Arcosa, Inc. Announces Fourth Quarter and Full Year 2018 Results and Increases 2019 Guidance

  • Reports higher fourth quarter revenues, net income, and adjusted EBITDA
  • Raises full year 2019 adjusted EBITDA guidance to a range of $215
    million to $225 million following recently-completed ACG Materials
    acquisition

DALLAS–(BUSINESS WIRE)–Arcosa, Inc. (NYSE: ACA) (“Arcosa” or the “Company”), a provider of
infrastructure-related products and solutions, today announced results
for the fourth quarter and full year ended December 31, 2018.

Fourth Quarter Highlights

  • Revenues were $374.4 million, up 8%
  • Net income was $27.7 million, up 17%; excluding non-routine items,
    adjusted net income was $19.8 million, up 14%
  • Diluted EPS of $0.56, up 17%; adjusted diluted EPS of $0.40, up 11%
  • Adjusted EBITDA of $45.4 million, up 12%

Full Year Highlights

  • Revenues were $1,460.4 million, essentially flat with 2017
  • Net income was $75.7 million, down 16%; excluding non-routine items,
    adjusted net income was $89.1 million, up 7%
  • Diluted EPS of $1.54, down 16%; adjusted diluted EPS of $1.82, up 6%
  • Adjusted EBITDA of $186.5 million, down 6%

Commenting on the results, Antonio Carrillo, President and Chief
Executive Officer, noted, “Arcosa made significant progress on a number
of key strategic initiatives in the fourth quarter, our first as an
independent, publicly-held company, which we believe has set the stage
for a return to growth in 2019. We successfully completed the separation
from Trinity Industries, Inc. on November 1st, executed the acquisition
of ACG Materials in our Construction Products Group, reopened a
previously-idled barge facility in Transportation Products responding to
the ongoing market recovery, and advanced the roll-out of our continuous
improvement program to expand margins across our Energy Equipment
businesses.

“The benefits of our broad infrastructure market exposure were clear in
the fourth quarter, as contributions from our Transportation and Energy
Equipment segments offset the effect of record rainfall in Texas which
hampered our aggregates business.

“Order trends were positive in the fourth quarter, setting the stage for
future growth. We were pleased to add to our wind tower backlog with an
order we received for $38 million in December; our book to bill ratio
for inland barges continued to be strong, and we received several
railcar components orders from new customers,” Mr. Carrillo noted.

2019 Outlook and Guidance

The Company also announced that it has raised its 2019 full year
adjusted EBITDA guidance to a range of $215 million to $225 million from
its prior guidance range of $180 million to $195 million. The Company
increased its full year 2019 revenue guidance to a range of $1.70
billion to $1.80 billion from its prior guidance range of $1.55 billion
to $1.65 billion. The guidance increase reflects the acquisition of ACG
Materials, a producer of specialty materials and aggregates, which
closed on December 5, 2018.

Commenting on the outlook for 2019, Mr. Carrillo noted, “We see positive
revenue and earnings momentum across all of our operating segments in
2019. The mid-point of our adjusted 2019 EBITDA guidance range reflects
18% year-over-year growth, after absorbing additional standalone company
costs and initial pricing on a long-term components contract.

“We remain focused on our stage one priorities: growing our Construction
Products business, improving margins in Energy Equipment, expanding our
Transportation Products business as markets continue to recover, and
operating a lean corporate structure.

“The ACG Materials acquisition significantly strengthened our presence
in attractive specialty materials and aggregates markets in our
Construction Products business. The acquisition also brought with it a
robust pipeline of bolt-on acquisitions and organic investment
opportunities that are expected to improve our long-term return on
invested capital.

“In Energy Equipment, we expect to continue making progress on our lean
initiatives in 2019. Additionally, our wind tower, utility structure,
and storage tank end markets look promising for 2019, with positive
demand dynamics and substantial order backlogs in place.

