Good morning, ladies and gentlemen, and welcome to the Arcosa's First Quarter 2019 Earnings Conference Call. My name is Ashley, and I'll 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, Gail Peck, Senior Vice President of Finance and Treasurer for Arcosa. Ms. Peck, you may begin.

Thank you, Ashley. Good morning, everyone. Thank you for joining our first quarter 2019 earnings call. With me today are Antonio Carrillo, President and CEO; and Scott Beasley, CFO. A question-and-answer session will follow their prepared remarks. A copy of yesterday's press release and a slide presentation for this morning's call are posted at our website, www.arcosa.com. You can access the presentation by going to the Events tab under the Investors section of the website. A replay of today's call will be available for the next two weeks. Instructions for accessing the replay number are included in the press release. A replay of the webcast will be available for one year on our website. Today's comments and presentation slides contain financial measures that have not been prepared in accordance with generally accepted accounting principles. Reconciliations of non-GAAP financial measures to the closest GAAP measure are included in the appendix of the slide presentation. Let me also remind you that today's conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the Company's SEC filings, including its Form 10-K, for more information on these risks and uncertainties. I would now like to turn the call over to Antonio.

Thank you, Gail. Good morning, everyone. Thank you for participating in today's call to review Arcosa's first quarter results and discuss our business outlook. We are pleased with the way the quarter evolved, and see this as a strong start to a year of strong growth for Arcosa. As you know, our business model has been developed around three primary operating segments, each comprised of several product lines serving different end markets within the infrastructure sector. This gives us multiple platforms for growth, as well as significant resilience to quarter specific events such as weather, shipment timing, maintenance slowdowns, et cetera. That can impact any of our business lines. Our first quarter performance benefit from having this broad exposure to infrastructure end markets, as well as from successful organic projects and the addition of ACG Materials, which we acquired in December last year. Please move to slide four, where we list what we consider to be the key strategic highlights for the first quarter. First, our results exceeded our regional expectations, specifically on the Energy Equipment segment, and provide a strong start to the year. Next, the ACG acquisition is performing to plan, integrating very well into our Construction Product segments and has broadly did potential bolt-on acquisitions that we're currently working on. Also, the application of lean manufacturing process in the utility structures unit of our Energy Equipment segment that began late last year is starting to pay off. We saw increased throughput another operating efficiencies that contributed to first quarter EBITDA growth. And in transportation products, we continue to see good demand for liquid barges. And while we did see some orders for hopper barges, demand remains soft. At the same time, the previously announced production ramp up at our facilities is going as planned and positions us…

Thank you, Antonia, and good morning, everyone. Our first full quarter as a public company served as a strong start to 2019. While it is early in the year, we feel good about our first quarter success and our positioning for the rest of the year. I will give more color on each segment's financial results during the quarter, starting with slide nine. Construction products performed roughly in line with our expectations, revenues increased 51% to $106 million. Adjusted EBITDA of $21.5 million was $4 million higher than last year, reflecting a 20.3% margin. Three main factors contributed to the year-over-year margin decline. First, as Antonia discussed annual ACG margins are closer to 20%, which lowered our segment margins, but were accretive to our overall our Arcosa margins. Second, volumes and margins in our legacy aggregates business are still at healthy levels. But we face some expected volume and pricing headwinds in our DFW market, as well as a tough comp from last year. Third, product mix and planned maintenance shutdowns in our specialty lightweight aggregates business impacted margins, volumes improved, but the mix shifted to lower margin products. Putting it all together, we are pleased with our first quarter construction segment margins and expect margins to improve in the seasonally stronger second and third quarters of this year. We see solid progress on our stage one priority of growing construction products in a disciplined way. Please turn to slide 10. Energy Equipment had a terrific first quarter, which was a combination of operational improvements, and a few special items that we want to point out. Revenues increased 7% to $209 million. Adjusted EBITDA of $35 million was up 39% from last year. The adjusted EBITDA margin of 16.8% was driven by four main factors, continued strong operating performance in…

Thank you, Scott. In closing, I think there are three takeaways from our first quarter performance. First, we're executing well on the near-term priorities that we set last year as we prefer to enter the public markets. Second, our first quarter results have put us firmly on track to achieve the guidance we provided earlier this year, which represents strong year-over-year growth and substantial operating leverage. And third, we continue to be optimistic about the fundamentals of the general infrastructure market to which we are broadly exposed. Given our mix of businesses, you may not see a straight line up across each one of our segments and product lines every quarter, but you should see our positive trends that will lead to long-term sustainable growth. And as we noted on slide 15, we have a vision for the future that has not changed. It involves growing our businesses in attractive markets where Arcosa can achieve sustainable competitive advantages, reducing the complexity and cyclicality of the business as a whole, improving the long-term returns on invested capital, and integrating ESG initiatives into our long-term strategy and our D&A. Operator, I would now like to open the call to questions.

