Arcosa - Q4 2022
February 24, 2023
Transcript
Operator (participant)
Good morning, ladies and gentlemen, welcome to the Arcosa, Inc. fourth quarter and full year 2022 earnings conference call. My name is Todd, I will be your conference call coordinator today. As a reminder, today's call is being recorded. I would like to turn the call over to your host, Erin Drabek, Director of Investor Relations for Arcosa. Ms. Drabek, you may begin.
Erin Drabek (VP of Investor Relations)
Good morning, everyone, thank you for joining Arcosa's fourth quarter and full year 2022 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 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 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 their closest GAAP measure are included in the appendix of the slide presentation.
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 for more information on these risks and uncertainties, including the press release we filed yesterday and our Form 10-K we expect to file later today. I would now like to turn the call over to Antonio.
Antonio Carrillo (President and CEO)
Thank you, Erin. Good morning, and thank you for joining us to discuss our fourth quarter and full year 2022 results and our outlook for 2023. I will start with a few key messages. Arcosa achieved solid financial performance in the fourth quarter and full of 2022, generating strong growth in both revenue and adjusted EBITDA. I am proud of the Arcosa team for successfully navigating a challenging operating environment and delivering financial performance consistent with our guidance. Despite facing persistent inflationary pressures and headwinds in our cyclical businesses, we effectively compensated for them while expanding our growth businesses, both organically and through an acquisition. We also achieved significant strategic progress in 2022. Through the divestiture of our storage tank business, we took another step toward optimizing our asset portfolio and reducing the complexity of our business.
With the proceeds from this transaction, we strengthened our balance sheet, enhanced our financial flexibility, and realized significant value for shareholders. For 2022, Arcosa grew revenue on adjusted EBITDA in each of our business segments, underscoring our ability to execute consistently despite challenging market conditions. Within our growth businesses in construction products and engineered structures, adjusted EBITDA improved by a combined 20%, reflecting proactive pricing actions to offset inflationary pressures. At the same time, our cyclical businesses performed better than we had anticipated, largely due to our focus on managing costs and generating operational efficiencies in a demand-constrained environment. Slide nine summarizes the considerable progress we have achieved in advancing our strategic transformation. Our actions, which have included focused M&A, organic growth initiatives, and asset optimization, have enhanced our resiliency and increased our participation in higher growth markets.
As a result, Arcosa today is a stronger, more focused company that is better positioned to capitalize the multiple long-term growth opportunities in front of us. Federal infrastructure spending is expected to provide a multi-year tailwind to many of our businesses. Turn to slide 11 to review our fourth quarter results. Excluding storage tanks, fourth quarter consolidated adjusted EBITDA increased 13% from prior year period, outpacing revenue growth and driving a 50 basis point improvement in margins. The improvements in adjusted EBITDA reflect growth in each of our business segments, led by a more than doubling of transportation product EBITDA. Strong organic pricing gains helped compensate for lower volumes in construction products, while engineered structures benefit from elevated steel pricing even as overall segment volumes declined.
Looking at full year results on slide 12, Arcosa generated revenue of $2.24 billion, an increase of 14%, which met the operator, upper end of our guidance. Adjusted EBITDA was $325 million, up 19% year-over-year, normalizing for the sale of storage tank, and was right in line with the midpoint of our updated guidance range. I will now turn over the call to Gail to discuss our segment performance, and then I will return to update you on our 2023 outlook. Gail?
Gail Peck (CFO)
Thank you, Antonio. I'll begin on slide 13 to discuss fourth quarter segment results. In construction products, revenues increased 5% due to accelerated pricing in the quarter, which offset organic volume declines, as well as the addition of RAMCO, the Southern California recycled aggregates producer we acquired in the second quarter of 2022. Revenue growth was split roughly evenly between the organic drivers and the contribution from RAMCO. Wet and extreme cold weather across our footprint, along with the continued deceleration in single-family residential construction activity, were the main headwinds to segment volumes during the quarter.
Approximately 45% of segment revenues are Texas-sourced, and we experienced a 75% increase year-over-year in bad weather days in the state during the quarter. We believe supply chain constraints, while abating, also had an impact on segment volumes during the quarter. Our disciplined pricing strategies were successful in mitigating ongoing inflationary pressures. In addition, our focus on operational efficiency enabled a 50 basis point reduction in segment SG&A as a % of revenue. As a result, we reported a 6% increase in segment adjusted EBITDA, slightly ahead of revenue growth with a 20 basis point increase in margin. Higher diesel, processed fuels, and cement prices increased segment cost of sales by approximately $8 million or 5% during the quarter. The full year effect of these cost headwinds was approximately $31 million, reducing segment margins by over 300 basis points in 2022.