“In Transportation Products, orders and inquiries in our barge business
continue to improve from 2018 levels, our backlog provides solid
production visibility, and our recently re-opened facility in
Madisonville, Louisiana is on track to deliver its first barge in
mid-2019. Additionally, we are making progress winning new customers in
our railcar components business.”

Mr. Carrillo concluded, “In 2019, we will continue to work toward making
progress on our long-term vision of growing in attractive end markets,
reducing the complexity and cyclicality of our business, improving our
return on invested capital, and implementing environmental, social, and
corporate governance programs and goals across the organization.”

Segment Results – Construction Products

Revenues increased 2% to $65.6 million in the fourth quarter,
benefitting from one month of operating results from the December
acquisition of ACG Materials. Operating profit for the fourth quarter
was $5.1 million compared to $11.2 million in 2017. Fourth quarter
adjusted Segment EBITDA was $12.4 million, $3.9 million lower than a
year ago. Heavy rains in Texas made October the wettest on record for
the state, reducing aggregates volumes which accounted for the bulk of
the fourth quarter EBITDA decline. Importantly, year to date in 2019,
revenues and profitability have returned to more normalized levels.

Segment Results – Energy Equipment

Revenues were up 7% year-over-year to $207.0 million during the fourth
quarter. Operating profit for the fourth quarter was $16.1 million
compared to $15.2 million in 2017. Adjusted Segment EBITDA increased 2%
to $23.2 million due to improved performance in the utility structures
business, higher wind tower volumes, and the exit of certain subscale
businesses during the quarter. The segment received a $38 million wind
tower order during the quarter and ended the year with a combined
utility structures and wind towers backlog of $633.1 million, down from
$700.3 million at September.

Segment Results – Transportation Products

Fourth quarter revenues increased 12% to $102.1 million. Operating
profit for the fourth quarter was $13.2 million compared to $8.1 million
in 2017. Adjusted Segment EBITDA increased 31% to $17.0 million from
$13.0 million, benefitting from higher inland barge volumes and improved
operating efficiencies in both inland barge and steel components.
Backlog for inland barges was $230.5 million at the end of the year, up
from $210.4 million at the end of September. Book to bill was 1.4 in the
quarter, marking the fourth consecutive quarter with a ratio above 1.0.

Additional Notes on Financial Results

The non-routine items excluded from adjusted net income, adjusted
diluted EPS, and adjusted EBITDA for the three and twelve months ended
December 31, 2018 and 2017 are outlined in the accompanying tables and
relate to the enactment of U.S. tax reform, the previously disclosed
impairment and subsequent sale of businesses in the Energy Equipment
segment, and the fair value mark-up of acquired ACG Materials inventory.

Corporate costs were $7.4 million during the fourth quarter compared to
$11.3 million last year, as certain corporate expenses and
administrative fees were only reflected for the two months of the fourth
quarter that Arcosa was an independent public company. In 2019, as
previously disclosed, the Company anticipates higher annual corporate
costs as a standalone company. Included in its 2019 adjusted EBITDA
guidance range are expected corporate costs of approximately $50 million.

Other, net income was $3.0 million during the fourth quarter compared to
an expense of $1.6 million last year primarily due to a favorable
foreign currency impact.

The Company reported an effective tax rate of 3.8% during the quarter,
benefitting from two non-routine items. The divestitures in Energy
Equipment reduced tax expense by $7.7 million and the finalization of
the accounting for enacting U.S. tax reform reduced tax expense by $0.8
million. Adjusting for these items, the effective tax rate was 33.3%. In
the fourth quarter of 2017, the effective tax rate was (9.8%). Adjusting
for the $6.2 million benefit from U.S. tax reform, the effective tax
rate was 19.1%. The Company expects a normalized annual tax rate of
25.0% in 2019.

Liquidity and Capital Allocation

The Company ended the year with $99.4 million of cash and cash
equivalents. Combined with unused capacity under its committed credit
facility, the Company had $271.7 million of liquidity at December 31,
2018.

