Arcosa Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 28, 2023

Key Takeaways

  • Arcosa delivered record adjusted EBITDA in Q1 2023, driven by strong operational performance across all three business segments despite a challenging macroeconomic environment.
  • In Construction Products, adjusted EBITDA (excluding the land sale gain) rose 32% year-over-year as robust pricing more than offset lower volumes, reflecting the company’s focus on value over volume.
  • The Transportation Products segment expanded margins by 450 basis points on solid volume growth, with barge backlog reaching a three-year high and a book-to-bill ratio of 1.8.
  • Wind Towers orders have exceeded $1.1 billion since the Inflation Reduction Act, including an $800 million agreement, and Arcosa is investing in a new New Mexico facility set to begin production in mid-2024.
  • Management raised 2023 guidance to a midpoint of $2.25 billion in revenue and $358 million in adjusted EBITDA, supported by a healthy balance sheet with net debt/EBITDA of 1.1x and $624 million of available liquidity.
AI Generated. May Contain Errors.
Earnings Conference Call
Arcosa Q1 2023
00:00 / 00:00

There are 9 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the Arcosa Inc. First Quarter 2023 Earnings Conference Call. My name is Shelby, and I will be your conference call coordinator today. As a reminder, today's call is being recorded. Now, I would like to turn the call over to your host, Erin Drabek, Director of Investor Relations for Arcosa.

Operator

Ms. Drabek, you may begin.

Speaker 1

Good morning, everyone, and thank you for joining Arcosa's Q1 2023 earnings call. With me today are Antonio Carrillo, President and CEO and Gail Peck, CFO. A question and answer session will follow their prepared remarks. A copy of yesterday's press release and the slide presentation for this morning's call are posted on our Investor Relations website, ir.arcosa.com. A replay of today's call will be available for the next 2 weeks.

Speaker 1

Instructions for accessing the replay number are included in the press release. A replay of the webcast will be available for 1 year on our website under the News and Events tab. Today's comments and presentation slides contain financial measures that have not been prepared in accordance with GAAP. Reconciliations of non GAAP financial measures to the closest GAAP measure are included in the appendix of the slide presentation. In addition, today's conference call contains forward looking statements as defined by the Private Securities Litigation Reform Act of 1995.

Speaker 1

Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from such forward looking statements. Please refer to the company's SEC filings For more information on these risks and uncertainties, including the press release we filed yesterday and our Form 10 Q expected to be filed later today. I would like to now turn the call over to Antonio.

Speaker 2

Thank you, Erin. Good morning. Thank you for joining us to discuss our Q1 results and updated and our updated outlook for 2023. I will start with a few key messages. Arcosa delivered outstanding 1st quarter results driven by strong financial and operational performance from all three business segments.

Speaker 2

In what remains a challenging macroeconomic environment, the entire Khoso team executed exceptionally well, Operating efficiently and generating record adjusted EBITDA. Over the past several years, we have undertaken several strategic actions to simplify our portfolio and position Our business is to achieve sustainable long term growth. Our first quarter results demonstrate the success of our strategy with both our growth and cyclical businesses generating Construction Products led the performance in the Q1. Excluding the gain on the land sale, adjusted EBITDA increased 32%. Robust pricing more than offset lower overall volumes and contributed to impressive unit profitability gains.

Speaker 2

We plan to remain focused on value over volume, staying disciplined on price and effectively combating inflationary pressures. Our first quarter results also highlighted the potential of our cyclical business. In Transportation Products, we improved margins by 4.50 basis points as volumes And created significant operating leverage. Our backlog for our barge business at the end of the Q1 is at the highest level in 3 years and now provides production visibility into 2024. Likewise, in wind towers, our backlog is expanding, And this sets the stage for significant upside potential in 2024 and beyond due to the multiyear deal wins provided by the Inflation Reduction Act.