Turning to natural aggregates, we experienced broad pricing strength across our markets, with average organic pricing up more than 20% in the fourth quarter, slightly ahead of volume declines. With a disciplined pricing strategy, we achieved strong unit profitability gains in the fourth quarter and higher year-over-year natural aggregates margins. For the full year, we had organic pricing growth in the mid-teens, positioning us favorably for 2023. On a full year basis, total volumes increased about 10%, with organic volumes down high single digits. In recycled aggregates, total volumes in the quarter benefited from the acquisition of RAMCO. Largely attributed to unfavorable weather in Texas, organic volumes in our legacy Dallas and Houston operations declined low double digits. Fourth quarter pricing gains were healthy.
Within specialty materials, we continued to see favorable momentum in multi-family residential construction benefiting our plaster business, where average selling prices and volumes were up solidly during the quarter. Our customers' project backlogs remain healthy. The capacity expansion underway at our plaster plant in Oklahoma is scheduled for completion early in the second quarter. Fourth quarter volumes in lightweight aggregates were down slightly. Pricing strength compensated for the decline. Overall, we saw single-digit top line growth in specialty materials and flat margins year-over-year in the fourth quarter. Finally, our trench shoring business reported an 11% increase in revenues on higher volumes in the fourth quarter. Order inquiry levels were healthy. Our customers' CapEx expectations remained supportive for growth in 2023.
Moving to engineered structures, slide 14 shows segment results on an as-reported basis and excluding the effect of storage tanks that was sold on the first business day of the quarter. In connection with the sale, we recognized a pre-tax gain of $189 million, which has been excluded from adjusted segment EBITDA. Revenues for our utility wind and related structures businesses increased 18%, largely due to elevated steel prices, partially offset by lower volumes. adjusted EBITDA for these businesses increased 2% even as margins declined, which was primarily due to a change in product mix and production inefficiencies in our utility structures business. We have since resolved these inefficiencies, enabling segment margins to return to more normalized levels in January. During the quarter, our wind towers business performed better than our break-even expectations, generating positive EBITDA.
We were encouraged to receive wind tower orders of $371 million, which extends our backlog with a base level of production into 2025. We ended the year with combined backlog for utility wind and related structures of $671 million, up 53% from the end of 2021. Turning to transportation products on slide 15, segment revenues were down 4% as increased volume in steel components was offset by lower barge revenues. On a positive note, adjusted segment EBITDA increased and margins expanded to 11.4%, representing the segment's highest quarterly margin in two years. Both our barge and steel components businesses contributed to the margin improvement by managing costs and generating operating efficiencies. Our barge business benefited from improved pricing despite lower volumes, exceeding our expectations for the quarter.
We received barge orders of $134 million during the quarter, all for 2023 delivery, which substantially fills our planned production capacity for the year. These orders were primarily for hopper barges. We ended the year with barge backlog of $225 million, up substantially from $93 million at the end of 2021. I'll conclude on slide 17 with some comments on our cash flow and balance sheet position. We ended the year with net debt to adjusted EBITDA of 1.2 times, down from 1.8 times at the end of the third quarter. During the fourth quarter, we used $155 million of the storage tank proceeds to repay the outstanding borrowings under our revolving credit facility.
We started 2023 with an exceptionally strong balance sheet with available liquidity of $635 million and no material debt maturities. In 2022, working capital consumed about $65 million of cash flow, a $15 million increase year-over-year. Working capital came in below our initial expectations at the start of the year, primarily due to inflationary impacts. Capital expenditures in 2022 were $138 million, in line with the high end of our annual guidance as we made solid progress on the growth projects underway in construction products and engineered structures. For 2023, we see full year CapEx of $140 million-$160 million, including $40 million-$50 million for growth CapEx projects.
In yesterday's release, we highlighted the $22 million land sale gain that is included in our 2023 guidance range and will be recognized in the first quarter. Although we do not anticipate a sale of this magnitude to repeat in the near term, land sales are a normal part of our construction materials operations. We are pleased to be able to monetize a depleted asset when the timing was right and reinvest the proceeds to help offset growth CapEx. Summing it up, we generated $36 million of free cash flow in 2022, down from last year, primarily due to the $53 million increase in CapEx, largely related to projects that will enhance our long-term growth opportunity. As a reminder, in December, we authorized our $50 million share repurchase program for another two years.
Our balance sheet and liquidity strengths are valuable assets and provide considerable financial flexibility for Arcosa during this heightened level of macro uncertainty. I will now turn the call back over to Antonio for more discussion on our 2023 outlook.