During the year, the Company invested $44.8 million in capital
expenditures and $333.2 million in acquisitions, including the
approximately $309 million acquisition of ACG Materials. The Company
funded the acquisition of ACG Materials with cash on hand and $180
million of borrowings under its revolving credit facility.

In December, the Company’s Board of Directors approved a $50 million
share repurchase authorization. Approximately $3.0 million, or 124,272
shares, was repurchased during the quarter. Also, in December, the
Company declared an inaugural quarterly dividend of $0.05 per share that
was paid in January.

Non-GAAP Financial Information

This earnings release contains financial measures that have not been
prepared in accordance with generally accepted accounting principles
(GAAP). Reconciliations of non-GAAP financial measures to the closest
GAAP measure are included in the accompanying tables to this earnings
release.

Presentation of Financials

The spin-off of the Company by Trinity Industries, Inc. (“Former
Parent”; NYSE:TRN) was completed on November 1, 2018. The Company’s
financial statements for periods prior to November 1, 2018 were prepared
on a “carve-out” basis. The carve-out financials of the Company are not
necessarily representative of the amounts that would have been reflected
in the financial statements had the Company been an independent company
during the applicable periods.

Conference Call Information

A conference call is scheduled for 8:30 a.m. Eastern time on February
28, 2019 to discuss the 2018 fourth quarter as well as the outlook for
2019. To listen to the conference call webcast, please visit the
Investor Relations section of Arcosa’s website at http://ir.arcosa.com/Events.
A slide presentation for this conference call will be posted on the
Company’s website approximately 15 minutes before the start of the call
at http://ir.arcosa.com/Events.
The audio conference call number is 800-894-5910 for domestic callers
and 785-424-1052 for international callers. The conference ID is ARCOSA.
An audio playback will be available through 11:59 p.m. Eastern time on
March 14, 2019, by dialing 800-839-5642 for domestic callers and
402-220-2564 for international callers. A replay of the webcast will be
available for one year on Arcosa’s website at http://ir.arcosa.com/Events.

About Arcosa

Arcosa, Inc. (NYSE:ACA), headquartered in Dallas, Texas, is a provider
of infrastructure-related products and solutions with leading positions
in construction, energy, and transportation markets. Arcosa reports its
financial results in three principal business segments: the Construction
Products Group, the Energy Equipment Group, and the Transportation
Products Group. For more information, visit www.arcosa.com.

Some statements in this release, which are not historical facts, are
“forward-looking statements” as defined by the Private Securities
Litigation Reform Act of 1995. Forward-looking statements include
statements about Arcosa’s estimates, expectations, beliefs, intentions
or strategies for the future. Arcosa uses the words “anticipates,”
“assumes,” “believes,” “estimates,” “expects,” “intends,” “forecasts,”
“may,” “will,” “should,” “guidance,” “outlook,” and similar expressions
to identify these forward-looking statements. Forward-looking statements
speak only as of the date of this release, and Arcosa expressly
disclaims any obligation or undertaking to disseminate any updates or
revisions to any forward-looking statement contained herein, except as
required by federal securities laws. Forward-looking statements are
based on management’s current views and assumptions and involve risks
and uncertainties that could cause actual results to differ materially
from historical experience or our present expectations, including but
not limited to assumptions, risks and uncertainties regarding
achievement of the expected benefits of Arcosa’s separation from Trinity
Industries, Inc.; tax treatment of the separation; failure to
successfully integrate the ACG Materials acquisition, or failure to
achieve the expected benefits of the acquisition; market conditions and
customer demand for Arcosa’s business products and services; the
cyclical nature of, and seasonal or weather impact on, the industries in
which Arcosa competes; competition and other competitive factors;
governmental and regulatory factors; changing technologies; availability
of growth opportunities; market recovery; improving margins; and
Arcosa’s ability to execute its long-term strategy, and such
forward-looking statements are not guarantees of future performance. For
further discussion of such risks and uncertainties, see “Information
Statement Summary”, “Risk Factors” and “Forward-Looking Statements” in
the information statement filed as an exhibit to Arcosa’s Registration
Statement on Form 10, as amended, and “Risk Factors” and the
“Forward-Looking Statements” section of “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in Arcosa’s
Form 10-K for the year-ended December 31, 2018 which is to be filed on
or about February 28, 2019.

