UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| (Mark One) | |||||
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2024
| OR | |||||
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from _________ to _________ .
Commission File Number 1-38494
(Exact name of registrant as specified in its charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | ||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(972 ) 942-6500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
At October 15, 2024, the number of shares of common stock outstanding was 48,776,818 .
ARCOSA, INC.
FORM 10-Q
TABLE OF CONTENTS
| Caption | Page | ||||
2
PART I
Item 1. Financial Statements
Arcosa, Inc. and Subsidiaries
Consolidated Statements of Operations
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | |||||||||||||||||||
| Operating costs: | |||||||||||||||||||||||
| Cost of revenues | |||||||||||||||||||||||
| Selling, general, and administrative expenses | |||||||||||||||||||||||
| Gain on disposition of property, plant, equipment, and other assets | ( | ( | ( | ( | |||||||||||||||||||
| (Gain) loss on sale of businesses | ( | ||||||||||||||||||||||
| Impairment charge | |||||||||||||||||||||||
| Total operating profit | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Other, net (income) expense | ( | ( | ( | ( | |||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Net income per common share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average number of shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
| Dividends declared per common share | $ | $ | $ | $ | |||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
3
Arcosa, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Derivative financial instruments: | |||||||||||||||||||||||
Unrealized gains (losses) arising during the period, net of tax expense (benefit) of $ | |||||||||||||||||||||||
Reclassification adjustments for (gains) losses included in net income, net of tax expense (benefit) of $ | ( | ( | |||||||||||||||||||||
| Currency translation adjustment: | |||||||||||||||||||||||
Unrealized gains (losses) arising during the period, net of tax expense (benefit) of $ | ( | ( | |||||||||||||||||||||
| ( | ( | ( | |||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
4
Arcosa, Inc. and Subsidiaries
Consolidated Balance Sheets
| September 30, 2024 | December 31, 2023 | ||||||||||
| (in millions) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Receivables, net of allowance | |||||||||||
| Inventories: | |||||||||||
| Raw materials and supplies | |||||||||||
| Work in process | |||||||||||
| Finished goods | |||||||||||
| Other | |||||||||||
| Total current assets | |||||||||||
| Property, plant, and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Intangibles, net | |||||||||||
| Deferred income taxes | |||||||||||
| Other assets | |||||||||||
| $ | $ | ||||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued liabilities | |||||||||||
| Advance billings | |||||||||||
| Current portion of long-term debt | |||||||||||
| Total current liabilities | |||||||||||
| Debt | |||||||||||
| Deferred income taxes | |||||||||||
| Other liabilities | |||||||||||
| Stockholders’ equity: | |||||||||||
Common stock – | |||||||||||
| Capital in excess of par value | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Treasury stock | ( | ||||||||||
| $ | $ | ||||||||||
See accompanying Notes to Consolidated Financial Statements.
5
Arcosa, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
| Nine Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in millions) | |||||||||||
| Operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation, depletion, and amortization | |||||||||||
| Impairment charge | |||||||||||
| Stock-based compensation expense | |||||||||||
| Provision for deferred income taxes | |||||||||||
| Gains on disposition of property, plant, equipment, and other assets | ( | ( | |||||||||
| (Gain) loss on sale of businesses | ( | ||||||||||
| (Increase) decrease in other assets | ( | ( | |||||||||
| Increase (decrease) in other liabilities | ( | ( | |||||||||
| Other | ( | ||||||||||
| Changes in current assets and liabilities: | |||||||||||
| (Increase) decrease in receivables | ( | ( | |||||||||
| (Increase) decrease in inventories | ( | ||||||||||
| (Increase) decrease in other current assets | |||||||||||
| Increase (decrease) in accounts payable | ( | ||||||||||
| Increase (decrease) in advance billings | ( | ( | |||||||||
| Increase (decrease) in accrued liabilities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Investing activities: | |||||||||||
| Proceeds from disposition of property, plant, equipment, and other assets | |||||||||||
| Proceeds from sale of businesses | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Acquisitions, net of cash acquired | ( | ( | |||||||||
| Net cash required by investing activities | ( | ( | |||||||||
| Financing activities: | |||||||||||
| Payments to retire debt | ( | ( | |||||||||
| Proceeds from issuance of debt | |||||||||||
| Dividends paid to common stockholders | ( | ( | |||||||||
| Purchase of shares to satisfy employee tax on vested stock | ( | ( | |||||||||
| Holdback payment from acquisition | ( | ||||||||||
| Debt issuance costs | ( | ( | |||||||||
| Net cash provided (required) by financing activities | ( | ||||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
See accompanying Notes to Consolidated Financial Statements.
6
Arcosa, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(unaudited)
| Common Stock | Capital in Excess of Par Value | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | $ | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||
| (in millions, except par value) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2023 | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Cash dividends on common stock | — | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Restricted shares, net | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Balances at September 30, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2024 | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends on common stock | — | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Restricted shares, net | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Balances at September 30, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2022 | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Cash dividends on common stock | — | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Restricted shares, net | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Retirement of treasury stock | ( | — | ( | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Balances at September 30, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2023 | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Cash dividends on common stock | — | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Restricted shares, net | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Retirement of treasury stock | ( | — | ( | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Balances at September 30, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
7
Arcosa, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
Note 1. Overview and Summary of Significant Accounting Policies
Basis of Presentation
Arcosa, Inc. and its consolidated subsidiaries (“Arcosa,” the “Company,” “we,” or “our”), headquartered in Dallas, Texas, is a provider of infrastructure-related products and solutions with leading positions in construction, engineered structures, and transportation markets in North America. Arcosa is a Delaware corporation and was incorporated in 2018 as an independent, publicly-traded company, listed on the New York Stock Exchange.
The accompanying Consolidated Financial Statements are unaudited and have been prepared from the books and records of Arcosa, Inc. and its consolidated subsidiaries. All normal and recurring adjustments necessary for a fair presentation of the financial position of the Company and the results of operations, comprehensive income/loss, and cash flows have been made in conformity with accounting principles generally accepted in the U.S. (“GAAP”). All significant intercompany accounts and transactions have been eliminated. Because of seasonal and other factors, the financial condition and results of operations for the three and nine months ended September 30, 2024 may not be indicative of Arcosa's expected business, financial condition, and results of operations for the year ending December 31, 2024.
These interim financial statements and notes are condensed as permitted by the instructions to Form 10-Q and should be read in conjunction with the audited Consolidated Financial Statements of the Company included in its Annual Report on Form 10-K for the year ended December 31, 2023.
Stockholders' Equity
Revenue Recognition
Revenue is measured based on the allocation of the transaction price in a contract to satisfied performance obligations. The transaction price does not include any amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. The following is a description of principal activities from which the Company generates its revenue, separated by reportable segments. Payments for our products and services are generally due within normal commercial terms. For a further discussion regarding the Company’s reportable segments, see Note 4 Segment Information.
Construction Products
The Construction Products segment recognizes substantially all revenue when the customer has accepted the product and legal title of the product has passed to the customer.
Engineered Structures
Within the Engineered Structures segment, revenue is recognized for wind towers and certain utility structures over time as the products are manufactured using an input approach based on the costs incurred relative to the total estimated costs of production. We recognize revenue over time for these products as they are highly customized to the needs of an individual customer resulting in no alternative use to the Company if not purchased by the customer after the contract is executed. In addition, we have the right to bill the customer for our work performed to date plus at least a reasonable profit margin for work performed. As of September 30, 2024, we had a contract asset of $77.3 million related to these contracts, compared to $66.8 million as of December 31, 2023, which is included in receivables, net of allowance, within the Consolidated Balance Sheets. The increase in the contract asset is attributed to timing of deliveries of finished structures to customers during the period. For all other products, revenue is recognized when the customer has accepted the product and legal title of the product has passed to the customer.
Transportation Products
The Transportation Products segment recognizes revenue when the customer has accepted the product and legal title of the product has passed to the customer.
8
Unsatisfied Performance Obligations
The following table includes estimated revenue expected to be recognized in future periods related to performance obligations that are unsatisfied or partially satisfied as of September 30, 2024 and the percentage of the outstanding performance obligations as of September 30, 2024 expected to be delivered during the remainder of 2024:
| Unsatisfied performance obligations as of September 30, 2024 | |||||||||||
| Total Amount | Percent expected to be delivered in 2024 | ||||||||||
| (in millions) | |||||||||||
| Engineered Structures: | |||||||||||
| Utility, wind, and related structures | $ | % | |||||||||
| Transportation Products: | |||||||||||
| Inland barges | $ | % | |||||||||
Income Taxes
The liability method is used to account for income taxes. Deferred income taxes represent the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Valuation allowances reduce deferred tax assets to an amount that will more likely than not be realized.
The Company regularly evaluates the likelihood of realization of tax benefits derived from positions it has taken in various federal and state filings after consideration of all relevant facts, circumstances, and available information. For those tax positions that are deemed more likely than not to be sustained, the Company recognizes the benefit it believes is cumulatively greater than 50% likely to be realized. To the extent the Company were to prevail in matters for which accruals have been established or be required to pay amounts in excess of recorded reserves, the effective tax rate in a given financial statement period could be materially impacted.
Financial Instruments
9
Derivative Instruments
Recent Accounting Pronouncements
Recently adopted accounting pronouncements
Effective January 1, 2024, the Company adopted Accounting Standards Update No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The Company will adopt additional disclosure requirements within its annual reporting for the year ending December 31, 2024 and its interim reporting for the quarter ending March 31, 2025.
Recently issued accounting pronouncements not adopted as of September 30, 2024
In December 2023, the FASB issued Accounting Standards Update No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which is intended to improve the transparency of income tax disclosures by requiring 1) consistent categories and greater disaggregation of information in the rate reconciliation and 2) income taxes paid disaggregated by jurisdiction. The standard also includes certain other amendments to improve the effectiveness of income tax disclosures. ASU 2023-09 will become effective for public companies during annual reporting periods beginning after December 15, 2024, with early adoption permitted. Although ASU 2023-09 only modifies the Company's required income tax disclosures, the Company is currently evaluating the impact of adopting this guidance on its Consolidated Financial Statements.
