Arcosa, Inc.

Good morning, ladies and gentlemen, and welcome to the ARCOSA, Inc. First Quarter 2023 Earnings Conference Call. My name is Shelby, 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, Aaron Drabeck, Director of Investor Relations for ARCOSA. Mr. Drabeck, you may begin.

Good morning, everyone, and thank you for joining ARCOSA's first quarter 2023 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 like to now turn the call over to Antonio.

Thank you, Erin. Good morning. Thank you for joining us to discuss our first quarter results and our updated outlook for 2023. I will start with a few key messages. ACOSA delivered outstanding first quarter results driven by strong financial and operational performance from all three business segments. In what remains a challenging macroeconomic environment, the entire ACOSA team executed exceptionally well, operating efficiently and generating record-adjusted EBITDA. Over the past several years, we have undertaken several strategic actions to simplify our portfolio and position our businesses to achieve sustainable long-term growth. Our first-quarter results demonstrate the success of our strategy, with both our growth and cyclical businesses generating strong results. Construction products led the performance in the first quarter, Excluding the gain on a land sale, adjusted EBITDA increased 32%. Robust pricing, more than offset lower overall volumes, and contributed to impressive unit profitability gains. We plan to remain focused on value over volume, staying disciplined on price, and effectively combating inflationary pressures. Our first quarter results also highlighted the potential of our cyclical business. In transportation products, we improved margins by 450 basis points as volumes increased, and created significant operating leverage. Our backlog for our barge business at the end of the first quarter is at the highest level in three years and now provides production visibility into 2024. Likewise, in wind towers, our backlog is expanding, and this sets the stage for significant upside potential in 2024 and beyond due to the multi-year tailwinds provided by the Inflation Reduction Act. During the quarter, we signed a multi-year agreement to produce wind towers and announced an investment in a new brownfield facility in New Mexico, which should start production in mid-2024. Looking ahead to the balance of the year, our COSA remains well positioned for continued solid financial performance. Even as we increase our investment in organic initiatives, the strength of our balance sheet enables us to pursue potential acquisitions that meet our financial criteria and are complementary to our existing operations. We recently closed on two Bolton acquisitions that further expand our construction products portfolio. a recycled aggregate producer in Arizona, and a shoring manufacturer in Houston. These acquisitions, while relatively small individually, are significant in that they broaden our presence and capabilities in two major southern markets. With our market-leading positions and opportunities across our portfolio to capitalize on increased infrastructure spending, I am very optimistic about our future. Gail will now provide detail on our financial results for the first quarter, and I will return to discuss our updated outlook.

