Arcosa, Inc.: Form 10-Q for the period ended Sep 30, 2023

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Our MD&A is presented in the following sections:

• Company Overview
• Potential Impact of COVID-19 on our Business
• Market Outlook
• Executive Overview
• Results of Operations
• Liquidity and Capital Resources
• Recent Accounting Pronouncements
• Forward-Looking Statements

Our MD&A should be read in conjunction with the Consolidated Financial Statements of Arcosa, Inc. and its consolidated subsidiaries (“Arcosa,” “Company,” “we,” or “our”) and related Notes in Part I, Item 1 of this Quarterly Report on Form 10-Q and the Consolidated and Combined Financial Statements and related Notes in Item 8, “Financial Statements and Supplementary Data”, of our Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Annual Report on Form 10-K”).

Company Overview

Arcosa, headquartered in Dallas, Texas, is a provider of infrastructure-related products and solutions with leading positions in construction, engineered structures, and transportation markets in North America. Arcosa is a Delaware corporation and was incorporated in 2018 as an independent, publicly-traded company, listed on the New York Stock Exchange.

Potential Impact of COVID-19 on our Business

Our highest priority is the health and safety of our employees and communities. We are committed to safety across our operations. Our businesses support critical infrastructure sectors and our plants have continued to operate throughout the COVID-19 pandemic. If one or more of Arcosa’s facilities become subject to governmental ordered closure, voluntary temporary closure, closure from a COVID-19 outbreak within the facility, or other COVID-19 related reason the business, liquidity and financial condition, and results of operations for Arcosa could be adversely affected. The extent to which the COVID-19 pandemic impacts our business, liquidity and financial condition, and results of operations will depend on numerous evolving factors that we may not be able to accurately predict, including the impact of new COVID-19 variants and the response to any potential reoccurrence. We strive to continuously improve our procedures, processes, and management systems regarding employee health and safety, and we do not anticipate that any enhanced health and safety protocols will have a material impact on the productivity of our plants.

The preparation of the Company's Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. At this time, we have not observed any material impairments of our assets or a significant change in the fair value of assets due to the COVID-19 pandemic. However, due to the factors discussed above, we are unable to determine or predict the overall impact the COVID-19 pandemic may have on our business, results of operations, liquidity, or capital resources.

Market Outlook

• Within our Construction Products segment, market demand remains healthy overall when seasonal weather conditions have been normal, supported by increased infrastructure spending and private non-residential activity. The outlook for single-family residential housing continues to be impacted by higher interest rates and home affordability, which has negatively impacted volumes. We have been successful in managing inflationary cost pressures through proactive price increases and are monitoring potential impacts on overall demand as leading economic indicators indicate the potential for an economic slowdown over the next twelve months.
• Within our Engineered Structures segment, our backlog as of September 30, 2023 provides good production visibility for the remainder of 2023. Our customers remain committed to taking delivery of these orders. In utility structures, order and inquiry activity continues to be healthy, as customers remain focused on grid hardening and reliability initiatives. The passage of the Inflation Reduction Act ("IRA") on August 16, 2022, which included a long-term extension of the Production Tax Credit (“PTC”) for new wind farm projects and introduced new Advanced Manufacturing Production ("AMP") tax credits for companies that domestically manufacture and sell clean energy equipment in the U.S., is a significant catalyst for our wind towers business. As demonstrated by more than $1.1 billion of new orders for delivery through 2028, which we have received since the passage of the IRA, our wind tower business is at the beginning stages of a market recovery. A large portion of these orders will support wind energy expansion projects in the Southwest. As a result, we plan to open a new plant in New Mexico, with production at this facility expected to begin in mid-2024. We anticipate 2023 will be a transition year as new wind projects ramp up and expect a multi-year rebound in volumes beginning in 2024.
• Within our Transportation Products segment, our backlog for inland barges as of September 30, 2023 was $240.4 million, up 87.0% compared to September 30, 2022. Our customers remain committed to taking delivery of these orders. Barge order levels fell sharply at the onset of the pandemic and ensuing high steel prices further negatively impacted demand. In 2022, we reduced capacity in our two active barge operating plants and completed the idling of our Louisiana facility in the fourth quarter of 2021 to further reduce our cost structure. While high steel prices have impacted order levels, the underlying fundamentals for a dry barge replacement cycle remain in place. The fleet continues to age, new builds have not kept pace with scrapping, and utilization rates are high. As a result, order inquiries have been strong, and our backlog extends into mid-2024. Demand for steel components, which was softening pre-COVID-19 due to a weakening North American rail transportation market, is increasing relative to 2020 and 2021 cyclical lows as the near-term outlook for the new railcar market indicates a stable level of replacement demand.

