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Arcosa, Inc (NYSE:ACA)
Q4 2019 Earnings Call
Feb 27, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the Arcosa Inc Fourth Quarter and Full Year 2019 Earnings Conference Call. My name is David, and I'll be your conference call coordinator today. [Operator Instructions]. Now, I would like to turn the call over to your host, Gail Peck, SVP of Finance and Treasurer for Arcosa. Ms. Peck, you may begin.

Gail M. Peck -- Senior Vice President, Finance and Treasurer

Good morning, everyone. Thank you for joining our earnings call. With me today are Antonio Carrillo, President and CEO; and Scott Beasley, CFO. A question-and-answer session will follow their prepared remarks. A copy of yesterday's press release and the slide presentation for this morning's call are posted at our investor relations website, www.ir.arcosa.com. You can access the presentation by going to the Events and Presentation tab of the website.

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. Today's comments and presentation slides contain financial measures that have not been prepared in accordance with Generally Accepted Accounting Principles. Reconciliations of non-GAAP financial measure to the closest GAAP measure are included in the appendix of the slide presentation.

Let me also remind you that 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 including its Form 10-K for more information on these risks and uncertainties.

I would now like to turn the call over to Antonio.

Antonio Carrillo -- President and Chief Executive Officer

Thank you, Gail. Good morning and thank you for joining today's call to review Arcosa's fourth quarter and full year results and also to discuss our 2020 outlook. Starting on Slide 6, I'll cover the key strategic highlights before letting Scott to give you more details on the quarter. 2019 was a year of solid financial performance and strong free cash flow for Arcosa in its first full year as an independent Company, and we expect 2020 to be another year of growth.

We also completed two important strategic initiatives in the past year with the acquisition of Cherry Companies, a leading natural and recycled aggregates Company in Houston as well as the completion of the first ESG materiality assessment for Arcosa. Turning to Slide 7, the fourth quarter was a solid conclusion to our first full year. Adjusted EBITDA was 17% higher than in 2018 and revenue was up 19%. For the full year, adjusted EBITDA increased 29% which was driven by organic revenue growth, operating margin improvements, and the ACG Materials acquisition we completed at the end of 2018.

We also made progress on all the stage one initiatives, which translated into the impressive year-over-year EBITDA growth. Moving to slide 8, our 2019 accomplishments have set the stage for another year of projected growth in 2020. We expect organic growth and the recently completed Cherry acquisition to lead to a 19% increase in adjusted EBITDA based on the midpoint of our guidance range. As we indicated in the press release, we anticipate 2020 EBITDA to be slightly second half weighted due to the cadence of our barge and wind tower production schedules.

We are optimistic about the strength of most of our markets, and the backlog we have provides good production visibility. Infrastructure spending remains healthy and volumes have been strong in the Construction Products business when we have had dry weather. The barge market continues to recover and we have had two healthy quarters of dry barge orders in a row to complement the recovery that began in late 2018 on the liquid side.

Finally, within the energy equipment, underlying market fundamentals for utility structures remain robust, driven by grid hardening and reliability initiatives. And the demand for storage tanks in the US and Mexico has remained steady. The backlog for wind towers covers most of 2020 although pricing is lower than 2019.

Now that the PTC has been extended, third-party forecast for near-term wind installations have increased. We are optimistic that the new orders will follow. The primary market headwinds for 2020 is the new railcar market which our components business serves. The industry backlog for railcars has declined for four consecutive quarters.

On the other hand, we have been working hard since the spin-off to develop new markets and customers to help us mitigate the impact of the cycle. On the positive side, the continued recovery in our barge business is expected to more than offset the softness in components and we expect transportation EBITDA to grow in 2020. On slide 9, the acquisition of Cherry Companies was another important strategic milestone.

As we discussed in our December call announcing the transaction, Cherry is a leading natural and recycled aggregates Company located in Houston and fills a key geographic gap in our Texas network. We believe recycled aggregates will continue to be a growing market for economic and environmental benefits and we look forward to working with the Cherry team to replicate Cherry's natural and recycled aggregates platform in new geographies.

Finally on slide 10, we continue making progress on our ESG initiatives. Our Materiality Assessments identified eleven material topics across our businesses. And we plan to publish our initial Sustainability Report for 2020 in line with SASB standards. We're incorporating ESG into our values and culture. We are early in our journey, but employees and other key stakeholders have been enthusiastic about the progress we've made to-date.

I will now turn over the call to Scott who will provide you additional details from the quarter. Scott?

