Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide management's perspective on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Our MD&A is presented in the following sections:
•
Separation from Trinity
•
Basis of Historical Presentation
•
Executive Summary
•
Results of Operations
•
Liquidity and Capital Resources
•
Recent Accounting Pronouncements
•
Forward-Looking Statements
Our MD&A should be read in conjunction with the Consolidated and Combined Financial Statements of Arcosa, Inc. and subsidiaries (“Arcosa,” “Company,” “we,” and “our”) and related Notes in Part I, Item 1 of this Quarterly Report on Form 10-Q and the Consolidated and Combined Financial Statements and related Notes in Item 8, Financial Statements and Supplementary Data, of our Annual Report on Form 10-K for the year ended
December 31, 2018
(“2018 Annual Report on Form 10-K”).
Separation from Trinity
Arcosa is a Delaware corporation and was incorporated in 2018 in connection with the separation of Arcosa from Trinity Industries, Inc. (“Trinity” or “Former Parent”) on November 1, 2018 as an independent, publicly-traded company, listed on the New York Stock Exchange (the “Separation”). At the time of the Separation, Arcosa consisted of certain of Trinity’s former construction products, energy equipment, and transportation products businesses. The Separation was effectuated through a pro rata dividend distribution on November 1, 2018 of all of the then-outstanding shares of common stock of Arcosa to the holders of common stock of Trinity as of October 17, 2018, the record date for the distribution. Trinity stockholders received one share of Arcosa common stock for every three shares of Trinity common stock held as of the record date. The transaction was structured to be tax-free to both Trinity and Arcosa stockholders for U.S. federal income tax purposes.
Basis of Historical Presentation
The accompanying Consolidated and Combined Financial Statements present our historical financial position, results of operations, comprehensive income/loss, and cash flows in accordance with accounting principles generally accepted in the U.S. (“GAAP”). The combined financial statements for periods prior to the Separation were derived from Trinity’s consolidated financial statements and accounting records and prepared in accordance with GAAP for the preparation of carved-out combined financial statements. Through the date of the Separation, all revenues and costs as well as assets and liabilities directly associated with Arcosa have been included in the combined financial statements. Prior to the Separation, the combined financial statements also included allocations of certain selling, engineering, and administrative expenses provided by Trinity to Arcosa and allocations of related assets, liabilities, and the Former Parent’s net investment, as applicable. The allocations were determined on a reasonable basis; however, the amounts are not necessarily representative of the amounts that would have been reflected in the financial statements had the Company been an entity that operated independently of Trinity during the applicable periods. Related party allocations prior to the Separation, including the method for such allocation, are described further in Note 1, “Overview and Summary of Significant Accounting Policies” to the Consolidated and Combined Financial Statements. Following the Separation, the consolidated financial statements include the accounts of Arcosa and those of our wholly-owned subsidiaries and no longer include any allocations from Trinity.
Trinity continues to provide some general and administrative functions on a transitional basis for a fee following the Separation.
Executive Summary
Financial and Operational Highlights
The Company's revenues for the
three and six months ended
June 30, 2019
increased
23.0%
and
19.5%
to
$434.1 million
and
$845.0 million
, respectively, compared to the same periods in
2018
. Operating profit for the
three and six months ended
June 30, 2019
totaled
$42.3 million
and
$79.6 million
, respectively, representing an
increase
of
38.2%
and
28.8%
, respectively, from the same periods in
2018
. Revenues in our Construction Products Group increased for the
three and six months ended
June 30, 2019
compared to the same periods last year primarily due to increased volumes from the December 2018 acquisition of ACG Materials (“ACG”), partially offset by weather-driven volume declines in our legacy businesses. Operating profit for the group decreased primarily due to the decrease in revenues in the legacy businesses. The Energy Equipment Group recorded higher revenues and operating profit for the
three and six months ended
June 30, 2019
primarily due to higher unit volume in its wind towers and higher pricing levels in its utility structures business partially offset by the loss of revenues from businesses divested in 2018. Revenues from the Transportation Products Group increased for the
three and six months ended
June 30, 2019
when compared to the same periods last year primarily resulting from higher barge deliveries. Operating profit for the group decreased slightly during the same periods partially due to start-up costs incurred related to the re-opening of a previously idled barge facility.
Selling, engineering, and administrative expenses increased by
17.0%
and
12.9%
, respectively, for the
three and six months ended
June 30, 2019
when compared to the prior year periods largely due to additional costs from the acquired ACG business.