Note 2. Acquisitions and Divestitures
2024 Acquisitions
On October 1, 2024, we completed the acquisition of the construction materials business of Stavola Holding Corporation and its affiliated entities ("Stavola") for $1.2 billion in cash, subject to certain customary purchase price adjustments. Stavola, which will be reported within the Construction Products segment, is an aggregates-led and vertically integrated construction materials company primarily serving the New York-New Jersey Metropolitan Statistical Area ("MSA") through its network of five hard rock natural aggregates quarries, twelve asphalt plants, and three recycled aggregates sites. We are currently in the process of finalizing the accounting for this transaction and expect to complete the preliminary allocation of the purchase consideration in the fourth quarter of 2024. The acquisition was financed with a combination of a $600 million issuance of fixed-rate senior unsecured notes that closed in August 2024 following the announcement of the acquisition and a $700 million borrowing of a variable-rate secured term loan that closed on October 1, 2024 concurrent with the completion of the acquisition. See Note 7 Debt for additional information.
In July 2024, we completed the acquisition of a Phoenix, Arizona based natural aggregates business in our Construction Products segment, for a total purchase price of $35.0 million.
10
In April 2024, we completed the acquisition of Ameron Pole Products LLC ("Ameron"), a leading manufacturer of highly engineered, premium concrete and steel poles for a broad range of infrastructure applications, including lighting, traffic, electric distribution, and small-cell telecom, for a total purchase price of $180.0 million. With operations in Alabama, California, and Oklahoma, Ameron is included in our Engineered Structures segment. The acquisition was funded with $160.0 million of borrowings under our revolving credit facility and cash on hand. The acquisition was recorded as a business combination based on a preliminary valuation of the assets acquired and liabilities assumed at their acquisition date fair value using unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities ("Level 3" inputs). The preliminary valuation resulted in the recognition of, among others, $56.5 million of property, plant, and equipment, $27.1 million of customer relationships, $18.1 million of inventory, $12.8 million of technology, $12.0 million of accounts receivable, $8.9 million of trademarks and $42.8 million of goodwill in our Engineered Structures segment. The goodwill acquired, which is tax-deductible, primarily relates to Ameron's market position and existing workforce. We expect to complete our purchase price allocation as soon as reasonably possible, not to exceed one year from the acquisition date. Adjustments to the preliminary purchase price allocation could be material, particularly with respect to our preliminary estimates of property, plant, and equipment, customer relationships, and technology.
2023 Acquisitions
In December 2023, we completed the acquisition of certain assets and liabilities of Lake Point Holdings, LLC and Lake Point Restoration LLC, (collectively "Lake Point") a Florida based natural aggregates business in our Construction Products segment, for a total purchase price of $65.1 million. The acquisition was funded with $60.0 million of borrowings under our revolving credit facility and cash on hand. The acquisition was recorded as a business combination based on a valuation of the assets acquired and liabilities assumed at their acquisition date fair value using Level 3 inputs. The preliminary valuation resulted in the recognition of, among others, $13.2 million of property, plant, and equipment, $19.1 million of mineral reserves, $11.5 million of permits, and $15.4 million of goodwill in our Construction Products segment. We expect to complete our purchase price allocation as soon as reasonably possible, not to exceed one year from the acquisition date. Adjustments to the preliminary purchase price allocation could be material, particularly with respect to our preliminary estimates of mineral reserves, permits, and property, plant, and equipment.
In October 2023, we completed the acquisition of certain assets and liabilities of a Phoenix, Arizona based recycled aggregates business and the acquisition of certain assets and liabilities of a Florida based recycled aggregates business in our Construction Products segment. The purchase prices of these acquisitions were not significant.
In September 2023, we completed the acquisition of certain assets and liabilities of a Houston, Texas based stabilized sand producer in our Construction Products segment. The purchase price of the acquisition was not significant.
In March 2023, we completed the stock acquisition of a Houston, Texas based shoring, trench, and excavation products business in our Construction Products segment. In February 2023, we completed the acquisition of certain assets and liabilities of a Phoenix, Arizona based recycled aggregates business in our Construction Products segment. The purchase prices of these acquisitions were not significant.
Divestitures
On August 16, 2024, the Company completed the sale of its steel components business. The steel components business, previously reported in the Transportation Products segment, is a leading supplier of railcar coupling devices, railcar axles, and circular forgings. The total consideration for the divestiture was $110.0 million consisting of $55.0 million in cash, a $25.0 million seller's note and a $30.0 million earnout of which the estimated fair value as of September 30, 2024 was $14.1 million. See Note 3 Fair Value Accounting. During the three months ended September 30, 2024, the Company recognized a loss of $23.0 million on the sale of the business which is reflected in (gain) loss on sale of businesses on the Consolidated Statement of Operations. Revenues and operating profit (loss) of the steel components business were $87.8 million and $(20.9 ) million, respectively, for the nine months ended September 30, 2024, $117.6 million and $8.1 million, respectively, for the nine months ended September 30, 2023.
During the three months ended June 30, 2024, we completed the divestiture of certain assets and liabilities of a single-location asphalt and paving operation in our Construction Products segment and the sale of a non-operating facility in our Engineered Structures segment. The total consideration for these divestitures was $27.3 million. The Company recognized a net pre-tax gain of $12.5 million which is reflected in (gain) loss on sale of businesses on the Consolidated Statement of Operations.
There were no
11
Other
In June 2023, the Company settled a $15.0 million holdback obligation from the 2021 acquisition of Southwest Rock Products, LLC upon the extension of a certain mineral reserve lease. Based on final negotiations with the seller, the holdback was settled for $10.0 million and paid during the three months ended June 30, 2023. The $5.0 million difference between the settlement amount and the amount accrued at the time of acquisition was recorded as a reduction in cost of revenues in the Consolidated Statement of Operations.
Note 3. Fair Value Accounting
Assets and liabilities measured at fair value on a recurring basis are summarized below:
| Fair Value Measurement as of September 30, 2024 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
Contingent consideration(1) | $ | $ | $ | $ | |||||||||||||||||||
| Total assets | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
Contingent consideration(2) | $ | $ | $ | $ | |||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | |||||||||||||||||||
| Fair Value Measurement as of December 31, 2023 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
Contingent consideration(2) | $ | $ | $ | $ | |||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | |||||||||||||||||||
(1) Included in other assets on the Consolidated Balance Sheets.
(2) Included in accrued liabilities on the Consolidated Balance Sheets.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date. An entity is required to establish a fair value hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair values are listed below:
Level 1 – This level is defined as quoted prices in active markets for identical assets or liabilities. The Company’s cash equivalents are instruments of the U.S. Treasury or highly-rated money market mutual funds.
Level 2 – This level is defined as observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Interest rate hedges are valued at exit prices obtained from each counterparty. See Note 7 Debt.
Level 3 – This level is defined as unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Contingent consideration relates to estimated future payments expected from businesses previously acquired or sold. We estimate the fair value of the contingent consideration using a model appropriate for the structure of the contingent consideration, which may include discounted cash flow models, Monte Carlo simulations, or option pricing models. The fair values are sensitive to changes in the forecast of the performance metrics and in other metrics such as discount rates and volatility. The fair value is reassessed quarterly based on assumptions used in our latest projections.
12
Note 4. Segment Information
The Company reports operating results in three principal business segments:
Construction Products. The Construction Products segment primarily produces and sells natural and recycled aggregates, specialty materials, and construction site support equipment, including trench shields and shoring products.
Engineered Structures. The Engineered Structures segment primarily manufactures and sells steel and concrete structures for infrastructure businesses, including utility structures for electricity transmission and distribution, structural wind towers, traffic and lighting structures, and telecommunication structures. These products share similar manufacturing competencies and steel sourcing requirements and can be manufactured across our North American footprint.
Transportation Products. The Transportation Products segment primarily manufactures and sells inland barges, fiberglass barge covers, winches, marine hardware, and steel components for railcars and other transportation and industrial equipment. In August 2024, the Company completed the sale of its steel components business. See Note 2 Acquisitions and Divestitures.
The financial information for these segments is shown in the tables below. We operate principally in North America.
13
| Three Months Ended September 30, | |||||||||||||||||||||||
| Revenues | Operating Profit (Loss) | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Aggregates and specialty materials | $ | $ | |||||||||||||||||||||
| Construction site support | |||||||||||||||||||||||
| Construction Products | $ | $ | |||||||||||||||||||||
| Utility, wind, and related structures | |||||||||||||||||||||||
| Engineered Structures | |||||||||||||||||||||||
| Inland barges | |||||||||||||||||||||||
| Steel components | |||||||||||||||||||||||
| Transportation Products | ( | ||||||||||||||||||||||
| Segment Totals | |||||||||||||||||||||||
| Corporate | ( | ( | |||||||||||||||||||||
| Consolidated Total | $ | $ | $ | $ | |||||||||||||||||||
| Nine Months Ended September 30, | |||||||||||||||||||||||
| Revenues | Operating Profit (Loss) | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Aggregates and specialty materials | $ | $ | |||||||||||||||||||||
| Construction site support | |||||||||||||||||||||||
| Construction Products | $ | $ | |||||||||||||||||||||
| Utility, wind, and related structures | |||||||||||||||||||||||
| Engineered Structures | |||||||||||||||||||||||
| Inland barges | |||||||||||||||||||||||
| Steel components | |||||||||||||||||||||||
| Transportation Products | |||||||||||||||||||||||
| Segment Totals | |||||||||||||||||||||||
| Corporate | ( | ( | |||||||||||||||||||||
| Consolidated Total | $ | $ | $ | $ | |||||||||||||||||||
14
Note 5. Property, Plant, and Equipment
The following table summarizes the components of property, plant, and equipment as of September 30, 2024 and December 31, 2023.
| September 30, 2024 | December 31, 2023 | ||||||||||
| (in millions) | |||||||||||
| Land | $ | $ | |||||||||
| Mineral reserves | |||||||||||
| Buildings and improvements | |||||||||||
| Machinery and other | |||||||||||
| Construction in progress | |||||||||||
| Less accumulated depreciation and depletion | ( | ( | |||||||||
| $ | $ | ||||||||||
Note 6. Goodwill and Other Intangible Assets
Goodwill
Goodwill by segment is as follows:
| September 30, 2024 | December 31, 2023 | ||||||||||
| (in millions) | |||||||||||
| Construction Products | $ | $ | |||||||||
| Engineered Structures | |||||||||||
| Transportation Products | |||||||||||
| $ | $ | ||||||||||
The decrease in Construction Products goodwill during the nine months ended September 30, 2024 is due to measurement period adjustments from the 2023 acquisitions and the divestiture of a single-location asphalt and paving business completed in April 2024. The increase in Engineered Structures goodwill during the nine months ended September 30, 2024 is due to the acquisition of Ameron. The decrease in Transportation Products goodwill during the nine months ended September 30, 2024 is due to the divestiture of the steel components business in August 2024. See Note 2 Acquisitions and Divestitures.