[Operator Instructions] And we'll take our first question from Justin Bergner. Your line is open. Please go ahead.

Good morning, Antonio, and good morning, Scott. Congratulations on a nice start to the year.

Thank you.

I guess where we'd like to start is, a lot of the strength in the quarter was driven by utility structures. And while you highlighted the margin improvement on the call and that's very good. In the press release, I guess, you highlighted the revenue growth and order growth from utility structures. Maybe you could just provide a little bit more detail there and how sort of -- how much visibility do you have in terms of the sustainability of that strength on the demand side?

So this is Antonia, Justin. Let me give you a little sense of the market. So I think I am going to be a little broader than just utilities, because the quarter was a good quarter, I would say, across the board in the energy group. So on the wind tower side, we mentioned the margins continue to be good, our business performing really well, our lean initiatives have been tremendous, and the team is doing a very, very nice job. On the utility structures, we saw a significant progress during the quarter in terms of the lean throughput that we were expecting. I also mentioned in my remarks that that's helping our on-time delivery. So we have significant operational issues in the business that we have to fix. And as I mentioned in my script also as we fix those things. I'm very confident that the market is showing good signs of, let’s say, of demand. And as we increase our throughput, we'll be able to capture more of those orders. So we have things to do inside, before we can expect those, and I think we're on track for that. But when we increase our throughput, what happens is, you kind of hit on your backlog, and now we have to go out and sell more. So it's a balancing act as we improve our operations to go into the future and start selling more with more confidence. So I think we're on the right track. And that's why Scott said, look, I think over the next few quarters our margins will be a little lower than what we did in the first quarter. But we are on the right track and we expect our margins to continue to improve sequentially, compared to last year. And all those work and bidding activity were up compared to last year. So I think the market is healthy, and we have work to do internally to be able to perform well. We also mentioned our storage tank and Mexico business, both are turning around well and performing better. And we divested two businesses that were not performing last year, and were dragging our results down. So all that combination is what drove the margins up.

Okay, great. That's good to hear the full view on the segment. In the barge business, I guess, in order to get to 70% revenue growth, I guess, the next couple quarters have to average at least $80 million of revenue per quarter. What's going to sort of drive that ramp just the new plant in part or are there any, I guess, capacity constraints, internal operating constraints to get to that 70% to 80% growth.

It's -- the new barge plant, as Scott mentioned, we plan to launch our first barge early third quarter. So really, that -- and it's not going to be the main driver, it’s the smallest in terms of production from the three plants. So really what we're doing and that's one of the reasons why we are focusing a lot on this business is, we have significant ramp ups going on in our other two facilities. We're investing -- part of the organic CapEx that you see this quarter being spent, we're spending on a new building in one of the plants, we're also building some new launch ways in that same plant. So what we are trying to do is to increase the throughput in the two facilities, the two large facilities that we have. And at the same time, let's say, invest in our processes so that at the same time while we ramp up, we increase our efficiencies. So that's where we're focused, we're confident in our team. They know how to do it. We're not seeing any bottlenecks. The first quarter was kind of special with all this the flooding of the facility. The river overall had a significant amount of problems in terms of the currents were very hard and we couldn't launch barges for a few days, et cetera. But we're confident that the facilities are performing well and should deliver the production that our customers expect.

Great, thanks for taking my questions.

We'll take our next question from Craig Bibb with CJS Securities, your line is open.

Hey, this is Stefanos Chris [ph] calling for Craig, congrats on the quarter. Could you talk about the improvements in the energy equipment margins and just difference between the efficiency gains versus the sale of the low margin businesses?

