Executive Summary / Key Takeaways

• Strategic Transformation Driving Outperformance: Arcosa has successfully executed a portfolio optimization strategy, expanding growth businesses and reducing cyclicality, culminating in record Q3 2025 performance with double-digit revenue and adjusted EBITDA growth across all segments.
• Accelerated Deleveraging and Balanced Capital Allocation: The company achieved its target net debt to adjusted EBITDA leverage ratio of 2.4x two quarters ahead of schedule, enabling a balanced capital allocation strategy focused on organic investments and strategic bolt-on acquisitions.
• Robust Demand in Core Markets: Strong tailwinds from infrastructure spending, the burgeoning U.S. power market (driven by data centers and electrification), and an aging barge fleet underpin durable demand for Arcosa's Construction Products, Engineered Structures, and Transportation Products.
• Operational Agility and Technological Edge: Arcosa's flexible manufacturing capabilities, including the conversion of a wind tower facility to utility structures and specialization in large utility poles, provide a competitive advantage in responding to evolving market needs and enhancing cost efficiency.
• Positive Outlook Despite Policy Shifts: Despite some regulatory uncertainty in the wind energy sector and weather-related challenges, Arcosa maintains a positive full-year 2025 guidance, anticipating 32% adjusted EBITDA growth, supported by strong backlogs and strategic positioning.

Arcosa's Infrastructure Ascendancy: A Diversified Portfolio Fuels Record Growth

Arcosa, Inc., established in 2018 and headquartered in Dallas, Texas, has strategically positioned itself as a leading provider of infrastructure-related products and solutions across North America. The company's foundational strategy has centered on optimizing its portfolio by expanding into high-growth businesses, streamlining operations, and actively reducing cyclicality. This deliberate evolution has aimed to build a more resilient and consistently growing enterprise, enhancing long-term shareholder value.

The year 2024 marked a pivotal period in Arcosa's transformation. Key acquisitions, such as Ameron Pole Products in April 2024, bolstered its Engineered Structures segment with highly engineered concrete and steel poles for lighting, traffic, and telecom. The most significant move was the $1.20 billion acquisition of Stavola Holding Corporation's construction materials business in October 2024. This strategic expansion significantly increased Arcosa's aggregates footprint into the New York-New Jersey Metropolitan Statistical Area, a major market characterized by robust infrastructure demand. Concurrently, Arcosa divested its non-core steel components business in August 2024, further refining its portfolio. These actions, coupled with organic growth initiatives like the ramp-up of a new concrete pole plant in Florida and a wind tower facility in New Mexico, have reshaped Arcosa into a larger, more resilient, and less cyclical entity, with the Construction Products segment's contribution to adjusted EBITDA nearly doubling since 2018.

Arcosa operates within a dynamic industry landscape driven by substantial long-term trends. Increased infrastructure spending across North America provides a significant tailwind for its Construction Products segment. The burgeoning U.S. power market, fueled by the expansion of data centers, electrification initiatives, and grid hardening efforts, creates robust demand for its Engineered Structures. Furthermore, an aging U.S. barge fleet signals a multi-year replacement cycle, benefiting the Transportation Products segment. These broad market drivers underpin Arcosa's strategic focus and provide a fertile ground for sustained growth.

Competitive Landscape and Operational Edge

Arcosa operates in competitive markets, facing a diverse set of rivals across its segments. In construction materials, it competes with industry giants like Vulcan Materials Company (VMC) and Martin Marietta Materials (MLM). While VMC and MLM benefit from larger operational scale and established dominance in traditional aggregates, Arcosa differentiates itself through a diversified portfolio that includes recycled aggregates, specialty materials, and trench shoring products. This versatility allows Arcosa to cater to a broader range of infrastructure projects and adapt to emerging sustainable construction practices. ACA's integrated approach across construction, engineered structures, and transportation offers a unique value proposition, potentially providing bundled solutions that more focused competitors may not.