Antonio Carrillo (President and CEO)
Thank you, Gail. Turning to slide 19. As we look forward, we anticipate 2023 will be an important transition year. Despite macro uncertainty, we expect consistent expansion in our growth business and gradually improvement fundamentals in our cyclical businesses. Normalizing for the sale of storage tanks, we expect 2023 revenue at the midpoint of our guidance to be $2.2 billion, up 7% compared to 2022. Our 2023 adjusted EBITDA forecast at the midpoint of our guidance is $325 million, up 17% compared to 2022. Excluding the positive impact from the land sale Gail noted, we forecast 9% adjusted EBITDA growth at the midpoint of our range. Turning to slide 20 to review the outlook of our growth businesses.
We believe construction products will benefit from continued favorable pricing and healthy highway construction activity, aided by infrastructure spending at both the federal and state levels. I would note that the DOT letting activity is now well above the 5-year average in many of our key markets, reflecting healthy state budgets and federal funding from the Infrastructure Investment and Jobs Act. We also expect to benefit from continued solid demand in multi-family as well as heavy non-residential construction, which together with the continued demand from the surface transportation sector, has the potential to offset weakness in single-family residential volumes. In 2023, we anticipate favorable pricing to continue, particularly in the first half of the year as we benefit from the sharp acceleration in prices in 2022.
Although we are not providing volume guidance for 2023, we expect to compensate for any volume softness with higher unit pricing and profitability, as we demonstrated in the fourth quarter. We will continue to focus on driving margins higher in 2023. We expect utility structures will have another strong year as electric utilities continue to invest in upgrading and hardening the electrical grid. Our positive outlook is supported by a high level of backlog visibility in both our utility and traffic structures business. We anticipate federal infrastructure funding and increased energy capacity needs will boost demand for our products, especially given the growing shift towards electric vehicles and the need to connect renewable energy sources to the grid. Based on customer projected timing, we anticipate utility structures revenue will be more heavily weighted towards the second half of 2023.
Our customers' CapEx expectations continue to rise. Lingering supply chain constraints may affect the timing of projects. Turning to slide 21. We anticipate 2023 adjusted EBITDA in our cyclical businesses will be slightly ahead of 2022 as rail components and barge continue to move off their cyclical lows. As demonstrated by orders received in the fourth quarter, the fundamentals of our barge and wind tower business continues to improve. We expect to ramp up production capacity in 2023 in anticipation of higher growth in 2024. We spurred significant customer demand for hopper barges in the fourth quarter by substituting lower cost hot-rolled coil for plate steel. This innovation delivers significant cost savings for our customers and proves that with reasonable steel prices, the demand for barges is strong.
The orders we received are the largest quarterly barge orders in the past 2 years and have allowed us to fill our production ramp-up schedule for the year. With this production ramp, in 2023, we expect to end the year with higher production capacity to be able to capitalize on the demand we expect in 2024. I am proud of our team's effort to drive innovation and enhance our manufacturing flexibility. As additional steel capacity comes online this year, third-party forecasts project steel prices will come down, which should help convert high level of current inquiries into additional barge orders for delivery in 2024 and beyond. With the average age of the barge fleet at historically high levels, we believe moderation in steel prices will help kickstart the long overdue barge fleet replacement cycle.
More recently, we're also starting to see significant inquiries for smaller tank barges. Lower steel prices would also help turn those inquiries into orders. As we have noted, the expiration of the PTC at the end of 2021 created a lapse in demand for wind towers. With the passage of the Inflation Reduction Act in August, which includes a 10-year extension of the PTC, demand for wind towers is picking up and is expected to stay strong for many years. We expect 2023 to be an important transition year as we build our backlog to drive earnings growth in 2024 and beyond. The renewed strength in wind tower demand can be seen in the backlog we booked in the fourth quarter and the additional orders booked in January.
The backlog is scheduled to be delivered in the next three years, with approximately 40% to be delivered in 2023. Although order profitability in 2023 is low, likely leading to break-even year for our wind tower business, we are preparing for a multi-year recovery. In addition to the PTC, the IRA also includes a new manufacturer's tax credit, which we believe will have a significant positive impact on our wind tower business. Our assumption is that all the backlog we have built for 2023 and beyond will qualify for this tax credit. We have not included the benefit in our guidance as we await further clarification from the IRS. With strong demand for the foreseeable future and improved economics, we're working with our customers to accelerate our growth in the wind power industry.
We expect these efforts will help create significant value for our shareholders. In our steel components business, market forecasts indicate continued growth in North American railcar deliveries in 2023. Although at a more moderate pace following the sharp recovery last year. With railcar deliveries forecasted to increase 10% in 2023, we anticipate steel components will deliver another year of solid growth. Given these positive forward-looking indicators, we expect to continue to build our order backlogs in our cyclical businesses through 2023, setting the stage for accelerated growth in 2024. Throughout 2022, Arcosa remains committed to corporate responsibility through the integration of ESG into our long-term strategy and culture. Our annual sustainability report, which we plan to publish in the next few months, will highlight many accomplishments in 2022 that built on our progress from the prior year.