Executive Overview

Financial Operations and Highlights

• Revenues for the three and nine months ended September 30, 2023 decreased by 2.0% and 1.0% to $591.7 million and $1,725.7 million, respectively, from the same periods in 2022, as higher revenues in Construction Products and Transportation Products were offset by lower revenues in Engineered Structures resulting from the divestiture of the storage tanks business on October 3, 2022.
• Operating profit for the three months ended September 30, 2023 was relatively flat at $48.4 million as higher operating profit in Construction Products and Transportation Products was offset by lower operating profit in Engineered Structures primarily due to the storage tanks divestiture. For the nine months ended September 30, 2023, operating profit increased by $33.6 million to $174.5 million driven by increases in Construction Products and Transportation Products, partially supported by $22.6 million of asset sale gains recognized in Construction Products in the first quarter of 2023, which more than offset a $36.6 million decrease in operating profit in Engineered Structures largely due to the storage tanks divestiture.
• As a percentage of revenues, selling, general, and administrative expenses were 10.4% and 11.3% for the three and nine months ended September 30, 2023, respectively, compared to 11.2% and 11.3% for the same periods in 2022, respectively. Selling, general, and administrative expenses decreased by 9.6% and 1.1% for the three and nine months ended September 30, 2023, compared to the same periods in the prior year, largely due to the elimination of costs from the storage tanks business.
• The effective tax rate for the three and nine months ended September 30, 2023 was 17.4% and 17.1%, respectively, compared to 21.2% and 21.6%, respectively, for the same periods in 2022. See Note 10 of the Notes to Consolidated Financial Statements.
• Net income for the three and nine months ended September 30, 2023 was $35.5 million and $132.1 million, respectively, compared to $32.0 million and $91.2 million, respectively, for the same periods in 2022.

Our Engineered Structures and Transportation Products segments operate in cyclical industries. Additionally, results in our Construction Products segment are affected by weather and seasonal fluctuations with the second and third quarters historically being the quarters with the highest revenues.

Unsatisfied Performance Obligations (Backlog)

As of September 30, 2023, December 31, 2022, and September 30, 2022, our unsatisfied performance obligations, or backlog, were as follows:

(in millions)

Approximately 15% of the unsatisfied performance obligations for utility, wind, and related structures in our Engineered Structures segment are expected to be delivered during the fourth quarter of 2023, 33% are expected to be delivered during 2024 and the remainder are expected to be delivered through 2028. Approximately 26% of the unsatisfied performance obligations for inland barges in our Transportation Products segment are expected to be delivered during the fourth quarter of 2023 and the remainder are expected to be delivered during 2024.

Results of Operations

Overall Summary

Revenues

(in millions)

(in millions)

2023 versus 2022

• Revenues decreased by 2.0% and 1.0% during the three and nine months ended September 30, 2023, respectively, primarily due to the divestiture of the storage tanks business.
• Revenues from Construction Products increased primarily due to higher pricing across most of our aggregates and specialty material businesses and additional revenues from our recent trench shoring acquisition.
• Revenues from Engineered Structures decreased due to the sale of our storage tanks business.
• Revenues from Transportation Products increased due to higher volumes in both inland barge and steel components.