Scott Beasley -- Chief Financial Officer

Thank you, Antonio, and good morning everyone. I'll walk through the fourth quarter and full year results for each segment and then give additional color on our free cash flow and outlook for 2020. Starting on page 12, Construction Products revenue grew 56% versus the fourth quarter of 2018, driven by double-digit revenue growth in the legacy businesses, plus the addition of ACG Materials, which we did not own for the full quarter in 2018.

In our legacy aggregates and specialty businesses, strong end market fundamentals driven by public and private demand coupled with drier weather than 2018 led to very strong volume growth. Pricing was relatively flat sequentially as improved pricing in a number of markets nationwide roughly offset softness in other markets.

Segment EBITDA of $17.9 million was 44% higher than last year, but it was $2 million to $3 million below our expectations for two primary reasons. First, our aggregates plants serving oil and gas markets in Texas and Oklahoma continue to be weaker than expected, and we achieved lower margins on those products.

Secondly, we had an unanticipated plant shutdown at one of our specialty products plants during the quarter. This plant is now fully up and running again. Turning to our outlook in the segment for 2020, we expect a strong construction market fundamentals and our operating improvements to translate into higher overall segment margins in 2020 versus 2019 on higher revenues. Our Cherry integration is proceeding well, and we expect it to have a year of EBITDA contribution consistent with what we projected at the time of acquisition.

Please turn to slide 13. Energy Equipment had another strong quarter of performance coming in at the top end of our expected margin range even with headwinds of lower wind tower pricing. Revenue increased to $213 million and adjusted EBITDA was $27.6 million, up 19% from 2018's fourth quarter. Margin improvements in our utility structures, tanks and Mexico businesses more than offset lower margins in our wind towers business leading to the EBITDA margin of 13%. Our energy equipment group is positioned well for 2020 and our visibility is better than it was one year ago.

We received $189 million of utility structures orders in the quarter, driven by strong market demand and our increasing participation in the bid market. Our backlog to be delivered within the next 12 months is up 27% from year-end 2018, which includes orders for both wind towers and utility structures. For the segment, overall, we expect mid-single digit revenue growth in 2020. And we view our fourth quarter margin of 12% to 13% as an achievable target for 2020.

Turning to our Transportation segment on slide 14, fourth quarter revenues increased 30% and adjusted EBITDA increased 12% to $19 million as the strong recovery in our barge business more than offset softness in rail components. I'll start with the barge business. As described in our press release, the barge operating team did an outstanding job ramping up production as the market recovered. 2019 revenue was 73% higher than 2018 and that ramp up included the reopening of our idled facility in Louisiana and significant hiring at our Tennessee and Missouri plants. This year's performance was a testament to our team's ability to scale up and down as market conditions change to create significant value for customers and shareholders.

Given the magnitude of our ramp up, our production schedule did slip several weeks at one of our plants. This resulted in the delay of roughly $15 million worth of barges from Q4 into Q1, leading to lower revenue in the quarter than we expected. However, we delivered those barges during January 2020 and are still on track to meet our barge production schedule this year. Margins should improve significantly in 2020 versus full year 2019.

Now that we are through the start-up phase at our Louisiana plant, and have delivered the lower priced orders that were in our backlog at the beginning of last year. Barge order activity during the quarter was also solid. We received $84 million of orders in Q4 for a book to bill of 0.8. The majority of our orders were for dry barges, marking the second consecutive quarter where dry orders outpace liquid orders. Lower steel prices and an improved outlook for grain exports have been catalysts for the dry barge market, and we are cautiously optimistic that we are in the early stages of a dry barge replacement cycle.

Additionally, inquiry level so far in Q1 have been very healthy, both for dry and liquid barges, giving us confidence in the sustainability of the recovery. Our backlog of $347 million will be delivered entirely in 2020, offering strong production visibility for our plants and enhancing our ability to operate efficiently. We expect to add to our 2020 production with additional orders and we are currently quoting for deliveries in Q4 and into 2021.

Moving to rail components, our business continues to face an industrywide slowdown in new railcar builds, but our team is doing an excellent job, responding to the cyclical slowdown. And we continue to build out our components business that serves the maintenance in non-rail related markets. Overall, we expect the transportation segment to have significant growth in both revenue and EBITDA in 2020. Our barge production schedule has higher deliveries in the second half of the year, so our Company wide revenue and EBITDA will be more heavily weighted in the back half.