In engineered structures, Arcosa's steel and concrete products for utility and wind towers compete with specialized steel producers like Nucor Corporation (NUE) and infrastructure service providers like Quanta Services (PWR). Arcosa's operational flexibility and manufacturing capabilities provide a distinct advantage. The company's ability to convert an idle wind tower facility to produce large utility poles, a "relatively small dollar ticket of $20 million to $25 million," demonstrates its agility in reallocating capacity to meet accelerating demand. Antonio Carrillo highlighted that "the poles are getting bigger. And as you get into bigger poles, that's our sweet spot. That's where our cost really, really shines and that's where the flexibility we have in our manufacturing really is unique because the wind towers are enormous, and they're very well set up for building utility poles -- large utility poles." This specialization in large utility poles, coupled with a strategically located network of facilities, allows Arcosa to adapt and increase capacity without significant capital investments, differentiating it from competitors and enhancing its ability to capture market share in this high-growth area. The upcoming galvanizing facility in Mexico, expected to be operational in Q1 2026, is also poised to improve cost structure and enhance margins, further solidifying its competitive position.

Within transportation products, Arcosa's inland barge business competes with players like Trinity Industries (TRN). The aging U.S. barge fleet presents a compelling replacement cycle that is expected to outpace industry building capacity over the next 5 to 10 years. Arcosa's strategy involves disciplined pricing, with management stating, "We're not giving our capacity away if we wanted to fill the plants... We're selling our barges at the price we think they deserve and with good margins." This approach, combined with strong customer relationships and a focus on quality, allows Arcosa to maintain profitability even at lower production rates, while anticipating future demand surges.

Financial Performance: A Testament to Strategic Execution

Arcosa's strategic transformation has translated into robust financial performance. The third quarter of 2025 was a record period for the company, demonstrating double-digit revenue and adjusted EBITDA growth across all three segments. Consolidated revenue increased 27% year-over-year to $797.80 million, excluding the divested steel components business. Adjusted EBITDA surged 51% year-over-year, reaching a record margin of 21.8%, a 340 basis point improvement over the same period last year.

The Construction Products segment was a primary driver, reporting a record adjusted segment EBITDA of $150 million, with margins expanding 300 basis points to 29.7% in Q3 2025. The Stavola acquisition proved highly accretive, contributing $105 million in adjusted EBITDA with a 35.2% margin for the 12 months ending September 30, 2025. While organic aggregates pricing was up mid-single digits, unit profitability saw a slight decline due to temporary production downtime, which management indicated was largely resolved.

The Engineered Structures segment also delivered strong organic performance, with adjusted EBITDA increasing 29% and margins expanding 240 basis points to 18.3% in Q3 2025. This growth was fueled by increased demand in utility structures and higher volumes from the new wind tower facility in New Mexico, which became fully ramped and margin accretive by Q2 2025. The Transportation Products segment's barge business executed well, achieving double-digit revenue and adjusted EBITDA growth, with margins increasing 190 basis points, primarily due to improved mix and operating leverage in tank barge operations.

Arcosa's commitment to financial discipline is evident in its accelerated deleveraging. The company ended Q3 2025 with a net debt to adjusted EBITDA leverage ratio of 2.4x, achieving its target range of 2.0x to 2.5x two quarters ahead of schedule. The company used $100 million to reduce its term loan, underscoring its focus on a healthy balance sheet.

This was supported by strong cash flow generation, with operating cash flow reaching $161 million (up 19% year-over-year) and free cash flow at $134 million (up 25% year-over-year) in Q3 2025. As of September 30, 2025, Arcosa maintained strong liquidity of $920 million, including full availability under its $700 million revolving credit facility, with no material near-term debt maturities.

