Arcosa, Inc.

Good morning, ladies and gentlemen, and welcome to the ARCOSA Inc. Third Quarter 2022 Earnings Conference call. My name is Catherine, and I will be your conference call coordinator today. As a reminder, today's call is being recorded. Now I would like to turn the call over to your host, Erin Drabeck, Director of Investor Relations for ARCOSA. Ms. Drabeck, you may begin.

Good morning, everyone, and thank you for joining ARCOSA's third quarter 2022 earnings call. With me today are Antonio Carrillo, President and CEO, and Gail Peck, CFO. A question and answer session will follow their prepared remarks. A copy of yesterday's press release and the slide presentation for this morning's call are posted on our investor relations website, ir.arcosa.com. A replay of today's call will be available for the next two weeks. Instructions for accessing the replay number are included in the press release. A replay of the webcast will be available for one year on our website under the news and events tab. Today's comments and presentation slides contain financial measures that have not been prepared in accordance with GAAP. Reconciliations of non-GAAP financial measures to the closest GAAP measure are included in the appendix of the slide presentation. In addition, today's conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the company's SEC filings for more information on these risks and uncertainties, including the press release we filed yesterday and our Form 10-Q expected to be filed later today. I would now like to turn the call over to Antonio.

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

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

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

To ask a question, please press star and one on your touchtone phone. Again, that is star and one if you would like to ask a question. You can remove yourself from the queue at any time by pressing the pound key. We'll take our first question today from Julio Romero with Sidoti and Company. Your line is open.

Hi, good morning, Antonio, Gail. To start on the engineered structures business, if you could just talk about, you know, some of the big drivers from 2Q that looked like they continued into the third quarter, albeit not at the same rate, and just talk about maybe the outlook for the fourth quarter on those same drivers.

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

Excellent. And I guess to follow up, just to clarify, as I understood it, the second quarter utility structures business benefited somewhat from the availability of from better availability of labor. Has the availability of labor and utility structures changed at all?

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

Understood. I appreciate you clarifying. I'll hop back into queue. Thanks very much.

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

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

That's a very good question. Let me first start by saying we're still figuring it out. There's the rules are still not very clear. There's a period for sending comments that we are waiting for that period to happen and getting back some clarification. So as far as I'll tell you my point of view as of today with the information we have today. First of all, I think the IRA is an incredible catalyst for COSA because it provides a very long period for the production tax credit for wind towers. That is the most important piece, is the length of the IRA, because every time we've seen a longer tax credit, the industry starts ramping up, and it takes a while for the industry to ramp up. So the longer this tax credit extension is, the better, because it allows our customers and the industry to do planning to do uh their projects which take a long time with better better planning so that's one on the tax on the tax credits you know several things are important one is there's a concept of you have to be able to build it in in america no and again there's still some clarification that needs to happen but you know we're the largest wind tower manufacturer here in the country and um we're very well set up right now we have two plants operating but as you know we shut down one in 2021, so we have the ability to ramp up capacity relatively easy. On the tax part, this is the first time that one of these bills contains a tax credit for the manufacturers. Historically, this has been a tax credit for the developer. Now the tax credit includes, this bill includes tax credits for the developer, for the turbine manufacturer, the blade manufacturer, and the tower manufacturer. And they are very significant tax credits. If they materialize and if they become real after all the clarifications happen, they can be very substantial for the company. My perception is that we'll be able to, if they happen like they are right now, we'll be able to keep a substantial part of them. There might be some negotiations, but we'll be able to keep a substantial portion of those. depending on our cost of tax situation is the way we will be able to use it at that time but it's it's a very significant um catalyst for our course now as i mentioned let me just be clear about this it takes time so the industry developing a project takes 12 to 18 months and that's why i mentioned in my comments i want to keep the plants open we have enough let's say We have visibility right now to be able to keep our plants open at a low volume for 2023. And because I think once we clear out the process of uncertainty, we are going to need to ramp up capacity very fast. When is that? I cannot tell you if it's in the second half of 2023, early 2024, but I'm very excited about what's going on in that industry.

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

Yeah, so steel prices, there's really two markets for carbon steel, flat carbon steel. There's more than two, but the two that we follow are hot roll coal and plate. And they are different markets. Historically, what we used to build barges is plate. The capacity in the U.S. is much smaller for plate than for coil. And historically, there's a difference of about $150 between the plate price and the coil price, plate being more expensive by $150. Right now, the coil prices for the last six months have been dropping very fast, and they are relatively close to pre-COVID levels, the hot oil coils. As I mentioned, we don't use coils for building barges. We use mainly plate. Plate barges stayed stubbornly high during this period until about maybe a month ago, a month and a half, they started falling at a relatively good pace. There's capacity coming online in the fourth quarter, and the utilization of the mills is falling. So prices, my expectation is that they will continue to fall at a relatively fast pace over the next few months. And in the next few months, we should be able to get to a place where prices are becoming an appeal for our customers to start ordering. What's exciting about the industry, again, is the inquiries are very strong. We have a significant capacity to ramp up. And our experience is that once the orders start coming in, everyone jumps in because they want to secure their capacity slots. That's why I mentioned in my remarks that I, the good news is we have good backlog that gives us visibility and allows us to make the right pricing decisions. We are not going to be giving away our capacity. And that's going to be our focus, trying to sell orders since the beginning with good margins.

Okay, thank you very much.

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

Hi, thanks for taking my question. I'm just wondering if you could dive in a little bit more as to which role the sequential improvement in construction product margins as the third quarter progressed. Was it additional pricing actions? Do we see cost pressure starting to alleviate? Just wondering if you could dive in a little bit more. Thank you.

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

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

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

Understood.

Thanks for the help.

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

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

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

Francis, this is Gail. I just add to just a little bit more color on Q4. I mean, we would probably see wind, and we've given full year guidance for wind EBITDA of 12 to 13 million for 2022. We'd see Q4 closer to break even for wind, so that's going to have some impact on Q4 margins. But, you know, to your point, the year-to-date X storage at 14%, we're really proud of the strength in those margins. But you're likely going to see a little step down in Q4 with the wind compression in Q4.

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

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

Okay, very good. Thank you.

We'll go now to Stephanos Christ with CJS Securities. Your line is open.

Hey, good morning. Thanks for taking my questions. In aggregates, outside of weather, are you seeing any differences in demand across your geographies?

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

If you were to look just at starts in the Phoenix area, I mean, that contraction in the Phoenix area for us was more single-family residential related. Otherwise, you know, public and away from single-family demand drivers continue to remain very healthy, and the outlook is very positive. But we did feel that in the Phoenix area during the quarter.

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

Well, you know, now that the balance sheet is in good shape, you know, we're willing to explore larger acquisitions. As you know, in aggregate, there's not many. There's not a lot. But if something comes up, we'll take a look at it, no? We've also mentioned that when you look at bigger acquisitions, especially on the aggregate side, they're not pure aggregate. They come with a lot of other stuff. And we want to remain aggregate-centric, so we're going to be very careful not to buy something that takes us away from that. If it comes with a little bit of something else, we'll take it. But if it's a lot of something else, it's not something we want to do. We want to stay on the upstream of that value chain.

Perfect. Thank you so much.

We'll go next to Noah Mercursco with Stevens. Your line is open.

Good morning, and thanks for taking my question.

Morning.

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

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

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

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

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

Got it. Thank you. Thanks for taking my questions. I'll leave it there.

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

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 disconnect at any time.