Please turn to Slide 15. One highlight of our 2019 performance was the $273 million of free cash flow that we generated during the year. We are in the early stages of building a cash culture at Arcosa which includes process improvements to reduce working capital, incentive compensation changes that incorporate working capital improvements in both our short-term and long-term incentive programs and the implementation of a rigorous capital expenditure decision process.

All of these changes are contributing to our free cash flow improvement and we believe there is still room to improve. The $273 million was held by approximately $50 million of advanced payments from customers to reserve production capacity in our utility structures and barge businesses. Our free cash flow was more than 200% of net income for the year. While we are unlikely to repeat such a strong free cash flow conversion rate in 2020, our 2019 performance shows the excellent cash generation potential of our businesses, plus the impact of a renewed focus on cash flow from our operating teams.

This impressive cash flow has helped us maintain a low leverage position even after our two large construction materials acquisitions. We funded the $298 million Cherry acquisition with a combination of cash and $150 million of new debt, leaving us at an approximate 0.5 net debt to EBITDA ratio, well below our long-term target. In conjunction with raising the new debt to fund Cherry, we also upsized our committed credit facility, keeping our available cash and committed liquidity position relatively unchanged after the acquisition.

Our low leverage position gives us capacity to invest in attractive growth opportunities as well as flexibility to manage through different economic conditions. On page 16, we include several other notes on our 2020 outlook. I will now turn the call back over to Antonio.

Antonio Carrillo -- President and Chief Executive Officer

Thank you, Scott. I'd like to close today's call with a discussion of our long-term vision and the role that capital allocation plays in our progress. On Slide 18, you can find the four pillars of Arcosa's long-term vision, which will be the foundation for the culture of Arcosa going forward and will serve as a compass for our capital allocation decisions.

Moving to Slide 19, disciplined capital allocation is a key component of making progress on each of the four pillars of our long-term vision. Since our spin-off in November of 2018, we have invested roughly $85 million in capital expenditures, $640 million in acquisitions and returned $25 million to shareholders. Page 20 highlights our approach to acquisitions. We have allocated more than $600 million into Construction Products acquisitions since the time of spin. Aligned with our long-term vision, we view aggregates on specialty materials as attractive markets where we can build sustainable competitive advantages.

Over long periods of time, these markets have experienced steady volume growth as investment in infrastructure has increased. Also, construction products have achieved consistent pricing growth making them highly attractive markets. With more stable long-term demand drivers, the investments we have made in the aggregates and specialty materials business should reduce the cyclicality of our portfolio overtime.

In addition, our aggregates and specialty materials business have unique sustainable competitive advantages. Looking at ACG, the business has long-term reserves processing capacity and strong product innovation capabilities. Cherry has an extensive network of strategically located facilities and reserves across the Houston market, as well as low cost access to critical raw materials. They also have technical expertise in concrete recycling that has been developed over several decades.

Finally, we have found attractive acquisition opportunities in aggregates and specialty materials because of the fragmented industry structure, with the ability to buy small to medium sized assets at reasonable multiples. Through this disciplined acquisition process that began when the business was part of Trinity, we have grown construction aggregates and specialty materials significantly since the spin from $218 million in revenues in 2018 to over $500 million including the pro forma results from Cherry.

Turning to Slide 21, organic growth projects are also important part of our capital allocation strategy. We are allocating capital to all of our businesses to continue to develop organic opportunities. However, we see larger growth opportunities in aggregates, specialty materials and utility structures. Therefore some of the larger growth capex will be allocated in these businesses in 2020. More specifically, in aggregates, we will be focusing on greenfield investments in geographies where organic investment is more attractive than acquisitions.

Also, we will be allocating capital to Cherry to improve the reserve positions around Houston and expand our business model. On Specialty materials, we have expanded our capacity in plaster [Phonetic] In the last few months, but demand continues to grow and we will be evaluating a new plant to serve that market. On the utility structure business we will be adding capacity in existing plants and investing in new equipment to expand our product lines.

Finally, we will be also allocating capital to ESD initiatives as they get developed. These are just some of the ideas we have at the moment. However, we view organic growth as a dynamic process and therefore will be evaluating ideas as they get developed throughout the year. Disciplined organic growth is the best way to increase return in invested capital, which is one of our main objectives. As a reminder, we expect new plant -- a new plant we built to have a payback of no longer than five years, and incremental growth projects to have even shorter paybacks.