In closing, 2022 was a productive and successful year for Arcosa. Through the divesture of storage tanks, we monetized a non-core asset to deliver significant value for shareholders while advancing our strategic transformation. Despite facing challenging market conditions in our cyclical businesses, the Arcosa team navigated this effectively, generating efficiencies and delivering solid financial results. Looking ahead, we are entering an exciting period for Arcosa. Our growth businesses remain poised for continued solid performance, supported by healthy market fundamentals and a tailwind from federal infrastructure spending. At the same time, we believe our cyclical businesses are on the cusp of entering a strong multi-year upcycle, driven by growing market demand for both wind towers and barges.
With the strategic actions we have taken over the past several years, Arcosa is entering this exciting period with a strong balance sheet to be able to support the opportunities ahead of us. Now I would like to open the call for questions.
Operator (participant)
Thank you. At this time, if you would like to ask a question, please press the star and one on your touch-tone phone. You may remove yourself from the queue at any time by pressing star two. Once again, that is star and one to ask a question. We'll take our first question from Ian Zaffino with Oppenheimer.
Ian Zaffino (Managing Director and Senior Equity Analyst)
Hi, great. Thank you very much. Good quarter. You know, question would be, Antonio, I know you mentioned on the pricing side on aggregates, you're talking about the strength of pricing in the first half of the year. That's just the anniversarying of existing price increases. If that's the case, are there any more in store, or how do we think about pricing in aggregates into 2023? Thanks.
Gail Peck (CFO)
Ian, good morning. It's Gail. I'll take that and let Antonio add if he has anything further. You know, when we think about pricing, you know, I mentioned in my script on the natural aggregate side, pricing gains in the fourth quarter were more than 20%. Clearly a lot of pricing momentum. As you look at how pricing has accelerated through the year, certainly the quarter benefited from the sequential momentum. We did have select price increases in the quarter, so that certainly helped as well. I think it's important to note too, we have had nice pricing synergies in the acquisitions that we've made. All in all, that really captured a nice outcome for us in the fourth quarter. We would expect, you know, full year pricing for us was mid-teen strength.
We think that sets up well for 2023. We do have our annual pricing letters in aggregate set, and I think we'll continue to watch the market very closely. Right now we're planning for our annual increases.
Antonio Carrillo (President and CEO)
To add a little more color, Ian, because we believe in this uncertain environment with the volumes down in housing and, weather we had, there's a lot of uncertainty in the volume. What I think is important is, for our investors and you to understand the focus of the company this year is going to be on margins. That therefore, the pricing situation is going to be very important, not only in aggregates, I think throughout the company. We've added to our compensation, philosophy this year in our short-term incentive to all the business leaders margin into their compensation. I think it's going to be an effort not only in aggregates, but across the company.
Ian Zaffino (Managing Director and Senior Equity Analyst)
Okay. Thank you. Just as a follow-up, can you guys quantify what the headwind was or the weather impact was in Texas? You know, how bad was it? Any color you could give there would be helpful.
Gail Peck (CFO)
We didn't put a number on it, Ian. Ian, you know, it's a little bit difficult to measure. With weather, the good thing is you don't lose the volumes, but it's, we did not put a precise number on it. I mentioned the step up certainly in Texas and in other areas of our footprint during the quarter. The freezing temperatures certainly impacted our operations in the Midwest, and then the excessive rains in California had an impact on our specialty materials business. It was a meaningful impact. I would say, you know, January, you hate to talk about weather. We certainly had a some freezing and ice here in the Dallas area, and that had an impact.
I would say when the weather is dry and normal and seasonal, our volumes have been as planned. To put a dollar impact on it, you know, our volumes were down, slightly less than our price increases. We did see some significant volume declines in the quarter.
Antonio Carrillo (President and CEO)
When weather hits you have several problems. First, you shut down the plants and your cost structure starts eating into you. It's a pretty significant impact. We also had, as Gail said, in the fourth quarter, in December, freeze across our operations. We had shutdowns based on natural gas curtailments we had in several plants, et cetera. It was a pretty significant impact, I would say, in the fourth quarter.
Ian Zaffino (Managing Director and Senior Equity Analyst)
Okay. Thank you very much.
Operator (participant)
Thank you. Our next question comes from Brent Thielman with D.A. Davidson.
