Executive Summary / Key Takeaways

• Arcosa has fundamentally transformed its portfolio since 2018, shifting towards a more resilient, less cyclical business heavily weighted towards infrastructure-led Construction Products, now accounting for roughly two-thirds of adjusted EBITDA.
• Recent strategic actions, including the transformative Stavola acquisition and targeted divestitures, are driving significant revenue and adjusted EBITDA growth, coupled with meaningful margin expansion across the portfolio.
• Strong market tailwinds from increased infrastructure spending, grid hardening, electrification, and an aging inland barge fleet are providing solid demand visibility and supporting growth in key segments.
• Operational execution, including the successful ramp-up of new facilities and focus on pricing and efficiency, is enhancing profitability and unit economics, particularly in Engineered Structures and Construction Products.
• Despite a temporary increase in leverage following the Stavola acquisition, Arcosa is prioritizing debt reduction, targeting a return to its 2.0x-2.5x net leverage goal within 12-18 months, supported by strong cash flow generation and disciplined capital allocation.

Setting the Foundation: A Transformed Infrastructure Player

Since its spin-off from Trinity Industries (TRN) in 2018, Arcosa, Inc. ($ACA) has embarked on a deliberate and significant strategic transformation. The core vision has been clear: to evolve into a provider of infrastructure-related products and solutions focused on attractive growth markets, while simultaneously reducing the overall complexity and cyclicality inherent in its initial portfolio. This journey has fundamentally reshaped the company, moving from a business where Construction Products represented just one-third of adjusted EBITDA to one where that segment now contributes approximately two-thirds, reflecting a strategic pivot towards more stable, infrastructure-driven demand.

Arcosa operates across three primary segments: Construction Products, Engineered Structures, and Transportation Products. This diversified yet increasingly focused structure positions the company to capitalize on secular trends in North American infrastructure investment. The competitive landscape is varied across these segments, featuring large national players, regional specialists, and smaller local operators. In Construction Products, competition exists in aggregates, asphalt, and construction support, where scale, geographic positioning, and operational efficiency are key. The Engineered Structures segment competes in utility, wind, and traffic structures, facing rivals with global reach and specialized manufacturing capabilities. The Transportation Products segment, primarily focused on inland barges, competes based on manufacturing capacity, efficiency, and customer relationships in a cyclical market. Arcosa's strategy has been to build competitive advantages through targeted acquisitions that enhance market density and product offerings, divestitures of non-core or underperforming assets, and organic investments in new facilities and operational improvements.

Strategic Evolution and Portfolio Optimization

The strategic narrative of Arcosa is one of continuous portfolio enhancement. Following the 2018 spin-off, the company systematically pursued acquisitions to build out its presence in Construction Products, notably adding aggregates and specialty materials businesses. This was complemented by organic investments, such as the greenfield aggregates operation in Texas and expansions in specialty plaster and recycled aggregates facilities, all aimed at strengthening its position in growing regions and product lines.

The year 2024 marked a pivotal acceleration of this strategy. In April 2024, Arcosa acquired Ameron Pole Products for $180 million, adding engineered concrete and steel poles for lighting, traffic, and utility applications to its Engineered Structures segment. This acquisition was explicitly aimed at establishing a foothold in attractive, complementary markets and was noted as being accretive to segment margins.

The most significant move came with the $1.2 billion acquisition of Stavola's construction materials business, which closed on October 1, 2024. This was the largest acquisition in Arcosa's history and a game-changer for the Construction Products segment. Stavola brought a strong aggregates-led, vertically integrated business serving the large New York-New Jersey market, significantly increasing Arcosa's exposure to stable, infrastructure-led demand and adding accretive, high-margin operations (Stavola's LTM adjusted EBITDA margin was approximately 35% at the time of announcement). This acquisition expanded Arcosa's geographic reach to 13 of the top 50 MSAs, up from just 5 in 2018.