These levels of return are accretive to the overall Arcosa returns. To sum it all up, Arcosa is very well positioned to continue capitalizing on the US infrastructure build. In 2020, we are looking ahead to another year of healthy growth and executing on our priorities. Our production visibility is good, most of our markets are very healthy. Our teams are operating well, we have a strong balance sheet and we continue to make strides on our long-term vision.

As a result, we are confident in our position and our ability to achieve strong EBITDA growth again this year. I will now open the call for questions.

Questions and Answers:

Operator

[Operator Instructions]. We'll take our first question from Brent Thielman with D.A. Davidson. Please go ahead, your line is open.

Brent Thielman -- D.A. Davidson & Co. -- Analyst

Thanks, good morning. Strong finish to the year.

Antonio Carrillo -- President and Chief Executive Officer

Thank you.

Brent Thielman -- D.A. Davidson & Co. -- Analyst

Maybe starting on construction products. Just given the legacy business volumes were up, can you help us understand how big the oil and gas piece is now as a percentage of the total pie for Arcosa? And does that particular area contribute margins or pricing kind of in excess to the segment's average?

Scott Beasley -- Chief Financial Officer

Sure. This is Scott. We said, at the time of acquisition, it was roughly 20% of ACG. So much smaller percent of construction products and then of Arcosa as a whole. So not a huge percentage of Arcosa's overall exposure. But it has -- if you follow a drilling activity, it certainly has been hit in the last year and we've had to make a lot of changes to right-size that footprint to correspond to lower demand level. Revenues in that market held up decently well, but the margins have been really compressed, so it's really had an outsized impact on construction margins, particularly in the third and fourth quarter.

Brent Thielman -- D.A. Davidson & Co. -- Analyst

Okay. And then, I guess, my follow-up would be, the book of business and utility structures looks solid, I guess. Can you talk about the bidding environment, pricing conditions? Are you going to continue to focus more on the sort of shorter lead time kind of spot market versus larger programs?

Antonio Carrillo -- President and Chief Executive Officer

Yes. Brent, this is Antonio. Yes. We see a very healthy market out there. I think, we're received our management team about a year ago, they were doing an excellent job and we are changing all of our processes. Last year was a big year for changing our manufacturing processes. We're also working on our sales process and all the management process inside the Company and it's really paying off. We're seeing our bidding activity increase, we're seeing our customer base expand. And we've been more aggressive in penetrating the bid market, which we really didn't play at all. And with that, that's why I mentioned that we are increasing capacity in some of the existing plants we have and expanding our product line. So, overall, very positive about our team, very positive about the market. Our lead times continue to be shorter than some of our competitors. So, I think we're in a really good position.

Scott Beasley -- Chief Financial Officer

And Breant, this is Scott to follow up on that. One of the big advanced billing payments we received was from a utility structures customer that was a large order. So, we're active both on the small bid market, but also the large order side and the team's doing an excellent job pursuing both.

Brent Thielman -- D.A. Davidson & Co. -- Analyst

And you've been able to negotiate some upfront payments there, Scott?

Scott Beasley -- Chief Financial Officer

That's correct. So, with capacity tied in the industry, people have been willing to put down some advanced payments in order to reserve capacity.

Brent Thielman -- D.A. Davidson & Co. -- Analyst

Okay. Great. Thank you. Appreciate it.

Operator

We'll take our next question from Stefanos Crist with CJS Securities. Please go ahead. Your line is open.

Stefanos Crist -- CJS Securities, Inc. -- Analyst

Good morning and congrats on the strong quarter.

Scott Beasley -- Chief Financial Officer

Thank you.

Antonio Carrillo -- President and Chief Executive Officer

Thank you.

Stefanos Crist -- CJS Securities, Inc. -- Analyst

Can you talk a little bit more about organic growth in aggregates and what you're seeing in 2020 as well?

Antonio Carrillo -- President and Chief Executive Officer

Yes, I mentioned in our -- Stefanos, I mentioned in our prepared remarks, as you know, some of the aggregates companies, they multiples to buy some of them are expensive. And we've been able to find bolt-on acquisitions at reasonable price and we expect 2020 to be the same to find some of those small bolt-on acquisitions that we can do. They are very healthy, they are very good for our growth.

On the other hand, there are some markets where we think there's opportunities to go through the Greenfield approach, meaning buying the reserves, and then developing the market or expanding the market, we've seen -- we've done some of those and they're really good for a return invested capital. Both Cherry and ACG brought ideas on where to do that and how to do that. And I think there's great opportunities to continue to expand doing some of those. So I think 2020, to give you a response, you will see some bolt-on acquisitions, some greenfields in our aggregates business.