15
Intangible Assets
Intangibles, net consisted of the following:
| September 30, 2024 | December 31, 2023 | |||||||||||||
| (in millions) | ||||||||||||||
| Intangibles with indefinite lives - Trademarks | $ | $ | ||||||||||||
| Intangibles with definite lives: | ||||||||||||||
| Customer relationships | ||||||||||||||
| Permits | ||||||||||||||
| Other | ||||||||||||||
| Less accumulated amortization | ( | ( | ||||||||||||
| Intangible assets, net | $ | $ | ||||||||||||
Note 7. Debt
The following table summarizes the components of debt as of September 30, 2024 and December 31, 2023:
| September 30, 2024 | December 31, 2023 | ||||||||||
| (in millions) | |||||||||||
| Secured revolving credit facility | $ | $ | |||||||||
| 2021 Senior Notes - 4.375% due April 2029 | |||||||||||
| 2024 Senior Notes - 6.875% due August 2032 | |||||||||||
| Finance leases (see Note 8 Leases) | |||||||||||
| Less: unamortized debt issuance costs | ( | ( | |||||||||
| Total debt | $ | $ | |||||||||
Revolving Credit Facility
In August 2023, we entered into a Second Amended and Restated Credit Agreement (the "Credit Agreement") to increase our revolving credit facility from $500.0 million to $600.0 million, extend the maturity date of our revolving credit facility from January 2, 2025 to August 23, 2028, and refinance and repay in full the remaining balance of the term loan then outstanding under our prior credit facility.
On August 15, 2024, we entered into an amendment to the Credit Agreement (the "Amended Credit Agreement") to, among other things, (i) increase our revolving credit facility from $600.0 million to $700.0 million, (ii) collateralize the amended revolving credit facility with substantially all of our and our subsidiary guarantors' personal property (with certain exceptions), (iii) make the applicable margin for revolving borrowings, letters of credit and the commitment fee rate be based on our consolidated net leverage ratio (permitting up to $150.0 million of unrestricted cash to be netted from the calculation thereof), (iv) modify the margin for SOFR-based revolving borrowings and letters of credit to range from 1.25 % to 2.50 % per annum, (v) modify the margin for base rate revolving borrowings to range from 0.25 % to 1.50 %, (vi) modify the commitment fee that accrues on the unused portion of the revolving credit facility to range from 0.20 % to 0.45 %, and (vii) modify the maximum permitted leverage to include a net debt concept (permitting up to $150.0 million of unrestricted cash to be netted from the calculation thereof), and to provide that such ratio shall be no greater than 5.00 to 1.00 during the fourth quarter of 2024 and the next two fiscal quarters, 4.50 to 1.00 for the next following two fiscal quarters, and 4.00 to 1.00 for each fiscal quarter thereafter (however, this maximum permitted leverage ratio may be increased to 4.50 to 1.00 for up to four fiscal quarters if a material acquisition is entered into). These amendments did not become effective until the closing of the Stavola acquisition on October 1, 2024. The amended revolving credit facility's maturity date of August 23, 2028 remains unchanged.
16
As of September 30, 2024, we had $240.0 million of outstanding loans borrowed under our revolving credit facility. During the nine months ended September 30, 2024, the amount of outstanding loans borrowed increased $80.0 million primarily due to $160.0 million borrowed in April 2024 to fund, in part, the acquisition of Ameron, of which $60.0 million was repaid during the three months ended June 30, 2024. Additionally, as of September 30, 2024, prior to the effectiveness of the Amended Credit Agreement, there were approximately $0.7 million of letters of credit outstanding under our revolving credit facility that will expire in 2025, which left $359.3 million available for borrowing. The majority of our letters of credit obligations support the Company’s various insurance programs and generally renew by their terms each year.
The interest rate for revolving loans under the Amended Credit Agreement are variable based on the daily simple or term Secured Overnight Financing Rate ("SOFR"), plus 10-basis points, or an alternate base rate, in each case plus a margin for borrowing. A commitment fee accrues on the average daily unused portion of the revolving credit facility. The margin for revolving borrowings and commitment fee rate are determined based on the Company’s Consolidated Total Net Leverage Ratio (as measured by a consolidated funded indebtedness, less the aggregate amount of unrestricted cash up to a maximum amount not to exceed $150.0 million, to consolidated EBITDA ratio). As of September 30, 2024, prior to the effectiveness of the Amended Credit Agreement, the margin for borrowing based on SOFR was set at 1.50 % and the commitment fee rate was set at 0.25 %.
The revolving credit facility portion of the Amended Credit Agreement requires the maintenance of certain ratios related to leverage and interest coverage. As of September 30, 2024, we were in compliance with all such financial covenants. Borrowings under the Credit Agreement are guaranteed by certain domestic subsidiaries of the Company. On October 1, 2024, we collateralized our obligations under the Amended Credit Agreement with substantially all of our and our subsidiary guarantors' personal property (with certain exceptions).
The carrying value of revolving borrowings under the Credit Agreement approximates fair value because the interest rate adjusts to the market interest rate (Level 3 input). See Note 3 Fair Value Accounting.
In connection with the Credit Agreement, the Company incurred debt issuance costs of approximately $0.2 million. As of September 30, 2024, total unamortized debt issuance costs related to the prior and amended revolving credit facilities were $2.2 million. These costs are included in other assets on the Consolidated Balance Sheet and are amortized into interest expense over the term of the Amended Credit Agreement.
Term Loan
The Amended Credit Agreement provides for a new secured term loan facility (the “Term Loan”) in an aggregate principal amount of $700.0 million. The Term Loan was funded on October 1, 2024 with the closing of the Stavola acquisition, of which $100.0 million was used to pay down the Company's revolving credit facility. The Term Loan requires, among other things, (i) mandatory prepayments from excess cash flow on an annual basis, commencing with the fiscal year ending December 31, 2025, (ii) mandatory prepayments with proceeds of certain asset sales and debt issuances, and (iii) quarterly principal amortization payments in an amount equal to 0.25 % of the initial Term Loan. The Term Loan has a maturity date of October 1, 2031. The interest rate for the Term Loan is based on SOFR plus 2.25 % per year. The Term Loan is prepayable at any time without penalty, except, in the event of a voluntary repricing in the first six months after closing, in which case a premium in the amount of 1.0% of the initial Term Loan is payable. The Term Loan is guaranteed by the same subsidiaries of the Company, that guarantee our revolving credit facility, and the Term Loan is secured on a pari passu basis with our revolving credit facility.
Senior Notes
On August 26, 2024, the Company issued $600.0 million aggregate principal amount of 6.875 % senior unsecured notes (the "2024 Notes") that mature in August 2032. Interest on the 2024 Notes is payable semiannually in February and August. In April 2021, the Company issued $400.0 million aggregate principal amount of 4.375 % senior unsecured notes (the "2021 Notes", and together with the 2024 Notes, the "Senior Notes") that mature in April 2029. Interest on the 2021 Notes is payable semiannually in April and October. The Senior Notes are senior unsecured obligations of the Company and are guaranteed on a senior unsecured basis by each of the Company’s domestic subsidiaries that is a guarantor under our Amended Credit Agreement. The terms of each indenture governing the Senior Notes, among other things, limit the ability of the Company and each of its subsidiaries to create liens on assets, enter into sale and leaseback transactions, and consolidate, merge or transfer all or substantially all of its assets and the assets of its subsidiaries. The terms of each indenture also limit the ability of the Company’s non-guarantor subsidiaries to incur certain types of debt.
17
The Company has the option to redeem all or a portion of the Senior Notes at redemption prices set forth in the applicable indenture, plus accrued and unpaid interest to the redemption date. If a Change of Control Triggering Event (as defined in each applicable indenture) occurs, the Company must offer to repurchase the Senior Notes at a price equal to 101% of the principal amount of the Senior Notes, plus accrued and unpaid interest to the date of repurchase.
The estimated fair values of the 2024 Notes and 2021 Notes as of September 30, 2024 were $628.6 million and $383.9 million, respectively, based on quoted market prices in a market with little activity (Level 2 input).
In connection with the issuance of the 2024 Notes and the 2021 Notes, the Company incurred $8.1 million and $6.6 million, respectively, of debt issuance costs.
The remaining principal payments under existing debt agreements as of September 30, 2024 are as follows(1):
| 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | ||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| Revolving credit facility | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| 2021 Senior Notes - 4.375% due April 2029 | |||||||||||||||||||||||||||||||||||
| 2024 Senior Notes - 6.875% due August 2032 | |||||||||||||||||||||||||||||||||||
(1) The $700 million Term Loan was funded on October 1, 2024 concurrent with the closing of Stavola, of which $100 million was used to pay down the revolving credit facility. See Note 2 Acquisitions and Divestitures.
In connection with the agreement to acquire Stavola, on August 1, 2024 the Company entered into a commitment letter with certain lenders to provide a senior secured 364-day bridge loan facility of up to $1.2 billion for the purpose of providing the financing necessary to fund the acquisition. No funds were drawn upon the bridge loan facility, which terminated upon the closing of the Stavola acquisition. During the three months ended September 30, 2024, the Company incurred $1.5 million of debt issuance costs related to the bridge loan facility, all of which is reflected in interest expense on the Consolidated Statement of Operations.
Interest rate hedges
In December 2018, the Company entered into a $100.0 million interest rate swap instrument, effective as of January 2, 2019, to reduce the effect of changes in the variable interest rates associated with the first $100.0 million of borrowings under the Company's committed credit facility. In conjunction with the replacement of LIBOR with SOFR as a benchmark for borrowings under our credit facility, on July 1, 2023 the swap instrument transitioned from LIBOR to SOFR. The instrument effectively fixed the SOFR component of borrowings under our credit facility at a monthly rate of 2.71 % until such instrument's termination. The interest rate swap instrument expired in October 2023 and no new interest rate swap instrument has been entered into in connection with the Term Loan.