Thank you, Antonio. I'll begin on slide 11 to discuss our first quarter segment results. In construction products, revenues increased 12%, primarily due to higher pricing in the quarter, which more than offset overall organic volume declines. Recent acquisitions contributed approximately one quarter of the revenue growth, largely attributable to Ramco, which we acquired last May. Adjusted segment EBITDA increased 85% year-over-year, or $35 million, due to the $22 million land sale gain in our natural aggregates business and healthy improvement in unit profitability. Excluding the land sale gain as well as freight and delivery from revenues, first quarter adjusted EBITDA margins increased 370 basis points to 26.5% for the segment. This is the first time we have reported margins excluding freight, which is a pass-through cost in our construction materials businesses and dilutes reported margins. Higher diesel, processed fuels, and cement prices increased segment cost of sales by approximately $5 million or 3% during the quarter. This is down from the inflationary cost impact in the fourth quarter of 2022 as diesel prices have moved lower from the peak last year. Turning to natural aggregates, we continue to experience broad pricing strength across our markets with average organic pricing up more than 20% in the first quarter. Volumes were down low double digits, primarily due to weakness in single family residential and wet weather that impacted volumes early in the quarter. This decline was partially offset by increased volume for public and private non-residential activity, given the successful transition of volume in certain markets. Due to our disciplined pricing strategy, we expanded unit profitability in the first quarter and achieved higher year-over-year margins, excluding the land sale gains. In recycled aggregates, strength in Texas DOT work drove substantially higher organic volumes in our Houston and Dallas operations. However, unusually wet weather in Southern California adversely impacted the contribution from Ramco during the quarter. First quarter pricing gains were healthy, leading to solid margin improvement year over year for recycled aggregates. Within specialty materials, Slightly higher volumes and double-digit pricing increases in lightweight aggregates led to mid-single-digit top-line revenue growth. Volumes were mixed in our other specialty product lines. Demand for industrial and flooring plaster remained strong, and we achieved solid first-quarter pricing improvements. However, volumes were impacted by labor availability challenges we are working to solve. In addition, the wet weather in California also had an impact, constraining specialty volumes serving the agricultural market. Overall, we saw roughly flat EBITDA year-over-year and lower margins in the first quarter for specialty materials. Finally, our trench shoring business reported a 6% increase in revenues on higher volumes in contribution from the Houston acquisition that closed during the quarter. Order inquiry levels were healthy and our backlog remained supportive for growth in 2023. Moving to engineered structures, slide 12 shows the impact of the storage tanks business that was sold in October 2022 on the prior period results. This quarter, we recognized an additional $6.4 million gain on the divestiture, which has been excluded from adjusted segment EBITDA and related to the settlement of certain contingencies. During the first quarter, adjusted EBITDA for our utility, wind, and related structures businesses increased 24%, outpacing revenues primarily due to higher volumes in utility structures where the demand environment continues to be favorable. In addition, we recognize $3.2 million of net benefit from the advanced manufacturing production tax credit provided for in the Inflation Reduction Act, which helped offset the anticipated decrease in wind tower profitability. The 180 basis points of margin expansion reflects the benefit of the tax credit as well as incremental improvement in utility and related structures, which is notable given the strong performance in the prior year period. As previously announced, we received wind tower orders of approximately $800 million during the quarter for delivery in 2024 to 2028. Since the passage of the IRA in August 2022, we have received over $1.1 billion in wind tower orders. We also had robust order activity in utility structures, resulting in backlog at the end of the quarter for utility wind and related structures of $1.5 billion, up from $671 million at the start of the year. Turning to transportation products on slide 13, segment revenues were up 43% driven by solid volume growth in both our barge and steel components businesses. Adjusted segment EBITDA increased over 100%, and margins expanded to 13.4%, reflecting the significant operating leverage inherent in these businesses. We received barge orders of $122 million during the quarter, representing a book to bill of 1.8. These orders, primarily for hopper barges, extend our backlog into 2024. We ended the quarter with total barge backlog of $279 million, and we expect to deliver approximately 70% during 2023. I'll conclude on slide 14 with some comments on our cash flow and balance sheet position. We ended the quarter with net debt to adjusted EBITDA of 1.1 times and available liquidity of $624 million. We have no outstanding borrowings on our revolver and no near-term material debt maturities. Our healthy balance sheet and ample liquidity continue to provide flexibility for our capital allocation strategy. Working capital consumed about $55 million of cash flow in the first quarter, an increase year over year, primarily due to the timing of strategic steel purchases. As our growth businesses continue to expand and our cyclical businesses recover, we expect working capital to be a use of cash for the year. Capital expenditures were $44 million, up $19 million from the prior year, reflecting progress on the organic projects and construction products and engineered structures, including the purchase of a brownfield property for our New Mexico wind tower facility. We are revising our full year CapEx guidance to $185 million to $210 million, up from the previous range of $140 million to $160 million. to reflect the new wind tower investment. Our range now anticipates $85 to $100 million of growth CapEx in 2023. Free cash flow for the quarter was $6.8 million, down from $19 million in the prior year, largely due to the increase in net capital expenditures. In our calculation of free cash flow, we have netted proceeds from the sale of property and other assets against capital expenditures, as the cash received from these asset sales is typically used to fund replacement reserves and equipment. I will now turn the call back over to Antonio for an update on our 2023 outlook.