Stefanos Crist -- CJS Securities, Inc. -- Analyst

Thank you so much. And just a follow-up. Now that the Cherry acquisition is complete, have there been any estimates for synergies there?

Antonio Carrillo -- President and Chief Executive Officer

Yes. Let me give you a sense and I'm not going to give you a number because to be completely honest, we really didn't buy Cherry for synergies. We really bought Cherry because we believe Cherry brings a significant amount of opportunities to grow. And I include those in the synergy bucket, meaning Cherry has an unique business model in Houston, which is generating the -- some of the recycled products, recycling the concrete and then doing the stabilized sand and sand to serve the customers with a full portfolio. We believe there are opportunities to expand Cherry around the Houston market. They already had a business plan to do that, and part of our capital allocation in 2020 will be to expand reserves around Houston to continue growing Cherry. But there's also opportunities to bring that business to other geographies and we're going to be testing that during 2020. I cannot give you dates for that because we are still working with them on that but that's one of our goals.

Stefanos Crist -- CJS Securities, Inc. -- Analyst

Got it. Thank you so much.

Operator

We'll take our next question from Ian Zaffino with Oppenheimer. Please go ahead. Your line is open.

Ian Zaffino -- Oppenheimer & Co. -- Analyst

Hi, great. Thank you. Just keying in on the utility structures business. Where are you seeing the strength there? Is that US, Canada? Maybe what region? If you could give us any color there? That'd be helpful. Thanks.

Antonio Carrillo -- President and Chief Executive Officer

We're seeing the strength really in the US. We do export some to Canada, but it's mainly a US-driven market. We are seeing -- I think we see it in all of our plants. We're seeing throughout the -- all geographies. Of course, you see some in the West, specifically in California has been really strong, but I think we are seeing the demand grow in all of the geographies. So it's not a single area or a single project, let's say, event. If you compare it to other times in this industry, where you see these big lines being built in Texas and other places to serve the wind market, very long life, etc., we're not seeing that. We're seeing large projects -- some of the larger projects, but we are also seeing a lot of the small projects that continue to get built. So it's a healthy mix of large projects and small projects across the US.

Ian Zaffino -- Oppenheimer & Co. -- Analyst

Okay, thanks. And then just on the barge side of the equation here. Liquid, obviously, started out pretty strong, now dry sort of coming through. Is it a matter of dry was just so far below where it should have been and that's why it's accelerating now? Is -- are you seeing a maybe deceleration in liquid? Or are they both kind of accelerating, it's just the dry is firing from much lower base and that's why we're seeing it kind of be the star of the show here now?

Antonio Carrillo -- President and Chief Executive Officer

We saw in 20 -- late 2018, early '19, we started seeing basically all liquid acceleration. The third and fourth quarter we started seeing some dry barges coming in. And as Scott mentioned in the prepared remarks, we continue to see healthy inquiries for both liquid and barge in the first quarter. So, I would say, that's a -- and we said it last year, the dry cargo market had been dead for a long, long time. And it's a very -- it's a market that's, I would say, more sensitive to steel prices. Steel prices came down very significantly in 2019, and I think that's one of the things. At the same time, some of the uncertainties around the trade deal with the agricultural products with China also helped. But I think the age of the barges is just catching up. So, it's also a very healthy market in terms of the number of customers we have. It's not a single customer. It's a wide variety of customers. So overall, we're seeing some healthy signs in the market.

And just to reflect on that, Scott mentioned, some of the barges moved to 2020 from 2019. And if you sit down in our office a year ago, you would notice that we were planning all for liquid barges and then dry cargo barges started arriving and we had to reshuffle all our plans to accommodate the dry and liquid barges. And the positive news of that, those barges moving into 2020 is that, we have been able now to set up our production lines, almost perfectly to serve the market, meaning the barge -- the plan that's -- the best plan that we have for making tank barges, we'll be making all tank barges this is year. The plans that are very good at making dry cargo barges, we'll be focusing on that. So, I think we're really well set up for margin improvement and continuing to serve the market.

Ian Zaffino -- Oppenheimer & Co. -- Analyst

Okay. Thank you very much.

Operator

We'll take our next question from Bascome Majors with Susquehanna. Please go ahead. Your line is open.