Operating Costs

(in millions)

(in millions)

(1) Depreciation, depletion, and amortization are components of operating costs.

2023 versus 2022

• Operating costs decreased by 2.1% and 3.1% during the three and nine months ended September 30, 2023, respectively.
• Operating costs for Construction Products increased primarily due to additional costs from recently acquired businesses. Asset gains of $22.6 million recognized in the first quarter of 2023 from the sale of depleted land largely offset increased operating costs for the nine months ended September 30, 2023.
• Operating costs for Engineered Structures decreased primarily due to the impact of the storage tanks divestiture.
• Operating costs for Transportation Products increased primarily due to higher volumes in inland barge and steel components.
• Depreciation, depletion, and amortization expense was relatively flat as increases from recent acquisitions and organic growth investments were largely offset by the impact of the storage tanks divestiture.
• Selling, general, and administrative expenses decreased 9.6% and 1.1% for the three and nine months ended September 30, 2023, compared to the same periods in the prior year, largely due to the elimination of costs from the storage tanks business. As a percentage of revenues, selling, general, and administrative expenses were 10.4% and 11.3% for the three and nine months ended September 30, 2023, respectively, compared to 11.2% and 11.3% for the same periods in 2022, respectively.

Operating Profit (Loss)

(in millions)

(in millions)

2023 versus 2022

• Operating profit was relatively flat for the three months ended September 30, 2023 and increased by 23.8% for the nine month period.
• Operating profit in Construction Products increased primarily due to higher pricing across the segment and increased volumes in shoring products. For the nine months ended September 30, 2023, the increase in operating profit was also due to the land sale gain and the reduction in a holdback obligation owed on a previous acquisition.
• Excluding the impact of the storage tanks divestiture, operating profit in Engineered Structures decreased for the three and nine months ended September 30, 2023 due to lower margins in our utility structures business and a decline in volumes in our wind towers business, partially offset by the recognition of the AMP tax credits.
• Operating profit in Transportation Products increased for the three and nine months ended September 30, 2023 driven by higher volumes and improved margins in both inland barge and steel components.

For further discussion of revenues, costs, and the operating results of individual segments, see Segment Discussion below.

Other Income and Expense

Other, net (income) expense consists of the following items:

(in millions)

Income Taxes

The provision for income taxes results in effective tax rates that differ from the statutory rates. The Company's effective tax rate for the three and nine months ended September 30, 2023 was 17.4% and 17.1%, respectively, compared to 21.2% and 21.6%, respectively, for the same periods in 2022. The decrease in the tax rate for the three and nine months ended September 30, 2023 is primarily due to AMP tax credits, excess tax benefits related to equity compensation, and reduced foreign taxes, partially offset by increased state income taxes.

Our effective tax rate reflects the Company's estimate for its state income tax expense, excess tax benefits related to equity compensation, and the impact of foreign tax benefits. See Note 10 of the Notes to Consolidated Financial Statements for further discussion of income taxes.

On August 16, 2022, the IRA was enacted to reduce inflation and promote clean energy in the United States. Among other things, the IRA introduces a 15% alternative minimum tax for corporations with a three-year taxable year average annual adjusted financial statement income in excess of $1 billion and imposes a 1% excise tax on the fair market value of stock repurchases made by covered corporations after December 31, 2022. The IRA also provides for certain manufacturing, production, and investment tax credit incentives, including new AMP tax credits for companies that domestically manufacture and sell clean energy equipment, including wind towers. Certain provisions of the IRA, including the AMP tax credits for wind towers, remain subject to the issuance of additional guidance and clarification. We have considered the applicable current IRA tax law changes in our tax provision for the three and nine months ended September 30, 2023, and continue to evaluate the impact of these tax law changes on future periods.

Segment Discussion

Construction Products

($ in millions)

($ in millions)

(1) Depreciation, depletion, and amortization are components of operating profit.