Brent Thielman (Equity Research Analyst)
Hey, thank you. Good morning. Congrats on a good quarter year as well. I guess the question just on the, I guess both wind and barge. I mean, the order pickup here is notable. It seems like, I guess, in particular, Antonio, there's some real momentum in the industry building and the wind side. I know the IRA does a lot for the industry, but I guess I would have thought more of an impact later this year, maybe 2024 in terms of kinda demand recovery. How would you characterize the levels of interest out there, I guess, on the wind and barge side? Do you feel like we're sort of in a sustained order recovery right now or maybe customers just being opportunistic?
Antonio Carrillo (President and CEO)
Let me. They're different markets. Let me take one each one. Start with wind. Wind is a business that's very sensitive to tax credits. We've seen it go from very strong demand to nothing in periods where the tax credit goes away. The IRA, what it does, the most important thing it does is it provides long-term visibility. You know, it gives you 10 years of visibility, which is when people are investing in long-term projects when they have visibility. That's an incredible thing. Having 10 years of visibility gives us, let's say, a very good visibility into what the business should be doing for a long period of time. The fundamentals for a long upcycle are there.
This time, for the first time, the IRA included tax credits not only for the developer, which used to be the traditional tax credit. This time, the turbine manufacturer, the blade manufacturer, and the tower manufacturer get something called the manufacturer's tax credit. That is a unique situation. Of course, it improves the economics for wind. That's our perception today, and that's everything we've analyzed tells us that. However, we're still waiting for the IRS to come back with specific rules sometime later this year. That's why I mentioned in my remarks that we did not include it in the, in our projections and our guidance, any impact from this tax credit. We believe it's going to be very significant.
When you have long-term fundamentals of the business improving and the economics improving, you know, we went from a period in July, where our view for 2023 was basically we could think about shutting down the business. There was no demand for 2023, to a situation where there is significant discussions with customers about how can we increase capacity, how can we get more towers into the market. Of course, what I said is 2023 is going to be probably a break-even year because we're going to be ramping up, and the orders we sold have low profitability. The goal is to end the year with stronger, let's say, production capacity and run rates to be able to capitalize on this over the next several years.
Very exciting position to be in the wind towers. Barge a little different. Barge, as I mentioned, for the age of the, especially the dry cargo fleet, the hopper barges, is at historical high levels. Very few have been replaced over the last several years. Scrapping has continued. We were able in the fourth quarter to redesign our barges with cheaper steel, and immediately we were able to get customers to buy. The demand is there, the inquiries are there. We believe the demand is going to be very strong. We need prices to stabilize. Right now, they're going back up again a little bit. The uncertainty in Ukraine and the war always creates this issue. There is significant capacity coming online in the U.S. in the next two years.
That leads not only us, but every forecast to believe that steel prices are coming down. As steel prices come down, we are setting up our barge business also for several years of good recovery. That's our expectation. We'll see, no? Hope I answered your question.
Brent Thielman (Equity Research Analyst)
Yeah. I guess as a follow-up, I appreciate all that. Maybe just back to wind. I mean, it seems like a lot of the projects, and you can see what the utilities are planning on doing, are sort of slated for kind of 2024 and beyond. Should we, I know quarter to quarter, you're gonna see some gyration in your backlog and orders. As we sort of get towards considering all that and what you're seeing out there as we get towards the end of the year, do you anticipate that wind backlog to be even higher?
Antonio Carrillo (President and CEO)
Yes, I think we, you should expect our wind backlog to be higher before the end of the year. To be honest, I was surprised at how fast the industry started, let's say, giving us orders. I always expected the projects to be, to take longer for them to start turning into actual orders for us. It's accelerating fast. I do, I do think we don't have anything at the moment, but I do think that you should expect us to have higher backlog or to receive more orders, let's put it that way, throughout this year.
Brent Thielman (Equity Research Analyst)
Yeah. Okay, thank you. I'll pass it on.
Operator (participant)
Thank you. Our next question comes from Trey Grooms with Stephens.
Trey Grooms (Managing Director and Equity Research Analyst)
Hey, good morning, everyone. I have to say congrats on the nice quarter.
Antonio Carrillo (President and CEO)
Thank you.
Trey Grooms (Managing Director and Equity Research Analyst)
Antonio, you pointed out that, you know, the focus of the company this year will be on margin. You mentioned pricing clearly, but, you know, can you talk about some of the other levers that you can pull to improve margin? You know, as you look across the segments where you see, you know, the most opportunity on the margin front this year.