   
Arcosa, Inc.
Condensed Consolidated and Combined Statements of Operations

(in millions)

(unaudited)

 
Three Months Ended
December 31,
Year Ended
December 31,
  2018       2017     2018       2017
Revenues $ 374.4 $ 347.5 $ 1,460.4 $ 1,462.4
Operating costs:
Cost of revenues 310.9 282.0 1,188.4 1,167.7
Selling, engineering, and administrative expenses 36.8 42.4 153.9 163.0
Impairment charge           23.2    
  347.7     324.4     1,365.5     1,330.7
Operating profit 26.7 23.1 94.9 131.7
 
Interest expense 0.9 0.9
Other, net (income) expense   (3.0 )   1.6     (1.0 )   1.6
  (2.1 )   1.6     (0.1 )   1.6
Income before income taxes 28.8 21.5 95.0 130.1
Provision (benefit) for income taxes   1.1     (2.1 )   19.3     40.4
Net income $ 27.7   $ 23.6   $ 75.7   $ 89.7
 
Net income per common share:
Basic $ 0.56 $ 0.48 $ 1.55 $ 1.84
Diluted $ 0.56 $ 0.48 $ 1.54 $ 1.84
Weighted average number of shares outstanding(1):
Basic 48.9 48.8 48.8 48.8
Diluted 49.2 48.8 48.9 48.8

(1) For periods prior to the separation, the denominator for
basic and diluted net income per common share was calculated using the
48.8 million shares of common stock outstanding immediately following
the Separation.

Our effective tax rate reflects the Company’s estimate for its state
income tax expense, excess tax benefits or deficiencies related to
equity compensation, and the impact of dispositions of certain
operations. For the three months ended December 31, 2018, a tax benefit
of $7.7 million related to the disposition of a foreign entity was
recognized, whereas the book impairment charge recorded in the third
quarter prior to the disposition, with no corresponding tax benefit, was
recognized in the third quarter of 2018.

The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017.
The Act reduced the U.S. federal corporate income tax rate from 35% to
21%, required companies to pay a one-time transition tax on earnings of
certain foreign subsidiaries that were previously tax deferred and
created new taxes on certain foreign-sourced earnings. For the year
ended December 31, 2017, we recognized a provisional benefit of $6.2
million, primarily related to the impact of the Act on our deferred
taxes. During the year ended December 31, 2018, we finalized the
accounting for the enactment of the Act and recorded an additional $1.5
million benefit, primarily as a result of the true-up of our deferred
taxes.

   
Arcosa, Inc.
Condensed Segment Data

(in millions)

(unaudited)

 
Three Months Ended
December 31,
Year Ended
December 31,
Revenues:   2018       2017     2018       2017  
Construction aggregates $ 51.3 $ 49.8 $ 217.9 $ 204.9
Other   14.3     14.3     74.4     54.0  
Construction Products Group   65.6     64.1     292.3     258.9  
 
Wind towers and utility structures 155.4 137.7 582.9 652.1
Other   51.6     55.1     197.2     192.0  
Energy Equipment Group   207.0     192.8     780.1     844.1  
 
Inland barges 47.2 33.6 170.2 157.9
Steel components   54.9     57.6     221.2     205.4  
Transportation Products Group   102.1     91.2     391.4     363.3  
 