Thank you, Gail. As we indicated in our fourth quarter call, we expect 2023 will be a transition year from a financial standpoint. We anticipate our growth businesses will benefit from generally solid market fundamentals while our cyclical businesses undergo significant manufacturing ramp up and experience gradual improvement before achieving stronger profitability in 2024. Please turn to slide 16. We're raising slightly our 2023 revenue guidance to $2.25 billion at the midpoint, which represents an increase of 10% compared to 2022, normalizing for the sale of the storage tank business. Based on the outperformance in the first quarter, and our expectations for improved profitability in our cyclical businesses due to the anticipated tax credits from wind towers, we're increasing our 2023 adjusted EBITDA guidance to $358 million at the midpoint, up from the prior midpoint of $325 million. This revised guidance includes estimated net wind tower credits of approximately $20 million at the midpoint, which were not included in our previous range. Further clarification from the IRS on this tax credit is still pending. Please turn to slide 17 to review the outlook for our growth businesses. We believe construction products remains well positioned to capitalize on continuous significant federal and state investment in highway and other infrastructure projects. Infrastructure lending activities are accelerating across many of our markets, while pricing momentum remains favorable for both natural and recycled aggregates. Although the housing market continues to show weakness across our markets, we're optimistic that improved pricing and demand from infrastructure projects should compensate the volume declines in housing. As we look further ahead, we believe that with stronger pricing, a recovery in housing, infrastructure spending, and inflation receding, our construction segments should be in great shape to continue to grow and improve margins over time. Turning to engineer structures, the overall outlook for this segment remains favorable, driven by ongoing utility infrastructure investment, healthy Department of Transportation spending in Florida and other southern states, and the ongoing 5G wireless build-out. In the electric utility sector, major CAPEX spending programs remain centered on grid hardening, enhancing reliability, and connecting new sources of renewable energy to the grid. Utilities are also beginning to accelerate their planning to bring new sources of power to supply the nation's growing fleet of electric vehicles. The breadth of these CAPEX initiatives is evident in the continued expansion of our utility structures backlog. Shifting now to our cyclical businesses on slide 18, market dynamics impacting our wind tower business and transportation segment are improving, supporting our view that these businesses are entering the early stages of our cyclical upturn. In wind tower, the 10-year PTC extension included in the Inflation Reduction Act provided significant planning certainty to the industry. This long-term certainty is accelerating demand for wind towers, which we expect to continue to grow as projects get underway. The 800 million of wind tower orders we received in the first quarter marked the single largest quarterly total for wind tower orders in ARCOSA's history. To meet this new demand, as I mentioned earlier, we recently announced the expansion of our wind tower manufacturing capacity in New Mexico, where we are investing to strategically supply major wind projects in that region. These manufacturing facilities are expected to commence production in mid-2024. We reiterate our view that 2023 will represent a transition year from our wind towers business, giving the production ramp up in our two operational facilities and additional startup costs at the new plant. In 2024, we should experience progressively improving profitability from increased volumes, additional production from the plant in New Mexico, as well as higher volume-driven tax credit benefits. Turning to slide 19, our barge business is also experiencing steady improving fundamentals. In the past two quarters, we received barge orders totaling more than $250 million, underscoring the significant pent-up demand in this market. With the new production process that replaces steel plates with lower priced coil, we have revitalized customer interest and generated new barge orders. Supported by the consistent improvement in orders and the high level of inquiries, we're optimistic that the long-awaited recovery in the barge market is beginning to take hold. Although steel price volatility remains a drag on new orders, we're seeing some customers increase their barge price expectations, recognizing persistent elevated steel pricing and ongoing inflationary pressures. Given this strong demand, we will continue to focus on selling our available capacity at attractive margins. Despite signs of a slowdown in the economy, demand for steel components products have remained resilient, aided by high utilization in North American railcars and growth in new railcar deliveries. Going forward, we anticipate a moderation in our top line within this business due to the more challenging delivery comparisons as the year progresses. but the overall outlook remains supportive for growth this year. Please turn to slide 20. Our cross-sustainability initiatives represent a foundational element of our commitment to build long-term stakeholder value, and I am pleased to announce the recent publication of our third annual sustainability report. This comprehensive report explains how we are incorporating sustainability into our business strategy and daily operations and how we are continuing to build our sustainability progress in pursuit of our long-term ESG goals. I am proud of our collective efforts to strengthen our safety culture, reduce our greenhouse emissions, and support our communities to help build a more sustainable future. In closing, 2023 is off to a great start, and I'm excited about the many opportunities across our portfolio that will drive our financial performance, not only this year, but into 2024 and beyond. Now I would like to open the call for questions.

Thank you. At this time, if you would like to ask a question, please press the star and 1 on your touchtone phone. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star and 1 to ask a question. We will pause for a moment to allow questions to queue. And we'll take our first question from Julia Romero with Sidoti & Company.

Hey, good morning, Antonio and Gael. I was hoping you could talk about the progress on the rollout of the redesigned barge product that uses coil steel and how that's performing so far.