Simultaneously, Arcosa continued to simplify its portfolio by divesting non-core and more cyclical assets. This included the sale of a subscale asphalt business and a non-operating facility in Engineered Structures in the second quarter of 2024, followed by the divestiture of the steel components business (previously in Transportation Products) in August 2024. The steel components business was deemed small, cyclical, not core to the long-term strategy, and dilutive to overall margins. These divestitures, totaling $137 million in consideration, alongside the closure of some small underperforming aggregate locations, underscore the commitment to enhancing the quality and resilience of the earnings profile.

The cumulative effect of these strategic actions has been a dramatic shift in Arcosa's business mix, with Construction Products now dominating the earnings profile. This transformed portfolio is designed to be more resilient to economic cycles and better positioned to benefit from long-term infrastructure investment trends.

Operational Excellence and Strategic Assets

The company appears to lack specific, quantifiable product technology moats in the traditional sense (e.g., a unique material science yielding precise performance metrics), Arcosa's competitive advantages and operational strength stem from its manufacturing expertise, strategic asset base, and focus on efficiency.

In Engineered Structures, the company manufactures "highly engineered" concrete and steel poles, implying specialized design and production capabilities. The successful ramp-up of new facilities, such as the concrete pole plant in Florida and the wind tower facility in Belen, New Mexico (which began deliveries in Q2 2024), demonstrates operational execution in bringing new capacity online. Management commentary highlights "operating improvements" and "operating efficiencies" contributing to margin expansion in segments like utility structures and specialty materials. The ability to manage production ramp-ups and improve plant performance is a key operational differentiator.

In Construction Products, the value of strategic assets like hard rock quarries (as acquired with Stavola) and the operational efficiency in managing aggregates, asphalt, and recycling operations are paramount. Vertical integration, as seen in Stavola's model where quarries feed asphalt plants, offers cost advantages and supply chain control. The focus on "disciplined cost control" and achieving "unit profitability gains" through pricing and efficiency reflects a core operational strength.

For wind towers, the company benefits from Advanced Manufacturing Production (AMP) tax credits under the IRA, which incentivize domestic manufacturing. While not a product technology, this policy support for U.S.-based production leverages Arcosa's manufacturing footprint and provides a competitive tailwind.

The "so what" for investors is that these operational strengths and strategic assets translate directly into financial performance. Improved operating efficiencies and favorable product mix contribute to margin expansion, as seen in the 650 basis point margin expansion in Engineered Structures in Q1 2025. The ability to successfully integrate acquisitions like Stavola and Ameron and ramp up new facilities allows Arcosa to capture growth opportunities and enhance profitability, supporting the overall investment thesis built on strategic transformation and operational execution.

Segment Performance and Outlook

Arcosa's first quarter 2025 results provide a snapshot of the transformed company's performance and the impact of recent strategic moves.

Construction Products: Revenues increased 4.6% year-over-year to $262.8 million in Q1 2025, primarily driven by the Stavola acquisition, which contributed $26.4 million. On an organic basis, revenues declined 6%, with higher pricing offset by lower volumes, reduced freight revenue, and divestitures. Operating profit decreased 36.5% to $18.3 million, largely due to the seasonally dilutive impact of Stavola in the winter months, which reduced operating profit by $11.0 million in the quarter. Despite this, organic adjusted segment EBITDA margin expanded by 100 basis points due to improved unit profitability and pricing gains (organic aggregates pricing was up 7%, total pricing up 10% including Stavola). Management expects significant adjusted segment EBITDA growth for the full year 2025, driven by Stavola and high single-digit organic growth. They anticipate mid-single-digit aggregate price appreciation and solid double-digit volume growth benefiting from Stavola, particularly as the segment enters its stronger second and third quarters. Infrastructure investment and private non-residential activity (data centers, select industrials) remain tailwinds, while single-family housing is still challenged.

