You know, based on Where the market has been, I guess I'd say first and foremost, it really depends on what's going on in the market. If we think back a few years it's been, I would say the complexion of our backlog was largely tank. It was really the liquid side of things that pulled us out of the last downturn. You've heard a lot of comments today and on recent calls about hopper barges. We are seeing you know, what has been a significant number of years of underinvestment on the hopper side. So pent-up demand and, you know, an anticipated replacement cycle that could drive incremental hopper barge, albeit, you know, dependent on where steel prices are. So if I look back historically, you know, in an economy where you had all areas going very strongly – you would have seen a more even split between tank and hopper barges. So I think it really is a function of what is unique to a particular cycle.

All right, perfect.

Let me just add, I think the last comment that Gail made is these are interesting businesses because they are driven by conditions that are unique to each one of the markets of the barges. If petrochemical is very strong, you will see a lot of small tank barges. If grains are, exports are strong, you will see a lot of copper. If oil markets are strong, you will see tank barges going. So when you look at some of our customers, Kirby reported yesterday over 90% of utilization in their fleet, which is, those are the signs that tell you things are getting better, no?

That's perfect. And I guess in terms of steel prices as it relates to barge, how much further do prices need to come down before we see a return to more normalized profitability levels? I guess is there also any concern that the upcoming barge replacement wave could come at a lower margin if steel prices remain elevated for an extended period of time?

You know, it's interesting because I think it's – It's not necessarily the steel prices. I think steel prices are, of course, the factor. But the way I see steel prices, the problem is not steel prices. The problem is the forecast for steel prices. Because when steel prices are high, but the forecast is that they're going to drop 50% in the next year, you wait. So what needs to change is either the reality or the forecast at some point in time. And I think that's the key. If the forecast says, look, steel prices are staying like this forever, I think everyone just swallows it and we'll make the economics work. But if I tell you there's a barge that I can sell you for $3 million and next year you can buy it for $1.5 million, you're going to wait. So that's the piece that the Ukrainian war... delayed so that forecast was that it was going to start falling that the prices would be half by the end of this year now it's moved to next year so that's why these orders are so important because it allows us time to I don't want to sell more barges at a discount tool to keep the plan going I'm just selling enough to keep my people working because because I need the people to be able to capture the up peak

All right, really appreciate it. I'll pass it on.

Thank you.

And once again, if you would like to ask a question, please press star 1 on your touchtone phone. We will next go to Stephanos Christ with CJS Securities. Your line is open.

Good morning and congrats on the quarter. Thank you. When we think about using the proceeds from storage tanks for construction aggregates, do you think of that as bolstering your competitive position in your existing geographies, or do you think about expanding into new markets?

Sure. Well, first, when you look at the proceeds, there will be some tax leakage. So after tax leakage, I think there's a few things that we – If you look at multiples, the multiples in voltons are always lower. So if we find the right voltons, we'll do a few voltons. But we're also looking at expanding our geographies. We've been working, I think I've mentioned in this call a few times, we've had people working in different metropolitan areas across the country, figuring out which ones are the ones that have the fundamentals where we want to be. And we have projects in some of these that are actionable in some of these geographies. So it's a combination of both expanding our local footprint right now and also expanding into other geographies. When you look at recycled aggregates, which is another area that we like, we are only really in two areas today. I want to continue to expand recycled aggregates. We believe that's part of the future in terms of sustainability. We believe it's a complement to natural aggregates. It's never going to substitute it. It's not that it's going to eliminate natural aggregates. That's not the case. It's a complement. So we need to continue to expand our recycled aggregates, and that would mean other locations. So I think it's a combination of both. But, of course, as I've mentioned, M&A takes time and takes timing, and sometimes it's out of our control, no?

Perfect. Thank you so much.

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