Segment Totals before Eliminations 374.7 348.1 1,463.8 1,466.3
Eliminations   (0.3 )   (0.6 )   (3.4 )   (3.9 )
Combined Total $ 374.4   $ 347.5   $ 1,460.4   $ 1,462.4  
 
Three Months Ended
December 31,
Year Ended
December 31,
Operating profit (loss):   2018     2017     2018     2017  
Construction Products Group $ 5.1 $ 11.2 $ 50.4 $ 53.7
Energy Equipment Group 16.1 15.2 28.6 78.4
Transportation Products Group 13.2 8.1 48.4 39.0
All Other       (0.1 )   (0.1 )   (0.1 )
Segment Totals before Eliminations and Corporate Expenses 34.4 34.4 127.3 171.0
Corporate (7.4 ) (11.3 ) (32.1 ) (39.3 )
Eliminations   (0.3 )       (0.3 )    
Combined Total $ 26.7   $ 23.1   $ 94.9   $ 131.7  
   
Backlog: December 31,
2018
December 31,
2017
Energy Equipment Group:
Wind towers and utility structures $ 633.1 $ 899.0
Other $ 55.1 *
Transportation Products Group:
Inland barges $ 230.5 $ 98.2
 

* Prior to January 2018, contracts within the Other businesses of the
Energy Equipment Group did not meet the Company’s historical definition
of backlog, which was firm, non-cancellable orders. With the adoption in
January 2018 of ASU 2014-09, “Revenue from Contracts with Customers,”
(“ASU 2014-09”) these amounts are now included in backlog due to the
fact that they contain substantive cancellation penalties.

   
Arcosa, Inc.
Condensed Consolidated and Combined Balance Sheets

(in millions)

(unaudited)

 
December 31,
2018
December 31,
2017
Current assets:
Cash and cash equivalents $ 99.4 $ 6.8
Receivables, net of allowance 291.4 165.3
Inventories 252.5 246.8
Other   23.7     9.9  
Total current assets 667.0 428.8
 
Property, plant, and equipment, net 803.0 583.1
Goodwill 615.2 494.3
Deferred income taxes 6.9 8.8
Other assets   80.1     87.5  
$ 2,172.2   $ 1,602.5  
Current liabilities:
Accounts payable $ 86.2 $ 56.0
Accrued liabilities 146.2 118.0
Current portion of long-term debt   1.8     0.1  
Total current liabilities 234.2 174.1
 
Debt 183.7 0.4
Deferred income taxes 58.3 11.0
Other liabilities   11.5     9.1  
487.7 194.6
 
Stockholders’ equity:
Former Parent’s net investment 1,427.7
Common stock 0.5
Capital in excess of par value 1,685.7
Retained earnings 19.5
Accumulated other comprehensive loss (17.7 ) (19.8 )
Treasury stock   (3.5 )    
  1,684.5     1,407.9  
$ 2,172.2   $ 1,602.5  
 

Certain current year balances may not be comparable to prior year due to
the required adoption of ASU 2014-09.

 

Arcosa, Inc.

Condensed Consolidated and Combined Cash Flow Statements

(in millions)

(unaudited)

 
Year Ended
December 31,
  2018       2017  
Operating activities:
Net income $ 75.7 $ 89.7
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 67.6 65.7
Impairment charge 23.2
Provision for deferred income taxes 22.4 10.3
Changes in current assets and liabilities

(80.8

) (0.5 )
Other  

10.4

    (3.2 )
Net cash provided by operating activities  

118.5

    162.0  
Investing activities:
Proceeds from dispositions of property and other assets 10.2 3.5
Capital expenditures (44.8 ) (82.4 )
Acquisitions, net of cash acquired

(333.2

) (47.5 )
Proceeds from divestitures   3.3      
Net cash required by investing activities  

(364.5

)   (126.4 )
Financing activities:
Payments to retire debt (0.3 ) (0.1 )
Proceeds from issuance of debt 180.0 0.6
Shares repurchased (3.5 )
Capital contribution from Former Parent 200.0
Net transfers from/(to) Former Parent and affiliates (34.5 ) (43.0 )
Other   (3.1 )   (0.3 )
Net cash provided by (required by) financing activities   338.6     (42.8 )
Net increase (decrease) in cash and cash equivalents 92.6 (7.2 )
Cash and cash equivalents at beginning of period   6.8     14.0  
Cash and cash equivalents at end of period $ 99.4   $ 6.8  
 

Arcosa, Inc.