The Company's effective tax rate for each of the
three and six months ended
June 30, 2019
was
22.1%
, compared to
23.1%
and
24.8%
, respectively, for the same periods in
2018
. The decrease in the tax rate for the
three and six months ended
June 30, 2019
is primarily due to increased foreign tax benefits as well as increased valuation allowances in the prior periods that are not included in current periods. See Note 10, “Income Taxes” of the Consolidated and Combined Financial Statements.
Net income for the
three and six months ended
June 30, 2019
was
$31.8 million
and
$59.5 million
, respectively, compared with
$22.6 million
and
$44.8 million
, respectively, for the same periods in
2018
.
Our Energy Equipment and Transportation Products Groups operate in cyclical industries. Additionally, results in our Construction Products Group are affected by weather and seasonal fluctuations with the second and third quarters historically being the quarters with the highest revenues.
Unsatisfied Performance Obligations (Backlog)
As of
June 30, 2019
and
2018
our unsatisfied performance obligations, or backlog, were as follows:
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
June 30,
2018
|
|
(in millions)
|
Energy Equipment Group:
|
|
|
|
Wind towers and utility structures
|
$
|
517.6
|
|
|
$
|
780.1
|
|
Other
|
45.3
|
|
|
53.2
|
|
|
|
|
|
Transportation Products Group:
|
|
|
|
Inland barges
|
$
|
349.7
|
|
|
$
|
198.4
|
|
Approximately
52%
of unsatisfied performance obligations for wind towers and utility structures in our Energy Equipment Group are expected to be delivered during the year ending
December 31, 2019
, with the remainder expected to be delivered in
2020
. Approximately
80%
of the unsatisfied performance obligations for our other business lines in our Energy Equipment Group are expected to be delivered during the year ending
December 31, 2019
, with the remainder expected to be delivered in 2020. Approximately
54%
of unsatisfied performance obligations for inland barges in our Transportation Products Group are expected to be delivered during the year ending
December 31, 2019
with the remainder expected to be delivered in
2020
.
Results of Operations
Overall Summary
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
Percent Change
|
|
2019
|
|
2018
|
|
Percent Change
|
|
(in millions)
|
|
|
(in millions)
|
|
Construction Products Group
|
$
|
115.6
|
|
|
$
|
83.9
|
|
|
37.8
|
%
|
|
$
|
221.6
|
|
|
$
|
154.1
|
|
|
43.8
|
%
|
Energy Equipment Group
|
204.3
|
|
|
178.4
|
|
|
14.5
|
|
|
413.4
|
|
|
374.7
|
|
|
10.3
|
|
Transportation Products Group
|
115.3
|
|
|
91.5
|
|
|
26.0
|
|
|
212.8
|
|
|
180.8
|
|
|
17.7
|
|
Segment Totals before Eliminations and Corporate Expenses
|
435.2
|
|
|
353.8
|
|
|
23.0
|
|
|
847.8
|
|
|
709.6
|
|
|
19.5
|
|
Eliminations
|
(1.1
|
)
|
|
(0.8
|
)
|
|
|
|
(2.8
|
)
|
|
(2.2
|
)
|
|
|
Consolidated and Combined Total
|
$
|
434.1
|
|
|
$
|
353.0
|
|
|
23.0
|
|
|
$
|
845.0
|
|
|
$
|
707.4
|
|
|
19.5
|
|
Our revenues for the
three and six months ended
June 30, 2019
increase
d by
23.0%
and
19.5%
, respectively, from the prior year periods primarily due to the impact of the ACG acquisition in our Construction Products Group, higher barge deliveries in our Transportation Products Group, and higher unit volumes and prices in our Energy Equipment Group.
