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Edited Transcript of ACA.N earnings conference call or presentation 29-Apr-20 12:30pm GMT

Q1 2020 Arcosa Inc Earnings Call

May 12, 2020 (Thomson StreetEvents) -- Edited Transcript of Arcosa Inc earnings conference call or presentation Wednesday, April 29, 2020 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Antonio Carrillo

Arcosa, Inc. - President, CEO & Director

* Gail M. Peck

Arcosa, Inc. - Senior VP of Finance & Treasurer

* Scott C. Beasley

Arcosa, Inc. - CFO

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Conference Call Participants

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* Bascome Majors

Susquehanna Financial Group, LLLP, Research Division - Research Analyst

* Blake Anthony Hirschman

Stephens Inc., Research Division - Research Analyst

* Brent Edward Thielman

D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst

* Ian Alton Zaffino

Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst

* Stefanos Chambous Crist

CJS Securities, Inc. - Equity Research Associate

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Arcosa, Inc. First Quarter 2020 Earnings Conference Call. My name is Nikki, and I will be your conference call coordinator today. As a reminder, today's call is being recorded.

Now I will like to turn the call over to your host, Gail Peck. Ms. Peck, you may begin.

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Gail M. Peck, Arcosa, Inc. - Senior VP of Finance & Treasurer [2]

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Good morning, everyone. Thank you for joining our first quarter 2020 earnings call.

With me today are Antonio Carrillo, President and CEO; and Scott Beasley, CFO. A question-and-answer session will follow their prepared remarks today. A copy of yesterday's press release and the slide presentation for this morning's call are posted on our Investor Relations website, www.ir.arcosa.com.

A replay of today's call will be available for the next 2 weeks. Instructions for accessing the replay number are included in the press release. A replay of the webcast will be available for 1 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 generally accepted accounting principles. Reconciliations of non-GAAP financial measures to the closest GAAP measure are included in the appendix of the slide presentation.

Let me also remind you that today's conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the company's SEC filings for more information on these risks and uncertainties, including our Form 10-K, the earnings press release we filed yesterday and our Form 10-Q for the first quarter expected to be filed later today.

I would now like to turn the call over to Antonio.

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Antonio Carrillo, Arcosa, Inc. - President, CEO & Director [3]

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Thank you, Gail. Good morning, and thank you for joining today's call to discuss Arcosa's first quarter results and business outlook. I will provide you with the current conditions within our markets, the highlights of our first quarter performance, and later discuss our business line expectations, while Scott will update you on the first quarter financials.

Please move to Slide 4. There are several key messages I would like you to take away from today's call.

First, Arcosa's business continues to operate well within the COVID-19 environment. We have been designated an essential business, and our facilities are operational. Second, we have implemented business continuity plans and have adopted protocols to protect the health and safety of our employees and the community in which we operate. This is our priority, and I would like to recognize all of our teams for how quickly and effectively these protocols were put in place.

Third, Arcosa's strong financial quarter performance shows the earnings power we have, and our strong balance sheet provides us with flexibility in this uncertain time and the capacity for significant growth opportunities for the future. And fourth, while we expect lower demand for some of our product lines, in some others, we continue to see strong fundamentals and have substantial backlogs that provide good visibility.

On Page 5, you can find the agenda for today's call. Let's start by discussing our priorities during the COVID-19 health crisis on Slide 7.

First and foremost, our top priority is the health and safety of our 6,300 employees and the community in which we operate. To that end, we immediately put in place safeguards at our facilities consistent with CDC guidelines. We also implemented work-from-home protocols for our office staff and are making plans for how we return to our offices once it's authorized and safe to do so. As an essential supplier to the nation's infrastructure sectors, we have continued operating the plants to meet our customers' needs in every business. And as you can see from our first quarter results, we have not missed a beat.

Our strong liquidity position and financial flexibility are now even greater competitive advantages than they were only just a few months ago. I know from experience having strong balance sheet is key to successfully navigating through an economic downturn. Scott will review this in more detail, but from a high level, we have about $200 million of cash, close to $174 million in revolver availability. Net debt is roughly half of our annual EBITDA, and we expect strong free cash flow.