Speaker 2

During the quarter, we signed a multiyear agreement to produce wind towers and announced an investment in the new brownfield facility in New Mexico, which should start production in mid-twenty 24. Looking ahead to the balance of the year, Arcosa remains well positioned for continued solid financial performance. Even as we increase our investment in organic initiatives, the strength of our balance sheet enables us to pursue potential acquisitions that meet our financial criteria and are complementary to our existing operations. We recently closed on 2 bolt on acquisitions that further expand our construction products portfolio, A recycled aggregates producer in Arizona and a shoring manufacturer in Houston. These acquisitions, while relatively small individually, are significant in that they broaden our presence and capabilities in 2 major Southern markets.

Speaker 2

With our market leading positions and opportunities across our portfolio To capitalize on increased infrastructure spending, I am very optimistic about our future. Gail will now provide detail on our financial results for the Q1, And I will return to discuss our updated outlook. Gail?

Speaker 3

Thank you, Antonio. I'll begin on Slide 11 to discuss our Q1 segment results. In Construction Products, revenues increased 12%, primarily due to higher pricing in the quarter, which more than offset overall organic volume declines. Recent acquisitions contributed approximately 1 quarter of the revenue growth, largely attributable to Ramco, which we acquired last May. Adjusted segment EBITDA increased 85 percent year over year or $35,000,000 due to the $22,000,000 land sale gain in our natural aggregates business and healthy improvement in unit profitability.

Speaker 3

Excluding the Land Tank, the land sale gain as well as freight and delivery from revenues, 1st quarter adjusted EBITDA margins increased 3 70 basis points to 26.5 percent for the segment. This is the first time we have reported margins excluding freight, which is a pass through cost in our Construction Materials businesses and dilutes reported margins. Higher diesel, processed fuels and cement prices increased Segment cost of sales by approximately $5,000,000 or 3% during the quarter. This is down from the inflationary cost impact in the Q4 of 2022 as diesel prices have moved lower from the peak last year. Turning to natural aggregates.

Speaker 3

We continue to experience broad pricing strength across our markets with average organic pricing up more than 20% in the Q1. Volumes were down low double digits, primarily due to weakness in single family residential and wet weather that impacted volumes early in the quarter. This decline was partially offset by increased volume for public and private nonresidential activity given the successful transition of volume in certain markets. Due to our disciplined pricing strategy, we Expanded unit profitability in the Q1 and achieved higher year over year margins excluding the land sale gain. In recycled aggregates, Strength in Texas DOT work drove substantially higher organic volumes in our Houston and Dallas operations.

Speaker 3

However, Unusually wet weather in Southern California adversely impacted the contribution from Ramco during the quarter. 1st quarter pricing gains were healthy leading to solid Increases in lightweight aggregates led to mid single digit top line revenue growth. Volumes were mixed in our other specialty product lines. Demand for industrial and flooring plaster remained strong and we achieved solid first quarter pricing improvements. However, volumes were impacted by labor availability challenges we are working to solve.

Speaker 3

In addition, the wet weather in California also had an impact Finally, our Trent Shoring business reported a 6% increase in revenues on higher volumes and contribution from the Houston acquisition that closed during the quarter. Order inquiry levels were healthy and our backlog remains supportive for growth in 2023. Moving to Engineered Structures, Slide 12 shows the impact of the storage tanks business that was sold in October 2022 on the prior period results. This quarter, we recognized an additional $6,400,000 gain on a divestiture, which has been excluded from adjusted segment EBITDA and related to the settlement of certain contingencies. During the Q1, adjusted EBITDA for our Utility Wind and Related Structures businesses increased 24%, outpacing revenues primarily due to higher volumes in utility structures where the demand environment continues to be favorable.

Speaker 3

In addition, we recognized $3,200,000 of net benefit from the advanced manufacturing production tax credit provided for in the Inflation Reduction Act, which helped offset the anticipated decrease in wind tower profitability. The 180 basis points of margin expansion reflects the benefit of the tax credit as well as incremental improvement in utility and related structures, which is notable given the strong performance in the prior year period. As previously announced, we received wind tower orders of approximately $800,000,000 during for delivery in 2024 to 2028. Since the passage of the IRA in August 2022, We have received over $1,100,000,000 in wind tower orders. We also had robust order activity in utility structures, resulting in backlog at the end of the quarter for utility wind and related structures of $1,500,000,000 up from 671,000,000 at the start of the year.