Three Months Ended September 30, 2023 versus Three Months Ended September 30, 2022

• Revenues increased 7.3% primarily driven by increased pricing across our product lines in our aggregates and specialty materials businesses and higher volumes of natural aggregates, partially offset by lower recycled aggregate and specialty materials volumes. Revenues from our trench shoring business increased 25.2%, driven primarily by revenue from the acquisition completed in the first quarter of 2023 and higher organic volumes.
• Cost of revenues increased 8.3% primarily due to increased costs from the recently acquired shoring business, higher volumes in natural aggregates, and operating inefficiencies in our specialty materials business. As a percent of revenues, cost of revenues increased to 79.8% in the current period, compared to 79.1% in the prior period.
• Selling, general, and administrative expenses were relatively flat as additional costs from recently acquired businesses were offset by lower costs across our legacy businesses. Selling, general, and administrative expenses decreased as a percentage of revenues to 9.6%, compared to 10.4% in the prior period.
• Operating profit increased 9.8%, outpacing the increase in revenue, driven by increased pricing across the segment, higher volumes in our natural aggregates and shoring businesses, partially offset by operating inefficiencies in our specialty materials business.
• Depreciation, depletion, and amortization expense increased primarily due to recent acquisitions and organic growth investments.

Nine Months Ended September 30, 2023 versus Nine Months Ended September 30, 2022

• Revenues increased 8.8% primarily driven by increased pricing across our product lines in our aggregates and specialty materials businesses and higher volumes of recycled aggregates, partially offset by lower natural aggregate and specialty materials volumes. Revenues from our trench shoring business increased 20.3% driven primarily by revenue from the acquisition completed in the first quarter of 2023 and higher organic volumes.
• Cost of revenues increased 6.6% due to higher recycled aggregates volumes, operating inefficiencies in our specialty materials business, and increased costs from the acquired shoring business. These costs were partially offset by lower natural aggregate and specialty materials volumes and a $5.0 million reduction in a holdback obligation owed on a previous acquisition. As a percent of revenues, cost of revenues decreased to 77.8% in the current period, compared to 79.4% in the prior period.
• Selling, general, and administrative expenses increased 5.7% primarily due to additional costs from acquired businesses. Selling, general, and administrative expenses decreased as a percentage of revenues to 10.6%, compared to 10.9% in the prior period.
• Operating profit increased 57.7%, partially due to gains recognized on sales of depleted land. Excluding the gain, operating profit increased 30.2% driven by increased pricing across the segment, higher volumes in our recycled aggregates and shoring businesses, and the benefit recognized on a holdback obligation, partially offset by operating inefficiencies in our specialty materials business.
• Depreciation, depletion, and amortization expense increased primarily due to recent acquisitions and organic growth investments.

Engineered Structures

($ in millions)

($ in millions)

(1) Depreciation and amortization are components of operating profit.

Three Months Ended September 30, 2023 versus Three Months Ended September 30, 2022

• Revenues decreased 19.7% resulting from the sale of our storage tanks business, which was completed in October 2022. Revenue from utility, wind, and related structures increased 5.4% primarily due to increased volumes in our utility structures business, partially offset by lower pricing due to product mix, and lower volumes in our wind towers business.
• Cost of revenues decreased 14.2% largely due to the elimination of costs from our storage tanks business. Cost of revenues from utility, wind, and related structures increased due to higher volumes in our utility structures business, partially offset by lower volumes as well as AMP tax credits recognized in our wind towers business.
• Selling, general, and administrative expenses decreased 23.5% largely due to the elimination of costs from our storage tanks business. Selling, general, and administrative expenses from utility, wind, and related structures decreased primarily due to lower compensation-related costs.
• The storage tanks business contributed $16.6 million to operating profit in the prior period. Excluding the impact of the divestiture, operating profit declined due to lower margins in our utility structures business driven by project mix, negative foreign currency impacts, and reduced wind tower volumes, partially offset by $5.6 million of net benefit recognized from AMP tax credits in our wind towers business.