Additionally, we have taken actions to reduce operating and corporate costs and have postponed nonessential capital expenditures to ensure we are prepared for a potential extended slowdown. Arcosa's strong balance sheet provides us with the resources to make strategic acquisitions on a disciplined basis at attractive prices, should they become available.

Now let's turn to Slide 9 for a look at the company-wide results. For the first quarter, the company performed extremely well, with revenues of $488 million, up 19% year-over-year. All 3 business lines contributed to this growth. Adjusted EBITDA of $76 million was up 29%, reflecting the considerable operating leverage we continue to achieve. Adjusting for a bad debt recovery of $3 million last year within the Energy Equipment, all business lines contributed to the profit growth, with Construction Products being the largest contributor to this quarter's revenue and EBITDA growth. This segment benefited from the recent acquisition of Cherry, which is performing ahead of plan. Importantly, both our utility structures and barge businesses saw healthy order intake in the first quarter.

Scott will give you more details on the individual business lines, and then I will return to provide you additional market color and discuss our outlook. Scott?

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Scott C. Beasley, Arcosa, Inc. - CFO [4]

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Thank you, Antonio, and good morning, everyone. I'll start on Slide 10 of the presentation and walk through our results from the quarter and then discuss our financial strength and capital allocation plans in more depth.

Starting with Construction Products, revenue grew 41% to $149 million, and adjusted EBITDA increased 49% to $32.1 million. EBITDA margins increased to 21.5%, more than 100 basis points better than last year's first quarter. The legacy businesses performed well during the quarter, and the Cherry acquisition exceeded our expectations. Volumes in our legacy business were higher for both our natural aggregates and specialty lightweight aggregates businesses as Dallas-Fort Worth and Texas end markets remained robust throughout the quarter.

Additionally, the Cherry acquisition exceeded our expectations. The Houston construction market remains solid, and the team did an excellent job executing during the integration. The only weak spot in the segment was continued softness in our West Texas and Oklahoma aggregate plants serving oil and gas infrastructure, but that exposure is a small part of our revenue in the segment. And the segment still posted strong revenue and margin improvements even with the exposure.

Moving to Energy Equipment on Slide 11. Revenue grew 7% to $223 million, and adjusted EBITDA was roughly flat once we adjust for a onetime bad debt recovery in 2019. Higher volumes in both wind towers and utility structures drove our increased revenue, which was even more impressive given that lower pass-through steel prices were a pricing headwind for utility structures in the quarter.

The wind towers team continued to execute well and delivered a higher unit count than the first quarter of 2019, including the successful delivery of a run of a larger tower type. Pricing, as expected, was lower in the quarter than last year's first quarter, but in line with the expectations that we laid out heading into the year. Utility structures continues to be a very strong performing product line. We delivered higher volumes with improved margins. Our storage tank business declined year-over-year on lower shipments of residential and commercial propane tanks.

Adjusted EBITDA in the first quarter was $33.6 million, which was in line with our expectations. 2019 EBITDA was helped by $2.9 million of onetime bad debt recovery. In 2020, we had a $1.3 million loss on impaired assets as we transitioned the plant from supporting railcar component work to utility structures. Overall, the Energy Equipment segment continued its progress on lean improvements and recorded an excellent financial and operational quarter.

Turning to Slide 13. Transportation Products had 20% growth in revenues and 55% growth in adjusted EBITDA. Barge revenues and profitability grew significantly versus the first quarter of 2019.

In the barge business, margins expanded significantly versus last year's first quarter. We had improved pricing and backlog, and we did not have the start-up costs from reopening our Louisiana plant that we incurred in 2019. The operating team did an outstanding job hitting our production schedule. In addition to strong execution in the quarter, order activity continued to be healthy. We received $90 million of new orders in the quarter, bringing the total backlog to $348 million, approximately 90% of which will deliver in 2020. That backlog gives us excellent visibility for the rest of the year.