Sure, this is Scott, Stefanos, good to talk to you. So, the margin improvement was really a mix of all the four factors that Antonio mentioned, wind towers, utility structures, the divestment of cryogenix and oilfield equipment. And then the piece we haven't done I talked to my script was the $2.9 million bad debt recovery from a utility structures project. So the bad debt recovery was the biggest piece and that's a one-time item that we wouldn't anticipate going forward. The other pieces were kind of relatively in line driving margins up. And then the other piece that I talked about in my script that is not necessarily going to be repeated was the favorable product mix and utility structures that as we work through our production schedule may be less favorable in Qs two and three, but those were the four big drivers of the margin improvement.

Got it, thanks. And then just one more quick one. You were clear that most of the backlog for barge was liquid, but can you tell us a little bit more about the dry barge demand?

Yes, this Antonio, Stefanos, good morning. So, as we said we do have some orders, there's not a large number. We are seeing improved activity in terms of bidding, there's more customer interest. I think, on the dry cargo side I mentioned in my script that there's a high degree of awareness of the steel prices to put it in a way. Our customers are trying to figure out that's what we perceive, trying to figure out where steel prices are going because such a big portion of the cost of a barge. And I think steel prices while are still high, they have come down some, but is one of the limiting factors in new bar orders. But we are optimistic that we are seeing some more enquiries and some more bidding activity as I mentioned in the script. The market is not a building even at replacement volumes that should be happening. So it's not very robust, but we see some signs of improvement.

That sound good. Thank you guys and congrats again.

Thank you.

And we'll take our next question from Ian Zaffino with Oppenheimer. Your line is open.

Hi, great, thank you very much. Just turning to the balance sheet, obviously net debt is near zero. And you gave a good slide about what you want to do with your capital. What I'm kind of looking at here now is the mention that you can do more bolt-ons in the business. How big are those bolt-ons going to be? I mean, is there an appetite or is there availability to do anything larger than that? I know that's been something that you talked about maybe doing some larger, maybe adding a little debt. So has anything changed as far as that outlook, or just give us an idea of what's going to go on the M&A side? Thanks.

Good morning, Ian, this is Antonio. So I think nothing has changed. The bolt-ons are relatively small at the moment. And I mentioned what we're looking for and we think that's how ACG was built with small bolt-ons and a good capacity to integrate them and to buy them are reasonable multiples, well below where we bought ACG. With the idea that we integrate them and we start generating both synergies, but also new products, et cetera. So we're excited with the list of companies we're looking at. I think it's a -- it also provides us additional geographic and product diversity. We -- before we bought ACG we were very, very concentrated in the DFW area, we needed some diversification. So nothing has changed, we continue to believe that construction segment will be the main focus of our M&A. On the larger side, we are open to larger opportunities if we find them. We should not forget that ACG was a large acquisition for us. It was -- it grew our revenues by almost 50% on a yearly basis, it has over 20 mines. So it's a significant buy for us. It's integrating very well, it's performing very well. I just need to give our team some time to digest and to do the right thing. But we are open, if we find the right opportunities we'll -- I think we have the bandwidth and the team to be able to do it.

Okay, thank you very much.

And we'll take our next question from Bascome Majors with Susquehanna. Your line is open.

Thank you. I want to follow-up on an earlier question about the cadence of the ramp in your barge business. Directionally speaking, can you give us any sense of the magnitude between 1Q to 2Q, 3Q and 4Q from a revenue perspective?

Sure Bascome, this is Scott good to talk to you. We -- the ramp up is relatively stable kind of Q -- well, throughout the rest of the year ramps up each sequential quarter, Q2 will be above Q1, Q3 will probably have a bigger bump from Q2 because that's when Madisonville will be producing. And then Q4, probably not as big of a step change from -- as the previous quarter because all three will be running, but they'll be running at a higher capacity. So that's a rough magnitude of the way to think of it, but it should increase sequentially each quarter.

And where you land in 4Q, should we consider that a run rate or is there still more capacity and that existing footprint continue to push that higher into 2020 if demand warrants?

Sure, there's definitely will be existing capacity in the manufacturing footprint. So, if you think back to peak bars levels that was $650 million of revenue, that was four operating plants. But our goal is to be able to operate potentially the three plants as efficiently as we did four originally. So we definitely have the bandwidth within three plants to ramp up beyond where we'll be in Q4. And then if we need to, we can open up our fourth plant. I'll say, one of the -- it's still a significant ramp up this year. We're talking 70% to 80%. So, our team is doing a great job at the local level hiring with partnerships, with technical colleges, and relationships in the community. But, the 70% to 80% ramp up this year is pretty significant. And then when you look into 2020, we already have $120 million of backlog, which is a very good spot to be in, sitting in May right now.

