Arcosa - Q4 2025

Transcript

Operator (participant)

Good morning, ladies and gentlemen, and welcome to the Arcosa, Inc. fourth quarter and full year 2025 earnings conference call. My name is Chloe, and 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, Vice President of Investor Relations for Arcosa. Ms. Drabek, you may begin.

Erin Drabek (VP of Investor Relations)

Good morning, everyone, and thank thank you for joining Arcosa's fourth quarter and full year 2025 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 the press release issued yesterday 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 the non-GAAP financial measures to the closest GAAP measure are included in the appendix of the slide presentation. In addition, today's conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. 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, expected to be filed later today. I would now like to turn the call over to Antonio.

Antonio Carrillo (President and CEO)

Thank you, Erin. Good morning, everyone, and thank you for joining us for a discussion of our fourth quarter and full year 2025 results and 2026 outlook. 2025 was an outstanding year for Arcosa, demonstrated by our exceptional financial performance and significant advancement of our strategic transformation. Our key growth businesses, construction materials and engineered structures, drove year-over-year growth, supported by cyclical expansion in both barge and wind towers. For the full year, we achieved record revenues of $2.9 billion, up 12%, record Adjusted EBITDA of $583 million, up 30%, and record Adjusted EBITDA margin of 20.2%, up 280 basis points. Importantly, we accomplished these results safely, recording the lowest annual safety incident rate in Arcosa's history. Our expanded disclosures further highlight the momentum underpinning our key growth businesses.

Within construction products, we began separately disclosing revenues and unit statistics for the aggregates business. Representing approximately 60% of our construction materials revenues, aggregates achieved 10% growth in cash unit profitability in 2025, led by strong pricing gains and the accretive impact of Stavola. Within engineered structures, we separated our revenue and backlog disclosures for utility and related structures and wind towers. This better highlights the underlying strength within utility structures, where backlog levels remained at or near record highs throughout the year, supported by robust end market demand. We exited 2025 with great momentum. Fourth quarter Adjusted EBITDA increased 13% and margin expanded 90 basis points, with all segments contributing. Our earnings strength and positive cash flow enhanced our balance sheet, and we ended the year comfortably within our long-term leverage target.

Overall, I'm extremely proud of the dedication and contribution of the entire team. Earlier this week, we announced that we entered into a definitive agreement to sell our Barge business for $450 million in cash. With a strong backlog that provides production visibility deep into 2026 and market fundamentals supporting a healthy replacement cycle, we believe this is the right time to transition the Barge business to an owner aligned with its long-term growth plans. We expect the sale to close in the second quarter of 2026, subject to regulatory approval and other customary closing conditions. I want to thank our talented leadership team, dedicated employees, and long-standing customers for their significant contributions to Arcosa Marine. The barge transaction further reduces portfolio complexity and cyclicality, raises our overall margin profile, and enhances the long-term resiliency of the company.

Upon completion of the divestiture, Arcosa will be fully focused on construction materials and engineered structures, well aligned to benefit from long-term infrastructure and power market tailwinds in the U.S. Before Gail goes over our financials in more detail, I want to acknowledge Jess Collins. Jess, who has served as Group President of Arcosa since our spin-off, will be retiring in a few weeks. His strategic insight and commitment have helped shaped our success and strengthen our foundation for the future. We thank him for his outstanding service and congratulate him on his retirement. I will now turn over the call to Gail to discuss our fourth quarter segment results in more detail.

Gail Peck (CFO)

Thank you, Antonio. Good morning. Starting with construction products, fourth quarter segment revenues decreased 2%. Excluding freight, which is a pass-through in our Construction Materials business, revenues increased 4%. Adjusted segment EBITDA grew 3%. Margin expanded 140 basis points. On a freight-adjusted basis, adjusted segment EBITDA margin was roughly flat. As a reminder, segment performance this quarter is all organic, as Stavola hit its one-year anniversary on October 1st, at the start of the quarter. For aggregates, freight adjusted revenues increased roughly 8%, driven by 5% pricing growth and 2% volume improvement.