Speaker 3

Turning to Transportation Products on Slide 13. Segment revenues were up 43%, driven by solid volume growth in both our barge and steel components businesses. Adjusted segment EBITDA increased over 100% and margins expanded to 13.4%, reflecting the significant operating leverage inherent in these businesses. We received product orders of $122,000,000 during the quarter, representing a book to bill of 1.8. These orders primarily for hopper barges extend our backlog into 2024.

Speaker 3

We ended the quarter with total barge backlog $279,000,000 and we expect to deliver approximately 70% during 2023. I'll conclude on Slide 14 with some comments on our cash flow and balance sheet position. We ended the quarter with net debt to adjusted EBITDA of 1.1 times and available liquidity of $624,000,000 We have no outstanding borrowings on our revolver and no near term material debt maturities. Our healthy balance sheet and ample liquidity continue to provide flexibility for our capital allocation strategy. Working capital consumed about $55,000,000 of cash flow in the Q1, an increase year over year primarily due to the timing of strategic steel purchases.

Speaker 3

As our growth businesses continue to expand and our cyclical businesses recover, we expect working capital to be a use of cash for the year. Capital expenditures were $44,000,000 up $19,000,000 from the prior year, reflecting progress on the organic projects in construction products and Engineered Structures, including the purchase of a brownfield property for our New Mexico wind tower facility. We are revising our full year CapEx guidance to $185,000,000 to $210,000,000 up from the previous range of $140,000,000 to $160,000,000 to reflect the new wind tower investment. Our range now anticipates $85,000,000 to $100,000,000 of growth CapEx in 2023. Free cash flow for the quarter was $6,800,000 down from $19,000,000 in the prior year, largely due to the increase in net capital expenditures.

Speaker 3

In our calculation of free cash flow, we have netted proceeds from the sale of property and other assets against capital expenditures as the cash received from these asset sales is typically used to fund replacement reserves and equipment. I will now turn the call back over to Antonio for an update on our 2023 outlook.

Speaker 2

Thank you, Gail. As we indicated in our Q4 call, we expect 2023 will be a transition year from a financial standpoint. We anticipate our growth businesses will benefit from generally solid market fundamentals while our cyclical businesses undergo Significant manufacturing ramp up and experienced gradual improvement before achieving stronger profitability in 2024. Please turn to Slide 16. We're raising slightly our 2023 revenue guidance to $2,250,000,000 at the midpoint, which represents an increase of 10% compared to 2022, normalizing for the sale of the storage tank business.

Speaker 2

Based on our performance in the Q1 and our expectations for improved profitability in our silica businesses due to the anticipated Tax credit from wind towers. We're increasing our 20.33 adjusted EBITDA guidance to 3.58,000,000 at the midpoint, up from the prior midpoint of $325,000,000 This revised guidance includes estimated net wind power price of approximately $20,000,000 at the midpoint, which were not included in our previous range. Further clarification from the IRS on this tax credit is still pending. Please turn to Slide 17 to review the outlook

Speaker 4

for our

Speaker 2

growth businesses. We believe Construction Products remains Welcome to Houston to capitalize on continued significant federal and state investment in highway and other infrastructure projects. Our first property lending activity is accelerating across many of the markets, while pricing momentum remains favorable for both natural and recycled aggregates. Although the housing market continues to show weakness across our markets, our optimistic and improved pricing and demand from infrastructure projects We will now take the volume declines in housing. As we look further ahead, we believe that with stronger pricing, A recovery in housing, infrastructure spending and inflation receding, our construction segment should be in great shape to continue to grow and improve margins over time.