Operating Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
Percent Change
|
|
2019
|
|
2018
|
|
Percent Change
|
|
(in millions)
|
|
|
(in millions)
|
|
Construction Products Group
|
$
|
98.1
|
|
|
$
|
66.3
|
|
|
48.0
|
%
|
|
$
|
192.8
|
|
|
$
|
124.1
|
|
|
55.4
|
%
|
Energy Equipment Group
|
179.3
|
|
|
170.2
|
|
|
5.3
|
|
|
360.2
|
|
|
349.0
|
|
|
3.2
|
|
Transportation Products Group
|
102.7
|
|
|
78.8
|
|
|
30.3
|
|
|
191.9
|
|
|
159.1
|
|
|
20.6
|
|
Segment Totals before Eliminations and Corporate Expenses
|
380.1
|
|
|
315.3
|
|
|
20.6
|
|
|
744.9
|
|
|
632.2
|
|
|
17.8
|
|
Corporate
|
12.8
|
|
|
7.9
|
|
|
62.0
|
|
|
23.3
|
|
|
15.6
|
|
|
49.4
|
|
Eliminations
|
(1.1
|
)
|
|
(0.8
|
)
|
|
37.5
|
|
|
(2.8
|
)
|
|
(2.2
|
)
|
|
27.3
|
|
Consolidated and Combined Total
|
$
|
391.8
|
|
|
$
|
322.4
|
|
|
21.5
|
|
|
$
|
765.4
|
|
|
$
|
645.6
|
|
|
18.6
|
|
Operating costs for the
three and six months ended
June 30, 2019
increase
d by
21.5%
and
18.6%
, respectively, over the same periods in
2018
. The increases in our Construction Products Group were primarily due to higher volumes from the acquired ACG business. Operating costs for the Energy Equipment Group were higher for the
three and six months ended
June 30, 2019
compared to the same periods of 2018, due to higher unit volumes. Operating costs for the Transportation Products Group were higher for the
three and six months ended
June 30, 2019
due to higher barge deliveries and start-up costs incurred related to the re-opening of a previously idled barge facility.
Selling, engineering, and administrative expenses, including Corporate expenses, increased by
17.0%
and
12.9%
for the
three and six months ended
June 30, 2019
, respectively, largely due to additional costs from the acquired ACG business. As a percentage of revenue, selling, engineering, and administrative expenses were
10.6%
and
10.3%
for the
three and six months ended
June 30, 2019
, respectively, as compared to
11.2%
and
10.9%
for the same periods in
2018
.
Operating Profit (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
Percent Change
|
|
2019
|
|
2018
|
|
Percent Change
|
|
(in millions)
|
|
|
(in millions)
|
|
Construction Products Group
|
$
|
17.5
|
|
|
$
|
17.6
|
|
|
(0.6
|
)%
|
|
$
|
28.8
|
|
|
$
|
30.0
|
|
|
(4.0
|
)%
|
Energy Equipment Group
|
25.0
|
|
|
8.2
|
|
|
204.9
|
|
|
53.2
|
|
|
25.7
|
|
|
107.0
|
|
Transportation Products Group
|
12.6
|
|
|
12.7
|
|
|
(0.8
|
)
|
|
20.9
|
|
|
21.7
|
|
|
(3.7
|
)
|
Segment Totals before Corporate Expenses
|
55.1
|
|
|
38.5
|
|
|
43.1
|
|
|
102.9
|
|
|
77.4
|
|
|
32.9
|
|
Corporate
|
(12.8
|
)
|
|
(7.9
|
)
|
|
62.0
|
|
|
(23.3
|
)
|
|
(15.6
|
)
|
|
49.4
|
|
Consolidated and Combined Total
|
$
|
42.3
|
|
|
$
|
30.6
|
|
|
38.2
|
|
|
$
|
79.6
|
|
|
$
|
61.8
|
|
|
28.8
|
|
Operating profit for the
three months ended
June 30, 2019
increase
d by
38.2%
when compared to the same period in
2018
. Operating profit in the Construction Products Group was flat for the
three months ended
June 30, 2019
when compared to the prior year period due to higher volumes from the acquired ACG business, partially offset by the decrease in revenues in the legacy businesses due to weather-driven volume declines. Operating profit in our Energy Equipment Group increased for the
three months ended
June 30, 2019
compared to the prior year period primarily due to higher unit volume and pricing in our wind towers and utility structures business and the elimination of operating losses from businesses divested in 2018. Operating profit in our Transportation Products Group was flat for the
three months ended
June 30, 2019
compared to the prior year period primarily due to higher barge deliveries offset by lower pricing for steel components and start-up costs incurred toward the re-opening of a previously idled barge facility.
Operating profit for the
six months ended
June 30, 2019
increase
d by
28.8%
when compared to the same period in
2018
. Operating profit in the Construction Products Group decreased for the
six months ended
June 30, 2019
when compared to the prior year period primarily due to the decrease in revenues in the legacy businesses as a result of lower volumes and pricing. Operating profit in our Energy Equipment Group increased for the
six months ended
June 30, 2019
compared to the prior year period primarily due to higher unit volume and pricing in our wind towers and utility structures business, the elimination of operating losses from businesses divested in 2018, and a recovery of bad debt from a single customer. Operating profit in our Transportation Products Group decreased slightly for the
six months ended
June 30, 2019
compared to the prior year period primarily due to lower steel component deliveries and start-up costs incurred toward the re-opening of a previously idled barge facility, largely offset by higher barge deliveries.