The rail components business continues to be weak, and revenue dropped by $20 million from last year's first quarter. We have had to take additional actions at our facilities to respond to lower demand for new railcars, and we will continue to build out our non railcar product lines using our forging and foundry capabilities.

I will now turn to Slide 14 to discuss our liquidity and balance sheet highlights. The strong free cash flow profile of our businesses has contributed to the $475 million of liquidity that we had at the end of the quarter, made up of $201 million of cash and an additional $274 million of committed revolver capacity. Free cash flow of $20 million was in line with our expectations heading into the year. It was below our 5-quarter average, primarily because we were working through a number of advanced payments that we received in the fourth quarter of 2019.

During the quarter, we borrowed $100 million on our revolving credit facility as a precautionary measure, but we have not yet seen any material increases in our overdue accounts receivable or credit risks that concern us.

Turning to Slide 15, one of the attractive investment characteristics about our company is our low leverage, which will enable us to manage through challenging economic scenarios as well as pursue disciplined growth when the time is right.

Since our spinoff in late 2018, we've completed 2 major construction products acquisitions, primarily using cash from operations, and we ended the quarter with approximately 0.5 net debt-to-EBITDA. We have also taken aggressive actions to conserve cash during this period of uncertainty and have adjusted our capital allocation outlook for 2020, which you see on Slide 16.

First, we have delayed nonessential CapEx and now expect to invest in a range of $75 million to $85 million this year, down $20 million from our previous guidance. That range includes approximately $65 million of maintenance CapEx, plus a select set of growth projects that still meet our return criteria in a more uncertain environment. The bulk of our growth CapEx will continue to be in utility structures and reserve acquisitions in our aggregates and Specialty Materials businesses. In addition to reducing our CapEx, we've also taken steps to reduce our SG&A spending in order to keep our total SG&A costs in line with revenue.

Finally, we've implemented a number of working capital initiatives to reduce our working capital requirements across receivables, inventory and payables. We will also be disciplined in our acquisition strategy. In addition to Cherry, we completed a $25 million complementary acquisition of a traffic structures business in Florida to expand into this adjacent product line. We are attracted to the infrastructure-related market drivers of the business as well as the manufacturing synergies with our other product lines within Energy Equipment. We expect to be able to expand this new product line into other geographies using our manufacturing expertise and footprint across North America.

Finishing up with return of capital to shareholders, we currently plan to maintain our dividend at roughly $10 million per year, and we still have $34 million remaining on our share repurchase authorization.

I will now turn the call back over to Antonio.

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Antonio Carrillo, Arcosa, Inc. - President, CEO & Director [5]

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Thank you, Scott. For the first quarter, our business experienced only minor disruption from COVID-19. But we do expect the resulting economic downturn to impact some of our product lines, and we have already seen some indications of that. We continue to be encouraged by the momentum we have in many of our businesses. However, the very fluid and uncertain economic environment has caused us to suspend earnings guidance. We intend to share Arcosa's outlook with you today, so you can understand what we're currently experiencing in each of the business lines.

Given the uncertainty on the depth and length of the slowdown in the economy, I will try to be as transparent as I can with the information available today.

Turning to Page 19, let's start with Construction Products. Construction performed very well in the first quarter. In most states, construction is considered an essential service. As such, demand has held up well. In addition to the new Cherry acquisition and its recycled aggregates business have performed ahead of plan. We have seen some softness in the construction site support business since most of the customers are rental companies who have begun to cut back on delay -- or delayed CapEx in this environment. Still, this product line only accounted for 12% of group revenue on a pro forma basis, which includes Cherry.

While the Construction Products business performed well in the first quarter, we have been supplying projects that were already underway. As we move forward, we expect weaker demand in the construction sector, especially in the residential market. As this business line operates with shorter lead times and does not have the benefit of backlog, it is much harder to forecast in this environment. Also, the second and third quarters are the busiest for this business line. So the effect of the slowdown is particularly challenging to predict.

On a positive note, there is talk of a stimulus bill and additional potential increase in state infrastructure spending, which would benefit Arcosa in the medium and long term.