Antonio Carrillo (President and CEO)
Sure. You know, it's, margin is a combination of your pricing and your costs, no? Of course, pricing is going to be important. Ideally, you know, we should be able to compensate for inflationary pressures that are continued to be present. At the same time, you know, as a company, we've always been a company focused on costs, as you've seen when we have very cyclical businesses, and every time the cyclical businesses go down, they go down in a very steep way, and we've always been very focused on that. You saw that we mentioned our cyclical businesses exceeded our expectation last year. It's basically the way they control their costs. You saw our construction segment having a tough quarter with the weather and everything and focusing on their costs on their ACMA also.
I would say the efforts are pricing, cost at the plant level and the business level, and even at the corporate level this year for our corporate level, we've included ACMA as part of our compensation. We're going to be focusing on the costs across the company. And on the business, I think the businesses that are ramping up that have come from very low cyclical times, rail components, barge, and a little bit of wind this year, it's going to be tougher because we're just getting started. You know, those businesses are very sensitive to volume. As we ramp up, you should see some improvement in our margins. They get operational leverage real fast, and the return on capital is incredible in those businesses once they get going.
On the construction segment, it's tougher, no? The volatility is not as high, it's much more detail. Now mine by mine, plant by plant, focusing on pricing and costs on an individual level, but there's a lot of levers we can pull there still. Finally, you know, some of the transmission structures, the utility structures over there, our view has changed over the last few months. We expected a faster reduction in steel prices, 3 months ago. Steel prices have stabilized right now. Our goal right now is to try to keep our margins and increase our margins as steel prices come down. That's a tougher one because as steel prices come down, your margins are pulled down a little bit.
Overall, I feel very confident as a company, we can do it. Each one of their business has different levers and different ways of approaching it, but we have a lot of tools inside.
Trey Grooms (Managing Director and Equity Research Analyst)
All right. Thanks for that, Antonio. Super helpful. Gail, sorry if I missed it, but what are you targeting for CapEx this year, and any color on the free cash generation this year, you know, ex the gain of the sell on land?
Gail Peck (CFO)
Sure. Yeah, I did in my comments, Trey, give the CapEx guidance for the year. We're looking at $140 million-$160 million in CapEx. Yeah, we'll get some offset to that from the $20 million, give or take, proceeds from the large land sale that we have in the first quarter in construction. Let's call it $120 million-$140 million net of that. We've got about $40 million-$50 million of growth CapEx included in that. you know, I'd say the most significant of that is the continuation of our concrete pole that we have going in Florida in our utility structures business, as well as finishing out our greenfields in aggregates and looking at ways to increase efficiency in, you know, slight capacity adds within our utility structures business.
You know, as a reminder, Trey, we finished 2022 at $138 million of CapEx. You know, looking at free cash flow for the year, you have our EBITDA guidance, if I kinda just start at the midpoint there at $325 million, you know, net off $130 of CapEx at the midpoint after the land sale, you know, throw in interest, you're somewhere around $165 million, $135 maybe after tax. I think the question mark is really on working capital. Working capital came in below our expectations, so it was a use in 2022. We're very focused on managing that. Inflationary impacts certainly had impacts in 2022.
We ended with our AR a little bit higher at the end of the year. You know, I think we'll have a good cash flow year. I think working capital, you know, neutral to a use is where we're gonna come out. We were about 20% of revenue in 2022, if we keep that clip, and we wanna do better,
That could be about a $40 million drain next year. You know, you sum all that up, you know, free cash flow in the $100 million range.
Antonio Carrillo (President and CEO)
Let me just add something because I think it's important to understand at the stage where we are. The good news for Arcosa also, we have a lot of organic projects going on. Every time we allocate capital, we go through the exercise of where is the best use of our capital, and the returns on organic growth are far greater than acquisitions at the moment. We have a lot of projects on the drawing board. That's good news. The second piece is, as we think about the cyclical companies recovery, cyclical business recovering, they consume working capital because we are buying inventory, generating AR, et cetera. It should also be good news that we are growing the businesses. They might consume some working capital, but it's basically good news.
Trey Grooms (Managing Director and Equity Research Analyst)
Yep. All makes sense. Thanks for all the great detail. I'll pass it on. Thank you.
Operator (participant)
Thank you. Our next question comes from Garik Shmois with Loop Capital Markets.
Garik Shmois (Equity Research Analyst)
Great. Thanks for having me on today, and congrats on the quarter. I was wondering if you could speak a little bit more on aggregates volumes and different moving pieces. It sounds like you're expecting infrastructure and non-res to mostly offset new residential declines. You also have some weather here, it sounds like in the first quarter. Maybe if you could just flesh out how you expect the shape of the year to look, you know, would you expect volumes to be a little bit more back half-weighted just given the timing of infrastructure? Just any more clarity on the aggregates volumes would be helpful.