Two consecutive quarters of volume growth give us optimism on continued volume recovery in 2026. Adjusted cash gross profit increased 6%, and adjusted cash gross profit per ton increased 3%. Many of our regions had double-digit growth in unit profitability, particularly our natural aggregates and stabilized sand operations in Texas and our aggregates operation in the East region. This performance, however, was partially offset by lower unit profitability in our Gulf region, which was impacted by less favorable product mix, and the West region, which had lower cost absorption on declining production volumes as we align inventory levels to demand.

For the full year, volumes increased 6% due to the inorganic contribution from Stavola and organic volume improvement in the back half of the year, partially compensating for first half weather challenges. Full-year freight adjusted sales price grew 8%, and adjusted cash gross profit per ton increased 10%, led by the accretive impact from Stavola. Turning to specialty materials and asphalt, revenues decreased 5%, primarily due to lower freight revenue for asphalt. Excluding freight, revenues were roughly flat, while adjusted EBITDA and margin declined slightly. Within specialty materials, strong profitability gains in lightweight aggregates were offset by volume-related decline in our Specialty Plaster business. In our Asphalt business, revenues increased slightly as solid pricing gains offset lower volumes, resulting in modest unit profitability gains.

Revenues and Adjusted EBITDA for our Trench Shoring business saw a double-digit increase year-over-year and had strong margin expansion, driven by higher volumes and improved operating leverage. Moving to engineered structures, segment revenues increased 15%, led by a 20% increase for our utility and related structures businesses, while wind tower revenue increased 3%. For utility structures, volumes increased double digits while pricing was up high single digits. Steel pass-through was roughly flat year-over-year. Adjusted segment EBITDA increased 22%, and margin expanded 100 basis points to 18.5%, driven by strong revenue growth and operating efficiencies in utility structures. This business executed well throughout the year, resulting in sequential margin improvement in each quarter of 2025.

For wind towers, Adjusted EBITDA was roughly flat as we focused on right-sizing the business for lower production levels in 2026, resulting in a slight decline in margin year-over-year for the business. We ended the year with backlog for utility and related structures of $435 million, up 5% from the start of the year, providing solid visibility for 2026. Customer reservations for utility structures, which have not yet hit backlog, remain strong, providing additional confidence in the demand outlook. For wind towers, we received orders of $190 million during the quarter, primarily for 2027 delivery. We ended the year with backlog of $628 million and expect to recognize 42% in 2026 and 53% in 2027.

Turning to transportation products, revenues were up 19% and Adjusted segment EBITDA increased 24%, primarily due to higher tank barge volumes and a more favorable mix, resulting in 90 basis points of margin expansion, building on the meaningful improvement delivered in the prior year. I'll now provide some comments on our cash flow performance and improved balance sheet positions. During the quarter, we generated $120 million of operating cash flow. As expected, this is down from last year's fourth quarter, which benefited from significant customer deposits in our Wind Tower and Barge businesses for shipments delivering in 2025.

Excluding advanced billings, which can be uneven, net working capital days have improved sequentially each quarter in 2025, as we remain very focused on cash management. CapEx for the fourth quarter was $64 million, resulting in full year CapEx of $166 million, which was above the high end of our guidance range. The increase was driven by deposits placed on some long lead time equipment and the timing of spend on the wind tower plant conversion within our Utility Structures business. Free cash flow for the quarter was roughly $60 million and was $202 million for the full year. Our strong free cash flow generation in the second half of the year allowed us to repay $164 million of the term loan debt during the year, which is prepayable at no cost.

We ended the year with net debt to Adjusted EBITDA of 2.3x, comfortably within our target leverage range. This is down from 2.9x at the start of the year. Our liquidity remains strong at $915 million, including full availability under our $700 million revolver. We have no material near-term debt maturities. We are pleased we've achieved our leverage goal two quarters ahead of schedule and are focused on balanced capital allocation. For the full year, 2026, we expect CapEx to be between $220 million and $250 million. Our guidance includes $70 million-$80 million of growth CapEx and $150 million-$170 million of maintenance CapEx, including approximately $25 million of plant moves and IT-related initiatives in construction materials.