Thank you. And last one on barge, clearly the margins typically follow the revenue ramp in this type of business as you're adding capacity. Will we start to see a peak of what a more normalized margin should look like in 4Q is that really a 2020 kind of event?

If you're talking about peak margins, the peak margins in the in the Marine business were kind of in the 20% range. But that was when the dry and liquid barges were both very strong and all four plants were running at almost near capacity. So, we're not going to be there given where we are now and the dry markets still being soft. So we're not going to be at a peak margin even by Q4 or early in 2020 unless the dry market picks up significantly.

And realizing last one, for me realizing it's May 3, 2019, I think it was a great time to ask about 2020. But, any visibility you have into certain items that you'd be willing to talk about for next year as we kind of think about the directory the business mid-term, whether it -- I mean, clearly barge backlog is one thing that we've already discussed, the corporate expenses or anything along those lines, just any high level thoughts, we can think about your business that you're willing to share going out a year. Thank you.

Bascome, this is Antonio, let me give you a little sense of what we are seeing and our expectations. But more importantly, if you look at our exposure to the infrastructure market, we're very optimistic about the fundamentals of the markets where we are on the general view of where things are. Starting with Construction Materials, I think there's I mentioned significant public and private spending in our regions. So I think the markets are healthy. So overall, we're optimistic about the work that's going. On the energy side, we saw -- we see good demand on transmission. I think all this electrification that's coming around, it should have a positive fundamentals for the transmission business. The wind tower business, we are starting to quote some additional things for 2020. And we have a very strong backlog in wind and in barge to start 2020. On the liquid side of the barges, there's a significant amount of petrochemical activity still happening in the Gulf and a lot of those plants are coming online as we speak. So the fundamentals are there for liquid barges to continue to move, the oil prices continue to be relatively healthy. And so, overall, I would say science are good for our businesses to -- maybe we don't have the backlog for us to say that the second part of 2020 and we don't have enough visibility. But that's the case, I would say with most of our businesses. We don't live with the exception of the wind tower for a very long period. We also have the infrastructure build, which we don't know what's going to happen, but we're optimistic that the infrastructure is going to be a priority for this country. So, overall, we're optimistic.

Thank you.

And we'll take our next question from Zane Karimi with D.A. Davidson. Your line is open.

Good morning, this is Zane on for Brent. First one, I was kind of hoping for more color on the wind tower market. Particularly in 2019, and what kind of momentum and activity you're seeing there? And then, with regards to the energy equipments, kind of just understanding the investments going into improved productivity. And are these areas you'll need to invest in to improve the competitiveness of that business or more so to defend your current market share?

Yes, Zane, this is Antonio. Starting with the wind tower question, in the last call, and this is something that is evolving, and I mentioned it today again, this market without the PTC as it ramps down. I think as a company, we were very, very -- we’re very good at making wind towers that’s first of all one of the things I believe that this company is really good at making this wind towers, which are very complex pieces of equipment people believe it's only a piece of pie, but it’s -- they are very complex piece of equipment with high tolerances and difficult to make. But, overall, I would say because we will not have a PTC the industry got used to very long-term orders we would get this orders for four, five years for $1 billion or $600 million. And I think that the industry is changing is going to be a much more project oriented industry similar to most of industries around. So I think if there is a big project in the Midwest we’ll have to bid for that big project in the Western and if it’s in Texas we will bid for that and our plants are very well-positioned to think advantage of the high wind direct in the U.S. So what I’m trying to say, I think I’m not scared that we don’t have the backlog for 2021, I’m very optimistic about the long-term fundamental of the industry. I think that with the change in the way businesses going to work without a PTC we will probably -- we see some slowdown. But overall I believe in the fundamentals of wind and the fundamentals of clean energy. I think this world is not going back from those trends. So I am optimistic about the future of wind. Will we get more orders, I’m convince we will get order for 2020 and 2021 and will continue to be a strong player here. On the transmission side, the first thing we have to do to improve our numbers is work on our processes rather than investing a lot of money is basically working on our lean process, which is more process than any new equipment. As we extract more and more efficiencies from our current equipment and processes probably we’ll have to invest, but we don't foresee anything that's a major investment that we need to do in the near future to improve our margins and our throughput. Once we get to a certain capacity then, of course, we will think about bigger investments, for the moment we don’t see that’s happening.