Bascome Majors -- Susquehanna Financial Group -- Analyst

Yes. Thanks for taking my questions. In your 16-ish months as a public company, you guys have really found the sweet spot on the M&A front by being able to acquire businesses that are big enough to move the needle for you geographically, synergistic business line, synergistic on the aggregate side and -- but also may be small enough to not attract the double-digit multiples that could destroy some value if you chase them. I'm curious, as you look out over the opportunity set, are there more deals kind of in the sweet spot for you guys that you're looking at over the next year or two. Just trying to see what the M&A front could look like if things go well over the next 12 months to 18 months?

Antonio Carrillo -- President and Chief Executive Officer

Yeah. Thank you, Bascome. Well, as you know, and I've said this before, the M&A has a life of its own because if things open up and close down relatively unexpected. But the reality is that, every one of these businesses that we bought, brings a whole new set of ideas to the table. And that's why I spent so much -- so long in my prepared remarks talking about capital allocation, because I think the main message you need to hear from me and Scott is that, we are going to stay disciplined to our capital allocation model. I think there's great opportunities. At the moment, we are -- we have a pipeline that's healthy, nothing on the -- of the size of Cherry at the moment, but we have quite a bit of ideas and opportunities coming in our way. And sitting down with Cherry and with ACG team, there is still a whole list of things that we have to research and work on to develop opportunities for M&A. So, it's a long answer. We have a -- we are enthusiastic about what we're seeing in the pipeline. Nothing of the size of Cherry at the moment, but that doesn't mean nothing will show up in the next few months.

Bascome Majors -- Susquehanna Financial Group -- Analyst

Okay. And thank you for that. And with the sell-off in the broader market, that's definitely impacted you guys. Stock is -- is the opportunity to be more opportunistic on the buyback, playing into the kind of capital allocation decision?

Scott Beasley -- Chief Financial Officer

Thanks, Bascome. This is Scott. We do have a $50 million share repurchase authorization. We've used about $14 million of the $50 million. So, we have quite a bit of headroom in that authorization and where it makes sense to buy back shares versus invest organically and invest in acquisitions, we'll continue to do that. In the first year, we sell a lot of opportunities in organic growth and acquisitions. But if the returns are better buying back shares, we'll certainly do that.

Bascome Majors -- Susquehanna Financial Group -- Analyst

Okay. Last one from me, as we think about simplifying the portfolio, our -- can you readdress the opportunities to may be look for some of your businesses that are less core to find a new home over time and any interest in that process? Thank you.

Antonio Carrillo -- President and Chief Executive Officer

Yes. Well, as you said, in the second pillar of our long-term vision is that, we're going to try to simplify the portfolio and also reduce the cyclicality and some business has fit that better than others. As you know, we don't comment on M&A. I think we are at the moment operating our businesses like we do every day and we are trying to improve them and grow them and make them better. If an opportunity comes we have an obligation to evaluate it. At the moment, we are functioning and operating all the businesses just like we do every day.

Bascome Majors -- Susquehanna Financial Group -- Analyst

Thank you.

Operator

We'll take our next question from Justin Bergner with G.research. Please go ahead. Your line is open.

Justin Bergner -- G.research -- Analyst

Good morning, Antonio. Good morning, Scott and Gail.

Antonio Carrillo -- President and Chief Executive Officer

Good morning.

Scott Beasley -- Chief Financial Officer

Good morning.

Justin Bergner -- G.research -- Analyst

I wanted to start with construction products. I guess, adjusted EBITDA for that segment grew about $20 million in 2019 but you acquired a little bit more than $30 million of EBITDA with ACG. Was that entire headwind concentrated around the pricing of the aggregates being sold into the oil and gas industries that sort of $10 million headwind when you adjust for the ACG contribution? Or were there other headwinds as well for the EBITDA in 2019 from construction products?

Scott Beasley -- Chief Financial Officer

Sure. This is Scott, Justin. The two primary headwinds we had in 2019 versus 2018 were, on the ACG side, the aggregates plant serving the oil and gas markets and that's what you talked about. And then in the legacy business, we did have some headwinds, primarily related to pricing in DFW. In the first half of the year, the comp in 2019 versus the previous year in 2018 was challenging and we talked about that on a number of calls. So, bit of a headwind in the legacy aggregates business and then the rest in the oil and gas-related aggregates businesses in ACG.

I think that the good news is the volume growth, particularly in the second half of the year in our legacy businesses was very strong. The end markets remain robust. DFW has great private demand, public demand. So, we think the legacy business, in particular is very healthy. The ACG business -- the specialty business is running very well with our building products plan, essentially running at capacity, we're having to turn away customers. So, overall, healthy mix, but those two headwinds in '19 versus the previous year.