Nine Months Ended September 30, 2023 versus Nine Months Ended September 30, 2022

• Revenues decreased 20.0% primarily due to the decline in revenue from our divested storage tanks business. Revenue from utility, wind, and related structures increased 4.7% driven by higher volumes in our utility structures business, partially offset by lower utility structures pricing driven by product mix, and lower volumes in our wind towers business.
• Cost of revenues decreased 17.1% largely due to the elimination of costs from our storage tanks business. Cost of revenues from utility, wind, and related structures increased due to higher volumes in our utility structures business, partially offset by lower volumes and AMP tax credits recognized in our wind towers business.
• Selling, general, and administrative expenses decreased 16.6% largely due to the elimination of costs from our storage tanks business. Selling, general, and administrative expenses from utility, wind, and related structures increased primarily due to higher compensation-related costs.
• The storage tanks business contributed $6.4 million in operating profit in the nine months ended September 30, 2023, related to an additional gain on sale recorded in the first quarter of 2023, compared to $40.8 million of operating profit in the prior year period, resulting in a net decrease of $34.4 million year-over-year. Excluding the impact of the divestiture in both periods, operating profit declined due to lower margins in our utility structures business, driven by project mix, and decreased wind tower volumes, partially offset by $14.7 million of net benefit recognized from AMP tax credits in our wind towers business.

Unsatisfied Performance Obligations (Backlog)

As of September 30, 2023, the backlog for utility, wind, and related structures was $1,450.8 million, compared to $671.3 million and $370.4 million as of December 31, 2022 and September 30, 2022, respectively. Approximately 15% of these unsatisfied performance obligations are expected to be delivered during the year ending December 31, 2023, approximately 33% during the year ending December 31, 2024, with the remainder expected to be delivered through 2028.

Transportation Products

($ in millions)

($ in millions)

(1) Depreciation and amortization are components of operating profit.

Three Months Ended September 30, 2023 versus Three Months Ended September 30, 2022

• Revenues increased 29.5% due to higher volumes and improved pricing of inland barges and steel components.
• Cost of revenues increased 14.1% reflecting the higher volumes during the current period. As a percent of revenues, cost of revenues decreased to 81.4% in the current period, compared to 92.4% in the prior period.
• Selling, general, and administrative expenses increased 9.4%, primarily due to increased compensation-related costs, but decreased as a percentage of revenues to 5.4%, compared to 6.4% in the prior period.
• Operating profit increased significantly, outpacing the percentage increase in revenues, driven by enhanced operating leverage associated with the higher volumes and improved margins across both businesses.

Nine Months Ended September 30, 2023 versus Nine Months Ended September 30, 2022

• Revenues increased 33.0% due to higher volumes and improved pricing of inland barges and steel components.
• Cost of revenues increased 22.3% reflecting the increased volumes during the current period. As a percent of revenues, cost of revenues decreased to 83.1% in the current period, compared to 90.3% in the prior period.
• Selling, general, and administrative expenses increased 17.0%, primarily due to increased expenses from participation in trade remedy proceedings involving certain imports of freight rail couplers from China and Mexico, as well as higher compensation-related costs, but decreased as a percentage of revenues to 5.9%, compared to 6.7% in the prior period.
• Operating profit increased significantly, outpacing the percentage increase in revenues, driven by enhanced operating leverage associated with the higher volumes and improved margins across both businesses.

Unsatisfied Performance Obligations (Backlog)

As of September 30, 2023, the backlog for inland barges was $240.4 million, compared to $225.1 million and $128.9 million as of December 31, 2022 and September 30, 2022, respectively. Approximately 26% of unsatisfied performance obligations for inland barges are expected to be delivered during the year ending December 31, 2023 and the remainder are expected to be delivered in 2024.