Gail Peck (CFO)
I'll take that one. It's Gail. Yeah, clearly we've had deceleration in single family, that continued in the fourth quarter. You know, you look at some of our key markets, you look at the housing starts, you've seen some momentum in the year-over-year declines in the back half relative to the first half of the year. Clearly that's had an impact. We've seen an impact in, I guess maybe before I leave that point, we have had, and it's important to note, we've had success in the quarter transitioning our volumes from single family into infrastructure and commercial non-res. You know, good success going on there, we're seeing a pickup in the bidding for infrastructure projects.
We shared a little bit of color in our IR materials with, you know, the DOT lettings and the strengths in our key markets as you look at those numbers compared to the five-year averages. A lot of activity and positivity there. You know, we're starting to see a pickup in the heavy non-res side as well in certain of our key markets. All of that points to the potential for these volumes to compensate for single family. I would say, as I think about the trajectory or the cadence for 2023, just given the fact that our volumes were up in Q1 and Q2 of this year, we probably have more comp challenges in the first half of the year than we would in the second half of the year.
That tracks well with our expectations that we would see infrastructure volumes to continue to sequentially pick up this year.
Garik Shmois (Equity Research Analyst)
Perfect. That's helpful.
Gail Peck (CFO)
Did that help or? Okay. Yep.
Garik Shmois (Equity Research Analyst)
No, that did. That, that's about what I was looking for. Thank you for that. Wanted to follow up on the capacity ramp on the cyclical side of the business. Curious, you know, are you adding capacity for the current increase in backlog, or are you anticipating the capacity to service an increase from here in the backlogs as well? Also, just from a timing standpoint, would you anticipate that your capacity ramp would be complete by the end of 2023?
Antonio Carrillo (President and CEO)
It's a complex question because. I'll give you the status of our plants. Let's start with wind. We have three plants at the moment. One is shut down, and that plant is not planned in this ramp-up capacity. We're only ramping up the plants that are operating. There's not a lot of CapEx. It's a relatively easy ramp-up. It's not something that we are going to have to put a lot of money and things like that. It's another ramp-up like the many of the ones we've made before. Now, I mentioned that with the current orders, we are full for that ramp-up, meaning, you know, we're going to be ramping up, and there is a little more capacity we could extract this year.
Not a lot, but there is a little more that we could extract if we get the orders in time. As time goes by, that window shrinks. What I think is important is as we ramp up, we should end the year in those two plants relatively at a really good click to be able to continue to ramp up. There's more capacity that we could ramp up for 2024 and 2025. It's a, I would say, a trend that we expect to start picking up. Depending on the orders we receive, if we receive more orders before the end of the year, that I expect to receive more, we can accelerate the ramp-up to end the year at a higher production rate. That's where we're going to be moderating our ramp-up.
On barge, a little different. We also have three plants. One is shut down. The other two plants are also running at low capacity. The orders we got right now are for running those plants at relatively low capacity still. We still have a lot of room to go up when if we receive more orders, and we're going to be dialing it up and down depending on the orders we receive through the year. I would say the positive news is that both on barge and wind, these orders provide a floor, let's say a consistent production trend for the company that allows us to then modulate our ramp up as we see fit, depending on the backlog we generate through the year.
Garik Shmois (Equity Research Analyst)
Okay. That's helpful. Thanks for that, and I'll pass now.
Operator (participant)
Thank you. Our next question comes from Julio Romero with Sidoti & Company.
Julio Romero (Equity Research Analyst)
Hey, good morning, Antonio and Gail.
Antonio Carrillo (President and CEO)
Morning.
Julio Romero (Equity Research Analyst)
I wanted to ask about the barge business, and you guys substituting hot-rolled coil for plate steel. You know, I guess, you know, why hasn't Arcosa or other industry players kind of done that in the past? You know, what are the pros and cons of the substitution to the end customer? Does the margin profile or profit profile change for Arcosa by doing that?
Antonio Carrillo (President and CEO)
Yeah. Thank you, Julio. It's a really good question, you know, we have never done it before. First of all, this is for hopper barges, no? We've only done it for hopper barges. There's a whole reason for why. But for hopper barges, historically, the difference between coil and plate is somewhere between, depending on the time, $100, $150. That's the historical difference between the two products. When you make the numbers, you have to increase your labor content to substitute coil for plate. When you do the numbers with that small difference, it's tight. It never made a lot of sense to put a lot of money and time behind it. When the pandemic hits, steel prices go down, they go nuts.
2022 historically has been the year with the most volatility in steel prices in history, based on... that's what CRU published a few months ago. What happened is that plate prices stayed high at $2,000 or so, and coil prices started falling real fast in the second quarter of last year, second or third quarter of last year. By September, October, the gap between those two prices was enormous, almost $1,000. Then we sent our team, we sent our team in barge to start redesigning the barges to take advantage of that and be able to offer our customers, a barge that's just as good as a plate barge, just with some more welds.