Justin Bergner -- G.research -- Analyst

Okay. Thank you. My second question relates to free cash flow and working capital. When you guide working capital flat for 2020, is that inclusive of sort of the advanced billings $50 million benefit sort of reversing or will reverse in 2020? How should I think about the advanced billings in the context of that flat working capital comment?

Scott Beasley -- Chief Financial Officer

Sure. I think you're thinking about it the right way and that $50 million of advanced billings creates a bit of a headwind and even with that, we expect to be working capital neutral adjusting for acquisitions. So, back to building the cash culture at Arcosa and making incremental improvements in AR, or inventory in AP. We would expect to be able to offset that $50 million with kind of core working capital management improvements to end up roughly neutral for the year.

Justin Bergner -- G.research -- Analyst

Okay, great. And just on that point, are you expecting more sort of advanced billings? I realize the one from last year won't repeat. But are you expecting more as a normal course of business related to strong demand in utility structures and barges?

Scott Beasley -- Chief Financial Officer

Yeah. I think it's -- they are opportunistic, we wouldn't build them into our forecast. But certainly in an environment, particularly in the utility structures and barge, where capacity is tighter, we try to work with customers and a lot of time customers want to reserve that space and are willing to put some money down in advance. So it's not part of the working capital neutral guidance we gave for the year, but it's something that we'll try to make more regular as part of our business.

Justin Bergner -- G.research -- Analyst

Great. Thank you for taking my questions.

Operator

We'll take our next question from Julio Romero with Sidoti. Please go ahead. Your line is open.

Julio Romero -- Sidoti & Company -- Analyst

Hey, good morning, everyone.

Antonio Carrillo -- President and Chief Executive Officer

Good morning.

Julio Romero -- Sidoti & Company -- Analyst

On the utility structure side, one of the feedback on that earlier question about your penetration into the bid market, can you elaborate on that ability to toggle that on and off, and how much of the incremental capex year-over-year that you're forecasting is being put toward some additional capacity there?

Antonio Carrillo -- President and Chief Executive Officer

Yes. So the big market is a very large market and we still have a very, very small share of it. So, as I mentioned before, with something we -- as a Company, we will not focused on in the last few years. And I think it provides a good baseline for production and I think it requires a different mentality in terms of how to approach it. Our team is doing a really good job in starting to penetrate it. So, I'm enthusiastic about it, I think, it also provides a great stability to the business.

On the capex side, I would say, of the growth capex, I would say, about half of it will go toward the improvement of our utility structure both expanding capacity, and as I mentioned, also expanding our product line.

Julio Romero -- Sidoti & Company -- Analyst

Thank you. That's helpful. And, I guess, on the corporate cost side, $47 million came well below your guidance, so kudos to you on the cost control side there. But I think your 2020 outlook implies about a $5 million or so step up. Is there may be something incremental that's driving that step up or is it more kind of based on the 4Q run rate?

Scott Beasley -- Chief Financial Officer

Thanks, Julio. This is Scott. It's -- most of the step up is just consistent with operating a bigger company. If you look at our corporate costs as a percent of revenue, as we have grown, as we have new costs related to the Cherry acquisition, that's all built into the $13 million per quarter run rate, which again is pretty consistent as a percent of revenue with where we were in 2018 -- I mean, 2019.

Julio Romero -- Sidoti & Company -- Analyst

Understood. Thanks for taking the questions and best of luck in 2020.

Scott Beasley -- Chief Financial Officer

Thanks, Julio.

Antonio Carrillo -- President and Chief Executive Officer

Thank you.

Operator

We'll take our next question from Blake Hirschman with Stephens. Please go ahead. Your line is open.

Blake Hirschman -- Stephens Inc. -- Analyst

Yeah. Good morning, guys. Congrats on a great year.

Antonio Carrillo -- President and Chief Executive Officer

Thank you, Blake.

Scott Beasley -- Chief Financial Officer

Thanks, Blake.

Blake Hirschman -- Stephens Inc. -- Analyst

First on the barge side, the revenue grew like 70% last year, apologies if -- if I missed it, but do you have any rough guide posts as far as what we can see this year for top line growth there, and then just the second part of that being, it's grown sequentially for like the last year, do you think we can see sequential revenue increases throughout 2020 as well?

Scott Beasley -- Chief Financial Officer

This is Scott. I'll take that. If you look at the exit rate of barges, it was about $100 million of revenue in the fourth quarter and we expect that to grow into 2020. So there should be absolute growth in the year. The way the production schedule lays out, Q3 will be the highest quarter particularly in back half. So you'll see a ramp-up from Q1 into Q2 into Q3 and then kind of flat in the second half of the year.