Turning to Slide 19, let's disclose Energy Equipment segment, where we have much better visibility given its backlog, which stands at $505 million and gives us the confidence in our 2020 performance expectations. The wind tower and utility business -- utility structure business units have combined backlog of $476 million, which represents over 75% of the revenues those businesses generated in 2019.

While there are some outside factors unrelated to COVID-19 that are pressuring the wind tower business, such as the expiration of the production tax credit, our backlog covers most of 2020 and the main potential impact would be some unfilled spots in our production schedule in the fourth quarter. The market for utility structures remains active, and the growth drivers are long-term in nature. This end market continues to show strong demand and limited supply, and our 2020 growth outlook remains intact based on what we know today.

Where we are seeing some softness at the Energy Equipment segment is in the storage tank product line, which contributed to $211 million of revenue in 2019. Here we have more limited backlog based on the nature of the business. We do expect an economic downturn to have an impact, since this business has some exposure to the new housing and oil and gas markets in both the U.S. and Mexico. On the other hand, it's important to note that the large tank market, which has the most exposure to oil and gas dynamics, represents less than 5% of the group revenue.

Please turn to Slide 20. Transportation products has mixed conditions. Our barge business is providing significant growth, but our components business is delaying -- is dealing with a very challenging market conditions.

With respect to the components, as we have said in the past, pre-COVID, demand for new railcars is estimated by industry sources to decline by 30% in 2020, and the number of idle cars in storage continues to increase. So expectations for the industry have gotten worse. We have planned on a significant slowdown, so the incremental impact is marginally negative to our previous expectations. However, we continue to take actions to right-size our costs. At the same time, we are working successfully on adding other nonrail products.

On the other hand, our barge business had strong order activity in the first quarter with $90 million in orders. Overall, market fundamentals remain positive with an aging fleet for both liquid and dry barges. The average age continues to increase, and the significant decline in steel prices toward historic lows could encourage additional order activity. While the recent sharp decline in oil prices is a point of concern that we are watching, our backlog of $348 million provides us with a good line of sight for this business. We are also continuing to see strong demand in our marine components business, which serves both the new and replacement markets.

On balance, our outlook for transportations is for revenue to grow at least 15% for 2020, based on the confidence we have in our solid backlogs offsetting the declining components.

Now let's discuss the assumptions embedded in the current outlook. Please turn to Slide 21. First, please note that COVID-19 situation is extremely fluid. So this slide lays out some of the assumptions we have to help you understand how we're thinking about the next few months.

Overall, we expect to continue to operate as an essential business. We do expect the country to emerge from lockdown, but at the same time, most reports show the virus could continue to be a disruptive force until a vaccine is found. So we will remain vigilant and focused on following all established protocols for the foreseeable future.

Our biggest risk could be the production delays, resulting from plant shutdowns, potentially either around our customers or our suppliers. Separately, we're working with each business unit leader to reduce costs in line with our revenue expectations. We plan to continuously evaluate each business in real-time. If conditions should change, costs will be adjusted to reflect the market conditions we're seeing. Our corporate costs are already lean, but we are taking additional actions to reduce costs even further.

From my experience in leading businesses through times of great uncertainty, I have learned that it is critical to get ahead of the cost curve before the downturn materializes. Also, operating flexibility is key as the news and outlooks changes every day. We must be prepared to act quickly, and I can confidently say we are.

Another guiding principle we will apply during this uncertain time is to stay true to our values and do the right thing for our employees, our communities and other stakeholders. Finally, a strong balance sheet is a make or break factor in a challenging business environment, and we are committing to keeping ours healthy. We plan to remain active on the M&A front in a disciplined manner on an opportunistic basis. Our low leverage and ample liquidity gives me confidence that we will emerge a stronger, leaner company.

Turning to Slide 23. ESG continues to be a priority for us going forward. During this time, we have had the opportunity to develop new ways of supporting our [glocal] communities. At the same time, we remain committed to developing our baselines and setting goals for the company. We plan to publish our first sustainability report for 2020.