Thank you for that. And then transitioning over to construction product there. Can you talk about your strongest markets or regions for construction products where you see the most demand pull from today. And then, also your thoughts on a potential diversification from construction products out of Texas?

Yes, so this Antonio, again, our biggest market continues to be Texas and we're very, very strong in the DFW area. We have a good presence in Central Texas and in the Gulf Coast area. Those are the three main regions. With ACG we also got a significant exposure to the construction infrastructure around the Permian Basin. So we also have a presence in West Texas in the Permian Basin. With ACG we got a significant exposure to Oklahoma, we have a small exposure to Louisiana. And then, we have Nevada something in the Midwest and the Northwest of the U.S. that came with ACG, that’s on the pure aggregate side. On the Specialty Materials, we’ve mentioned that this material is a little different, it’s a material that travels much further than the aggregates. So we have plants around the country and we serve a national market. So it’s a more product oriented and geographic oriented market and with HD we also got some Specialty Materials. So I’m not sure I answered your question, but those are the two main areas where we are very strong. Going forward we want to grow. I think we see ACG’s acquisition as a platform and we will be able to evaluate potential acquisitions based on their own merits once we see them.

Perfect. And then one quick follow-up there, I know you guys don’t require average sales prices, but could you speak qualitatively at least about your own pricing initiatives and plan for 2019 to produce products?

Sure, this is Scott. It obviously varies market by market and we’ve talked about in DFW there have been some pricing headwinds as additional supplies come into the market. But in other geographies we've been able to -- ASP has increased and across ACG’s footprint in general, which is not DFW centric, ASPs have increased roughly in line with industry numbers. So it's market-by-market, but healthy across the board.

Thank you.

And we'll take the next question from Blake Hirschman with Stephen Incorporated. Your line is open.

Yes, thanks. Good morning, guys. Congrats on a good quarter.

Thank you, Blake.

First off, I could have missed it. But could you unpack what ACG versus organic growth was in the construction products piece of business this quarter?

Sure, this is Scott. We don't break it out separately. But what we said was ACG was roughly in line with our expectations at the time of acquisition. So that did well. And then organically driven by the pricing and volume headwinds that we talked about in DFW, the legacy businesses shrunk a little bit. But again, that was expected and part of the trend that we had talked about with very healthy margins compared to the industry, but some additional supply coming into the market that hurt pricing.

And on components, is there any update there or anything kind of notable to call out in your first few months of operating as a standalone? And kind of with the Trinity agreements in place, just curious if there's any color there?

Sure, I think, it's -- we've talked about the diversification strategy that -- our former parent is obviously a big customer. And over time, we want to grow and diversify the customer base. We're making early progress on that strategy. We've received some nice new orders from customers both on the railcar builder side, but also maintenance services, railroads, it's a broader market than just railcar builder. So I'd say it's early, but the signs are positive commercially. And then operationally, we're very focused on being as competitive as possible reducing waste in the system. And the team has done a really good job with their own set of clean initiatives.

Got it. And then, just lastly, cash flow generation was nice in the quarter, can you kind of remind us how you guys think about it from a conversion standpoint? I mean, I got the guidance for this year, but kind of longer term, whether you guys comp it to net income or EBITDA and kind of what the conversion rates that you're typically looking for are? Thanks.

Sure. So we talked about the goal at Investor Day was to have working capital as a lower percentage of sales as we go forward. We know that it was elevated going into this year for a few different reasons. We had some customer terms on a few large contracts that extended into Q1. And then we had some spin related items in ACG related increases. The team did a really good job resolving a lot of those generating $75 million of working capital on the quarter. And we would expect to consume a portion of that and the barge business this year, but still end up the year with working capital as a smaller percentage of sales than we did at the end of last year.

Thanks, guys.

And at this time we have no further questions. I'll turn the call back over to Gail Peck for any closing remarks.

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

And this does conclude today's program. You may disconnect at any time.