Speaker 2

Turning to Engineered Structures. The overall outlook for this segment remains favorable, driven by ongoing utility infrastructure investment, Department of Transportation is better in Florida and other Southern States and the ongoing wireless 5 gs wireless buildup. In the effective strategic sector, major CapEx spending programs remain centered on grid hardening, enhancing reliability and connecting new sources of renewable energy to the grid. The dealers are also beginning to accelerate their planning to bring new sources of power to The breadth of this CapEx initiatives is evident in the continued expansion of our utility structures backlog. Shifting now to our cyclical businesses on Slide 18.

Speaker 2

Market dynamics impacting our wind tower business and transportation segments are improving, supporting our view These businesses are entering the early stages of our 3 year Included in the inflation reduction provided significant planning certainty to the industry. This long term certainty is accelerating demand for wind towers, We do expect to continue to grow as projects get underway. The $800,000,000 of wind tower orders we received in the Q1 marked the single largest quarterly total for wind tower orders in our coastal history. To meet this new demand, as I mentioned earlier, we recently announced the expansion of our wind tower manufacturing capacity in New Mexico, Well, we are investing to strategically supply major wind projects in that region. This manufacturing facility is expected to commence production in mid-twenty 24.

Speaker 2

We reiterate our view that 2023 will represent a transition year from our wind towers business given the production ramp up In our cooperation facilities and additional startup costs at the new plant. In 2024, we should experience progressively improving profitability from increased volumes, additional production from the Canton, New Mexico As well as higher volume driven tax credit benefits. Turning to Slide 19. Our barge business is also experiencing steady improvement fundamentals. In the past two quarters, we received March orders totaling $250,000,000 more than $250,000,000 underscoring the significant pent up demand in this market.

Speaker 2

With the new production process that were replaced still with lower priced coal, we have revitalized customer interest and generated new barge orders. Supported by the consistent improvement in orders and the high level of inquiries, we're optimistic that the long awaited recovery in the barge market is beginning to take hold. Although steel price volatility remains a drag on new orders, we are seeing some customers increase their barge price expectations, Recognizing persistently elevated steel pricing and lowering inflationary pressures. Given the We will continue to focus on selling our available capacity at attractive margins. Despite the size of a slowdown in the economy, demand Steel components products have remained resilient, aided by higher depreciation in North American railcars and growth in new railcar deliveries.

Speaker 2

Going forward, we anticipate a moderation in our top line within this business due to the more challenging delivery comparisons as the year progresses, Well, the overall outlook remains supportive for growth this year. Please turn to Slide 20. The cost of sustainability initiatives represent the foundational element of our commitment to build long term stakeholder value. And I am pleased to announce the recent publication of our 3rd annual sustainability report. This comprehensive report explains How we are incorporating sustainability into our business strategy and daily operations and how we are continuing to build our sustainability progress in pursuit of our long term EAT goals.

Speaker 2

I am proud of our collective efforts to strengthen our safety culture, reduce our greenhouse emissions I'll support our communities to help build a more sustainable future. In closing, 2023 is off to a great start, and I'm excited about the many opportunities

Operator

And we'll take our first question from Julio Romero with Sidoti and Company.

Speaker 5

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

Speaker 2

Sure, Julien. Thank you for the question. As I mentioned in previous calls, it's Last year 2022, the prices between coal and flake started to diverge significantly. Historically, there's about $150 a ton difference between a ton of plate and a ton of coil. Last year, that number was almost $1,000 And that's when we started looking at the opportunity to redesign Dry cargo barges with coil.

Speaker 2

We worked on it on the second half. And in December, we launched our first coil barge, And that generated significant demand for barges. Most of the orders we got in the Q4 came from coil. Throughout this quarter, we continue to offer our customers. And now The beauty of this is that we can offer coil barges or plate barges, and we'll shift our production and our sales depending on that Difference in prices.

Speaker 2

This year, steel prices started coming last year, steel prices have been going up in the second half. Oil prices went down and this year started coming up, so that gap has strong some. But still, we have the ability now to move between the two. Probably the biggest message for you is this gives us flexibility on in manufacturing, flexibility for sale, but also leverage between Suppliers of steel because we can now shift suppliers based on the difference in that price. So things are going well.