Please turn to Slide 24. While the current impact of COVID-19 may delay some initiatives and create some uncertainty, it has not changed our long-term plan, which is to grow in attractive markets, reduce the complexity and cyclicality of our business, improve our long-term returns on invested capital and integrate ESG into everything we do. We continue to advance on these initiatives every day while working towards making Arcosa a leaner, more efficient company.

I will now open the call to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we'll take our first question from Brent Thielman with D.A. Davidson.

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Brent Edward Thielman, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [2]

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Congratulations on a great quarter. The margins in Transportation Products is really strong despite the fact that rail is sort of working against you. And I assume that's going to continue going forward. But just given the inland barge backlog and the embedded pricing within that, do you think you can maintain these sort of margin levels through this year?

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Scott C. Beasley, Arcosa, Inc. - CFO [3]

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Brent, thanks for the question. This is Scott. The answer is yes, for the full year. There'll be some unevenness through the quarters as mix changes quarter-to-quarter. But the really strong margins in the first quarter, largely from better pricing and the barge backlog, no start-up costs and then excellent operational execution, we would expect that to be relatively consistent for the full year. Q2 looks like, because of mix in barge, might be a little lower, but then it would pick back up in Q3 and 4.

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Brent Edward Thielman, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [4]

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Okay. And then I guess my follow-up is on utility and wind. The book-to-bill, a little slower this quarter, but -- and still pretty good backlog here. Is -- are you seeing delays in bid processes or decisions to move business forward? Does that -- because of COVID? Or does that ultimately move some things to 2Q, 3Q in terms of bid activities? Just curious kind of what you're seeing there.

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Antonio Carrillo, Arcosa, Inc. - President, CEO & Director [5]

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Brent, this is Antonio. There are different businesses. So let me talk about each one individually.

On wind towers, as I've said, I think we have a good backlog, covers most of fourth quarter. And we are seeing order inquiries from several of our customers and we expect to receive some orders before the end of the year. So I think it slowed down a little bit because there's some disruption in the installation of wind towers with all this issue going around. It's a very busy year. Based on the expiration of the tax credit, there's a significant amount of movement in the fields of installing, et cetera. But I do expect orders to come in, as we've said. The margins of the orders in wind tower are lower than we had in the past. So it's important to remember that. On the -- and it's -- as I've said in the past, it's a project, it's going to become, and we are seeing that a project-based business where our customers will come in and say, I have projects for the first half of 2021, let's bid on those rather than a blanket order for 5 years like we used to have in the past. It's okay. That's how we operate in most of our business. And we're not afraid of it. We are encouraged by it, and we're going to be dealing with that.

Utility structures is a very different business, and we continue to see very strong order activity. Inquiries continue to be strong. I would tell you, both on the wind and on the utility structure, the biggest question we were getting during the quarter, especially at the end of March, beginning of April, where the uncertainty was at the highest point, the biggest question we would get was not about delays, but, 'Are you going to continue to be able to deliver these products?' That was the biggest question we were getting. It's people were worried, we could not deliver. So that is -- I think that tells you a little bit of the environment we're dealing with.

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Operator [6]

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Next question comes from Bascome Majors with Susquehanna.

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Bascome Majors, Susquehanna Financial Group, LLLP, Research Division - Research Analyst [7]

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I was hoping we could revisit the outlook for aggregates and maybe the Construction Products segment as a whole. You commented that it's a seasonally strong business in the summer, which is going to be disproportionately impacted by the shutdowns, and it's not a backlog business. But is there any way to frame some of the stress test scenarios you've done? Just trying to think about the kind of worst-case scenarios in your minds that might be in play here as we look to, kind of, underwrite risk/reward in one of your largest EBITDA generators.