Within the growth category, we have a good mix of projects within construction materials and engineered structures, the largest of which is the conversion of our Illinois wind tower plant. We anticipate the cadence of spending to be more first half-weighted based on the expected project timelines. I'll wrap up with a few final comments for modeling purposes. For the full year, we expect depreciation, depletion, and amortization expense to range from $230 million-$240 million, slightly ahead of the annualized fourth quarter run rate, as we expect to complete and capitalize large projects.

Net interest expense is expected to range from $88 million-$90 million, down from $102 million last year, primarily reflecting debt reduction that occurred in 2025 and opportunistic debt paydown in 2026. For 2026, we expect an effective tax rate of 17.5%-19.5%. We will update this guidance as needed following the anticipated close of the barge divestiture. I will now turn the call back to Antonio for more discussion on our 2026 outlook.

Antonio Carrillo (President and CEO)

Thank you, Gail. For 2026, we anticipate revenues to be in the range of $2.95 billion-$3.1 billion, Adjusted EBITDA to be in the range of $590 million-$640 million, excluding any impact from the barge divestiture. As outlined in the earnings press release, our guidance for barge includes full-year revenues of $410 million-$430 million and Adjusted EBITDA of $70 million-$75 million. We will update our full-year guidance once the divestiture closes. Our 2026 guidance incorporates another record year for our growth businesses, construction materials and engineered structures, with combined double-digit Adjusted EBITDA growth and margin uplift. At the same time, we expect a short-term step down in wind towers before recovering in 2027.

In our outlook comments today, we will focus on the Construction Products and Engineered Structure segments. Beginning with our first quarter 2026 results, we expect to eliminate segment reporting for Transportation Products and report results for the Barge business as discontinued operations. In Construction Products, we anticipate another record year of revenues and Adjusted EBITDA. In our guidance range, we anticipate mid to high single-digit Adjusted EBITDA growth. For the Aggregates business, we anticipate low single-digit volume growth and mid-single-digit pricing improvement. With our cost expectations generally in line with inflation, we anticipate solid gains in aggregate unit profitability. Our outlook is supported by solid infrastructure demand, which drives roughly 45% of our segment revenues. IIJA funding, combined with strong state fiscal health, is expected to support volume growth in 2026.

Roughly half of the IIJA funding has not been spent. There is progress on advancing a multi-year surface transportation reauthorization. Our Shoring Products business has record backlog, a positive indicator of the underlying infrastructure demand. In Texas, our largest natural aggregates and liquid market, public infrastructure demand remains fundamentally healthy. While highway lettings have been trending off-peak levels, the outlook for state spending growth over the next several years is very positive and remains at historically elevated levels. In New Jersey, our second-largest regional exposure, the demand outlook is also favorable, as both the Department of Transportation and the Transit Authority have approved budget increases for 2026. As a reminder, Stavola operations are highly skewed to infrastructure and replacements. Our Stavola operations performed very well in 2025, and we anticipate a solid year of growth in 2026.

Stavola has added additional seasonality to our results, particularly in the first quarter. We anticipate that impact to be slightly more pronounced this year, as the Northeast has been affected by very cold temperatures and significant snowfall in the first quarter. Turning to private, non-residential market, volumes continue to benefit from data center development, reshoring activity in certain areas, and overall demand for new power generation. We are optimistic about future LNG opportunities. Residential remains challenged by affordability. Our outlook incorporates flat residential volume in aggregates. While we continue to experience positive activity in Texas, particularly in the Houston market, residential volumes remain weak overall, notably in the Phoenix and Florida markets. In our Specialty Plaster business, which serves multi-family construction, we anticipate a stronger second half of the year based on customer backlog and sentiment.