Sure, Julio. Thank you for the question. As I mentioned in the previous call, last year, 2022, the prices between coil and plate started to diverge significantly. Historically, there's about $150 a ton difference between a ton of plate and a ton of coil. Last year, that number was almost $1,000. That's when we started looking at the opportunity to redesign dry cargo barges with coil. We worked on it on the second half. In December, we launched our first coil barge. That generated significant demand for the barges. Most of the orders we got in the fourth quarter came from coil. Throughout this quarter, we continue to offer our customers. And now the beauty of this is that we can offer coil barges or plate barges and we'll shift our production and our sales depending on that difference in prices. This year, steel prices have been going up. In the second half, coil prices went down and this year started coming up. So that gap has shrunk some, but we have the ability now to move between the two. Probably the biggest message for you is this gives us flexibility in manufacturing, flexibility for sale, but also leverage between suppliers of steel because we can now shift suppliers based on the difference in that price. So things are going well. The barge is fully designed, and we're building barges today with coil.

Okay, really helpful there. And then I guess... Just thinking about the order trends in the barge business, you've had two straight quarters of 100 million plus in orders. But you also talked about that steel is still suppressing orders to an extent. So just talk about how you're managing the current trend line in steel over the last few months and how we should think about the variability in the barge business if steel continues on that trend line.

Yes, I think the most important message here is that the inquiries are tremendously strong. So we have a very strong, we feel the market needing these barges. And I think what you're seeing with these orders, these orders, even though Coil has been cheaper than Plate, and we sold a few barges with Coil and some others with Plate, the price point of these barges is much higher than it was prior to the steel price ramp-up. So I think our customers, and I mentioned it in the script, some of our customers are moving their price point of their barges up because they really need the barges, and that's what we perceive in the market. So I think we'll, you know, I don't know about this quarter, and the next week might not be a straight line, but I'm confident we will continue to get barge orders based on the inquiry levels we see. What I also mentioned is we're going to be As we sell more barges, of course, capacity gets tighter. We're going to be focusing like in every other business in our margins. So we're not going to give our capacity away. And I think we're in a great position to manage our capacity and our orders because now we have quite a long visibility until the early part of 2024. Great.

Appreciate you taking my questions and I'll pass it on.

And we'll take our next question from Garrett Schmois with Loop Capital Markets.

Oh, hi. Thanks and congrats on the quarter. I'm wondering if you could speak a little bit to the margin expansion in the construction product segment. You know, certainly you're getting really strong pricing. Just wondering if you could maybe talk to the sustainability of this type of margin expansion through the rest of the year.

Well, thank you for the question. I think this industry has always been characterized by the thought that you can move pricing even when volumes come down, and I think that's being proven with what we're seeing in the market. I would tell you that we have many touch points to the market, but the area where we're seeing really strength is in the infrastructure side. Some of our businesses have more exposure to housing than others. Aggregate is probably the one that has the most. But we still saw very significant improvements in pricing in aggregates. In recycled aggregates that have less exposure to housing, we saw pricing also very strong, but volumes are not as affected as natural aggregates. Our perception and our goal for this year is to continue to offset volume declines with pricing increases and refocusing our capacity into infrastructure. I think we'll be able to continue to do that. Is it going to be a perfect line and is it going to be choppy? Probably. Some areas in the country have higher declines than others in volumes. In those areas, that's where we're pushing pricing higher. I think it's a tight balance. It's an area by area. It's a mind by mind. But I'm more confident we can continue to push pricing and offset volume declines.

Okay, great. Thanks for that. I wanted to just follow up real quickly just on the weather impacts in the quarter. You cited some of the weakness being due to the rains in California. I was wondering if maybe there's a way to size the headwind that you saw due to weather and, you know, are you seeing any pent-up demand here in the second quarter as a result of some of those project push-ups?

It's difficult for us to size it, but I'll tell you, when you look at the numbers in recycled aggregates, which is, we have two impacts in California. One is recycled aggregates and some in specialty materials. Recycled aggregates probably is the easier one. It's a... Your projects, the rental demand is hard to measure because projects get delayed and you get about the same demand after the rain recedes. But what I can tell you is of all our recycled aggregates in markets, the only one that was, let's say, not in great shape was California. It was clearly tied to the rain that we had there. When the rain reheated, we are in great shape and the volumes are coming up very steadily. So nothing wrong with the business. I think it was just a really outstanding rain, an outstanding rain event. But we are very optimistic about our recycled aggregates in California. Good morning, Gary.