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Antonio Carrillo, Arcosa, Inc. - President, CEO & Director [8]

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Sure. Thank you, Bascome. Let me give you a sense. The business has really 3 businesses inside, now Specialty Materials, the aggregates and the Shoring business. The Shoring business is the one that we -- where we've seen now more slowdown. And the reason for that is that they're very different. The Shoring business, we sell a lot to rental companies, as I mentioned in my remarks. And for them it's CapEx and like every other company, like we are doing, everyone in these uncertain times, is conserving cash, and we've seen some delays or -- no cancellations, really more delays of orders. And right now, what our customers are telling us is we're delaying the orders for the third quarter or for the fourth quarter. The -- on the aggregate piece, and that's what we're seeing. So the reason we -- the uncertainty around this business, and I would tell you, around the Construction segment, especially. When you ask our customers or industry experts, what do you expect. And some people expect a pickup in the third quarter. Some people expect a pickup in the fourth quarter.

The reality is that I don't think anyone really knows how deep and how slow this is going to be. And that was the reason we withdrew our guidance. Because we don't know. The reality is that we don't know. We are working today. We're continuing to work on projects that we're already working before.

Even in the second quarter, we started the second quarter pretty strong. We're not seeing in the aggregates piece, any delays yet, any signs of stress. We are seeing some of the big projects, especially in California and Washington that -- where construction activity did stop, there's a few states where construction activity did stop. And those are the states where we felt a little pain, and were feeling a little pain.

But worst-case scenario is if the virus comes back. And for whatever reason, we go into lockdown and construction activity ceases to be an essential business, I mean that's a really extreme case, I would -- that's not what we have in our expectations. What we have is that like every other slowdown, construction slows down together with the economy. We adjust our costs. We -- our main priority on the aggregate side is going to maintain pricing, which is one of the characteristics of this business and just adjust our costs and move forward and look for opportunities. No, that's our mindset at the moment.

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Bascome Majors, Susquehanna Financial Group, LLLP, Research Division - Research Analyst [9]

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So I mean is there any way to frame the degree of revenue downside that you guys are kind of working with in your planning purposes?

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Scott C. Beasley, Arcosa, Inc. - CFO [10]

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Yes. I think Bascome, if you look at previous recessions, and I think most people would say we're heading into some sort of recession now. You've seen a big variability where something as small as 5% to 10% revenue decline to something like the '09, '10, it was a bigger revenue decline. So I think it depends on how long the slowdown lasts and how deep it goes. But I think looking at those previous periods, you can kind of bookend what that might look like.

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Bascome Majors, Susquehanna Financial Group, LLLP, Research Division - Research Analyst [11]

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Yes. And as we look to '21, I realize that's a really long way away right now. But I was just trying to think through your thought process on the backlog businesses, which are -- clearly back-stopped to do quite well today but also have some cyclicality where that could change in the future. Just I don't know if you want to hit kind of your high-level thoughts on where you think structural midterm demand could go in wind towers, utility structures and barge?

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Antonio Carrillo, Arcosa, Inc. - President, CEO & Director [12]

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Yes. So let me start with those 3. I think those 3 are the big ones with backlogs. Starting with wind towers. I think fundamentally, I'm a big believer in renewable power will continue to be a -- one of the sources of energy that will continue to be in demand. I think as we move forward, that's going to continue. It's a trend that will not stop. As you go into the future, if you are planning ahead, when you look at the utilities that are giving guidance or talking about the results or the projects. A lot of them are talking about storage plans and things like that.

So I think going forward, storage and renewables will be a story of -- a combined story that will continue to go together, no?

And we're optimistic in the long term. The industry, historically, has worked on tax credits, and that -- those are going away. And -- but now even with natural gas at $2, which now I know they're lower, the industry is competitive. I think the technology has evolved, and it continues to evolve really fast so I'm encouraged about it. It's something that we will have some uncertainty, '21, probably '22, but the industry fundamentals are there for us in the long term.

Utility structure is different. That business for all -- everything that's happening, even for the renewable energy and for electric cars and for everything we're doing electronically, the grid hardening needs to happen and the investment in infrastructure in transmission needs to get stronger, and that's what we're seeing in the market. It's a long-term demand factor that, we believe, is going to stay here with us for several years.

The other piece is that that's why we have a relatively small market share there, and we have opportunities to expand our product lines. And that's what we're doing. Scott talked about the acquisition we did in the first quarter, on highway signage. And it's a lot of synergies with our product line, a lot -- same design, same engineering, very similar processes. So we want to continue to expand, and we have opportunities to grow the market as this business has strong fundamentals.