Given we are an attractive state for residential development, we expect our businesses to benefit when housing market recovers. Moving next to Engineered Structures. Our businesses play a pivotal role in strengthening American infrastructure, from wind towers that support much-needed new power generation, to utility structures that connect energy to the grid, and lighting, traffic, and telecom structures that address basic infrastructure needs of our expanding nation. As I've said before, we believe our Engineered Structures platform is strategically positioned to capitalize on attractive long-term trends. Turning to the U.S. power industry, the expansion of data centers and the rise in electricity consumption across the U.S. continues to drive a significant and sustained increase in power demand. Multi-year capital plans underscore our utility customers' commitment to significant power investments, along with ongoing efforts to modernize the grid.

During 2025, we maintained at or near record backlog levels for our utility structures. The outlook remains very positive. Industry capacity is constrained, lead times are extended. We're optimizing pricing and focusing on operational excellence. We're making solid progress on the conversion of our idle wind tower facility in Illinois to produce large utility poles and expect to be operational in the second half of 2026. Additionally, we have placed deposits on long lead time equipment to maximize output in our existing plants. Our new galvanizing facility in Mexico will complete its first dip this quarter, which will allow us to improve our cost structure and help offset start-up costs in Illinois for this year. For 2026, we anticipate another year of strong double-digit Adjusted EBITDA growth and higher margins.

Meeting expanding U.S. power needs will require leveraging all available sources of power generation. Cost-competitive wind energy can play a critical role in meeting future energy needs quickly and efficiently. We remain optimistic about the long-term demand for wind towers, despite near-term policy uncertainty impacting our anticipated volume for 2026. During the fourth quarter, we received wind tower orders for $190 million, primarily for 2027 delivery. Coupled with orders we received in the third quarter of 2025 and the shift forward of 2028 backlog, we have solid production visibility in 2026, but at reduced volumes from 2025. At December 31st, our wind tower backlog scheduled for 2026 was $260 million, indicating a decrease of roughly 25% in anticipated wind tower revenues.

Importantly, we expect to return to growth in 2027, supported by our current backlog for that year of $330 million. There is still time remaining in the year to book additional 2026 orders, where our customers are focused on 2027 and beyond. Factoring in competitor announcements and potential for additional moves, third-party research estimates a capacity shortfall existing in 2027 for utility structures. The flexible and strategically located network of facilities within our engineered structures platforms provides us with the ability to adapt and increase capacity quickly without significant capital investments. As a result, we're currently preparing for a transition of our Tulsa, Oklahoma, facility from wind towers to utility structures. At Tulsa, our wind tower backlog stretches through 2027, and we have the ability in that facility to run both product lines in parallel.

As wind tower orders are being finished, we will be moving our people to produce utility poles. Reducing our wind tower capacity to two facilities rightsizes the business and redirects our resources to the higher multiple, higher margin utility structures business with a sustained runway for growth. As it relates to our capital allocation priorities, we're focused on investing in our growth businesses, both organically and through acquisitions. We have an active pipeline of additional bolt-on opportunities, both in natural and recycled aggregates, and expect to deploy capital towards the highest value opportunities. We also anticipate reducing debt in the interim to lower interest expense.

Our unused $700 million revolver provides ample additional liquidity. In closing, we enter 2026 as a more resilient company. The divestiture of our Barge business is a significant milestone in our company's evolution and will sharpen our focus on our key growth businesses, construction materials and engineered structures. We will now move from our transformation phase to being completely focused on growth as we look to create additional value for our shareholders. We're now ready for your questions.

Operator (participant)

Thank you. If you'd like to ask a question, press star one on your keypad. To leave the queue at any time, press star two. Once again, that is star one to ask a question. We'll move first to Ian Zaffino with Oppenheimer. Your line is open.

Ian Zaffino (Managing Director)

Hi, great. Thank you very much. Congratulations on the barge sale.

Antonio Carrillo (President and CEO)

Thank you, Ian.

Ian Zaffino (Managing Director)

As far as the proceeds, how are you thinking about redeploying those, you know, what areas and maybe geographies or any other kind of color you could give us on that and, you know, kind of the multiples you're seeing out there, if you do intend to use that for any M&A. Thanks.