For a further discussion of revenues, costs, and the operating results of individual segments, see
Segment Discussion
below.
Other Income and Expense
Other, net (income) expense consists of the following items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
(in millions)
|
Interest income
|
$
|
(0.4
|
)
|
|
$
|
—
|
|
|
$
|
(0.7
|
)
|
|
$
|
—
|
|
Foreign currency exchange transactions
|
0.5
|
|
|
1.2
|
|
|
1.0
|
|
|
2.2
|
|
Other
|
(0.2
|
)
|
|
—
|
|
|
(0.6
|
)
|
|
—
|
|
Other, net
|
$
|
(0.1
|
)
|
|
$
|
1.2
|
|
|
$
|
(0.3
|
)
|
|
$
|
2.2
|
|
Income Taxes
The provision for income taxes results in effective tax rates that differ from the statutory rates. The Company's effective tax rate for the
three and six months ended
June 30, 2019
was
22.1%
and
22.1%
, respectively, compared to
23.1%
and
24.8%
for the same periods in
2018
.
Our effective tax rate reflects the Company's estimate for its state income tax expense, excess tax benefits related to equity compensation, and the impact of foreign tax benefits. See Note 10, "Income Taxes" of the Consolidated and Combined Financial Statements for a further discussion of income taxes.
Segment Discussion
Construction Products Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
Percent
|
|
2019
|
|
2018
|
|
Percent
|
|
($ in millions)
|
|
Change
|
|
($ in millions)
|
|
Change
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Construction aggregates
|
$
|
93.2
|
|
|
$
|
61.1
|
|
|
52.5
|
%
|
|
$
|
181.6
|
|
|
$
|
113.7
|
|
|
59.7
|
%
|
Other
|
22.4
|
|
|
22.8
|
|
|
(1.8
|
)
|
|
40.0
|
|
|
40.4
|
|
|
(1.0
|
)
|
Total revenues
|
115.6
|
|
|
83.9
|
|
|
37.8
|
|
|
221.6
|
|
|
154.1
|
|
|
43.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
86.7
|
|
|
59.2
|
|
|
46.5
|
|
|
169.0
|
|
|
110.0
|
|
|
53.6
|
|
Selling, engineering, and administrative costs
|
11.4
|
|
|
7.1
|
|
|
60.6
|
|
|
23.8
|
|
|
14.1
|
|
|
68.8
|
|
Operating profit
|
$
|
17.5
|
|
|
$
|
17.6
|
|
|
(0.6
|
)
|
|
$
|
28.8
|
|
|
$
|
30.0
|
|
|
(4.0
|
)
|
Operating profit margin
|
15.1
|
%
|
|
21.0
|
%
|
|
|
|
13.0
|
%
|
|
19.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion, and amortization
(1)
|
$
|
9.0
|
|
|
$
|
5.1
|
|
|
76.5
|
|
|
$
|
17.8
|
|
|
$
|
10.2
|
|
|
74.5
|
|
(1)
Depreciation, depletion, and amortization are components of operating profit.
Revenues and cost of revenues increased by
37.8%
and
46.5%
, respectively, for the
three months ended
June 30, 2019
, when compared to the same period in
2018
. The acquisition of ACG resulted in an increase of approximately 45% in revenues for the
three months ended
June 30, 2019
compared to the same period in 2018, partially offset by weather-driven volume declines in our legacy businesses. The increase in cost of revenues during the
three months ended
June 30, 2019
compared to the same period in the prior year was primarily driven by the increased revenues as a result of the ACG acquisition. Selling, engineering, and administrative costs increased by
60.6%
for the
three months ended
June 30, 2019
, compared to the same period in
2018
, primarily due to additional costs from the acquired ACG business.
Revenues and cost of revenues increased by
43.8%
and
53.6%
, respectively, for the
six months ended
June 30, 2019
, when compared to the same period in
2018
. The acquisition of ACG resulted in an increase of approximately 50% in revenues for the
six months ended
June 30, 2019
compared to the same period in 2018, partially offset by weather-driven volume declines in our legacy businesses. The increase in cost of revenues during the
six months ended
June 30, 2019
compared to the same period in the prior year was primarily driven by the increased revenues as a result of the ACG acquisition. Selling, engineering, and administrative costs increased by
68.8%
for the
six months ended
June 30, 2019
, compared to the same period in
2018
, primarily due to additional costs from the acquired ACG business.