And finally, on barge, I mentioned in my remarks that both the liquid and dry cargo barges, more the dry cargo, have aging fleets. And those fleets have to be replaced. It's a replacement market. I don't see any driver right now that encourage me to that a fleet is going to grow. That's not what we're assuming.

But simply, if you look at the replacement values, it gives you a sense that we have hopefully, on -- less dynamics for financing or something like that, which is something that our customers look at, change. There needs to be a replacement in both dry and liquid markets. And at the same time, steel prices, which are at a very low point right now. I mean the -- we're buying steel at half the price that we were buying a year ago, could help us get some additional business. But also demand is going to be driven by agricultural prices and all this relationship with China, which is an important piece. But overall, we're positive on the barge based on the age and the steel prices. We're positive on transmission. There's a little more uncertainty on wind, but we will have a wind business in 2021, and it will be profitable.

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Operator [13]

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And our next question comes from Stefanos Crist with CJS Securities.

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Stefanos Chambous Crist, CJS Securities, Inc. - Equity Research Associate [14]

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Congrats on the quarter. First, could you break out the growth in aggregates between organic and what was also contributed from Cherry?

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Scott C. Beasley, Arcosa, Inc. - CFO [15]

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Sure, Stefanos. So on the legacy business, volumes were up, pricing was relatively flat. And then the only downside was the oil and gas exposure. So you put that all together, roughly flat. Almost all of the total growth was in the Cherry acquisition that operated very well during the quarter. The integration is going smoothly, and it added a lot to our results in the first quarter.

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Stefanos Chambous Crist, CJS Securities, Inc. - Equity Research Associate [16]

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Perfect. And then so you guys also had a lot of orders in barge, $90 million. Could you maybe give us some color on how that's progressing into Q2?

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Antonio Carrillo, Arcosa, Inc. - President, CEO & Director [17]

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Yes, I'll take that. So we have received orders in Q2, but very few. So we are -- right now, we are going through -- basically, what we're doing right now is going back to our customers with new steel pricing. And to give you a sense, when steel pricing is at the current level compared to a year ago, in a big barge, it may be $75,000 to $100,000 in price reduction. So that's what we're doing right now as steel prices stabilize a little bit. That's what we're going back to our customers. But we have received a few orders, not much. We do receive orders in our components business. The barge components business continues to be relatively well. But barge, very few.

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Operator [18]

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Our next question comes from Ian Zaffino with Oppenheimer.

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Ian Alton Zaffino, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [19]

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Very good news you're keeping the dividend. And also, I kind of -- it was interesting that you spoke about M&A as well. What are you sort of thinking here on the M&A front? Are you -- do you have some targets out there that are kind of on shaky financial terms where maybe you could find a good acquisition? Is that sort of like what you're seeing? Or just kind of any color on kind of the environment and the stable targets you might have?

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Antonio Carrillo, Arcosa, Inc. - President, CEO & Director [20]

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Yes, Ian, this is Antonio. The -- like everything else, I think over the last several weeks, there was a reset in the mindset of everyone. And we have been working, and we have talked about having a relatively full pipeline. And Scott mentioned the 3 areas, the aggregate, the Specialty Materials and the expansion of our utilities and around that business. And I think with this slowdown, first, we have to make sure that we get some more clarity on how deep and how long this will be, no?

And -- but we don't know that. The reality is we're going to be navigating these uncertainties, and we just have to get comfortable with that. We have a good balance sheet. We're going to be disciplined. But we do believe that there's going to be opportunities, for people who either have not such a strong balance sheet or their business are not performing well, they're not operating well or they run into some specific problems. And I do believe we're going to find opportunities. I think it's a time where a strong balance sheet is going to be probably the most important thing for any company to have. And we have a good one, and we're going to be looking for opportunities, no?

That doesn't mean that if we find something that we believe is reasonably priced, we won't do it. It's -- we have to leave that door open because I think we have opportunities for the company, for the future that we want to take advantage of.