Antonio Carrillo (President and CEO)

Let me give you color on that. As Gail mentioned in her script, you know, first, I think we have, once we close this transaction, and we expect it to be in the second quarter, I think the there might be some debt reduction in the short term. After that, we have a very active pipeline of opportunities in our for M&A. Right now, we're looking at mostly within our current footprint, we do have some opportunities that take us to some new MSAs that we are not present.

Again, M&A, as mentioned in the past, has no timing, and because these things are sometimes take time and mostly are family-owned businesses, so it takes time to get there. We have a really active pipeline in both our current MSAs and a few new ones, and that would be our primary focus, to try to accelerate our M&A pipeline, mainly bolt-on acquisitions. These are not enormous things. I think that's, I've mentioned before, I think the bolt-ons is where we really get excited about the margin expansion. We also have significant organic CapEx going on.

We have, Gail mentioned a few plant movements within our Aggregates business, more reserves. We have, the finishing the Illinois facility, the galvanizing facility. I just announced that, you know, we're transitioning our Tulsa facility from wind towers to transmission over time as we finish our wind tower orders. That facility is very large and has the ability to do both product lines. I think, you know, the big message here is now that we're a simpler company, we will focus our full attention into deploying the capital to generate additional value for our shareholders through both inorganic and organic opportunities.

Ian Zaffino (Managing Director)

Okay, thanks.

Antonio Carrillo (President and CEO)

We're losing you, Ian.

Ian Zaffino (Managing Director)

You know, what should we expect there? Because I know we're pretty close to being almost, you know, exclusively non-cyclical at this point. You know, any other kind of moves that you intend to do or not do, and, what should we expect going forward? Thanks.

Antonio Carrillo (President and CEO)

You know, the business we've talked in the past about is the Cyclical business that we are left with is the Wind Tower business. As you know, current policy uncertainty makes it we need it to get through the noise. I mentioned in my remarks that we're very optimistic about the future of the wind industry because, you know, it's, as I've told investors many times, though, for the first time since we've been building wind towers, we actually need them. The power demand increase is real, so I think I'm optimistic about wind. I mentioned in my remarks, we expect a slower 2026. We'll return to higher volumes in 2027. As we enter 2028, that's where we need to start focusing on 2028 and beyond.

At the same time, we recognize the policy uncertainty, we have another business that is growing fast, which is the utility structures, and that's why the transition from our Tulsa facility to more utilities. I think there's some uncertainty. I will tell you, as we get into 2027, let's see, I say I'm very optimistic about 2028 and beyond for wind, but right-sizing the business to two facilities really reduces our exposure, and if the wind industry recovers fast, we'll see what we do. For the moment, we'll be very, very focused on growing in utility structures. Long answer to your short question.

Ian Zaffino (Managing Director)

No, that's really helpful. Thank you, very much. Good quarter. Thank you.

Operator (participant)

We'll move next to Trey Grooms with Stephens. Your line is open.

Ethan Roberts (Equity Research Associate)

Hey, Antonio and Gail, this is Ethan on for Trey. Thanks for taking the question. Starting off with utility structures, clearly expected to be a pretty large growth driver in 2026. Revenue was up 20% in the fourth quarter, so the magnitude of growth here is pretty impressive. Guide seems to imply pretty solid double-digit EBITDA growth. Just curious if this may help offset what is expected to be lower volume and profit in wind in 2026, and perhaps any more color on the growth or demand expectations for utility structures in 2026. Thanks.

Gail Peck (CFO)

Yeah. Good morning. This is Gail. I'll kind of take the first part of that question as it relates to, you know, I think you're correctly identifying a lot of underlying strength within the utility structures. You know, as we look to 2026 and think about our guidance for the Engineered Structure segment, we do see a path to that strong utility compensating for the step down in wind. You know, we gave a rough estimate for where we are right now for wind backlog, which translates to revenues for 2026. You do see, you know, roughly 25% step down in wind revenues.

Given where we are with utility and the strength of the double-digit volume increases and pricing increases that we've had, and, you know, as I said in my script, we saw margin expansion for utility in every quarter, year-over-year, throughout 2025. We have strong expectations for the business next year, and we see, you know, a path to flat, to maybe slight growth within the segment for next year.