Energy Equipment Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
Percent
|
|
2019
|
|
2018
|
|
Percent
|
|
($ in millions)
|
|
Change
|
|
($ in millions)
|
|
Change
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Wind towers and utility structures
|
$
|
151.0
|
|
|
$
|
133.0
|
|
|
13.5
|
%
|
|
$
|
309.6
|
|
|
$
|
280.5
|
|
|
10.4
|
%
|
Other
|
53.3
|
|
|
45.4
|
|
|
17.4
|
|
|
103.8
|
|
|
94.2
|
|
|
10.2
|
|
Total revenues
|
204.3
|
|
|
178.4
|
|
|
14.5
|
|
|
413.4
|
|
|
374.7
|
|
|
10.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
163.0
|
|
|
151.5
|
|
|
7.6
|
|
|
331.6
|
|
|
313.0
|
|
|
5.9
|
|
Selling, engineering, and administrative costs
|
16.3
|
|
|
18.7
|
|
|
(12.8
|
)
|
|
28.6
|
|
|
36.0
|
|
|
(20.6
|
)
|
Operating profit
|
$
|
25.0
|
|
|
$
|
8.2
|
|
|
204.9
|
|
|
$
|
53.2
|
|
|
$
|
25.7
|
|
|
107.0
|
|
Operating profit margin
|
12.2
|
%
|
|
4.6
|
%
|
|
|
|
12.9
|
%
|
|
6.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
(1)
|
$
|
7.3
|
|
|
$
|
7.4
|
|
|
(1.4
|
)
|
|
$
|
14.3
|
|
|
$
|
15.2
|
|
|
(5.9
|
)
|
(1)
Depreciation and amortization are components of operating profit.
Revenues increased by
14.5%
for the
three months ended
June 30, 2019
when compared to the same period in
2018
. Revenues from our wind towers and utility structures product lines increased by
13.5%
, driven primarily by a higher unit volume in wind towers and higher pricing levels in utility structures. Revenues from other product lines increased by
17.4%
as higher storage tank pricing levels were partially offset by the reduction in revenues from businesses divested in 2018. Cost of revenues increased by
7.6%
for the
three months ended
June 30, 2019
compared to
2018
, driven primarily by higher overall volumes offset partially by the reduction in costs from businesses divested in 2018.
Revenues increased by
10.3%
for the
six months ended
June 30, 2019
when compared to the same period in
2018
. Revenues from our wind towers and utility structures product lines increased by
10.4%
, driven primarily by a higher unit volume in wind towers and higher pricing levels in utility structures. Revenues from other product lines increased by
10.2%
as higher storage tank pricing levels were partially offset by the reduction in revenues from businesses divested in 2018. Cost of revenues increased by
5.9%
for the
six months ended
June 30, 2019
compared to
2018
, driven primarily by higher overall volumes offset partially by the reduction in costs from businesses divested in 2018.
Selling, engineering, and administrative costs decreased by
12.8%
and
20.6%
for the
three and six months ended
June 30, 2019
, respectively, compared to the same periods in
2018
, primarily due to the reduction of costs from businesses divested in 2018. For the
six months ended
June 30, 2019
, selling, engineering, and administrative costs also decreased due to a $2.9 million recovery of bad debt related to a single customer in our utility structures business.
The backlog for wind towers and utility structures was
$517.6 million
and
$780.1 million
at
June 30, 2019
and
2018
, respectively. Approximately
52%
of unsatisfied performance obligations for wind towers and utility structures are expected to be delivered during the year ending
December 31, 2019
with the remainder expected to be delivered in
2020
. Future wind tower orders are subject to uncertainty following the phase-out of the Production Tax Credit. Pricing of orders and individual order quantities during the three months ended June 30, 2019 are reflective of a market transitioning from production tax credit incentives. As of
June 30, 2019
, the backlog for our other business lines in our Energy Equipment Group was
$45.3 million
, of which
80%
is expected to be delivered during the year ending
December 31, 2019
, with the remainder to be delivered during
2020
.