This is Gail. I guess I would even just add we did you know, on the weather topic, we did, you know, when we were sitting here a couple months ago, January and February, we had certainly had some rain and colder weather here in the Dallas, Texas area. And I think, you know, as we look at the quarter, very pleased to see what March came to bring when we had, you know, a very normal weather month for the quarter, and we were pleased to see that the volume pace that we had during the month of March. So weather definitely had an impact, But as Antonio said, when the skies are clear, things seem to be according to plan from a volume perspective.

Okay. That's great to hear.

Thanks again, and I'll pass it on.

And we'll take our next question from Noah Murkowska with Stevens, Inc.

Good morning. Thanks for taking my questions, and congrats on the strong results.

Thank you.

I wanted to start on the wind towers business. You know, you've seen a nice increase in orders there. And I guess just what's the typical lag in terms of getting an order and to be able to deliver on those? I think, you know, you continue to see this year as a transition year for wind. So I guess is that, you know, early 24 that you start to see that? And then just given your capacity plans, how much of the backlog can you deliver on in 24?

Let me start with the first part of the question. Just to reflect on where we are, six months ago, this business was not looking pretty. We didn't have orders for 2023. For this year, we had nothing almost. We took some orders with very low margins to get the year started and keep our people working. As the Inflation Reduction Act let's say, pick up space and the projects get developed, we're seeing very strong demand. And, you know, I think right now what you will see is our ability to ramp up will depend on how fast we can hire people. It's really that simple, though, how fast we can hire and train our people. And we have orders, I think, for 2023. We're basically set in what we can produce because we're ramping up. For 2024, we are not at capacity by any means. We have a plant that's idle. We have two plants that are not operating at full capacity, and the plant in New Mexico that will start in around mid-2024 will not be at full capacity. So that is, I think, the message I would like to leave you with is we're going to be dialing our labor and our capacity based on how we see the orders with the idea that the capacity we have available we believe is very valuable given the strength of the wind market. And we're going to be focusing on selling it at a nice margin. We'll ramp up. I think we're happy where we are, but we are even happier with the capacity we have that we'll be able to sell and focus on increasing margins for 2024 and beyond. This is a 10-year PTC, so that's giving significant visibility to the industry. So I think we can take it at a nice pace.

Got it. That's helpful. And then for my follow-up, you know, continuing to look at the engineered structures segment, you all posted really nice margins here in the quarter, 14.5, somewhat higher than the typical 12 to 13 I think you typically look for there. I'm guessing tax credits played a role, but can you help us understand sort of the margin drivers there and, again, how sustainable this is as we look forward?

I'll take that one. This is Gail. Yeah, we had pleased with the margin performance. You're right. If you look at the segment year over year, you had probably about 170 basis points of margin improvement in the segment. To your point, part of that was the tax credit. We did recognize $3 million of the advanced manufacturing production tax credit, but even Even outside of that, as I said in my script, we did see margins up against what was a pretty tough comp from last year. We benefit from long runs. Your order pattern will vary from quarter to quarter, so we had some nice leverage from some longer production runs in the quarter. to continue to have healthy margins throughout the year. I would note, though, from a cadence perspective, and we talked about this a little bit on our last call, as we see, you know, we have firm backlog, which gives us very good visibility for the utility structures business. And as we look at our backlog for Q2, notably, we talk about our alliance and our bid customers. As we look at the mix of customers for the second quarter, we expect to have a slightly higher component of bid, which will impact the margin for the second quarter. But full year outlook for the business continues to be very strong. Strong demand drivers. We had nice volume increase in the quarter. Expect stronger volumes year over year. So outlook remains favorable. I did want to point out, though, as we think about the cadence, we do anticipate a little bit of a step down in Q2 as we progress through the year.

If you think a little beyond the quarter and this year, I think we're very comfortable where we are for this year. But this segment has always been, it's a combination of two businesses. We have utility structures and related and wind. And since we spawned 45 years ago, utility structure has been going up and wind tower has been coming down. And as wind ramps up again, I think you're going to be a combination of margins that should lead to improvement in margins in this segment as wind tower ramps up and we continue to gain momentum on utility. So I think the segment as a whole will start looking very, very nice as we ramp up wind towers.

Yeah, and I just might add on that too. It's important to highlight, particularly as we look at 23 and then it helps with Antonio's view of 23 and beyond or 24 and beyond. We do still anticipate wind tower to be break-even from an EBITDA perspective in 2023, X the tax credit. So the tax credits will certainly help, but we do see break-even for wind. We did perform a little bit better in the first quarter, but as we've announced the New Mexico facility, we do anticipate additional startup costs for that facility that will impact wind tower profitability this year.