Corporate

(in millions)

(in millions)

2023 versus 2022

• Corporate overhead costs decreased 12.0% for the three months ended September 30, 2023 primarily due to lower insurance-related costs and lower acquisition and divestiture-related expenses of $0.5 million for the three months ended September 30, 2023, compared to $1.6 million for the same period in 2022.
• Corporate overhead costs were relatively flat for the nine months ended September 30, 2023 as higher compensation-related expenses were largely offset by lower acquisition and divestiture-related expenses of $1.4 million in the current period, compared to $5.0 million for the same period in 2022.

Liquidity and Capital Resources

Arcosa’s primary liquidity requirement consists of funding our business operations, including capital expenditures, working capital investment, and disciplined acquisitions. Our primary sources of liquidity include cash flow from operations, our existing cash balance, availability under the revolving credit facility, and, as necessary, the issuance of additional long-term debt or equity. To the extent we have available liquidity, we may also consider undertaking new capital investment projects, executing additional strategic acquisitions, returning capital to stockholders, or funding other general corporate purposes.

Cash Flows

The following table summarizes our cash flows from operating, investing, and financing activities for the nine months ended September 30, 2023 and 2022:

(in millions)

Operating Activities. Net cash provided by operating activities for the nine months ended September 30, 2023 was $198.8 million, compared to $182.6 million for the nine months ended September 30, 2022.

• The changes in current assets and liabilities resulted in a net use of cash of $43.8 million for the nine months ended September 30, 2023, compared to a net use of cash of $34.2 million for the nine months ended September 30, 2022. The current year activity was primarily driven by increased receivables and inventories due to higher volumes and AMP tax credits, partially offset by increased accounts payable.

Investing Activities. Net cash required by investing activities for the nine months ended September 30, 2023 was $131.5 million, compared to $129.5 million for the nine months ended September 30, 2022.

• Capital expenditures for the nine months ended September 30, 2023 were $144.8 million, compared to $85.9 million for the same period last year with the increase primarily driven by investments in two new facilities supporting expansion in our wind tower and utility structures businesses as well as various growth projects within the Construction Products segment. Full-year capital expenditures are expected to be approximately $200 to $210 million in 2023.
• Proceeds from the sale of property, plant, and equipment and other assets totaled $30.1 million for the nine months ended September 30, 2023, compared to $31.5 million for the same period in 2022.
• Cash paid for acquisitions, net of cash acquired, was $18.8 million for the nine months ended September 30, 2023, compared to $75.1 million for the same period in 2022. Proceeds from the sale of the storage tanks business were $2.0 million during the nine months ended September 30, 2023 and related to the resolution in 2023 of certain contingencies from the sale that closed in October 2022. There was no divestiture activity during the nine months ended September 30, 2022.

Financing Activities. Net cash required by financing activities during the nine months ended September 30, 2023 was $72.4 million, compared to net cash required by financing activities of $12.0 million for the same period in 2022.

• Current year activity was primarily driven by the full repayment of the Company's term loan partially offset by borrowings under the revolving credit facility, for a net repayment of $42.0 million, as well as a $10.0 million holdback payment related to a previous acquisition.
• Prior year activity primarily related to net borrowings under the revolving credit facility offset by $15.0 million of share repurchases and the purchase of shares to satisfy employee taxes on vested stock.

Other Investing and Financing Activities

Revolving Credit Facility and Senior Notes

On August 23, 2023, the Company entered into a Second Amended and Restated Credit Agreement to increase the revolving credit facility from $500.0 million to $600.0 million, extend the maturity date from January 2, 2025 to August 23, 2028, and refinance and repay in full the remaining balance of the term loan then outstanding under the Amended and Restated Credit Agreement.

As of September 30, 2023, we had $100.0 million of outstanding loans borrowed under the revolving credit facility that were advanced to repay the term loan during the quarter, and there were approximately $22.0 million of letters of credit issued, leaving $478.0 million available for borrowing. Of the outstanding letters of credit as of September 30, 2023, all are expected to expire in 2024. The majority of our letters of credit obligations support the Company’s various insurance programs and generally renew by their terms each year.