Speaker 2

The barges is fully designed, And we're building barges today with hope.

Speaker 5

Okay. Really helpful there. And then I guess just thinking about the order Trends in the barge business, you had 2 straight quarters of $100,000,000 plus in orders, but you also talked about the steel is still suppressing orders to an extent. So Just talk about how you're managing the current trend line in steel over the last few months and how we should think about the variability in the barge business if Steel continues on that trend line.

Speaker 2

Yes. I think the most important message here is that The inquiries are tremendously strong. So we have a very strong we feel the market needs in these barges. And I think what you're seeing with these orders, these orders even though it's coil has been cheaper than plate, I always told a few barges with coal and some others with plate. The price point of this barge is much higher than it was prior to the steel price ramp up.

Speaker 2

So I think our customers, and I mentioned it in the script, So some of our customers are moving their price points of the barges up because they really need the barges and that's what we perceive in the market. So I think we'll I don't know about this quarter and the next week might be a straight line. But I'm confident we will continue to get Our SVARTA is based on the inquiry levels we see. What I also mentioned is we're going to be, as we sell more VARTA, of course, to I guess, Tyler, we're going to be focusing like in every other business in our margins. So we're not going to give our capacity away.

Speaker 2

I think we're having we're in a great position to manage our capacity and our orders because now we have quite a long visibility till the early part of 2024.

Speaker 5

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

Operator

And we'll take our next question from Garik Shneur with Loop Capital Markets.

Speaker 4

Hi, thanks and congrats on the quarter. I'm wondering if you could speak a little bit to the margin expansion in the Conceptual Products segment. Certainly, you're getting really strong pricing. Just wondering if you could maybe talk to the sustainability of this type of margin expansion

Speaker 2

Well, thank you for the question. It's I think This industry has always been characterized by this, the thought that you can move pricing even when volumes come down. And I think that's been Proven with what we're seeing in the market. I would tell you that we have many touch points to the market. But the area where we're seeing this strength is in the infrastructure side.

Speaker 2

I know when some of our business have more exposure to housing than others, Aggregates probably the one that has the most, but the one that have but we still saw very significant improvement in pricing in aggregates. In recycled aggregates that have less exposure to housing, We saw pricing also very strong, but volumes are not as effective as natural aggregate. So Our perception and what we are our goal for this year is to continue to offset volume declines with pricing increases Refocusing our capacity into infrastructure. And I think we'll be able to continue to do that. It's Is it going to be a perfect client?

Speaker 2

Is it going to be choppy? Probably some areas in the country have more higher declines than others in volumes. In those areas, we're that's where we're pushing pricing higher. So it's I think it's a tight balance. It's Area by area, it's a mind by mind, but I'm more confident we can continue to push pricing and offset volume declines.

Speaker 4

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

Speaker 2

It's difficult for us to size it, but Brian, I'll tell you, when you look at the numbers in recycled aggregate We have 2 impacts in California. 1 is recycled aggregate and some in specialty materials. Recycled aggregate is probably the easier one. It's a your projects depends on demand, it's hard to measure because projects get delayed and you get about the same demand After the rain recedes. But what I can see tell you is of all our recycled aggregates markets, The only one that was, let's say, thought in great shape was California.

Speaker 2

It was clearly tied to the rain that we have there. When the rain receded, we are in great shape and the volumes are coming off very steadily. So Nothing wrong with the business. I think it was just a really outstanding win event, but We are very optimistic about our recycle aggregate in California.

Speaker 1

Thanks. Good morning, Garrett.

Speaker 3

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

Operator

And we'll take our next question from Noah Markowska with Stephens, Inc.

Speaker 6

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

Speaker 2

Thank you.

Speaker 6

I wanted to start on the wind towers business. You've seen a nice increase in orders there. I guess just what's the typical lag in terms of getting an order and to be able to deliver on those? I think You continue to see this year as a transition year for wind. So I guess is that

Speaker 2

Let me start with the first part of the question. And just to reflect on where we are, 6 months ago, this business was not looking pretty. I mean, we didn't have orders for 2024 for 2023, sorry, for this year, we had nothing almost. So we took some orders with very low margins to get the year started and keep our people working. And as the Inflation Reduction Act, let's say, pick up fixed up space and the projects we've developed, we're seeing very strong demand.