Engineered Structures: This segment was a key driver of Q1 2025 performance, with revenues increasing 23.0% to $284.8 million and operating profit surging 48.3% to $39.0 million. Growth was primarily due to higher wind tower volumes and the contribution from the Ameron acquisition. Utility structures revenues saw a slight decline as higher volumes and improved mix were offset by lower steel prices. Adjusted segment EBITDA increased 90%, and margin expanded a significant 650 basis points, benefiting from the ramp-up of the New Mexico wind tower facility (which incurred startup costs in the prior year) and operating improvements/favorable mix in utility structures, plus Ameron's accretive impact. The backlog for utility, wind, and related structures stood at $1094.1 million as of March 31, 2025, with approximately 59% expected to be delivered in 2025. Management expects double-digit adjusted EBITDA growth and solid margin expansion for the full year, driven by strong demand for utility structures (grid hardening, electrification, renewables connection) and continued ramp-up in wind towers, supported by the existing backlog. Discussions for 2026 and beyond wind orders are ongoing, contingent on policy clarity.

Transportation Products: Revenues decreased 27.1% to $84.4 million in Q1 2025, primarily due to the divestiture of the steel components business. Operating profit decreased 4.8% to $13.9 million. Excluding the divested business, revenues were up 6% and adjusted segment EBITDA increased 13%, driven by higher tank barge deliveries and improved plant efficiencies, resulting in 120 basis points of margin improvement for the barge business. The inland barge backlog increased 19% from the start of the year to $333.6 million as of March 31, 2025, with approximately 63% expected to be delivered in 2025. Strong order activity for tank barges ($142 million in Q1, book-to-bill of 1.7) extends the backlog well into 2026. The aging fleet and low new builds relative to scrapping indicate future replacement demand. While dry hopper barge orders are more sensitive to steel prices and agricultural tariffs, management is seeing signs of easing steel prices and remains confident in filling open slots. The barge business is delivering solid margins at low production rates and is ready to ramp up as demand increases.

Financial Health and Deleveraging Priority

Arcosa's financial performance reflects the impact of its strategic shifts and operational execution. For the three months ended March 31, 2025, revenues were $632.0 million, up 5.6% year-over-year. Operating profit was $55.8 million, up 4.5%. Net income was $23.6 million, compared to $39.2 million in the prior year period, impacted by a significant increase in interest expense ($28.3 million vs. $8.3 million) due to debt financing for the Stavola acquisition. The effective tax rate was 19.2%.

Cash flow from operations in Q1 2025 was near breakeven ($0.7 million required), a notable decrease from $80.5 million provided in Q1 2024. This was primarily driven by an $80.7 million net use of cash from changes in working capital, including increased receivables (partially due to AMP tax credits subsequently sold in April) and decreases in advanced billings and accrued liabilities. Capital expenditures were $34.0 million in Q1 2025, down from $54.4 million in Q1 2024, reflecting a planned reduction in growth CapEx as major projects near completion. Full-year 2025 CapEx is guided at $145 million to $165 million, focused on maintenance and finishing existing growth projects.

The Stavola acquisition, while transformative, increased Arcosa's debt levels. The company funded the acquisition with a combination of senior unsecured notes ($600 million at 6.88% due 2032) and a secured term loan ($700 million at SOFR + 2.25% due 2031). As of March 31, 2025, total debt was $1686.3 million. Net debt to adjusted EBITDA stood at 2.9 times at the end of Q1 2025, consistent with the start of the year.

A key capital allocation priority following the Stavola acquisition is prudent deleveraging. Management is firmly committed to returning to its long-term net leverage target of 2.0x to 2.5x within 12 to 18 months. This will be supported by anticipated growth in adjusted EBITDA (guided at $545 million to $595 million for 2025, up 30% at the midpoint excluding divested business), reduced growth CapEx, and a focus on working capital management. The company maintains strong liquidity, with $699.9 million available under its $700 million revolving credit facility as of March 31, 2025, and no material near-term debt maturities.