Note 8. Leases
We have various leases primarily for office space and certain equipment. At inception, we determine if an arrangement contains a lease and whether that lease meets the classification criteria of a finance or operating lease. For leases that contain options to purchase, terminate, or extend, such options are included in the lease term when it is reasonably certain that the option will be exercised. Some of our lease arrangements contain lease components and non-lease components which are accounted for as a single lease component as we have elected the practical expedient to group lease and non-lease components for all leases.
As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on information available at commencement date in determining the present value of lease payments.
18
Future minimum lease payments for operating and finance lease obligations as of September 30, 2024 consisted of the following:
| Operating Leases | Finance Leases | ||||||||||
| (in millions) | |||||||||||
| 2024 (remaining) | $ | $ | |||||||||
| 2025 | |||||||||||
| 2026 | |||||||||||
| 2027 | |||||||||||
| 2028 | |||||||||||
| Thereafter | |||||||||||
| Total undiscounted future minimum lease obligations | |||||||||||
| Less imputed interest | ( | ( | |||||||||
| Present value of net minimum lease obligations | $ | $ | |||||||||
The following table summarizes our operating and finance leases and their classification within the Consolidated Balance Sheet.
| September 30, 2024 | December 31, 2023 | ||||||||||
| (in millions) | |||||||||||
| Assets | |||||||||||
Operating - | $ | $ | |||||||||
Finance - | |||||||||||
| Total lease assets | |||||||||||
| Liabilities | |||||||||||
| Current | |||||||||||
Operating - | |||||||||||
Finance - | |||||||||||
| Non-current | |||||||||||
Operating - | |||||||||||
Finance - | |||||||||||
| Total lease liabilities | $ | $ | |||||||||
Note 9. Other, Net
Other, net (income) expense consists of the following items:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Interest income | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Foreign currency exchange transactions | ( | ||||||||||||||||||||||
| Other | ( | ||||||||||||||||||||||
| Other, net (income) expense | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
19
Note 10. Income Taxes
For interim income tax reporting, we estimate our annual effective tax rate and apply it to our year-to-date ordinary income (loss). Tax jurisdictions with a projected or year to date loss for which a tax benefit cannot be realized are excluded. The tax effects of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are reported in the interim period in which they occur. We have open tax years from 2014 to 2023 with various significant tax jurisdictions.
Our effective tax rates of 13.1 % and 15.2 % for the three and nine months ended September 30, 2024, respectively, differed from the U.S. federal statutory rate of 21.0 17.4 % and 17.1 % for the three and nine months ended September 30, 2023, respectively, differed from the U.S. federal statutory rate of 21.0
Note 11. Employee Retirement Plans
Total employee retirement plan expense, which includes related administrative expenses, is as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Defined contribution plans | $ | $ | $ | $ | |||||||||||||||||||
| Multiemployer plan | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
The Company contributes to a multiemployer defined benefit plan under the terms of a collective-bargaining agreement that covers certain union-represented employees at one of the facilities of Meyer Utility Structures, a subsidiary of Arcosa. The Company contributed $0.5 million and $1.3 million to the multiemployer plan for the three and nine months ended September 30, 2024, respectively. The Company contributed $0.4 million and $1.1 million to the multiemployer plan for the three and nine months ended September 30, 2023, respectively. Total contributions to this plan for 2024 are expected to be approximately $1.7 million.
20
Note 12. Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss for the nine months ended September 30, 2024 and 2023 are as follows:
| Currency translation adjustments | Unrealized gain (loss) on derivative financial instruments | Accumulated other comprehensive loss | ||||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Balances at December 31, 2022 | $ | ( | $ | $ | ( | |||||||||||||||
| Other comprehensive income (loss), net of tax, before reclassifications | ||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive loss, net of tax expense (benefit) of $ | ( | ( | ||||||||||||||||||
| Other comprehensive income (loss) | ( | ( | ||||||||||||||||||
| Balances at September 30, 2023 | $ | ( | $ | $ | ( | |||||||||||||||
| Balances at December 31, 2023 | $ | ( | $ | $ | ( | |||||||||||||||
| Other comprehensive income (loss), net of tax, before reclassifications | ( | ( | ||||||||||||||||||
Amounts reclassified from accumulated other comprehensive loss, net of tax expense (benefit) of $ | ||||||||||||||||||||
| Other comprehensive income (loss) | ( | ( | ||||||||||||||||||
| Balances at September 30, 2024 | $ | ( | $ | $ | ( | |||||||||||||||
Note 13. Stock-Based Compensation
Note 14. Earnings Per Common Share
Basic earnings per common share is computed by dividing net income remaining after allocation to participating unvested restricted shares by the weighted average number of basic common shares outstanding for the period. Except when the effect would be antidilutive, the calculation of diluted earnings per common share includes the weighted average net impact of nonparticipating unvested restricted shares. Total weighted average restricted shares were 1.1 million and 1.2 million for the three and nine months ended September 30, 2024. Total weighted average restricted shares were 1.1 million and 1.3 million for the three and nine months ended September 30, 2023, respectively.
21
The computation of basic and diluted earnings per share follows.
| Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||
| Income (Loss) | Average Shares | EPS | Income (Loss) | Average Shares | EPS | ||||||||||||||||||||||||||||||
| (in millions, except per share amounts) | |||||||||||||||||||||||||||||||||||
| Net income | $ | $ | |||||||||||||||||||||||||||||||||
| Unvested restricted share participation | ( | ||||||||||||||||||||||||||||||||||
| Net income per common share – basic | $ | $ | |||||||||||||||||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||||||||||||||
| Nonparticipating unvested restricted shares | |||||||||||||||||||||||||||||||||||
| Net income per common share – diluted | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||
| Income (Loss) | Average Shares | EPS | Income (Loss) | Average Shares | EPS | ||||||||||||||||||||||||||||||
| (in millions, except per share amounts) | |||||||||||||||||||||||||||||||||||
| Net income | $ | $ | |||||||||||||||||||||||||||||||||
| Unvested restricted share participation | ( | ( | |||||||||||||||||||||||||||||||||
| Net income per common share – basic | $ | $ | |||||||||||||||||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||||||||||||||
| Nonparticipating unvested restricted shares | |||||||||||||||||||||||||||||||||||
| Net income per common share – diluted | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
Note 15. Contingencies
The Company is involved in claims and lawsuits incidental to our business arising from various matters including commercial disputes, alleged product defect and/or warranty claims, intellectual property matters, personal injury claims, environmental issues, employment and/or workplace-related matters, and various governmental and environmental regulations. The Company evaluates its exposure to such claims and suits periodically and establishes accruals for these contingencies when probable losses can be reasonably estimated. At September 30, 2024, the reasonably possible losses and any related accruals for such matters were not significant.
Estimates of liability arising from future proceedings, assessments, or remediation are inherently imprecise. Accordingly, there can be no assurance that we will not become involved in future litigation or other proceedings, including those related to the environment or, if we are found to be responsible or liable in any such litigation or proceeding, that such costs would not be material to the Company.
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Our MD&A is presented in the following sections:
•Company Overview
•Market Outlook
•Executive Overview
•Results of Operations
•Liquidity and Capital Resources
•Recent Accounting Pronouncements
•Forward-Looking Statements
Our MD&A should be read in conjunction with the Consolidated Financial Statements of Arcosa, Inc. and its consolidated subsidiaries (“Arcosa,” “Company,” “we,” or “our”) and related Notes in Part I, Item 1 of this Quarterly Report on Form 10-Q and the Consolidated Financial Statements and related Notes in Item 8, “Financial Statements and Supplementary Data”, of our Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Annual Report on Form 10-K”).
Company Overview
Arcosa, headquartered in Dallas, Texas, is a provider of infrastructure-related products and solutions with leading positions in construction, engineered structures, and transportation markets in North America. Arcosa is a Delaware corporation and was incorporated in 2018 as an independent, publicly-traded company, listed on the New York Stock Exchange.
Market Outlook
•Within our Construction Products segment, market demand remains healthy overall when seasonal weather conditions have been normal, supported by increased infrastructure spending and private non-residential activity. The outlook for single-family residential housing continues to be impacted by higher interest rates and home affordability, which has negatively impacted volumes. We have been successful in managing inflationary cost pressures through proactive price increases.
•Within our Engineered Structures segment, our backlog as of September 30, 2024 provides good production visibility for the remainder of 2024 and into 2025. Our customers remain committed to taking delivery of these orders. In utility structures, order and inquiry activity continues to be healthy, as customers remain focused on grid hardening and reliability initiatives. The passage of the Inflation Reduction Act ("IRA") on August 16, 2022, which included a long-term extension of the Production Tax Credit for new wind farm projects and introduced new Advanced Manufacturing Production (“AMP”) tax credits for companies that domestically manufacture and sell clean energy equipment in the U.S., is a significant catalyst for our wind towers business. As demonstrated by more than $1.1 billion of new orders for delivery through 2028, which we have received since the passage of the IRA, our wind towers business is at the beginning stages of a market recovery. A large portion of these orders will support wind energy expansion projects in the Southwest. As a result, we have opened a new plant in New Mexico and started delivering towers from this facility late in the second quarter of 2024.
•Within our Transportation Products segment, our backlog for inland barges as of September 30, 2024 was $244.7 million and extends into 2025. Our customers remain committed to taking delivery of these orders. Our barge business is recovering from cyclical lows resulting from the onset of the COVID-19 pandemic when order levels fell sharply due to high steel prices throughout 2022 and 2023. Over this time, customer inquiries have remained healthy, initially for dry barges and more recently for tank barges. The fleet continues to age as new builds have not kept pace with scrapping, and utilization rates are high. We have been successful in filling orders when we can strategically source steel. During the third quarter, we received orders of $75 million for tank and hopper barges.
23
Executive Overview
Recent Developments
In October 2024, the Company completed the acquisition of the construction materials business of Stavola Holding Corporation and its affiliated entities ("Stavola") for $1.2 billion in cash. Stavola, which will be reported within the Construction Products segment, serves the New York-New Jersey MSA through its network of five hard rock natural aggregates quarries, twelve asphalt plants, and three recycled aggregates sites. The purchase price was funded with a $700.0 million secured term loan facility (the “Term Loan”) that matures in October 2031 and $600.0 million of 6.875% senior notes (the "2024 Notes") that matures in August 2032.