Speaker 2

And I think right now, what you will see is our ability to ramp up would depend on how fast we can hire people. It's really that simple, how we can hire and train our people. And we have orders, I think, for 20 We're basically set in what we can produce because we're ramping up. For 2024, we are not at capacity by any means. We have a plant that's idle.

Speaker 2

Yes. Two plants that are not operating at full capacity and the plant in New Mexico that will start in 2nd in around mid-twenty 24 will not be at full capacity. So that is I think the message that I would like to give you with is we're going to be dialing our labor and our capacity based on how we see the orders With the idea that the capacity we have available, we believe, is very valuable given the strength of the wind market, and we're going to be focusing on selling it at a nice margin. We'll ramp up. I think we're happy where we are.

Speaker 2

We are even happy with the capacity we have that we'll be able to sell And focus on increasing margins for 24 and beyond. So this is a 10 year PTC, so that's giving significant visibility to the industry. So I think so we've been taking out a nice pace.

Speaker 6

Got it. That's helpful. And then for my follow-up, continuing to look at the Engineered Structures segment, you have put some really nice margins here in the quarter, 14.5%, somewhat higher than your 12 to 13, I think you typically look for there. I'm guessing tax credit literal, but can you help us understand sort of the margin drivers there and again how

Speaker 3

I'll take that one. This is Gail. Yes, we had played with Margins performance, you're right. If you look at the segments year over year, you had 170 basis points of margin improvement in segment. To your point, part of that was the tax credit.

Speaker 3

We did recognize $3,000,000 of the Advanced Manufacturing Production Products Credit. But even outside of that, as I said in my script, we did see margins up against what was a pretty tough comp from last year. So consistent we benefit from long run. So we had some Your order pattern will vary from quarter to quarter, so we had some nice leverage from some longer production runs in the quarter. We expect to continue to have healthy margins throughout the year.

Speaker 3

I would note though from a cadence perspective and we talked about this A little bit on our last call, as we see we have firm backlog, which gives us very good visibility for the utility structures business. And as we look at our backlog for 2 notably, we talk about our alliance and our bid customers. As we look at the mix of customers For the Q2, we expect to have slightly higher components of bid, which will impact the margin for the Q2. The full year outlook for the business continues to be very strong, strong demand drivers. We had nice Volume increases in the quarter expect stronger volumes year over year.

Speaker 3

So outlook for me is quite favorable. I do want to point out though as we think about the cadence, We do anticipate a little bit of a step down in Q2 as we progress through the year.

Speaker 2

If you think a little beyond the This year, I think we're very comfortable with where we are for this year. But this segment has always been It's a combination of 2 businesses. You will have utility structures and related and wind. And since we spoke 45 years So you think the structure has been going up and wind down has been going down. And as wind ramps up again, I think there's going to be a combination of margins that to lead to improvement in margins in this segment as winter ramps up and we continue to gain momentum on utility.

Speaker 2

So I think the segment as a whole will start looking very, very nice as we ramp up wind dollars.

Speaker 3

Yes. I just might add on that too. It's important highlights, particularly if you look at 2023 and then it helps with Antonio's view of 2023 and beyond or 2024 and beyond. We do still anticipate Wind Tower to be breakeven from an EBITDA perspective in 2023 ex the tax credit. So the tax We do see breakeven for wind.

Speaker 3

We did perform a little bit better in the Q1, But as we've announced the New Mexico facility, we do anticipate additional startup costs to that facility that will impact wind tower profitability this year.

Operator

And we'll take our next question from Brent Thielman with D. A. Davidson.