Antonio Carrillo (President and CEO)

From the industry perspective, I think, you know, the numbers reflect what we're seeing in the industry. We're seeing very solid demand. We're seeing very long lead times. We're seeing a move towards larger utility poles, and that is why we're moving our wind tower facilities to utility poles. The big picture for us is we're very excited about the industry. We have a very, very flexible footprint in our, in our plants that allow us to move capacity towards the places where demand is stronger. At this time, utility is really the strongest place, and we expect it to be. The good news is we expect this to be a very long run for utility. This is not only 2026. I think we're seeing a path towards a longer term, solid demand for utility structures for quite a while.

Ethan Roberts (Equity Research Associate)

Got it. On that topic of transitioning the idle wind tower facility to expand capacity in utility structures, perhaps how should we be thinking about layering in that incremental capacity relative to the market growth? I know you touched on specific CapEx cadence for that transitioning, but any thoughts on maybe P&L implications of initial startup costs would be great. Thanks.

Antonio Carrillo (President and CEO)

Yeah. I mentioned the first facility we're transitioning, which is Clinton, will start coming online in the second half of this year. I mentioned also in my remarks that given our galvanizing facility in Mexico starting this quarter, we expect the savings from one facility to generally offset startup costs of the other one. We don't see a huge impact this year in our Illinois facility, but it will start. That facility already has orders and customers assigned to it, so we're going to be ramping up with relative certainty around 2027 being a year where the facility starts contributing to the bottom line. The other facility, it's a longer-term process.

As I mentioned, we have orders until 2027, so this is a 2028 and beyond impact. The ramp-up in that facility will be a lot smoother because if you think about the first facility was idle, so we are hiring people, we're training people, and everything. The other facilities are much easier transition because we already have people, which is the hardest thing to get and the most important resource for any one of our facilities. Moving people that already know how to weld and produce wind towers to transmission structures is a lot easier than hiring new people.

Ethan Roberts (Equity Research Associate)

Got it. That's all very helpful. Thanks so much for the color, and I'll pass it on.

Operator (participant)

We'll move next to Garik Shmois with Loop Capital. Your line is open.

Garik Shmois (Managing Director)

Hi. Thanks. Just on the first quarter, I was wondering if you could maybe follow up a little bit more just on the observations around weather in the Northeast impacting Stavola. Any additional, you know, perspective on Q1 and, you know, what the impact there is, whether it's, you know, from a production standpoint or, you know, if we should think about maybe the percentage of EBITDA in the first quarter relative to the full year, how that's looking this year versus historicals?

Gail Peck (CFO)

Sure. Good morning, Garik, and thanks for the question. Yeah, it's been a cold and snowy quarter up in the Northeast, which has, you know, will likely impact the cadence of our Q1, as a percent of the total. I think if you look at last year, in Q1 EBITDA for the segment within construction was about, you know, 16% or so of the year. It certainly is a smaller contributor to EBITDA for the year. I would say with the weather, and the snow here recently, we'll see that percentage share drop just a little bit. You won't see the same contribution as a percentage of the whole as you saw last year.

Garik Shmois (Managing Director)

Okay. Makes sense. Thank you. Then maybe just on gross profit per ton expectations, in aggregates for 2026. I know certainly Q4 had, you know, some headwinds due to fixed cost absorption, in some of the western markets, it sounds like. How should we think about gross profit per ton, though, for the segment overall, for this year?

Gail Peck (CFO)

Sure. As I said in my comments, you know, with the mid-single-digit price and the low single-digit volume, and, you know, where we sit here today, with expectations that costs are generally in line with inflation, we do see solid unit profitability gains for 2026. You know, the cadence of that is always a little bit uneven with the seasonality. Q1 will, you know, likely have a tough comp in unit profitability year-over-year. For the full year, we expect solid gains in GP per ton.

Garik Shmois (Managing Director)

Understood. Thank you very much.