In August 2024, the Company completed the sale of its steel components business. Previously reported in the Transportation Products segment, the steel components business is a leading supplier of railcar coupling devices, railcar axles, and circular forgings. The total consideration for the divestiture was $110.0 million consisting of $55.0 million in cash, a $25.0 million seller's note and a $30.0 million earnout of which the estimated fair value as of September 30, 2024 was $14.1 million. During the three months ended September 30, 2024, the Company recognized a loss of $23.0 million on the sale of the business which is reflected in (gain) loss on sale of businesses on the Consolidated Statement of Operations.
In April 2024, we completed the acquisition of Ameron Pole Products, LLC ("Ameron"), a leading manufacturer of highly engineered, premium concrete and steel poles for a broad range of infrastructure applications, including lighting, traffic, electric distribution, and small-cell telecom, for a total purchase price of $180.0 million. With operations in Alabama, California, and Oklahoma, Ameron is included in our Engineered Structures segment. The acquisition was funded with $160.0 million of borrowings under our revolving credit facility and cash on hand.
Financial Operations and Highlights
•Revenues for the three and nine months ended September 30, 2024 increased by 8.2% and 10.3% to $640.4 million and $1,903.7 million, respectively, from the same periods in 2023, due to higher revenues in our Engineered Structures and Construction Products segments, partially offset by lower revenues in Transportation Products due to the divestiture of our steel components business.
•Operating profit for the three months ended September 30, 2024 decreased by $14.6 million to $33.8 million primarily due to the $23.0 million loss on the sale of the steel components business. Excluding the loss, operating profit increased $8.4 million. For the nine months ended September 30, 2024, excluding the $21.8 million gain on the sale of depleted land in the prior period, operating profit increased by $1.7 million to $154.4 million.
•Selling, general, and administrative expenses increased by 34.4% and 18.8% for the three and nine months ended September 30, 2024, respectively, compared to the same periods in the prior year, driven by increased costs from recently acquired businesses and higher acquisition and divestiture-related expenses. As a percentage of revenues, selling, general, and administrative expenses were 12.9% and 12.1% for the three and nine months ended September 30, 2024, respectively, compared to 10.4% and 11.3% for the same periods in 2023, respectively.
•The effective tax rate for the three and nine months ended September 30, 2024 was 13.1% and 15.2%, respectively, compared to 17.4% and 17.1%, respectively, for the same periods in 2023. See Note 10 Income Taxes to the Consolidated Financial Statements.
•Net income for the three and nine months ended September 30, 2024 was $16.6 million and $101.4 million, respectively, compared to $35.5 million and $132.1 million, respectively, for the same periods in 2023.
Our Engineered Structures and Transportation Products segments operate in cyclical industries. Additionally, results in our Construction Products segment are affected by weather and seasonal fluctuations with the second and third quarters historically being the quarters with the highest revenues.
24
Unsatisfied Performance Obligations (Backlog)
As of September 30, 2024, December 31, 2023, and September 30, 2023, our unsatisfied performance obligations, or backlog, were as follows:
| September 30, 2024 | December 31, 2023 | September 30, 2023 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Engineered Structures: | |||||||||||||||||
| Utility, wind, and related structures | $ | 1,264.6 | $ | 1,367.5 | $ | 1,450.8 | |||||||||||
| Transportation Products: | |||||||||||||||||
| Inland barges | $ | 244.7 | $ | 253.7 | $ | 240.4 | |||||||||||
Approximately 20% of the unsatisfied performance obligations for utility, wind, and related structures in our Engineered Structures segment are expected to be delivered during 2024, approximately 47% are expected to be delivered during 2025 and the remainder are expected to be delivered through 2028. Approximately 32% of the unsatisfied performance obligations for inland barges in our Transportation Products segment are expected to be delivered during 2024, and the remainder are expected to be delivered during 2025.
Results of Operations
Overall Summary
Revenues
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Percent Change | 2024 | 2023 | Percent Change | ||||||||||||||||||||||||||||||
| (in millions) | (in millions) | ||||||||||||||||||||||||||||||||||
| Construction Products | $ | 265.9 | $ | 262.1 | 1.4 | % | $ | 793.2 | $ | 763.0 | 4.0 | % | |||||||||||||||||||||||
| Engineered Structures | 279.4 | 222.5 | 25.6 | 785.8 | 637.2 | 23.3 | |||||||||||||||||||||||||||||
| Transportation Products | 95.1 | 107.1 | (11.2) | 324.7 | 325.5 | (0.2) | |||||||||||||||||||||||||||||
| Consolidated Total | $ | 640.4 | $ | 591.7 | 8.2 | $ | 1,903.7 | $ | 1,725.7 | 10.3 | |||||||||||||||||||||||||
2024 versus 2023
•Revenues increased by 8.2% and 10.3% during the three and nine months ended September 30, 2024, respectively.
•Revenues from Construction Products increased primarily due to the contribution from recent acquisitions.
•Revenues from Engineered Structures increased primarily due to higher volumes in our utility structures and wind towers businesses and the contribution from the recently acquired Ameron business.
•Revenues from Transportation Products decreased due to the sale of the steel components business which was completed on August 16, 2024, partially offset by higher barge revenues.
25
Operating Costs
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Percent Change | 2024 | 2023 | Percent Change | ||||||||||||||||||||||||||||||
| (in millions) | (in millions) | ||||||||||||||||||||||||||||||||||
| Construction Products | $ | 225.5 | $ | 231.8 | (2.7) | % | $ | 684.6 | $ | 648.8 | 5.5 | % | |||||||||||||||||||||||
| Engineered Structures | 246.8 | 203.8 | 21.1 | 691.8 | 566.9 | 22.0 | |||||||||||||||||||||||||||||
| Transportation Products | 109.3 | 93.0 | 17.5 | 311.7 | 289.7 | 7.6 | |||||||||||||||||||||||||||||
| Segment Totals before Corporate Expenses | 581.6 | 528.6 | 10.0 | 1,688.1 | 1,505.4 | 12.1 | |||||||||||||||||||||||||||||
| Corporate | 25.0 | 14.7 | 70.1 | 61.2 | 45.8 | 33.6 | |||||||||||||||||||||||||||||
| Consolidated Total | $ | 606.6 | $ | 543.3 | 11.7 | $ | 1,749.3 | $ | 1,551.2 | 12.8 | |||||||||||||||||||||||||
Depreciation, depletion, and amortization(1) | $ | 45.2 | $ | 40.5 | 11.6 | $ | 134.6 | $ | 118.8 | 13.3 | |||||||||||||||||||||||||
(1) Depreciation, depletion, and amortization are components of operating costs.
2024 versus 2023
•Operating costs increased by 11.7% and 12.8% during the three and nine months ended September 30, 2024, respectively.
•Operating costs for Construction Products decreased for the three months ended September 30, 2024 driven by lower organic volumes and operating improvements in our specialty materials and trench shoring businesses. Operating costs for the nine months ended September 30, 2024 increased primarily due to increased costs from the recently acquired businesses and a $21.8 million gain on the sale of depleted land that was netted against operating costs in the prior period.
•Operating costs for Engineered Structures increased primarily due to higher volumes in utility structures and wind towers and increased costs from the acquired Ameron business.
•Operating costs for Transportation Products increased for the three and nine months ended September 30, 2024 primarily due to higher volumes in inland barge and a $23.0 million loss recognized on the sale of the steel components business, partially offset by lower steel components volumes.
•Depreciation, depletion, and amortization expense increased as a result of recent acquisitions and organic growth investments.
•Selling, general, and administrative expenses increased by 34.4% and 18.8% for the three and nine months ended September 30, 2024, compared to the same periods in the prior year, driven by increased costs from recently acquired businesses and higher acquisition and divestiture-related expenses. As a percentage of revenues, selling, general, and administrative expenses were 12.9% and 12.1% for the three and nine months ended September 30, 2024, respectively, compared to 10.4% and 11.3% for the same periods in 2023, respectively.
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Operating Profit (Loss)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Percent Change | 2024 | 2023 | Percent Change | ||||||||||||||||||||||||||||||
| (in millions) | (in millions) | ||||||||||||||||||||||||||||||||||
| Construction Products | $ | 40.4 | $ | 30.3 | 33.3 | % | $ | 108.6 | $ | 114.2 | (4.9) | % | |||||||||||||||||||||||
| Engineered Structures | 32.6 | 18.7 | 74.3 | 94.0 | 70.3 | 33.7 | |||||||||||||||||||||||||||||
| Transportation Products | (14.2) | 14.1 | (200.7) | 13.0 | 35.8 | (63.7) | |||||||||||||||||||||||||||||
| Segment Totals before Corporate Expenses | 58.8 | 63.1 | (6.8) | 215.6 | 220.3 | (2.1) | |||||||||||||||||||||||||||||
| Corporate | (25.0) | (14.7) | 70.1 | (61.2) | (45.8) | 33.6 | |||||||||||||||||||||||||||||
| Consolidated Total | $ | 33.8 | $ | 48.4 | (30.2) | $ | 154.4 | $ | 174.5 | (11.5) | |||||||||||||||||||||||||
2024 versus 2023
•Operating profit decreased 30.2% for the three months ended September 30, 2024 primarily due to the $23.0 million loss recognized on the sale of the steel components business in the current period. Operating profit decreased 11.5% for the nine months ended September 30, 2024 primarily due to the $21.8 million land sale gain in the prior year.
•Operating profit in Construction Products increased for the three months ended September 30, 2024 primarily due to the accretive impact of recent acquisitions and higher pricing and operating improvements in our legacy operations. For the nine months ended September 30, 2024, operating profit increased 17.5% excluding the $21.8 million land sale gain in the prior year.
•Operating profit in Engineered Structures increased for the three and nine months ended September 30, 2024 due to higher wind towers volumes, operating improvements in our utility structures business and the accretive impact of the acquired Ameron business.
•Excluding the loss on the sale of the steel components business, operating profit in Transportation Products decreased for the three months ended September 30, 2024 due to lower steel components volumes partially offset by higher barge volumes, and was roughly flat for the nine months ended September 30, 2024 as higher barge volumes were mostly offset by lower steel component volumes.
For further discussion of revenues, costs, and the operating results of individual segments, see Segment Discussion below.
