Arcosa, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. Arcosa supplies infrastructure-related products and solutions across Construction Products, Engineered Structures, and Transportation Products. The interim financial statements are unaudited.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $535.8 million | $440.4 million | +21.7% |
| Operating profit | $34.7 million | $22.9 million | +51.5% |
| Operating margin | 6.5% | 5.2% | +1.3 percentage points |
| Net income | $20.2 million | $15.9 million | +27.0% |
| Diluted EPS | $0.41 | $0.32 | +$0.09 |
| Interest expense | $7.2 million | $2.1 million | Increased |
| Operating cash flow | $24.5 million | $0.4 million | Increased |
| Capital expenditures | $25.9 million | $19.9 million | Increased |
Cash and cash equivalents were $88.6 million at March 31, 2022, up from $72.9 million at year-end 2021. Total debt, including finance leases and net of debt issuance costs, was $680.6 million, versus $679.5 million at year-end; cash less total debt was approximately negative $592 million. The company had $346.5 million available under its revolving credit facility after borrowings and letters of credit. It reported compliance with financial covenants. Current assets were $841.6 million and current liabilities $403.7 million.
Operating cash flow benefited from earnings and non-cash adjustments but remained affected by working-capital investment: receivables and inventories used cash, partly offset by higher accounts payable. Investing cash flow included $20.6 million in asset-sale proceeds and $25.9 million of capital expenditures. The quarterly dividend declared was $0.05 per share.
Segment results
| Segment | Revenue | Operating profit | Year-over-year context |
|---|---|---|---|
| Construction Products | $211.5 million | $16.7 million | Revenue +38.1%; profit +5.7% |
| Engineered Structures | $250.5 million | $28.3 million | Revenue +21.0%; profit +61.7% |
| Transportation Products | $73.8 million | $2.7 million | Revenue -8.0%; profit -34.1% |
Construction Products growth reflected acquired businesses, higher pricing, and stronger demand; acquisitions contributed approximately 30% to segment revenue growth. Engineered Structures benefited from pricing across product lines and improved utility-structure margins. Transportation Products was pressured by lower barge deliveries, partially offset by higher steel-component volumes.
Material changes and notable items
- Revenue growth and operating-profit expansion were concentrated in Construction Products and Engineered Structures; Transportation Products operating profit declined.
- Higher steel prices supported pricing but raised costs. SG&A increased 11.0% year over year, largely due to acquired businesses, but declined to 11.7% of revenue from 12.8%.
- Interest expense increased to $7.2 million from $2.1 million. The effective tax rate rose to 24.1% from 21.7%, principally reflecting state and foreign tax items and disallowed compensation deductions.
- On April 25, 2022, after quarter-end, Arcosa agreed to sell its storage tanks business for $275 million cash. Closing was expected in the second half of 2022, subject to regulatory approvals and customary conditions. The filing does not provide a projected gain, tax impact, or net proceeds after transaction costs.
- A previously disclosed lawsuit with Thomas & Betts was settled in February 2022, without admission of liability or fault; the litigation was dismissed. The filing does not state the settlement amount.
Outlook, risks, and contingencies
Management expected 2022 capital expenditures of approximately $120–$140 million, including about $90 million for maintenance and $30–$50 million for growth. It estimated corporate costs of approximately $13–$14 million per quarter for the remainder of 2022, excluding non-recurring items, and full-year acquisition and divestiture expenses of approximately $7.5–$8.5 million. Management stated that cash, available liquidity, and operating cash flow should fund foreseeable operating and capital needs.
Backlog at March 31 included $421.0 million of utility, wind, and related structures; $20.9 million of storage tanks; and $150.6 million of inland barges. Management expected 88% of the utility/wind backlog, all storage-tank backlog, and 72% of barge backlog to be delivered during 2022. The filing says substantially all remaining obligations are expected in 2023.
Management cited strong utility-structure demand and improving construction and rail-market prospects, while noting uncertainty around wind-project tax-credit support and high steel prices. Barge orders rose in Q1, but production capacity had been reduced and a facility idled in late 2021 amid weaker demand. Construction Products remain exposed to weather and fuel, labor, and other inflationary pressures. The company also highlighted cyclical markets, supply-chain and input-cost risks, COVID-19 uncertainty, customer demand and delivery timing, interest rates, and legal, regulatory, and environmental risks. Management said it could not predict the overall impact of COVID-19.
Potential losses for ordinary claims and lawsuits were estimated at $0.3–$0.4 million, with $1.0 million in total accruals, including a $0.9 million environmental reserve. The filing states that additional liability from these matters was not expected to be material, while acknowledging uncertainty in future proceedings and remediation.
Most important facts for investors to verify
- Whether the $275 million storage-tank sale closes as expected, and its eventual net proceeds, tax effects, and impact on segment results.
- Whether margin gains persist as steel, fuel, labor, and other inflationary costs evolve, particularly in Engineered Structures and Construction Products.
- Whether barge demand and deliveries support the higher backlog and whether Transportation Products profitability recovers.
- Execution of the $120–$140 million capital-spending plan, working-capital requirements, and cash conversion.
- Debt costs, variable-rate exposure, covenant headroom, and the use of available revolving-credit capacity.