Transportation Products Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
Percent
|
|
2019
|
|
2018
|
|
Percent
|
|
($ in millions)
|
|
Change
|
|
($ in millions)
|
|
Change
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Inland barges
|
$
|
66.1
|
|
|
$
|
42.9
|
|
|
54.1
|
%
|
|
$
|
115.5
|
|
|
$
|
73.7
|
|
|
56.7
|
%
|
Steel components
|
49.2
|
|
|
48.6
|
|
|
1.2
|
|
|
97.3
|
|
|
107.1
|
|
|
(9.2
|
)
|
Total revenues
|
115.3
|
|
|
91.5
|
|
|
26.0
|
|
|
212.8
|
|
|
180.8
|
|
|
17.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
97.0
|
|
|
73.1
|
|
|
32.7
|
|
|
180.7
|
|
|
147.8
|
|
|
22.3
|
|
Selling, engineering, and administrative costs
|
5.7
|
|
|
5.7
|
|
|
—
|
|
|
11.2
|
|
|
11.3
|
|
|
(0.9
|
)
|
Operating profit
|
$
|
12.6
|
|
|
$
|
12.7
|
|
|
(0.8
|
)
|
|
$
|
20.9
|
|
|
$
|
21.7
|
|
|
(3.7
|
)
|
Operating profit margin
|
10.9
|
%
|
|
13.9
|
%
|
|
|
|
9.8
|
%
|
|
12.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
(1)
|
$
|
3.9
|
|
|
$
|
3.3
|
|
|
18.2
|
|
|
$
|
7.7
|
|
|
$
|
7.5
|
|
|
2.7
|
|
(1)
Depreciation and amortization are components of operating profit.
Revenues and cost of revenues increased for the
three months ended
June 30, 2019
by
26.0%
and
32.7%
, respectively, compared to the same period in
2018
primarily from higher barge deliveries. Revenues for steel components was roughly flat due to higher deliveries, which was mostly offset by lower contractual pricing. Cost of revenues also increased by $1.3 million for the
three months ended
June 30, 2019
due to start-up costs incurred towards the re-opening of a previously idled barge manufacturing facility, which began delivering barges in July of 2019.
Revenues and cost of revenues increased for the
six months ended
June 30, 2019
by
17.7%
and
22.3%
, respectively, compared to the same period in
2018
primarily from higher barge deliveries, partially offset by lower steel component deliveries. Cost of revenues also increased by $3.1 million for the
six months ended
June 30, 2019
due to start-up costs incurred towards the re-opening of a previously idled barge manufacturing facility.
Selling, engineering, and administrative costs were substantially unchanged for the
three and six months ended
June 30, 2019
compared to the same periods in
2018
.
As of
June 30, 2019
, the backlog for the Transportation Products Group was
$349.7 million
compared to
$198.4 million
as of
June 30, 2018
. Approximately
54%
of unsatisfied performance obligations for inland barges are expected to be delivered during the year ending
December 31, 2019
with the remainder expected to be delivered in
2020
.
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
Percent
|
|
2019
|
|
2018
|
|
Percent
|
|
(in millions)
|
|
Change
|
|
(in millions)
|
|
Change
|
Corporate overhead costs
|
$
|
12.8
|
|
|
$
|
7.9
|
|
|
62.0
|
%
|
|
$
|
23.3
|
|
|
$
|
15.6
|
|
|
49.4
|
%
|
For periods prior to the Separation, corporate overhead costs consisted of costs not previously allocated to Trinity's business units and have been allocated to Arcosa based on an analysis of each cost function and the relative benefits received by Arcosa for each of the periods using methods management believes are consistent and reasonable. See Note 1, “Overview and Summary of Significant Accounting Policies” of the Notes to the Consolidated and Combined Financial Statements for further information.
For the
three and six months ended
June 30, 2019
, the increase in corporate overhead costs compared to
2018
was primarily due to incremental standalone costs related to the replacement of services and fees previously provided or incurred by Trinity as well as other standalone public company costs. We estimate full-year corporate costs will be approximately $50.0 million in fiscal year 2019.
Liquidity and Capital Resources
Arcosa’s liquidity requirements are primarily to fund our business operations, including capital expenditures, working capital, and disciplined acquisitions. Our primary sources of liquidity are cash flows from operations, our existing cash balance and, as necessary, borrowings under the revolving credit facility and issuance of long-term debt or equity. To the extent we generate discretionary cash flow, we may consider using this additional cash flow to undertake new capital investment projects, execute strategic acquisitions, return capital to stockholders, or for general corporate purposes.