27
Other Income and Expense
Other, net (income) expense consists of the following items:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Interest income | $ | (3.8) | $ | (1.7) | $ | (6.2) | $ | (4.3) | |||||||||||||||
| Foreign currency exchange transactions | 2.7 | 0.4 | 5.5 | (1.3) | |||||||||||||||||||
| Other | — | — | — | (0.2) | |||||||||||||||||||
| Other, net (income) expense | $ | (1.1) | $ | (1.3) | $ | (0.7) | $ | (5.8) | |||||||||||||||
Income Taxes
The provision for income taxes results in effective tax rates that differ from the statutory rates. The Company's effective tax rate for the three and nine months ended September 30, 2024 was 13.1% and 15.2%, respectively, compared to 17.4% and 17.1%, respectively, for the same periods in 2023. The change in the tax rate for the three and nine months ended September 30, 2024 is primarily due to AMP tax credits, differences in the tax effects of foreign currency translations, compensation-related items, state income taxes and statutory depletion deductions.
Our effective tax rate differs from the federal tax rate of 21.0% due to AMP tax credits, tax effects of foreign currency translations, compensation-related items, state income taxes and statutory depletion deductions. See Note 10 Income Taxes to the Consolidated Financial Statements for further discussion of income taxes.
Segment Discussion
Construction Products
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Percent | 2024 | 2023 | Percent | ||||||||||||||||||||||||||||||
| ($ in millions) | Change | ($ in millions) | Change | ||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||
| Aggregates and specialty materials | $ | 233.6 | $ | 227.8 | 2.5 | % | $ | 690.8 | $ | 665.9 | 3.7 | % | |||||||||||||||||||||||
| Construction site support | 32.3 | 34.3 | (5.8) | 102.4 | 97.1 | 5.5 | |||||||||||||||||||||||||||||
| Total revenues | 265.9 | 262.1 | 1.4 | 793.2 | 763.0 | 4.0 | |||||||||||||||||||||||||||||
| Operating costs: | |||||||||||||||||||||||||||||||||||
| Cost of revenues | 200.0 | 209.2 | (4.4) | 606.6 | 593.6 | 2.2 | |||||||||||||||||||||||||||||
| Selling, general, and administrative expenses | 28.0 | 25.2 | 11.1 | 85.1 | 81.0 | 5.1 | |||||||||||||||||||||||||||||
| Gain on disposition of property, plant, equipment, and other assets | (2.5) | (2.6) | (7.9) | (25.8) | |||||||||||||||||||||||||||||||
| Gain on sale of business | — | — | (5.0) | — | |||||||||||||||||||||||||||||||
| Impairment charge | — | — | 5.8 | — | |||||||||||||||||||||||||||||||
| Operating profit | $ | 40.4 | $ | 30.3 | 33.3 | $ | 108.6 | $ | 114.2 | (4.9) | |||||||||||||||||||||||||
Depreciation, depletion, and amortization(1) | $ | 30.2 | $ | 28.4 | 6.3 | $ | 89.7 | $ | 83.1 | 7.9 | |||||||||||||||||||||||||
(1) Depreciation, depletion, and amortization are components of operating profit.
Three Months Ended September 30, 2024 versus Three Months Ended September 30, 2023
•Revenues increased 1.4% primarily due to recent acquisitions. Organic revenues in our aggregates and specialty materials businesses were down slightly as lower volumes, a decrease in freight revenue, and a reduction in revenue from recently divested operations was partially offset by higher pricing. Revenues in our trench shoring business decreased 5.8% primarily due to reduced steel prices and lower volumes.
28
•Cost of revenues decreased 4.4% primarily due to lower organic volumes in our aggregates and specialty materials businesses and operating improvements in our specialty materials and trench shoring businesses. The decrease was partially offset by increased costs from recently acquired businesses, including higher depreciation, depletion, and amortization expense. As a percentage of revenues, cost of revenues decreased to 75.2% in the current period, compared to 79.8% in the prior period.
•Selling, general, and administrative expenses increased 11.1% due to additional costs from recently acquired businesses and higher compensation-related costs. Selling, general, and administrative expenses as a percentage of revenues was 10.5% in the current period, compared to 9.6% in the prior period.
•Operating profit increased 33.3% due to the accretive impact of recent acquisitions, recent divestiture of underperforming operations, increased unit profitability in our aggregates business, and operating improvements in our specialty materials business and trench shoring businesses.
•Depreciation, depletion, and amortization expense increased 6.3% primarily due to the fair market value write-up of long-lived assets from recent acquisitions and organic growth investments.
Nine Months Ended September 30, 2024 versus Nine Months Ended September 30, 2023
•Revenues increased 4.0% primarily due to recent acquisitions. Organic revenues in our aggregates and specialty materials businesses were down slightly as lower volumes, a decrease in freight revenue, and a reduction in revenue from recently divested operations was partially offset by higher pricing. Revenues from our trench shoring business increased 5.5% driven by revenues from higher organic volumes and the acquisition completed in the first quarter of 2023.
•Cost of revenues increased 2.2% primarily due to increased costs from the recently acquired businesses, including higher depreciation, depletion, and amortization expense and $1.7 million for the cost impact of the fair market value write-up of acquired inventory and a $5.0 million benefit recognized in the prior period related to the reduction in a holdback obligation owed on a previous acquisition. These costs were partially offset by lower organic volumes in our aggregates and specialty materials businesses and operating improvements in our specialty materials business. As a percentage of revenues, cost of revenues was 76.5% in the current period, compared to 77.8% in the prior period.
•Selling, general, and administrative expenses increased 5.1% due to additional costs from recently acquired businesses and higher compensation-related costs. Selling, general, and administrative expenses as a percentage of revenues was 10.7% in the current period, compared to 10.6% in the prior period.
•During the period, the Construction Products segment recognized a $5.0 million gain on the sale of an under-performing single-location asphalt and paving operation and an impairment charge of $5.8 million related to the closure of its aggregates operations in west Texas, for a net reduction in operating profit of $0.8 million.
•Operating profit decreased 4.9% primarily due to a $21.8 million gain on the sale of depleted land in the prior period. Excluding the gain, operating profit increased 17.5% driven by the accretive impact of recent acquisitions, recent divestiture of underperforming operations, increased unit profitability in our aggregates business, and operating improvements in our specialty materials business and trench shoring businesses.
•Depreciation, depletion, and amortization expense increased primarily due to recent acquisitions and organic growth investments.
29
Engineered Structures
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Percent | 2024 | 2023 | Percent | ||||||||||||||||||||||||||||||
| ($ in millions) | Change | ($ in millions) | Change | ||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||
| Utility, wind, and related structures | $ | 279.4 | $ | 222.5 | 25.6 | % | $ | 785.8 | $ | 637.2 | 23.3 | % | |||||||||||||||||||||||
| Total revenues | 279.4 | 222.5 | 25.6 | 785.8 | 637.2 | 23.3 | |||||||||||||||||||||||||||||
| Operating costs: | |||||||||||||||||||||||||||||||||||
| Cost of revenues | 222.7 | 188.2 | 18.3 | 640.4 | 524.9 | 22.0 | |||||||||||||||||||||||||||||
| Selling, general, and administrative expenses | 24.1 | 15.6 | 54.5 | 66.4 | 48.4 | 37.2 | |||||||||||||||||||||||||||||
| Gain on disposition of property, plant, equipment, and other assets | — | — | (0.5) | — | |||||||||||||||||||||||||||||||
| Gain on sale of business | — | — | (14.5) | (6.4) | |||||||||||||||||||||||||||||||
| Operating profit | $ | 32.6 | $ | 18.7 | 74.3 | $ | 94.0 | $ | 70.3 | 33.7 | |||||||||||||||||||||||||
Depreciation and amortization(1) | $ | 11.7 | $ | 6.7 | 74.6 | $ | 32.1 | $ | 19.7 | 62.9 | |||||||||||||||||||||||||
(1) Depreciation and amortization are components of operating profit.
Three Months Ended September 30, 2024 versus Three Months Ended September 30, 2023
•Revenues increased 25.6% primarily due to higher volumes in our wind towers business and the contribution from the acquired Ameron business. Revenues for utility structures increased slightly as higher volumes and improved product mix was mostly offset by lower steel prices.
•Cost of revenues increased 18.3% primarily due to increased costs from the acquired Ameron business and higher wind towers volumes. Costs of revenues also increased due to additional expenses incurred related to the startup of two new facilities: a concrete utility structures plant and a wind tower plant.
•Selling, general, and administrative expenses increased 54.5% primarily due to additional costs from the acquired Ameron business and higher compensation-related costs in utility structures.
•Operating profit increased 74.3% primarily due to higher wind tower volumes, operating improvements in our utility structures business and the accretive impact of the recently acquired Ameron business.
•Depreciation and amortization expense increased primarily due to the acquired Ameron business and organic growth investments.
Nine Months Ended September 30, 2024 versus Nine Months Ended September 30, 2023
•Revenues increased 23.3% primarily due to higher volumes in our utility structures and wind towers businesses and the contribution from the acquired Ameron business, partially offset by lower utility structures pricing due to product mix.
•Cost of revenues increased 22.0% primarily due to increased costs from the acquired Ameron business, including higher depreciation and amortization expense and $1.6 million for the cost impact of the fair market value write-up of acquired inventory. Costs of revenues also increased due to higher utility structures and wind towers volumes and additional expenses incurred related to the startup of two new facilities: a concrete utility structures plant and a wind tower plant.
•Selling, general, and administrative expenses increased 37.2% primarily due to additional cost from the acquired Ameron business and higher compensation-related costs in utility structures.
•During both periods presented, the Company recognized an additional gain on the sale of the storage tanks business, which was divested on October 3, 2022, related to the settlement of certain contingencies from the sale and gain on the sale of a non-operating facility that previously supported the divested business.
•Operating profit increased 33.7% primarily due to the gain recognized during the period, higher utility structures and wind towers volumes, and the impact of the acquired Ameron business, partially offset by lower margins in our utility structures business driven by product mix.
30
Unsatisfied Performance Obligations (Backlog)
As of September 30, 2024, the backlog for utility, wind, and related structures was $1,264.6 million, compared to $1,367.5 million and $1,450.8 million as of December 31, 2023 and September 30, 2023, respectively. Approximately 20% of these unsatisfied performance obligations are expected to be delivered during 2024, approximately 47% during 2025, and the remainder are expected to be delivered through 2028.