When you see the barge, it has a few more welds, but it's exactly the same quality of product with no disadvantages at all. It's just you have to put more welds in it, so you put more labor. We launched our first barge in December with coil, and customers liked it, and immediately started to place orders. Coil prices have come up a little bit again, so right now we are not selling many more of them. What's important about this is two things. First, I think we reacted to market conditions. Second, now we have flexibility. Depending on steel prices, we can modulate and decide how we build the barge with coil or plate.
Third, it also gives us negotiating strength with our steel suppliers, depending on plate and coil prices. I think it's a really good development. Let's see where steel prices come, but I think this allows us to move between two very complicated markets, let's say.
Julio Romero (Equity Research Analyst)
Got it. Appreciate all the color there. Maybe turning to the steel components business, you guys sounded overall positive on the demand outlook there in 2023. Is that affected at all by maybe what's going on with the East Palestine derailment and kind of any safety concerns within the industry? Just trying to think if there's any impact at all for Arcosa.
Antonio Carrillo (President and CEO)
We don't see it at the moment. As you know, we only make couplers and axles. We don't see it at the moment. I'm not sure what the regulatory changes could happen based on this. What I would tell you is that at the moment, our couplers and axles, we don't even finish the axles. We sell the axles to people who finish it, then they mount it on the wheels and axles and put the bearings and everything. We don't see a big impact, any impact on our business. As this situation is very fluid, and there's changes happening and news happening every day, so I don't know what the regulatory changes could happen. At the moment, we are optimistic about it.
We mentioned that the ramp for 2023 is not as sharp as it was in 2022, but we are seeing in our business significant operational leverage, and we saw it in the fourth quarter. As Gail mentioned, you know, we have that significant increase in our EBITDA compared to the previous year, and we are optimistic about 2023.
Julio Romero (Equity Research Analyst)
Really helpful. Thanks very much for taking the questions.
Operator (participant)
Thank you. Our next question comes from Stefanos Crist with CJS Securities.
Stefanos Crist (Equity Research Analyst)
Good morning. Thanks for taking my questions.
Antonio Carrillo (President and CEO)
You're welcome.
Stefanos Crist (Equity Research Analyst)
Could you just talk about the customer dynamics in the large orders for barge and wind? Were there, you know, large orders in those or multiple customers across? Thank you.
Antonio Carrillo (President and CEO)
Let me start with barge. With barge, it's multiple customers that it was a good list of customers. Not only the ones we got orders, but the inquiries we're receiving, I think it's a wide variety of customers. On wind, as you know, it's a much shorter list of companies that build wind towers, at the moment, we only have with one customer. The order was basically with one. We do have quotes out there with another two companies. It's a much shorter list of potential customers, so you should expect a much wider concentration, no? What we are seeing both on wind and barge is that the, I would say, the majority of the customers are inquiring about additional orders, no?
Stefanos Crist (Equity Research Analyst)
No, that's great. Thank you. Just on M&A, can you just talk about what you're seeing in the market right now, multiples, just opportunities? Thanks.
Antonio Carrillo (President and CEO)
Sure. you know, we are seeing opportunities. We have many bolt-on opportunities, small things here and there. As we've said before, this is mainly on the barge side, on the aggregate side. The way we've approached this, we like to build hubs, large hubs in certain regions, for example, in Arizona, where we bought, and then we look for bolt-ons around it. So we are seeing smaller bolt-ons in many of our regions. Multiples on the smaller side are reasonable. When we have seen a few of the larger ones, multiples continue to be too high. One of the things that's important, we're going to stay disciplined, even though we have a strong balance sheet. We're going to stay disciplined and continue to measure the return on capital on each project.
At the moment, the organic ones seem to be better options for us to allocate capital. We will do M&A, mainly bolt-ons. As an example, you know, not only in terms of recently we did a very small bolt-on in Arizona on our own recycled aggregate, a very small one that came with some land. At the same time, we're opening recycled aggregates in Arizona around our natural aggregate. What we're looking for is to try to complement our presence in each one of the markets in natural and recycled, and do bolt-ons, some larger, some smaller, but mainly bolt-ons at the moment.
Stefanos Crist (Equity Research Analyst)
Thank you.
Operator (participant)
Thank you. At this time, I show no further questions in queue. I'll turn the call back over to Erin Drabek for any additional or closing remarks.
Erin Drabek (VP of Investor Relations)
Thank you for joining us this morning for our fourth quarter and full year earnings call. We look forward to talking to you again next quarter.
Operator (participant)
This concludes today's call. Thank you for your participation. You may disconnect at any time.