Cash Flows
The following table summarizes our cash flows from operating, investing, and financing activities for the
six months ended
June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
2019
|
|
2018
|
|
(in millions)
|
Total cash provided by (required by):
|
|
|
|
Operating activities
|
$
|
141.2
|
|
|
$
|
105.3
|
|
Investing activities
|
(59.5
|
)
|
|
(44.3
|
)
|
Financing activities
|
(97.8
|
)
|
|
(57.2
|
)
|
Net (decrease) increase in cash and cash equivalents
|
$
|
(16.1
|
)
|
|
$
|
3.8
|
|
Operating Activities
.
Net cash
provided
by operating activities for the
six months ended
June 30, 2019
was
$141.2 million
compared to
$105.3 million
for the
six months ended
June 30, 2018
.
Receivables at
June 30, 2019
decreased
by
$65.3 million
or
22.4%
since
December 31, 2018
primarily due to lower trade receivables in our Energy Equipment and Transportation Products Groups. Raw materials inventory at
June 30, 2019
increased
by
$17.2 million
or
13.4%
since
December 31, 2018
. Work in process inventory
increased
by
$12.4 million
or
37.2%
and finished goods inventory
increased
by
$8.9 million
or
9.8%
since
December 31, 2018
primarily in our Transportation Products Group. Accounts payable
decreased
by
$13.5 million
, while accrued liabilities
increased
by
$2.1 million
from
December 31, 2018
. We continually review reserves related to collectibility as well as the adequacy of lower of cost or net realizable value with regard to accounts receivable and inventory.
Investing Activities.
Net cash
required
by investing activities for the
six months ended
June 30, 2019
was
$59.5 million
compared to
$44.3 million
for the
six months ended
June 30, 2018
. Capital expenditures for the
six months ended
June 30, 2019
were
$38.9 million
compared to
$20.4 million
for the same period last year. Full-year capital expenditures are expected to range between $70 million and $80 million in 2019. We expect maintenance capital expenditures to be in the range of $60 million to $65 million and the capital expenditures related to additional growth to be in the range of $10 million and $15 million in 2019. Proceeds from the sale of property, plant, and equipment and other assets totaled
$2.2 million
for the
six months ended
June 30, 2019
, compared to
$1.1 million
for the same period in
2018
. Cash paid for acquisitions was
$22.8 million
for the
six months ended
June 30, 2019
compared to
$25.0 million
for the same period in
2018
. There was
no
divestiture activity for the
six months ended
June 30, 2019
and
2018
.
Financing Activities.
Net cash
required
by financing activities during the
six months ended
June 30, 2019
was
$97.8 million
compared to
$57.2 million
for the same period in
2018
. Current year activity was primarily related to the $80.0 million repayments of advances under the Company's revolving credit facility, while prior year activity was primarily related to net transfers to Former Parent totaling
$54.0 million
.
Other Investing and Financing Activities
Revolving Credit Facility
On November 1, 2018, the Company entered into a
$400.0 million
unsecured revolving credit facility that matures in
November 2023
. The interest rates under the facility are variable based on LIBOR or an alternate base rate plus a margin that is determined based on Arcosa’s leverage as measured by a consolidated total indebtedness to consolidated EBITDA ratio, which is currently set at LIBOR plus
1.25%
. A commitment fee accrues on the average daily unused portion of the revolving facility at the current rate of
0.20%
. Borrowings under the credit facility are guaranteed by certain wholly-owned subsidiaries of the Company.
As of
June 30, 2019
, we had
$100.0 million
of outstanding loans borrowed and
$46.2 million
of letters of credit issued under the facility, leaving
$253.8 million
available.
The Company's revolving credit facility requires the maintenance of certain ratios related to leverage and interest coverage. As of
June 30, 2019
, we were in compliance with all such financial covenants.
Dividends and Repurchase Program
In May 2019, the Company declared a quarterly cash dividend of $0.05 per share paid in July 2019.
In December 2018, the Company’s Board of Directors authorized a $50 million share repurchase program effective December 5, 2018 through December 31, 2020. Under the program, the Company repurchased
269,574
shares at a cost of
$8.0 million
during the
six months ended
June 30, 2019
, leaving a remaining authorization of
$39.0 million
. See Note 1 “Overview and Summary of Significant Accounting Policies” to the Consolidated and Combined Financial Statements.
Derivative Instruments
In December 2018, the Company entered into an interest rate swap instrument, effective as of January 2, 2019 and expiring in 2023, to reduce the effect of changes in the variable interest rates associated with borrowings under the revolving credit facility. The instrument carried an initial notional amount of
$100.0 million
, thereby hedging the first
$100.0 million
of borrowings under the credit facility. The instrument effectively fixes the LIBOR component of the credit facility borrowings at
2.71%
. As of
June 30, 2019
, the Company has recorded a
liability
of
$4.6 million
for the fair value of the instrument, all of which is recorded in accumulated other comprehensive loss. See Note 3 “Fair Value Accounting” and Note 7 “Debt” to the Consolidated and Combined Financial Statements.