Transportation Products
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Percent | 2024 | 2023 | Percent | ||||||||||||||||||||||||||||||
| ($ in millions) | Change | ($ in millions) | Change | ||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||
| Inland barges | $ | 81.5 | $ | 67.3 | 21.1 | % | $ | 236.9 | $ | 207.9 | 13.9 | % | |||||||||||||||||||||||
| Steel components | 13.6 | 39.8 | (65.8) | 87.8 | 117.6 | (25.3) | |||||||||||||||||||||||||||||
| Total revenues | 95.1 | 107.1 | (11.2) | 324.7 | 325.5 | (0.2) | |||||||||||||||||||||||||||||
| Operating costs: | |||||||||||||||||||||||||||||||||||
| Cost of revenues | 81.0 | 87.2 | (7.1) | 270.4 | 270.4 | — | |||||||||||||||||||||||||||||
| Selling, general, and administrative expenses | 5.3 | 5.8 | (8.6) | 18.3 | 19.3 | (5.2) | |||||||||||||||||||||||||||||
| Loss on sale of business | 23.0 | — | 23.0 | — | |||||||||||||||||||||||||||||||
| Operating profit | $ | (14.2) | $ | 14.1 | (200.7) | $ | 13.0 | $ | 35.8 | (63.7) | |||||||||||||||||||||||||
Depreciation and amortization (1) | $ | 2.8 | $ | 4.1 | (31.7) | $ | 10.9 | $ | 12.1 | (9.9) | |||||||||||||||||||||||||
(1) Depreciation and amortization are components of operating profit.
Three Months Ended September 30, 2024 versus Three Months Ended September 30, 2023
•Revenues decreased 11.2% primarily due to the sale of the steel components business which was completed on August 16, 2024. Inland barge revenues increased 21.1%, driven by higher tank barge deliveries.
•Cost of revenues decreased 7.1% driven by lower steel components volumes due to the divestiture, partially offset by higher cost of revenues for the inland barge business due to higher volumes.
•Selling, general, and administrative expenses decreased 8.6% primarily due to the divestiture of the steel components business, partially offset by higher compensation-related expenses for the inland barge business.
•Operating profit decreased significantly due to the $23.0 million loss recognized on the sale of the steel components business during the period. Excluding the loss, operating profit decreased $5.3 million due to lower steel components volumes, partially offset by higher operating profit for the barge business driven by higher volumes.
Nine Months Ended September 30, 2024 versus Nine Months Ended September 30, 2023
•Revenues were roughly flat. Inland barge revenues increased 13.9%, driven by higher hopper barge deliveries. Revenues for steel components decreased due to the divestiture of the business during the third quarter.
•Cost of revenues were substantially unchanged as higher barge volumes were offset by lower steel components volumes. As a percentage of revenues, cost of revenues was 83.3% in the current period, compared to 83.1% in the prior period.
•Selling, general, and administrative expenses decreased 5.2% primarily due to divestiture of the steel components business, partially offset by higher compensation-related expenses for the inland barge business. As a percentage of revenues, selling, general, and administrative expenses was 5.6% in the current period, compared to 5.9% in the prior period.
•Operating profit decreased significantly due to the $23.0 million loss recognized on the sale of the steel components business during the period. Excluding the loss, operating profit increased $0.2 million as higher barge volumes were mostly offset by lower steel components volumes.
31
Unsatisfied Performance Obligations (Backlog)
As of September 30, 2024, the backlog for inland barges was $244.7 million, compared to $253.7 million and $240.4 million as of December 31, 2023 and September 30, 2023, respectively. Approximately 32% of unsatisfied performance obligations for inland barges are expected to be delivered during 2024, and the remainder are expected to be delivered in 2025.
Corporate
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Percent | 2024 | 2023 | Percent | ||||||||||||||||||||||||||||||
| (in millions) | Change | (in millions) | Change | ||||||||||||||||||||||||||||||||
| Corporate overhead costs | $ | 25.0 | $ | 14.7 | 70.1 | % | $ | 61.2 | $ | 45.8 | 33.6 | % | |||||||||||||||||||||||
Three Months Ended September 30, 2024 versus Three Months Ended September 30, 2023
•Corporate overhead costs increased 70.1% primarily due to higher acquisition and divestiture-related expenses of $11.6 million, compared to $0.5 million for the same period in 2023.
Nine Months Ended September 30, 2024 versus Nine Months Ended September 30, 2023
•Corporate overhead costs increased 33.6% primarily due to higher acquisition and divestiture-related expenses of $17.1 million, compared to $1.4 million for the same period in 2023.
Liquidity and Capital Resources
Arcosa’s primary liquidity requirement consists of funding our business operations, including capital expenditures, working capital investment, and disciplined acquisitions. Our primary sources of liquidity include cash flow from operations, our existing cash balance, availability under the revolving credit facility, and, as necessary, the issuance of additional long-term debt or equity. To the extent we have available liquidity, we may also consider undertaking new capital investment projects, executing additional strategic acquisitions, returning capital to stockholders, or funding other general corporate purposes.
Cash Flows
The following table summarizes our cash flows from operating, investing, and financing activities for the nine months ended September 30, 2024 and 2023:
| Nine Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in millions) | |||||||||||
| Total cash provided by (required by): | |||||||||||
| Operating activities | $ | 253.8 | $ | 198.8 | |||||||
| Investing activities | (250.6) | (131.5) | |||||||||
| Financing activities | 648.8 | (72.4) | |||||||||
| Net increase (decrease) in cash and cash equivalents | $ | 652.0 | $ | (5.1) | |||||||
Operating Activities. Net cash provided by operating activities for the nine months ended September 30, 2024 was $253.8 million, compared to $198.8 million for the nine months ended September 30, 2023.
•The changes in current assets and liabilities resulted in a net source of cash of $5.3 million for the nine months ended September 30, 2024, compared to a net use of cash of $43.8 million for the nine months ended September 30, 2023. The current year activity was primarily driven by a net increase in liabilities and decreased inventories, partially offset by increased receivables.
Investing Activities. Net cash required by investing activities for the nine months ended September 30, 2024 was $250.6 million, compared to $131.5 million for the nine months ended September 30, 2023.
•Capital expenditures for the nine months ended September 30, 2024 were $136.4 million, compared to $144.8 million for the same period last year. Full-year capital expenditures are expected to be approximately $180 to $195 million in 2024.
32
•Proceeds from the sale of property, plant, and equipment and other assets totaled $14.0 million for the nine months ended September 30, 2024, compared to $30.1 million for the same period in 2023.
•Cash paid for acquisitions, net of cash acquired, was $214.6 million for the nine months ended September 30, 2024, compared to $18.8 million for the same period in 2023.
•Proceeds from the sale of businesses was $86.4 million during the nine months ended September 30, 2024, compared to $2.0 million for the same period in 2023.
Financing Activities. Net cash provided by financing activities during the nine months ended September 30, 2024 was $648.8 million, compared to net cash required by financing activities of $72.4 million for the same period in 2023.
•Current year activity was primarily driven by proceeds of $600.0 million received from the issuance of the 2024 Notes and net borrowings of $80.0 million under the revolving credit facility, both to fund recent acquisitions, offset by the purchase of shares to satisfy employee taxes on vested stock and dividends paid during the period.
Other Investing and Financing Activities
Revolving Credit Facility, Term Loan, and Senior Notes
In August 2023, we entered into a Second Amended and Restated Credit Agreement ("the Credit Agreement") to increase our revolving credit facility from $500.0 million to $600.0 million, extend the maturity date of our revolving credit facility from January 2, 2025 to August 23, 2028, and refinance and repay in full the remaining balance of the term loan then outstanding under our prior credit facility. On August 15, 2024, we entered into an amendment to the Credit Agreement (the "Amended Credit Agreement") to, among other things, (i) increase our revolving credit facility from $600.0 million to $700.0 million, (ii) collateralize the amended revolving credit facility with substantially all of our and our subsidiary guarantors' personal property (with certain exceptions), (iii) make the applicable margin for revolving borrowings, letters of credit and the commitment fee rate be based on our consolidated net leverage ratio (permitting up to $150.0 million of unrestricted cash to be netted from the calculation thereof), (iv) modify the margin for SOFR-based revolving borrowings and letters of credit to range from 1.25% to 2.50% per annum, (v) modify the margin for base rate revolving borrowings to range from 0.25% to 1.50%, (vi) modify the commitment fee that accrues on the unused portion of the revolving credit facility to range from 0.20% to 0.45%, and (vii) modify the maximum permitted leverage to include a net debt concept (permitting up to $150.0 million of unrestricted cash to be netted from the calculation thereof), and to provide that such ratio shall be no greater than 5.00 to 1.00 during the fourth quarter of 2024 and the next two fiscal quarters, 4.50 to 1.00 for the next following two fiscal quarters, and 4.00 to 1.00 for each fiscal quarter thereafter (however, this maximum permitted leverage ratio may be increased to 4.50 to 1.00 for up to four fiscal quarters if a material acquisition is entered into). These amendments did not become effective until the closing of the Stavola acquisition on October 1, 2024. The amended revolving credit facility's maturity date of August 23, 2028 remains unchanged.
As of September 30, 2024, we had $240.0 million of outstanding loans borrowed under our revolving credit facility. During the nine months ended September 30, 2024, the amount of outstanding loans borrowed increased $80.0 million primarily due to $160.0 million borrowed in April 2024 to fund, in part, the acquisition of Ameron, of which $60.0 million was repaid during the three months ended June 30, 2024. Additionally, as of September 30, 2024, prior to the effectiveness of the Amended Credit Agreement, there were approximately $0.7 million of letters of credit outstanding under our revolving credit facility that will expire in 2025, which left $359.3 million available for borrowing. The majority of our letters of credit obligations support the Company’s various insurance programs and generally renew by their terms each year.
The interest rate for revolving loans under the Amended Credit Agreement are variable based on the daily simple or term Secured Overnight Financing Rate ("SOFR"), plus 10-basis points, or an alternate base rate, in each case plus a margin for borrowing. A commitment fee accrues on the average daily unused portion of the revolving credit facility. The margin for revolving borrowings and commitment fee rate are determined based on the Company’s Consolidated Total Net Leverage Ratio (as measured by a consolidated funded indebtedness, less the aggregate amount of unrestricted cash up to a maximum amount not to exceed $150.0 million, to consolidated EBITDA ratio). As of September 30, 2024, prior to the effectiveness of the Amended Credit Agreement, the margin for borrowing based on SOFR was set at 1.50% and the commitment fee rate was set at 0.25%.
