Scott Montross: Yes. I think probably everybody compares things that are going on to what 2022 was. Right? In 2022, I mean those were boom – that was a boom year for Precast. There was a lot of records set in that business. Going through this year, we’re modestly off of the revenues that we saw in 2022. Obviously, the demand bit off. You have the higher interest rates that are affecting both the residential and the nonresidential part of the market. So you have reduced production levels. And obviously, with those reduced production levels, you have lower levels of overhead absorption. And along with less demand, you get a little bit of price pressure, because we’re seeing that. And also a product mix, we’re seeing some product mix changes in the Precast business right now versus what we saw in 2023, maybe some products that but have a little bit lower margin profile than what we saw in 2023.
But all in all, I mean, I think when you start looking at where we expect to be. I think when you look at the second quarter, our margins for the second quarter, Precast were about 25% in the third quarter, they were about 22%. So I think what you’re seeing is margins are going to be lining up with that as we go through the rest of this year. And as we go into next year, obviously, they’re predicting some different things for next year, especially around the midpoint in the year where they think that probably the Fed is going to start loosening the interest rates a little bit mid next year. And the markets are going to start to respond pretty positively to that, not only the housing market because there’s a shortage of housing, but also the commercial construction markets, which are a little slower right now than what we’re actually seeing in the residential side.
So, I think, again, us coming through a period like this with significant headwinds in both the Steel Pressure Pipe segment as well as the Precast segment with the headwinds that we’re seeing. And while, like I said, the quarter is disappointing, but we’re still coming through this in decent shape for the headwinds that we’re actually seeing. So we’re pretty excited about the markets coming at us going forward.
Brent Thielman: Yes. Just my last question, it might be for Aaron. I mean the cash conversion here this year has been pretty fantastic. I guess I’m wondering if there’s anything that’s an anomaly in there and how we ought to think about that into 2024. Is this unusual? Or can you keep up this pace because you’re going to have a balance sheet plus within cash and very little debt here pretty soon.
Aaron Wilkins: Yes. I think what I would say, Brent, is that one, yes, we’re performing better. I think – we have changed the focus. So, I kind of mentioned it a little bit here and there because it’s a thing we’re continuing to work on, and we’re not where we want to be yet, but we’re making progress on really trying to get customer prepayments, especially for steel to put us in a little bit of a different working capital position on our jobs and really try to moderate the working capital needs of that Steel Pressure Pipe business. That has been kind of a little bit of a pain point for the company in its history. And we acknowledge that, and we acknowledge that that’s something that we should strive to improve, and we’re trying to do that.
Now I’m not saying that we haven’t had a couple of good bounces in the course of this year, too, that’s kind of helped, especially in the first quarter, when I think we saw just kind of a big – I think it was like $21 million of free cash, I think, in the first quarter. So we’ve had a couple of good things. But I think all in all, we have a little bit of a shift kind of starting on some of the customer relationship stuff that’s starting to pay some dividends for the business and its cash flows.
Scott Montross: Yes, I think just to add a little bit to that, Brent, the progress payments, like I said, at the beginning of the market is starting to change a little bit. And obviously, we’ve been trying to drive that because of all the cash that we get tied up in current assets, especially with the Steel Pressure Pipe business. Progress payments are something that we’re always looking at getting paid for steel especially in jobs that are long jobs that we’re having to buy steel to protect the steel price upfront to make sure that we don’t get sideways with steel pricing. And another area of big focus especially across the company, but I think the guys on the Steel Pressure Pipe side have done a really good job of getting the AR on time up.
I mean, and when you go back several years ago, I mean, we were seeing AR on times in the 40% some range. And now we’re seeing them in a lot of cases between 75% and 80% on time. So big change there, too. It’s a big focus, right? Cash is important to us going forward to do the things that we want to do as a company to grow the company.
Brent Thielman: Very good. I’ll pass it on. Thank you.
Scott Montross: Thank you, Brent.
Operator: Thank you. Our next question comes from the line of Julio Romero with Sidoti & Company. Please proceed with your question.
Julio Romero: Hey, good morning, Scott and Aaron.
Scott Montross: Good morning, Julio.
Julio Romero: Hey, morning. You guys mentioned earlier on the Precast side that commercial construction has decreased, but residential has held up pretty well. Should we infer that to mean that you’re seeing the ParkUSA product demand kind of temper a little bit and Geneva hold up pretty well? And is that where some of the product mix challenges you mentioned earlier are stemming from?
Scott Montross: I think that’s right, Julio. I think the interesting piece of this is, obviously, we’re in two really good markets on the Precast side of the business, right? The State of Texas, obviously, is always building. They’re always spending the cash they have generated from energy type business, good – a really good market plus Utah, the net migration into Utah has been pretty solid. And quite frankly, we’ve been actually a little bit surprised on how well that the Precast infrastructure side of the business that we have at Geneva has held up because of the pent-up demand housing wise in the Utah market. So that’s still kind of bumping along. And both of those, I would say, have only decreased modestly. But I think that probably the impact is a little bit more right now at the Park side.