Competitive Positioning and Market Dynamics

Arcosa operates in markets with diverse competitive landscapes. In Construction Products, the Stavola acquisition significantly enhanced its position in the large, attractive New York-New Jersey market, where it competes against both large national players and regional operators. Stavola's industry-leading margins suggest a strong competitive advantage, likely derived from its strategic asset locations, hard rock reserves, and vertical integration. While precise market share data for all competitors is not publicly available, Arcosa's strategy of acquiring aggregates-led businesses in attractive MSAs aims to build scale and density to compete effectively.

In Engineered Structures, Arcosa competes with companies like Valmont Industries (VMI) and IES Holdings (IESC) in utility and wind structures. While competitors may have global reach or specialized niches, Arcosa's operational improvements, successful ramp-up of new facilities, and focus on specific product types (like highly engineered poles) contribute to its competitive standing. The AMP tax credits for wind towers provide a policy-driven advantage for domestic production. Arcosa's Q1 2025 margin expansion in this segment suggests strong operational execution relative to the prior year.

In Transportation Products, the barge business competes based on manufacturing capacity, efficiency, and customer relationships. The aging U.S. inland barge fleet presents a significant replacement cycle opportunity. Arcosa, noted as having the most capacity among competitors, is strategically managing its backlog and pricing to capitalize on this anticipated demand, aiming for favorable margins even at current production rates.

Overall, Arcosa's competitive strategy leverages its increasingly diversified portfolio, operational efficiencies, strategic geographic footprint (enhanced by Stavola), and disciplined approach to capital allocation. While some competitors may exhibit higher growth rates (e.g., STRL, IESC) or different technological focuses (e.g., VMI's R&D), Arcosa''s focus on margin expansion, portfolio resilience, and prudent financial management provides a distinct investment profile. The company's ability to integrate acquisitions and extract value from its operational assets is key to maintaining and enhancing its competitive position.

Risks and Challenges

Despite a positive outlook, Arcosa faces several risks. Market cyclicality and seasonality, particularly in Engineered Structures and Transportation Products, and the weather-dependent nature of Construction Products, can impact volumes and profitability, as seen in the weather-related softness in Q1 2025 Construction Products volumes. Fluctuations in steel prices remain a factor for steel-intensive segments like utility structures and barges. Policy uncertainty, including potential changes in trade tariffs and renewable energy incentives, could affect demand and pricing, particularly for wind towers and dry barges.

The integration of large acquisitions like Stavola carries execution risk, although management has a track record of successful integrations. The increased debt level following the Stavola acquisition exposes the company to higher interest rate risk and requires successful execution of the deleveraging plan. While management is confident in its ability to return to its target leverage range, macroeconomic headwinds or unexpected operational challenges could impact cash flow generation and slow down this process.

Conclusion

Arcosa's journey since 2018 has been one of deliberate and successful transformation. By strategically expanding its Construction Products segment through significant acquisitions like Stavola and targeted organic investments, while divesting non-core assets, the company has built a more resilient, infrastructure-focused portfolio less susceptible to broad economic cycles. This strategic pivot is now yielding tangible results, with strong revenue and adjusted EBITDA growth, notably enhanced margins, and solid backlogs providing visibility into future performance.

The company is well-positioned to benefit from compelling long-term tailwinds in infrastructure spending, grid modernization, and the necessary replacement of aging transportation assets. Operational execution, including the successful ramp-up of new facilities and a focus on pricing and efficiency, is translating these market opportunities into improved profitability. While the Stavola acquisition has temporarily increased leverage, management's clear commitment to deleveraging, supported by anticipated strong cash flow and disciplined capital allocation, underpins confidence in the company's financial trajectory. Despite facing inherent industry risks and macroeconomic uncertainties, Arcosa's transformed business model, operational strengths, and strategic positioning suggest a compelling investment thesis centered on sustainable growth and enhanced profitability in critical infrastructure markets.