So, a bit of a shift in mix as Antonio mentioned. So perhaps a tiny step down from Q4 into Q1, but then growing pretty, pretty strongly throughout the year as we hit our stride with those -- the different plants operating the best barge type for that plant.

Blake Hirschman -- Stephens Inc. -- Analyst

Got it. All right. And then on wind towers, how much was lower pricing a drag in the quarter? And just to clarify the headwinds there, it really is just on the pricing side and not volume, correct? Because I didn't see the wind towers piece within the positive demand, you know, pieces of the business from the slide. So I just wanted to double check there.

Scott Beasley -- Chief Financial Officer

Correct, Blake. The headwind is from the pricing, our volumes have remained strong and productions in really good shape. Most of that if you look at the sequential margin that went down from 15% to 13%, almost all of that was -- was related to wind tower. So again the team is doing a -- doing a great job, production is strong, but the prices for what we're delivering are lower and that creates that margin headwind.

Blake Hirschman -- Stephens Inc. -- Analyst

Got it. Makes sense. Thanks a lot guys.

Scott Beasley -- Chief Financial Officer

Thank you.

Antonio Carrillo -- President and Chief Executive Officer

Thanks.

Operator

Next, we'll take a follow-up question from Justin Bergner with G.research. Please go ahead, your line is open.

Justin Bergner -- G.research -- Analyst

Thanks guys for the follow-up and also my congratulations on a strong year. First follow up would be related to utility structures in the bid market and pricing. It seems like I'm inferring from the prior question that there has been no sort of weakening of the bid market, such that your energy equipment margins are sort of coming down from higher levels due to some softening of the -- the tightness in utility structure market, is that sort of accurate in the fourth quarter, and if you look into 2020?

Antonio Carrillo -- President and Chief Executive Officer

All right. Justin, this is Antonio. No, I think the utility structure as I mentioned is really strong both on the -- on the traditional customers and the bid market. The margin coming down really has been more related to wind towers, in the energy side. Also on our tanks both in Mexico and US, the margins have been really good and improving. And I think we still have a room for improvement there. I think there is room for improvement in utility structure and I think there is room for improvement in tank. And the area where we have the weakest fundamentals right now is, even though the markets -- it's strong and 2020 and 2021 would probably be strong. The margins will be lower than in the past years in wind towers.

Justin Bergner -- G.research -- Analyst

Okay, thanks for the clarification. And then just secondly, I guess the lower range of your EBITDA guide implies, sort of flat organic EBITDA growth. So what sort of conditions are markets would be pressured, that would lead you to the lower end of that EBITDA guidance sort of flat organic EBITDA growth?

Scott Beasley -- Chief Financial Officer

Sure, Justin. This is Scott. I think if you look at the -- the slide that Antonio mentioned of what are the challenges heading into 2020, there are some scenarios where there could be weakness in those three areas. Wind tower prices is pretty much locked in for the year, but if rail components is worse than expected and potentially weather -- in construction, weather has been a challenge in Q1 across the country.

And so, yeah, I think the lower end of the range would imply kind of worse than expected outcomes there, which again, even if it's flat year-over-year. I think if you add Cherry there'll be absolute growth. But those would be some of the scenarios that would cause kind of flattish year-over-year performance in the legacy portfolio.

Justin Bergner -- G.research -- Analyst

Thanks for the follow-up.

Operator

And there are no further questions on the line at this time, I'll turn the program back to Gail Peck for any closing comments.

Gail M. Peck -- Senior Vice President, Finance and Treasurer

Thank you, David, and thank you everyone for joining us today and we look forward to speaking with you again next quarter.

Operator

[Operator Closing Remarks].

Duration: 45 minutes

Call participants:

Gail M. Peck -- Senior Vice President, Finance and Treasurer

Antonio Carrillo -- President and Chief Executive Officer

Scott Beasley -- Chief Financial Officer

Brent Thielman -- D.A. Davidson & Co. -- Analyst

Stefanos Crist -- CJS Securities, Inc. -- Analyst

Ian Zaffino -- Oppenheimer & Co. -- Analyst

Bascome Majors -- Susquehanna Financial Group -- Analyst

Justin Bergner -- G.research -- Analyst

Julio Romero -- Sidoti & Company -- Analyst

Blake Hirschman -- Stephens Inc. -- Analyst

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