Operator (participant)

We'll move next to Julio Romero with Sidoti & Company. Your line is open.

Julio Romero (Senior Equity Research Analyst)

Hey, good morning, Antonio and Gail, congratulations to Jess on his retirement. I wanted to ask about the slope of the accelerating demand in utility structures. You're allocating resources there, you know, Illinois in 2026, Tulsa in 2027. Could you dive a bit deeper into whether the acceleration in demand is being driven by a particular product line or a geography? From an in-use perspective, Antonio, you said you're seeing demand skew towards larger utility poles. Should we infer that to mean that demand is being driven primarily by new transmission work versus substation?

Antonio Carrillo (President and CEO)

Yeah, I think the slope of the we've seen over the last couple of years, slope, let's say, become more pronounced. As we look at the backlogs and as we look at order intake and as we look at the non-reported backlog, let's say the reservations that our customers have, we see the need to accelerate our capacity expansion because our customers need it. In this industry, like in every other one, if we don't do it, someone else is going to do it. We need to be there for our customers. If you remember, we are a company that has a significant share of our revenues tied to longer-term contracts.

We have had very long-term relations with our customers, so we, they have the, we have the obligation to respond to their needs, and that's really exciting to us. I will tell you, it's not a regional thing. I would say that what we've seen is all over the place. We see it all over the country. That's why one plant in Illinois, one plant in Tulsa, give us further coverage. I would tell you the overall sentiment is very positive. Again, we didn't do this with just a hopes to have a good demand.

We had a market study by a third party, analyze utility investment over the next five to ten years. We see this slow continuing to accelerate at least from here to 2030. That's something that we have to acknowledge, and we have to plan for, and of course, we have to review it frequently and make sure that every step we take has the basis to make the right choices and the right capital allocation. We don't do it, just, based on our gut feeling. We have solid data behind our thinking, no.

Julio Romero (Senior Equity Research Analyst)

Absolutely. Very helpful there. Then on those customer reservations, I assume that's from your customers and utility structures that are seeing increased load requests. A large load customer, like a hyperscaler, you know, commits to incremental capacity, just talk about the timing from the load request to the utility planning to when maybe, you know, Arcosa sees the revenue flow through on the P&L.

Antonio Carrillo (President and CEO)

Yeah. First of all, our customers are mostly utilities. We have a few customers that are EPCs, but for the most part, we don't sell, we've not sold to a hyperscaler. Our customers are the people who supply the power to developers and hyperscalers and that kind of thing. I will tell you, it might take years, you know. If right now someone's trying to build a data center here in Dallas or in any of the locations around where our footprint is, it might take two, three years for us to start seeing any even noise around it. It is important to your first question that I did not respond.

I think the move to higher, larger poles that we've seen over the last couple of years has to do with that increase in loads in certain areas. I think has to do with permitting, and it has to do with rights of way. You know, it's easier to do, to put a big pole rather than a lot of small poles. It takes less space. You see it also in the conversation on the 765 lines, the very large lines. I think. Also bigger lines with higher voltage have more resiliency, add resiliency to the power, to the grid.

I think it's the whole country is just reconfiguring to people who have higher loads and higher demands, and everyone's trying to adapt to that, and we are part of the mix of that. It might take us years to see from the time someone develops a data center to the time we see the order.

Julio Romero (Senior Equity Research Analyst)

Excellent. Very exciting. I'll pass it on. Thank you.

Operator (participant)

We'll move next to Brent Thielman with D.A. Davidson. Your line is open.

Brent Thielman (Managing Director and Senior Research Analyst)

Yeah, great. Thanks. Yeah, on engineered structures, you've been in a pretty tight range of margins throughout 2025. I want to get a sense of whether, you know, do these sorts of levels are sustainable into 2026. It sounds like you could have a bit of a different mix within the segment. Does that have a material impact through the year? Maybe just help us understand that piece.