Speaker 7

Thanks. Hey, Antonio, I think a quarter ago, you suggested that you thought the backlog and And when you can grow, which is valid. I guess, maybe I'll ask you the same question from From the standpoint of expectations from the wind order to the rest of the year, I imagine there's another $800,000,000 order has been out there, but are these levels you anticipate building off of or inquiry levels I think there's a lot of available capacity out there elsewhere.

Speaker 2

Yes, it's a good question. Yes, We continue to inquire levels high. This business is very regional. So depending on where the projects are being developed, You will see the demand. What's interesting to me the most interesting, to be absolutely honest, we've been surprised at the speed of this When the inflation reduction that was approved in August last year, I always say it will take a lot of waiting months for us to start seeing the impact in our specific orders,

Speaker 8

and

Speaker 2

that's what I thought at the time. And it surprised us that it's right faster, which leads me to believe that many of the projects that are really being developed based on the In fact, we're not passing have really not come to market. So what we're seeing is price that has been developed before and we're already shovel ready. So what's interesting about this is I think the inflation reduction has been, but we have really not seen it. We've seen part of the certainty, We have not seen the impact of new projects, and that's really exciting for the future.

Speaker 2

Is it going to be this quarter? Probably not. We will see it over time. I think we're building this business for 1 year for several years and the 10 years ahead, I think, It gives us a lot of optimism for the future.

Speaker 8

Okay.

Speaker 7

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

Speaker 3

Yes, Brent, I'll try that one. As we've said before, giving volume from a competitive We haven't really elected to do, but I get that conundrum with this tax credit that's based on volume. I'd also Point out it's based on units sold and produced. It's also based on the megawatts of the installed turbine at the end of the day. So there's kind of 2 variables that impact it.

Speaker 3

We've given our best foot forward here with the estimate we have in Our EBITDA guidance of about $20,000,000 of incremental EBITDA related to the tax credit. So the other thing I guess I would mention to kind of help a little bit is we've always said Commercially that we would maintain a significant majority of the tax credit and what we've included in our EBITDA guidance reflects that. So when we refer to the EBITDA pickup, we're talking about a net benefit to EBITDA. So From an accounting perspective, the gross credit will flow through cost of sales and anything that we've negotiated commercially would be a slight deduct to revenue. As we said, we're retaining the significant majority of the credit.

Speaker 3

And from a MAP perspective, I think many people are familiar that it's $0.03 per installed lot. That is the credit that we are beneficiaries. And today the average megawatt per installed power is somewhere around 3,000,000. So I think I'll probably stop there. That's probably the extent of what I could give.

Speaker 3

From a perspective 'twenty three relative to 2022, A slight decline in volume, but then as we think about our backlog, we certainly we had the long term order with the New Mexico facility that extends our Into 2028. Right now based on the backlog we have in place, 2024 and 2025 are the higher years and then you have the New Mexico facility filling out in the last 3 years there, if that's

Speaker 7

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

Speaker 3

I'd say, Brent, I mentioned the variables, certainly units produced. We feel pretty good about our backlog. There's always Some wiggle room there. Nearer term, we feel a little bit more confident about the size of the turbine. So those things feel Relatively certain, I'd say, looking at it, could there be a little bit of conservatism since There hasn't been finalization in the rules.

Speaker 3

Yes, I would say that there is a little bit, but we've really tried to put our best foot forward in giving a sense of what we expect for the year.

Speaker 4

Okay. Thanks for that follow-up.

Speaker 7

I appreciate it. I'll pass

Speaker 2

it over. One comment on the tax rate. There are some rules that we expect. I think the main thing that we're waiting for is, of course, how it's going to be It starts and things like that. But the most important piece is the rule of Buy America, what does it mean.

Speaker 2

And that's the piece that we are waiting for that needs to be clarified more specifically. And the main reason is that this thing is being bundled between Wind and solar, and they're very different industries. What we're trying to do here is The wind tower industry, as you saw with the New Mexico plant, there is enough capacity. And if not, we can build it. It's something we can do really fast, and we're willing to do it.