The revolving credit facility portion of the Amended Credit Agreement requires the maintenance of certain ratios related to leverage and interest coverage. As of September 30, 2024, we were in compliance with all such financial covenants. Borrowings under the Credit Agreement are guaranteed by certain domestic subsidiaries of the Company. On October 1, 2024, we collateralized our obligations under the Amended Credit Agreement with substantially all of our and our subsidiary guarantors' personal property (with certain exceptions).
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The Amended Credit Agreement provides for a new secured term loan facility (the “Term Loan”) in an aggregate principal amount of $700.0 million. The Term Loan was funded on October 1, 2024 with the closing of the Stavola acquisition. The Term Loan requires, among other things (i) mandatory prepayments from excess cash flow on an annual basis, commencing with the fiscal year ending December 31, 2025, (ii) mandatory prepayments with proceeds of certain asset sales and debt issuances, and (iii) quarterly principal amortization payments in an amount equal to 0.25% of the initial Term Loan. The Term Loan has a maturity date of October 1, 2031. The interest rate for the Term Loan is based on SOFR plus 2.25% per year. The Term Loan is prepayable at any time without penalty, except in the event of a voluntary repricing in the first six months after closing, in which case a premium in the amount of 1.0% of the initial Term Loan is payable. The Term Loan is guaranteed by the same subsidiaries of the Company that guarantee our revolving credit facility, and the Term Loan is secured on a pari passu basis with our revolving credit facility.
On August 26, 2024, the Company issued $600.0 million aggregate principal amount of 6.875% senior notes (the "2024 Notes") that mature in August 2032. Interest on the 2024 Notes is payable semiannually in February and August. In April 2021, the Company issued $400.0 million aggregate principal amount of 4.375% senior unsecured notes (the "2021 Notes", and together with the 2024 Notes, the "Senior Notes") that mature in April 2029. Interest on the 2021 Notes is payable semiannually in April and October. The Senior Notes are senior unsecured obligations of the Company and are guaranteed on a senior unsecured basis by each of the Company’s domestic subsidiaries that is a guarantor under our Amended Revolving Credit Facility. The terms of each indenture governing the Senior Notes, among other things, limit the ability of the Company and each of its subsidiaries to create liens on assets, enter into sale and leaseback transactions, and consolidate, merge or transfer all or substantially all of its assets and the assets of its subsidiaries. The terms of each indenture also limit the ability of the Company’s non-guarantor subsidiaries to incur certain types of debt.
We believe, based on our current business plans, that our existing cash, available liquidity, and cash flow from operations will be sufficient to fund necessary capital expenditures and operating cash requirements for the foreseeable future.
Dividends and Repurchase Program
In September 2024, the Company declared a quarterly cash dividend of $0.05 per share that is scheduled to be paid on October 31, 2024.
In December 2022, the Board authorized a new $50.0 million share repurchase program effective January 1, 2023 through December 31, 2024 to replace a program of the same amount that expired on December 31, 2022. For the three and nine months ended September 30, 2024, the Company did not repurchase any shares. As of September 30, 2024, the Company had a remaining authorization of $36.2 million under the program. See Note 1 Overview and Summary of Significant Accounting Policies to the Consolidated Financial Statements.
Recent Accounting Pronouncements
See Note 1 Overview and Summary of Significant Accounting Policies to the Consolidated Financial Statements for information about recent accounting pronouncements.
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Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not historical facts are forward-looking statements and involve risks and uncertainties. These forward-looking statements include expectations, beliefs, plans, objectives, future financial performances, estimates, projections, goals, and forecasts. Arcosa uses the words “anticipates,” “assumes,” “believes,” “estimates,” “expects,” “intends,” “forecasts,” “may,” “will,” “should,” “plans,” and similar expressions to identify these forward-looking statements. Potential factors, which could cause our actual results of operations to differ materially from those in the forward-looking statements include, among others:
•the impact of pandemics, epidemics, or other public health emergencies on our sales, operations, supply chain, employees, and financial condition;
•market conditions and customer demand for our business products and services;
•the cyclical and seasonal nature of the industries in which we compete;
•variations in weather in areas where our construction products are sold, used, or installed;
•naturally occurring events and other events and disasters causing disruption to our manufacturing, product deliveries, and production capacity, thereby giving rise to an increase in expenses, loss of revenue, and property losses;
•competition and other competitive factors;
•our ability to identify, consummate, or integrate acquisitions of new businesses or products, or divest any business;
•the timing of introduction of new products;
•the timing and delivery of customer orders or a breach of customer contracts;
•the credit worthiness of customers and their access to capital;
•product price changes;
•changes in mix of products sold;
•the costs incurred to align manufacturing capacity with demand and the extent of its utilization;
•the operating leverage and efficiencies that can be achieved by our manufacturing businesses;
•availability and costs of steel, component parts, supplies, and other raw materials;
•changing technologies;
•surcharges and other fees added to fixed pricing agreements for steel, component parts, supplies and other raw materials;
•increased costs due to increased inflation;
•interest rates and capital costs;
•counter-party risks for financial instruments;
•long-term funding of our operations;
•taxes;
•material nonpayment or nonperformance by any of our key customers;
•the stability of the governments and political and business conditions in certain foreign countries, particularly Mexico;
•public infrastructure expenditures;
•changes in import and export quotas and regulations;
•business conditions in emerging economies;
•costs and results of litigation;
•changes in accounting standards or inaccurate estimates or assumptions in the application of accounting policies;
•legal, regulatory, and environmental issues, including compliance of our products with mandated specifications, standards, or testing criteria and obligations to remove and replace our products following installation or to recall our products and install different products manufactured by us or our competitors;
•actions by the executive and legislative branches of the U.S. government relative to federal government budgeting, taxation policies, government expenditures, U.S. borrowing/debt ceiling limits, and trade policies, including tariffs, and border closures;
•the inability to sufficiently protect our intellectual property rights;
•our ability to mitigate against cybersecurity incidents, including ransomware, malware, phishing emails, and other electronic security threats;
•if the Company's sustainability efforts are not favorably received by stockholders;
•if the Company does not realize some or all of the benefits expected from certain provisions of the IRA, including the AMP tax credits for wind towers, which remain subject to the issuance of additional guidance and clarification; and
•the delivery or satisfaction of any backlog or firm orders.
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Any forward-looking statement speaks only as of the date on which such statement is made. Arcosa undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made. For a discussion of risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see Item 1A, “Risk Factors” in our 2023 Annual Report on Form 10-K and future Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There has been no material change in our market risks since December 31, 2023 as set forth in our 2023 Annual Report on Form 10-K. See Note 9 Other, Net to the Consolidated Financial Statements for the impact of foreign exchange rate fluctuations for the three and nine months ended September 30, 2024.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures designed to ensure that it is able to collect and record the information it is required to disclose in the reports it files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) with the Securities and Exchange Commission (“SEC”), to process, summarize, and disclose this information within the time periods specified in the rules of the SEC, and that such information is accumulated and communicated to management, including our Chief Executive and Chief Financial Officers, in a timely fashion. The Company’s Chief Executive and Chief Financial Officers are responsible for establishing and maintaining these disclosure controls and procedures and evaluating their effectiveness (as defined in Rule 13(a)-15l under the Exchange Act). Based on their evaluation of the Company’s disclosure controls and procedures that took place as of the end of the period covered by this report, the Chief Executive and Chief Financial Officers believe that these disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
During the period covered by this report, there have been no changes in the Company’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
As permitted by the SEC Staff interpretive guidance for recently acquired businesses, management's assessment and conclusion on the effectiveness of the Company's disclosure controls and procedures as of September 30, 2024 excludes an assessment of the internal control over financial reporting of the Ameron business acquired in April 2024. Ameron represents approximately 5% of consolidated total assets and 2% of consolidated revenues as of and for the nine months ended September 30, 2024.
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PART II
Item 1. Legal Proceedings
See Note 15 Contingencies to the Consolidated Financial Statements regarding legal proceedings.
Item 1A. Risk Factors
There have been no material changes in the Company's risk factors from those set forth in our 2023 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
This table provides information with respect to purchases by the Company of shares of its common stock during the quarter ended September 30, 2024:
| Period | Number of Shares Purchased (1) | Average Price Paid per Share (1) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (2) | ||||||||||||||||||||||
| July 1, 2024 through July 31, 2024 | — | $ | — | — | $ | 36,247,953 | ||||||||||||||||||||
| August 1, 2024 through August 31, 2024 | 99 | $ | 86.00 | — | $ | 36,247,953 | ||||||||||||||||||||
| September 1, 2024 through September 30, 2024 | 492 | $ | 86.37 | — | $ | 36,247,953 | ||||||||||||||||||||
| Total | 591 | $ | 86.31 | — | $ | 36,247,953 | ||||||||||||||||||||
(1) These columns include the following transactions during the three months ended September 30, 2024: (i) the surrender to the Company of 591 shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees and (ii) the purchase of no shares of common stock on the open market as part of the stock repurchase program.
(2) In December 2022, the Board authorized a new $50.0 million share repurchase program effective January 1, 2023 through December 31, 2024 to replace a program of the same amount that expired on December 31, 2022.
Among other things, the IRA imposes a 1% excise tax on the fair market value of stock repurchases made by covered corporations. We have evaluated this provision and concluded there is no impact for the three and nine months ended September 30, 2024.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this Form 10-Q.
Item 5. Other Information
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Item 6. Exhibits
| NO. | DESCRIPTION | |||||||
| 2.1 | ||||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
| 4.1 | ||||||||
| 4.2 | ||||||||
| 4.3 | ||||||||
| 10.1 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1 | ||||||||
| 32.2 | ||||||||
| 95 | ||||||||
| 101.INS | Inline XBRL Instance Document (filed electronically herewith). | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document (filed electronically herewith). | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed electronically herewith). | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document (filed electronically herewith). | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed electronically herewith). | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document (filed electronically herewith). | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Arcosa, Inc. | ||||||||
| (Registrant) | ||||||||
| October 31, 2024 | By: | /s/ Gail M. Peck | ||||||
| Gail M. Peck | ||||||||
| Chief Financial Officer | ||||||||
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