Arcosa, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless noted. Arcosa supplies infrastructure-related products and solutions across Construction Products, Engineered Structures, and Transportation Products. Financial statements are unaudited.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $549.2 million | $535.8 million |
| Operating profit | $75.1 million | $34.7 million |
| Net income | $55.7 million | $20.2 million |
| Diluted EPS | $1.14 | $0.41 |
| Operating cash flow | $27.3 million | $24.5 million |
| Capital expenditures | $44.4 million | $25.9 million |
- Revenue rose 2.5%; operating profit increased 116.4%. The reported operating margin was approximately 13.7%, compared with 6.5%. Q1 2023 operating profit included $29.0 million of asset-sale gains. Excluding those gains, operating profit was $46.1 million, up 32.9% year over year.
- Net margin was approximately 10.1%, versus 3.8%. The effective tax rate declined to 20.3% from 24.1%, partly due to wind-tower Advanced Manufacturing Production (AMP) tax credits.
- Cash and cash equivalents were $149.2 million at March 31, 2023, down from $160.4 million at year-end 2022. Cash decreased by $11.2 million during the quarter. Operating cash flow was partly offset by working-capital investment, including higher receivables and inventories.
- Total debt, including finance leases and net of debt issuance costs, was $549.9 million; cash less total debt was approximately negative $400.7 million. The company had no revolving-credit borrowings and $474.7 million of availability after letters of credit. It reported compliance with its financial covenants.
- Current assets were $912.9 million and current liabilities were $380.4 million. The company declared a $0.05-per-share dividend. Its $50 million repurchase authorization remained available; no open-market repurchases were made. Shares surrendered for employee tax withholding are reported separately.
Segments and notable changes
- Construction Products: Revenue increased 11.6% to $236.1 million and operating profit rose to $49.5 million from $16.7 million. Higher pricing contributed to growth; the quarter also included a $21.8 million gain on depleted land. Excluding that gain, segment operating profit increased 72.4%.
- Engineered Structures: Revenue declined 17.1% to $207.7 million, principally reflecting the October 2022 sale of the storage-tank business. Utility, wind, and related-structures revenue increased 9.0%. Operating profit was $29.9 million versus $28.3 million and included a $6.4 million additional gain related to the tank sale. AMP credits provided a reported $3.2 million net benefit in this segment.
- Transportation Products: Revenue rose 42.8% to $105.4 million; operating profit increased to $10.1 million from $2.7 million, driven by higher deliveries and improved margins in barges and steel components.
- In total, the $29.0 million of asset-sale gains comprised primarily $21.8 million from depleted land and $6.4 million related to the storage-tank sale. Q1 2023 also included $4.3 million of AMP credits recognized as a reduction to cost of sales.
Liquidity, outlook, and risks
- Management expects 2023 capital expenditures of approximately $185 million to $210 million and believes cash, available liquidity, and operating cash flow will be sufficient for operating requirements and necessary capital expenditures for the foreseeable future.
- Utility, wind, and related-structures backlog was $1.531 billion at March 31, 2023, up from $671.3 million at year-end 2022. Approximately 29% is expected to be delivered in 2023, 22% in 2024, with the remainder through 2028. Management cited more than $1.1 billion in wind-tower orders received since the Inflation Reduction Act and expects a multi-year volume rebound beginning in 2024; a New Mexico plant is expected to begin production in mid-2024.
- Inland-barge backlog was $279.0 million, up from $225.1 million at year-end 2022. Approximately 68% is expected to be delivered in 2023, with the remainder in 2024. Management said Q1 barge orders totaled $122 million.
- Management described Construction Products demand as healthy overall, while noting housing affordability and higher interest rates are pressuring single-family residential volumes, inflationary input costs, and increased economic-slowdown risk. Businesses are cyclical; construction activity is also seasonal and weather-sensitive.
- AMP credits and certain other Inflation Reduction Act provisions remain subject to further guidance. Other disclosed risks include steel and input-cost availability, customer order timing and creditworthiness, interest rates, litigation, environmental matters, and operational disruption. The company reported no material change in risk factors from its 2022 Form 10-K.
- At March 31, reasonably possible losses from claims and lawsuits were estimated at $1.0 million to $2.4 million; recorded accruals for these matters totaled $3.3 million, including $0.7 million for environmental matters. Management believes additional liability would not be material, while noting future outcomes are uncertain.
Important facts for investors to verify
- How much of reported profit growth reflects recurring operating performance versus the $29.0 million in asset-sale gains.
- Whether AMP-credit assumptions and eligibility remain supported by future regulatory guidance, and how credits affect wind-tower economics.
- Conversion of the expanded utility/wind and barge backlogs into deliveries, revenue, cash collection, and margins on the expected schedules.
- Execution of the $185 million to $210 million capital-spending plan and the planned New Mexico facility, including associated funding and ramp-up risks.
- Working-capital trends, available revolver capacity, debt maturities, and compliance with credit-agreement covenants.