Outlook and Strategic Trajectory

Arcosa maintains a positive outlook for the remainder of 2025 and beyond, underpinned by its robust market positioning and strategic initiatives. The company tightened its full-year 2025 revenue guidance to a range of $2.86 billion to $2.91 billion and increased the midpoint of its adjusted EBITDA guidance to a range of $575 million to $585 million. This revised guidance implies a significant 32% year-over-year adjusted EBITDA growth, reflecting strong accretion from Stavola and double-digit organic expansion.

In Construction Products, Arcosa anticipates high single-digit pricing growth for aggregates in 2025. Total volumes are expected to see high single-digit growth, benefiting from Stavola, with organic volumes projected to be flat to slightly up. The company expects modest Q4 volume growth, assuming normal weather conditions. The long-term demand fundamentals, particularly from infrastructure spending and non-residential activity, remain strong.

The Engineered Structures segment is poised for continued growth. The backlog for utility and related structures reached a record $461.5 million as of September 30, 2025, up 11% year-to-date, providing strong visibility into 2026. The conversion of the Illinois wind tower facility to produce utility structures, expected to be operational in the second half of 2026, will further enhance capacity to meet accelerating demand. For wind towers, while the One Big Beautiful Bill Act (OBBBA) introduced some policy shifts impacting tax credits after 2027, Arcosa secured $57 million in orders in Q3 2025 for 2026 delivery and an additional $60 million in October 2025 for delivery through 2027, improving near-term production visibility. Management remains confident in the long-term need for wind energy to meet growing U.S. power demand.

The Transportation Products segment's inland barge backlog grew 16% year-to-date to $325.9 million, with production visibility extending well into the second half of 2026 for both hopper and tank barges. The aging U.S. barge fleet and the introduction of permanent bonus depreciation are expected to drive a favorable replacement cycle.

Capital expenditures for 2025 are projected to be between $145 million and $155 million, a reduction from $190 million in 2024, reflecting a focus on maintenance and completing existing growth projects. This disciplined approach supports continued deleveraging while allowing for strategic investments. Depreciation, depletion, and amortization expense is expected to be $230 million to $235 million, primarily due to the fair value step-up from the Stavola acquisition. The effective tax rate is anticipated to normalize to 19% to 20%.

Risks and Challenges

Despite the positive outlook, Arcosa faces several pertinent risks. The evolving regulatory landscape, particularly concerning renewable energy policy and the OBBBA's impact on wind tower tax credits, introduces uncertainty for long-term wind tower orders. While management believes wind energy remains cost-competitive, policy shifts could influence customer investment decisions. Weather and seasonal fluctuations inherently impact the Construction Products segment, as demonstrated by unseasonably cold and wet weather in early 2025 and production downtime in Q3 2025. Steel price volatility, though often passed through in Engineered Structures, can create revenue noise. Furthermore, broader trade policies and potential retaliatory impacts, particularly with Mexico, remain a watch point, despite Arcosa's U.S.-focused operations and USMCA-compliant products. Heavy regulatory burdens in infrastructure development could also act as bottlenecks, potentially slowing project timelines.

Conclusion

Arcosa, Inc. stands as a compelling investment thesis, having successfully transformed its portfolio into a more resilient and growth-oriented enterprise. The company's strategic acquisitions, particularly Stavola, have significantly enhanced its market position in construction materials, while organic investments and operational agility have strengthened its Engineered Structures and Transportation Products segments. This strategic evolution, coupled with a disciplined financial approach, has enabled Arcosa to achieve its leverage targets ahead of schedule, providing flexibility for future growth initiatives.

The company's operational and technological advantages, such as its specialized manufacturing capabilities for large utility poles and adaptable facility network, are critical differentiators in capturing demand from the burgeoning U.S. power market and broader infrastructure spending. With strong backlogs, a positive outlook for 2025, and a clear capital allocation strategy, Arcosa is well-positioned to capitalize on durable demand fundamentals. While regulatory uncertainties and weather-related challenges persist, Arcosa's diversified portfolio, operational excellence, and strategic focus on high-growth infrastructure markets underscore its potential for sustained long-term value creation.