The interest rates under the revolving credit facility are variable based on the daily simple or term Secured Overnight Financing Rate ("SOFR"), plus a 10-basis point credit spread adjustment, or an alternate base rate, in each case plus a margin for borrowing. A commitment fee accrues on the average daily unused portion of the revolving facility. The margin for borrowing and commitment fee rate are determined based on Arcosa’s leverage as measured by a consolidated total indebtedness to consolidated EBITDA ratio. The margin for borrowing based on SOFR ranges from 1.25% to 2.00% and was set at 1.50% as of September 30, 2023. The commitment fee rate ranges from 0.20% to 0.35% and was set at 0.25% as of September 30, 2023.

The Company's revolving credit facility requires the maintenance of certain ratios related to leverage and interest coverage. As of September 30, 2023, we were in compliance with all such financial covenants. Borrowings under the credit agreement are guaranteed by certain wholly-owned subsidiaries of the Company.

On April 6, 2021, the Company issued $400.0 million aggregate principal amount of 4.375% senior notes (the “Notes”) that mature in April 2029. Interest on the Notes is payable semiannually in April and October of each year. The Notes are senior unsecured obligations of the Company and are guaranteed on a senior unsecured basis by each of the Company’s domestic subsidiaries that is a guarantor under our revolving credit facility.

We believe, based on our current business plans, that our existing cash, available liquidity, and cash flow from operations will be sufficient to fund necessary capital expenditures and operating cash requirements for the foreseeable future.

Dividends and Repurchase Program

In September 2023, the Company declared a quarterly cash dividend of $0.05 per share that was paid on October 31, 2023.

In December 2022, the Company’s Board of Directors authorized a new $50.0 million share repurchase program effective January 1, 2023 through December 31, 2024 to replace a program of the same amount that expired on December 31, 2022. For the three and nine months ended September 30, 2023, the Company did not repurchase any shares, leaving the full amount of the $50.0 million authorization available as of September 30, 2023. See Note 1 of the Notes to Consolidated Financial Statements.

Derivative Instruments

In December 2018, the Company entered into a $100.0 million interest rate swap instrument, effective as of January 2, 2019, to reduce the effect of changes in the variable interest rates associated with the first $100.0 million of borrowings under the Company's committed credit facility. In conjunction with the replacement of LIBOR with SOFR as a benchmark for borrowings under the Amended and Restated Credit Agreement, on July 1, 2023 the swap instrument transitioned from LIBOR to SOFR. The instrument effectively fixed the SOFR component of borrowings under the revolving credit facility at a monthly rate of 2.71% until such instrument's termination. As of September 30, 2023, the Company has recorded an asset of $0.5 million for the fair value of the instrument, all of which is recorded in accumulated other comprehensive income. The interest rate swap instrument expired in October 2023. See Note 3 and Note 7 of the Notes to Consolidated Financial Statements.

Recent Accounting Pronouncements

See Note 1 of the Notes to Consolidated Financial Statements for information about recent accounting pronouncements.

Forward-Looking Statements

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not historical facts are forward-looking statements and involve risks and uncertainties. These forward-looking statements include expectations, beliefs, plans, objectives, future financial performances, estimates, projections, goals, and forecasts. Arcosa uses the words “anticipates,” “assumes,” “believes,” “estimates,” “expects,” “intends,” “forecasts,” “may,” “will,” “should,” “plans,” and similar expressions to identify these forward-looking statements. Potential factors, which could cause our actual results of operations to differ materially from those in the forward-looking statements include, among others:

• the impact of the COVID-19 pandemic on our sales, operations, supply chain, employees, and financial condition;
• market conditions and customer demand for our business products and services;
• the cyclical and seasonal nature of the industries in which we compete;
• variations in weather in areas where our construction products are sold, used, or installed;
• naturally occurring events and other events and disasters causing disruption to our manufacturing, product deliveries, and production capacity, thereby giving rise to an increase in expenses, loss of revenue, and property losses;
• competition and other competitive factors;
• our ability to identify, consummate, or integrate acquisitions of new businesses or products, or divest any business;
• the timing of introduction of new products;
• the timing and delivery of customer orders or a breach of customer contracts;
• the credit worthiness of customers and their access to capital;
• product price changes;
• changes in mix of products sold;
• the costs incurred to align manufacturing capacity with demand and the extent of its utilization;
• the operating leverage and efficiencies that can be achieved by our manufacturing businesses;
• availability and costs of steel, component parts, supplies, and other raw materials;
• changing technologies;
• surcharges and other fees added to fixed pricing agreements for steel, component parts, supplies and other raw materials;
• increased costs due to increased inflation;
• interest rates and capital costs;
• counter-party risks for financial instruments;
• long-term funding of our operations;
• taxes;
• material nonpayment or nonperformance by any of our key customers;
• the stability of the governments and political and business conditions in certain foreign countries, particularly Mexico;
• public infrastructure expenditures;
• changes in import and export quotas and regulations;
• business conditions in emerging economies;
• costs and results of litigation;
• changes in accounting standards or inaccurate estimates or assumptions in the application of accounting policies;
• legal, regulatory, and environmental issues, including compliance of our products with mandated specifications, standards, or testing criteria and obligations to remove and replace our products following installation or to recall our products and install different products manufactured by us or our competitors;
• actions by the executive and legislative branches of the U.S. government relative to federal government budgeting, taxation policies, government expenditures, U.S. borrowing/debt ceiling limits, and trade policies, including tariffs, and border closures;
• the inability to sufficiently protect our intellectual property rights;
• our ability to mitigate against cybersecurity incidents, including ransomware, malware, phishing emails, and other electronic security threats;
• the improper use of social and other digital media to disseminate false, misleading, and/or unreliable or inaccurate information about the Company or demonstrate actions that negatively reflect on the Company;
• if the Company's ESG efforts are not favorably received by stockholders;
• if the Company does not realize some or all of the benefits expected from certain provisions of the IRA, including the AMP tax credits for wind towers, which remain subject to the issuance of additional guidance and clarification;
• if the distribution of shares of Arcosa resulting from the separation of Arcosa from Trinity Industries, Inc. in November 2018 (the “Separation”), together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, the Company's stockholders at the time of the distribution and the Company could be subject to significant tax liability; and
• if the Separation does not comply with state fraudulent conveyance laws and legal dividend requirements.

Any forward-looking statement speaks only as of the date on which such statement is made. Arcosa undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made. For a discussion of risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see Item 1A, “Risk Factors” in our 2022 Annual Report on Form 10-K and future Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

There has been no material change in our market risks since December 31, 2022 as set forth in our 2022 Annual Report on Form 10-K. See Note 9 of the Notes to Consolidated Financial Statements for the impact of foreign exchange rate fluctuations for the three and nine months ended September 30, 2023.

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures designed to ensure that it is able to collect and record the information it is required to disclose in the reports it files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) with the Securities and Exchange Commission (“SEC”), to process, summarize, and disclose this information within the time periods specified in the rules of the SEC, and that such information is accumulated and communicated to management, including our Chief Executive and Chief Financial Officers, in a timely fashion. The Company’s Chief Executive and Chief Financial Officers are responsible for establishing and maintaining these disclosure controls and procedures and evaluating their effectiveness (as defined in Rule 13(a)-15l under the Exchange Act). Based on their evaluation of the Company’s disclosure controls and procedures that took place as of the end of the period covered by this report, the Chief Executive and Chief Financial Officers believe that these disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

During the period covered by this report, there have been no changes in the Company’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

There have been no material changes in the Company's risk factors from those set forth in our 2022 Annual Report on Form 10-K.