Gail Peck (CFO)

Sure. Good morning, Brent. I'll take that. Yeah, it's a great question. Kind of two different stories going on within engineered structures for 2026. Feel very comfortable with the visibility we have in wind, but, you know, with that revenue step down and some lost absorption, we will see a margin impact on the wind side. Does utility fully compensate for that margin impact? I think there's a chance there. I think we do see utility with good year-over-year progression in margin. I think, you know, the way I would say it right now is wind is gonna have an impact for sure, and I think a path to flat margins for the segment looks achievable, but, you know, we'll have to see how the year progresses.

Antonio Carrillo (President and CEO)

Just to add some color, because I think it's, you know, I think there's a path. Again, it's a big climb to get out of, to compensate for that big of a drop in wind, but there's a path to get there. Let me give you the qualitative side of that. We're changing, we're, if we get close to it, the quality of our EBITDA in 2026 is going to be a lot better than 2025 because we're changing tax credit EBITDA for utility structures EBITDA. It's, the quality of our EBITDA is going to be quite better, I think, in 2026 and beyond as utility structures grows.

Brent Thielman (Managing Director and Senior Research Analyst)

Okay. I guess as a follow-up, Antonio, you've been a patient seller with respect to the barge assets. I know it's been something that's been discussed for a long time. Congrats on kind of getting something to the finish line here. Could we presume that you know, you built up an M&A pipeline that you know, you really want to act on, and now was just the right time to get this done? I'm just trying to think around, you know, what finally got this to the finish line?

Antonio Carrillo (President and CEO)

Yes. Well, you know, I've mentioned it in the past, and it's a really, really good question. You know, I've mentioned M&A has its own timing, and we needed to get the barge to a point. I'm convinced that the buyer, Wynnchurch Capital, is going to do very well with this asset because it's at the right spot to sell it. The backlog is there, the trends in the industry are really good, and the replacement cycle is coming. I think they're going to have a really, really good business to run, and I'm very excited for our team and for them to buy this business. The timing is right to sell it. It's hard to time.

I mean, could it be better six months ago or one year from now? I can't tell you. I think right now it's as good as we've seen it, and that's why we waited to do it at the right time. There's a long runway for it. At the same time, we have been building our pipeline, and we are excited about some of the opportunities we have going on. I will tell you, I'm excited about all these opportunities we have. At the same time, you've seen us act in the past. You know, the money's not going to burn a hole in our pocket.

We're not going to deploy capital to things that we don't think are the best, that generate value for our investors. We're not going to pay incredibly high multiples that we cannot afford. We're going to be very disciplined in our capital allocation. The goal is to build a pipeline that we can act on, while at the same time staying disciplined with our capital allocation. We're going to be a disciplined capital allocator going forward, focused on growth.

Brent Thielman (Managing Director and Senior Research Analyst)

Okay. One more, if I could. Just with some of the investments you've made or are making on the utility structure side, including the conversion of the wind facility. Like, could you maybe level set us on how much revenue capacity comes on in 2026 or into 2027? Just trying to think about what you're doing internally and what that adds for you in terms of thinking about growth rates for utility structures.

Gail Peck (CFO)

Sure, Brent. I'll try to address that for you. You know, I think in terms of 2026, as we've said on the conversion for the wind tower facility, that's the second half of the year where that's going to start contributing. You know, from a steel structure perspective or steel plant perspective, that would be our seventh steel utility pole plant. That kind of gives you a sense of what type of capacity it is adding. But we would see that more of an impact, certainly from a full year perspective in 2027.

The other investments we're making, as Antonio said, you know, we've invested in a new galvanizing line down in Mexico. Not a top-line impact for that. That is a cost-saving initiative, as we're bringing galvanizing in-house down in Mexico. From a P&L perspective, as we ramp the Clinton facility in the U.S., the benefits from that galv cost saving should offset that ramp impact in 2026. Half year benefit from the top-line perspective for that Clinton plant, and then you get the full year impact in 2027.

Brent Thielman (Managing Director and Senior Research Analyst)

Okay. All right. Thanks, Gail. I appreciate it. Thanks. Thanks, all.

Operator (participant)

Thank you. This does conclude the Q&A portion of today's event. This also brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.