Got it. That's really helpful detail. Thanks. I'll leave it there.

And we'll take our next question from Brent Thillman with DA Davidson.

Great, thanks. Hey Antonio, I think a quarter ago you suggested that you thought the backlog and wind could grow, which was valid. I guess maybe I'll ask you the same question from the standpoint of expectations for wind orders through the rest of the year. I imagine there's not another

800 million dollar order elephant out there but you know these levels you anticipate building off of or inquiry levels quite high because you've got a lot of available capacity out there elsewhere yes it's a good question yes we continue to inquiry levels high this this business is very regional so depending on where where the projects are being developed you will see the demand But what's interesting to me, the most interesting, to be absolutely honest, we've been surprised at the speed of the industry, how fast it picked up. When the Inflation Reduction Act was approved in August of last year, I always said it would take 12 to 18 months for us to start seeing the impact in our specific orders. And that's what I thought at the time. And it surprised us that it's arrived faster. which leads me to believe that many of the projects that are really being developed based on the Inflation Reduction Act passing have really not come to market. So what we're seeing is projects that have been developed before and were ready, shovel ready. So what's interesting about this is I think the Inflation Reduction Act, the impact, we have really not seen it. We've seen part of the certainty, but we have not seen the impact of new projects. And that's really exciting for the future. Is it going to be this quarter? Probably not. But we'll see it over time. I think we're building this business not for one year, for several years. And the 10-year act, I think, gives us a lot of optimism for the future.

Okay. Thanks for that. And I guess my follow-up is we're all trying to kind of understand the implications of these tax credits to your P&L. which is obviously based on the number of structures you sell, which I know you don't report. But can you help us understand, you've given us some guidance here for this year, but can you help us understand, I guess, even qualitatively your expectations for structures produced and sold this year relative to last year, just as we're trying to understand kind of the future impact as you get into more robust production years?

Yeah, Brent, I'll try that one. You know, as we've said before, giving volume from a competitive perspective, we haven't really elected to do, but I get the conundrum with this tax credit that's based on volume. I'd also point out it's based on units sold and produced. It's also based on the megawatts of the installed turbine at the end of the day. So there's kind of two variables that impact it. We've given our best... foot forward here with the estimate we have in our EBITDA guidance of about 20 million of incremental EBITDA related to the tax credit. So the other thing I guess I would mention to kind of help a little bit is we've always said commercially that we would maintain a significant majority of the tax credit and what we've included in our EBITDA guidance reflects that. So when we refer to the EBITDA pickup, we're talking about a net benefit to EBITDA. So from an accounting perspective, the gross credit will flow through cost of sales. And anything that we've negotiated commercially would be a slight deduct to revenue. But as we've said, we're retaining the significant majority of the credit. And from a math perspective, I think many people are familiar that it's $0.03 for installed Watt. That is the credit that we are beneficiary of. And, you know, today the average megawatt per installed tower is somewhere around 3 million. So I think I'll probably stop there. That's probably the extent of what I could give from a perspective 23 relative to 2022, you know, a slight decline in volume. But then as we think about our backlog, Certainly, we have the long-term order with the New Mexico facility that extends our backlog into 2028. Right now, based on the backlog we have in place, 24 and 25 are the higher years, and then you have the New Mexico facility filling out in the last three years there, if that's helpful.

Yeah, Gail, if I could just quickly follow on that, given that there's still some uncertainty still awaiting IRS guidelines, you've obviously got these commercial arrangements. Is it fair to kind of think that this outlook you put out for this year just related to the credits is kind of your most conservative approach as you're still trying to kind of fine tune these things?

I'd say, Brent, I mentioned the variables, certainly units produced. We feel pretty good about our backlog. There's always some wiggle room there. Nearer term, we feel a little bit more confident about the size of the turbine. So those things feel relatively certain. You know, looking at it, could there be a little bit of conservatism since there hasn't been finalization in the rules? Yes, I would say there is a little bit. But, you know, we've really tried to put our best foot forward in giving a sense of what we expect for the year.

Yep. Okay. All right. Thanks for that follow-up. I appreciate it. I'll pass it on.