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Ian Alton Zaffino, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [21]

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Okay. And then also, as far as the business being deemed essential, is that each individual business? Or is this the company -- the greater company itself?

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Antonio Carrillo, Arcosa, Inc. - President, CEO & Director [22]

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It's individual business. So when you look at the guidelines that the government provided, each one of the business is essential for different reasons, but all of them fall in the essential category.

Also important is that the -- there's a -- our business in Mexico have the same situation. So we have continued to operate even though there's a disparity between both countries on what's essential. We continue to operate on both sides of the border, have been essential up to this point.

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Operator [23]

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And we will take our next question from Blake Hirschman with Stephens.

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Blake Anthony Hirschman, Stephens Inc., Research Division - Research Analyst [24]

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I was curious as to whether you guys might kind of talk about what April trends have looked like just across the segments' top line or just the margin?

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Scott C. Beasley, Arcosa, Inc. - CFO [25]

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Yes. I'll give you some overall color and stay away from specific numbers. But in Energy and Transportation, April has gone according to plan. We've talked about our outlook being intact there. And then on Construction Products, where we don't have a backlog, we -- volumes have been strong. The markets that we operate in have held up well in April, largely from projects that were already started when -- when the pandemic picked up steam in March. So that's one of the questions of -- it should be a strong April. We've seen a strong April. But there's uncertainty around the rest of Q2 and Q3 as to the degree that those projects are replaced by new projects.

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Blake Anthony Hirschman, Stephens Inc., Research Division - Research Analyst [26]

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Got it. And if you look at Construction Products piece, I guess, either in past cycles or kind of as you would expect for this one, what kind of decrementals would you expect to see there? I mean, assuming that the top line drops 5% to 10% or maybe even closer to like a 20%, just kind of some rough template for how we should think about the decrementals there, would be helpful.

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Scott C. Beasley, Arcosa, Inc. - CFO [27]

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Yes. I'll give you some color around margin declines in kind of what we see in the businesses. In Energy and barge, those are more variable cost structures. So we should be able to hold margins relatively consistent by rightsizing the footprint. You do have some decline, but not particularly severe. Rail components and Construction, those are highest incremental and decremental margin businesses. So we'd expect more margin increases on the upside, which we've seen in good cycles, but more margin pressure on the downside of demand declines because of the higher fixed cost structure. So if you're talking about orders of magnitude drop that you described, there will be margin pressure on the downside.

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Antonio Carrillo, Arcosa, Inc. - President, CEO & Director [28]

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Blake, and this is Antonio, just to give you a little more color on the Construction side, April. The -- as I mentioned, the piece that's missing here is the Shoring business, the Construction site support. That's where we've seen some pushback in backlog to the third and fourth quarter. It's not huge. It's a business that, as I said, it's about 12% of our revenue in Construction, but it's -- it's a good business, a good margin business. We're excited about it. We like it, but it's where we've seen a little more pushback. And a couple of states, Washington, California, where we have operations, have slowed down construction. So that's where we're seeing some slowdown also.

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Blake Anthony Hirschman, Stephens Inc., Research Division - Research Analyst [29]

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Got it. Makes sense. And then just lastly, with the COVID impact and just the broader effects that, that's had. I mean, do you think there's any kind of momentum for extending the wind tax credit beyond end of this year?

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Scott C. Beasley, Arcosa, Inc. - CFO [30]

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This is Scott. We -- from our understanding of discussions in Washington, that was part of some discussions around stimulus bills. It was not included in the final bill. But those conversations are ongoing, and we'll monitor that closely. Even without production tax credit, as Antonio said, we think the wind business is competitive, economically and has a lot of positive drivers, both from corporate ESG and other state mandates. So a PTC extension would be a nice benefit, but not required for that business to be [solid].

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Operator [31]

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And it appears that we have no further questions at this time. I will now turn the program back to Gail Peck.

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Gail M. Peck, Arcosa, Inc. - Senior VP of Finance & Treasurer [32]

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

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Operator [33]

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This does conclude today's program. Thank you for your participation, and you may disconnect your line at any time.