Speaker 2

And if not us, it's someone else. But there is capacity. The solar industry is in a very different position. So I think that's what we are waiting for the IRS to make sure that we put our best argument forward that these are not the same thing. And I think we're doing that and the industry is doing that.

Speaker 2

Okay.

Operator

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

Speaker 8

Hi, great. Thank you very much. I just wanted to Kind of ask one more question on the tax credits. How do you think about, and I know you talked about this a little bit, but how are you thinking about Pricing in this business, are you going to price it so that the unit is quite breakeven and then all your EBITDA would come from the uplift of the AMP?

Speaker 2

Where do you think you're going to be

Speaker 8

able to run the business as a standalone profitable? And then you'd take the AMP on top of that. I'm just trying to and then maybe because we're thinking about the sharing of this and how it will all work. So I'm just trying to understand particularly what your pricing might be or how you're thinking about the business Given that the A and P kind of comes back to your last year. Thanks.

Speaker 2

Sure. That's it's a really good question. Let me split it in 2 pieces. Let's put 23 aside. It was 2023.

Speaker 2

Think about the pricing we have for 2023. And we priced this thing in August of last year when the inflation reduction Was being approved, and we thought it would take 12 to 18 months for it to get started. So we priced this year Based on the assumption, we need to keep our people, we need to keep the plants operating, we need to keep our capacity because it's going to get really good after 2023. So the pricing this year is not reflective of the way we're pricing our towers going forward. The business needs to be profitable by itself.

Speaker 2

And we see the tax rate as additive to our margins. Will we be able to keep 100% of it? We've already said we are giving some to our customers, but the majority we will keep. So the idea of the business is to have Strong margins in the business and added tax rate from top of it.

Speaker 8

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

Speaker 8

Thanks.

Speaker 2

Sure. Most of our orders right now are dry cargo barge. And the market where we're seeing really pent up demand is in the dry cargo barge. That's the market that's been slower for the longer Period of time, that's where the aging of the barges is higher. But we are seeing so most of the demand we're seeing and most of the barges We're getting our dry cargo.

Speaker 2

We are getting some smaller liquid barges, 10 ks as we call them. Those are more for petrochemical. Believe it or not, we're seeing some demand for the larger liquid barges and for some more smaller liquid barges. So we are seeing the markets out there. And when you see the utilization rates of the liquid barges are very high, the fleet It's not as old as the dry cargo, but it's getting there.

Speaker 2

And it's not old on average, but You have some very new barges and you have some very old barges. So there is replacement that's going to happen in the liquid, maybe not as strong as the dry cargo, But it's happening. So probably over the next year or so, where you will see us grow the most is in dry cocoa.

Speaker 8

Okay. And then if I could just sneak one more in. So I guess the way I'm looking at this is construction is doing quite well, barges is really coming out of Troughs, wind towers is really starting to benefit here. So those are 3 Big important growing businesses, but then you have a couple of other businesses that are much smaller and especially as these three businesses continue to get larger, Relatively speaking, those other businesses become smaller. I know you got rid of the storage tank business.

Speaker 8

Are there any plans To get rid of some of these other, call it, non core businesses, I know you've talked about it before, but given the strength that you're seeing across these other, called 3 segments. Does that encourage you or kind of increase your desire to shed some of those businesses? Thanks.

Speaker 2

Sure. No, I think we've been very clear that we will simplify the company as the businesses get ready to and have become, Let's say, in an attractive position to be disposed of. So we've been clear about that. There are certain things that need to Happened for each business to be ready. I've been clear that I don't expect to sell them at the peak of their cycles.

Speaker 2

So I think like I've always said, M and A has takes a life of its own, but We're going to continue to push the idea that this company is too complex for our size, and we're going to continue to simplify it and monetize Some assets have continued to reinvest in our growth business, especially on M and A in construction and organic in construction and engineering structure. So that's going to continue to happen. Timing, I cannot tell you, but it's up there in our main priorities.

Speaker 8

Okay. Thank you very much.

Operator

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

Speaker 1

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

Operator

That concludes today's teleconference. Thank you for your participation. You may now disconnect.

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