One comment on the tax credit. You know, there's a lot of rules that we expect. I think the main thing that we're waiting for, there's, of course, how it's going to be – when it starts and things like that. But the most important piece is the rule of Buy America. What does it mean? And that's the piece that we're waiting for that needs to be clarified more specifically. And the main reason is that this thing is being bundled between wind and solar. And they're very different industries. And what we're trying to do here is, you know, the wind tower industry, as you saw with the New Mexico plant, There is enough capacity, and if not, we can build it. It's something we can do really fast, and we're willing to do it, and it's not us. It's someone else, but there is capacity. The solar industry is in a very different position, so I think that's what we're waiting for the IRS to make sure that we put our best argument forward that these are not the same thing, and I think we're doing that, and the industry is doing that.

Interesting point. Thank you, Antonio. Thanks, Gail.

And we'll take our last question from Ian Zafino with Oppenheimer.

I agree. Thank you very much. You know, I just wanted to kind of ask one more question on the tax credits. You know, how do you think about – I know you touched upon this a little bit, but how are you thinking about pricing in this business? Are you going to price it so that the unit is break-even and then all your EBITDA would come from the uplift of the AMP? Or do you think you're going to run the business as a standalone, profitable, and then you'd take the AMP on top of that? I'm just trying to – and I know we're thinking about the sharing of this and how it all works. I'm just trying to understand particularly what your pricing might be or how you're thinking about the business given that the AMP kind of comes back to you or may not come back to you.

Sure, it's a really good question. Let me split it in two pieces. Let's put 2023 aside. Think about the pricing we have for 2023. We priced this thing in August of last year when the inflation reduction was being approved, and we thought it would take 12 to 18 months for it to get started. So we priced this year based on the assumption we need to keep our people, we need to keep the plants operating, we need to keep our capacity because it's going to get really good after 2023. So the pricing this year is not reflective of the way we're pricing our towers going forward. The business needs to be profitable by itself. And we see the tax rates as additive to our margins. Will we be able to keep 100% of it? We've already said we're giving some to our customers, but the majority we will keep. So the idea of the business is to have strong margins in the business and add the tax rates on top of that.

Okay. That makes sense. And then on the barred side, can you give us a little bit of color between dry and liquid? I don't know if you mentioned that. I couldn't find it anywhere. Maybe you've got some of the dynamics. Sure. Sure.

You know, most of our orders right now are dry cargo barge. And the market where we're seeing really pent-up demand is in the dry cargo barge. That's the market that's been slower for the longer period of time. That's where the aging of the barges is higher. So most of the demand we're seeing and most of the barges we're getting are dry cargo. We are getting some smaller... liquid barges, 10Ks we call them. Those are more for petrochemical. But believe it or not, we're seeing some demand for the larger liquid barges and for some smaller liquid barges. So we are seeing the markets out there. And when you see the utilization rates of the liquid barges are very high, the fleet is not as old as the dry cargo, but it's getting there. And it's not old on average, but You have some very new barges and you have some very old barges. So there is replacement that's going to happen. The liquid may be not as strong as the dry cargo, but it's happening. So probably over the next year or so where you will see us grow the most is in dry cargo.

Okay, and then if I could just sneak one more in. So I guess the way I'm looking at this is construction is doing quite well. Barges is really coming out of its trough. wind towers is really starting to benefit here. Those are three big, important, growing businesses, but then you have a couple of other businesses that are much smaller, and especially as these three businesses continue to get larger, relatively speaking, those other businesses become smaller. I know you got rid of the storage tank business. Are there any plans to get rid of some of these other non-core businesses? I know you've talked about it before, but Given the strength that you're seeing across these other three segments, does that encourage you or kind of increase your desire to shed some of those businesses?

Sure. I think we've been very clear that we will simplify the company as the businesses get ready to become, let's say, in an attractive position to be disposed of. So we've been clear about that. There are certain things that need to happen for each business to be ready. I've been clear that I don't expect to sell them at the peak of their cycles. So I think, like I've always said, M&A takes a life of its own, but we're going to continue to push the idea that this company is too complex for our size, and we're going to continue to simplify it and monetize some assets and continue to reinvest in our growth business, especially on M&A in construction. and organic construction and engineered structures. So that's going to continue to happen. Timing, I cannot tell you, but it's up there in our main priorities.

Okay, thank you very much.

Thank you. It appears that we have no further questions at this time. I will now turn the program back over to our presenters for any additional or closing remarks.

Thank you for joining us today and we look forward to speaking to you again next quarter.