Off-Balance Sheet Arrangements
As of
June 30, 2019
, we had letters of credit issued under our revolving credit facility in an aggregate principal amount of
$46.2 million
. Of the outstanding letters of credit as of
June 30, 2019
,
$29.1 million
are expected to expire in
2019
, with the remainder in
2020
. The majority of our letters of credit obligations support the Company’s various insurance programs and warranty claims and generally renew by their terms each year. See Note 7 “Debt” to the Consolidated and Combined Financial Statements.
Recent Accounting Pronouncements
See Note 1, “Overview and Summary of Significant Accounting Policies” of the Consolidated and Combined Financial Statements for information about recent accounting pronouncements.
Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not historical facts are forward-looking statements. These forward-looking statements include expectations, beliefs, plans, objectives, future financial performances, estimates, projections, goals and forecasts. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “forecasts,” “may,” “will,” “should” and similar expressions generally identify these forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause our actual results of operations to differ materially from those in the forward-looking statements including, among others:
|
|
•
|
market conditions and demand for Arcosa's business products and services;
|
|
|
•
|
the cyclical nature of industries in which Arcosa competes;
|
|
|
•
|
variations in weather in areas where Arcosa construction products are sold, used, or installed;
|
|
|
•
|
naturally-occurring events and disasters causing disruption to our manufacturing, product deliveries, and production capacity, thereby giving rise to an increase in expenses, loss of revenue, and property losses;
|
|
|
•
|
the timing of introduction of new products;
|
|
|
•
|
the timing and delivery of customer orders or a breach of customer contracts;
|
|
|
•
|
the credit worthiness of customers and their access to capital;
|
|
|
•
|
changes in mix of products sold;
|
|
|
•
|
the costs incurred to align manufacturing capacity with demand and the extent of its utilization;
|
|
|
•
|
the operating leverage and efficiencies that can be achieved by Arcosa's manufacturing businesses;
|
|
|
•
|
availability and costs of steel, component parts, supplies, and other raw materials;
|
|
|
•
|
competition and other competitive factors;
|
|
|
•
|
surcharges and other fees added to fixed pricing agreements for steel, component parts, supplies and other raw materials;
|
|
|
•
|
interest rates and capital costs;
|
|
|
•
|
counter-party risks for financial instruments;
|
|
|
•
|
long-term funding of our operations;
|
|
|
•
|
the stability of the governments and political and business conditions in certain foreign countries, particularly Mexico;
|
|
|
•
|
changes in import and export quotas and regulations;
|
|
|
•
|
business conditions in emerging economies;
|
|
|
•
|
costs and results of litigation;
|
|
|
•
|
changes in accounting standards or inaccurate estimates or assumptions in the application of accounting policies;
|
|
|
•
|
legal, regulatory, and environmental issues, including compliance of Arcosa's products with mandated specifications, standards, or testing criteria and obligations to remove and replace Arcosa's products following installation or to recall our products and install different products manufactured by Arcosa or our competitors;
|
|
|
•
|
actions by the executive and legislative branches of the U.S. government relative to federal government budgeting, taxation policies, government expenditures, U.S. borrowing/debt ceiling limits, trade policies, including tariffs, and border closures;
|
|
|
•
|
the use of social or digital media to disseminate false, misleading and/or unreliable or inaccurate information;
|
|
|
•
|
the inability to sufficiently protect our intellectual property rights;
|
|
|
•
|
if Arcosa does not realize some or all of the benefits expected to result from the spin-off, or if such benefits are delayed;
|
|
|
•
|
Arcosa's ongoing businesses may be adversely affected and subject to certain risks and consequences as a result of the spin-off transaction;
|
|
|
•
|
if the distribution of shares of Arcosa, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, the Company's stockholders and the Company could be subject to significant tax liability; and
|
|
|
•
|
if the spin-off transaction does not comply with state and federal fraudulent conveyance laws and legal dividend requirements.
|
Any forward-looking statement speaks only as of the date on which such statement is made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, except as required by applicable federal securities laws. Factors that could cause actual results or events to differ materially from those anticipated include the matters described under the section entitled “Risk Factors” in our 2018 Annual Report on Form 10-K.