Reconciliation of Consolidated and Combined Adjusted EBITDA

(in millions)
(unaudited)
 

GAAP does not define “Earnings Before Interest, Taxes, Depreciation,
Depletion and Amortization” (EBITDA) and it should not be considered as
an alternative to earnings measures defined by GAAP, including net
income. We use this metric to assess the operating performance of our
consolidated business, as a metric for incentive-based compensation, and
as a basis for strategic planning and forecasting as we believe that it
closely correlates to long-term shareholder value, and we believe this
metric also assists investors in comparing a company’s performance on a
consistent basis without regard to depreciation, depletion, and
amortization, which can vary significantly depending on many factors. We
adjust consolidated EBITDA for certain non-routine items (Adjusted
EBITDA) to provide a more consistent comparison of earnings performance
from period to period, which we also believe assists investors in
comparing a company’s performance on a consistent basis. Adjusted EBITDA
Margin is defined as Adjusted EBITDA divided by Revenues.

  Three Months Ended
December 31,
  Year Ended
December 31,
  Full Year
2019 Guidance
  2018       2017     2018       2017   Low   High
Revenues $ 374.4 $ 347.5 $ 1,460.4 $ 1,462.4 $ 1,700.0 $ 1,800.0
 
Net income 27.7 23.6 75.7 89.7 85.0 98.0
Add:
Interest expense, net 0.5 (0.1 ) 0.5 (0.1 ) 7.0 5.0
Provision (benefit) for income taxes 1.1 (2.1 ) 19.3 40.4 29.0 33.0
Depreciation, depletion, and amortization expense   17.9     17.5     67.6     65.7     92.0     87.0  
EBITDA   47.2     38.9     163.1     195.7     213.0     223.0  
Add:
Impairment charge 23.2
Impact of the fair value mark up of acquired inventory 0.8 0.8 2.0 2.0
Other, net (income) expense(1)   (2.6 )   1.7     (0.6 )   1.7          
Adjusted EBITDA $ 45.4   $ 40.6   $ 186.5   $ 197.4   $ 215.0   $ 225.0  
Adjusted EBITDA Margin 12.1 % 11.7 % 12.8 % 13.5 % 12.6 % 12.5 %

(1) Included in Other, net (income) expense was the impact of
foreign currency exchange transactions of $(2.4) million and $1.9
million for the three months ended December 31, 2018 and 2017,
respectively, and $(0.2) million and $2.2 million for the years ended
December 31, 2018 and 2017, respectively.

 

Arcosa, Inc.

Reconciliation of Adjusted Segment EBITDA

(in millions)
(unaudited)
 

“Segment EBITDA” is defined as segment operating profit plus
depreciation, depletion, and amortization. GAAP does not define Segment
EBITDA and it should not be considered as an alternative to earnings
measures defined by GAAP, including segment operating profit. We use
this metric to assess the operating performance of our businesses, as a
metric for incentive-based compensation, and as a basis for strategic
planning and forecasting as we believe that it closely correlates to
long-term shareholder value, and we believe this metric also assists
investors in comparing a company’s performance on a consistent basis
without regard to depreciation, depletion, and amortization, which can
vary significantly depending on many factors.

Contacts

Scott C. Beasley
Chief Financial Officer
Gail M. Peck
SVP,
Finance & Treasurer
T 972.942.6500
[email protected]

David Gold
ADVISIRY Partners
T 212.661.2220
[email protected]

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