Arcosa (ACA) Risk Factors

We cannot predict the prices at which shares of Arcosa common stock may trade. The trading and market price of Arcosa common stock may fluctuate significantly due to a number of factors, some of which may be beyond Arcosa's control, including: Arcosa's quarterly or annual earnings, or those of other companies in its industry; actual or anticipated fluctuations in Arcosa's operating results; changes in earnings estimates by securities analysts or Arcosa's ability to meet those estimates; Arcosa's ability to meet its forward-looking guidance; the operating and stock price performance of other comparable companies; overall market fluctuations and domestic and worldwide economic conditions; and other factors described in these "Risk Factors" and elsewhere in this Annual Report on Form 10-K. Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. Broad market and industry factors may materially harm the market price of Arcosa's common stock, regardless of Arcosa's operating performance. In the past, following periods of volatility in the market price of a company's securities, shareholder derivative lawsuits and/or securities class action litigation has often been instituted against that company. Such litigation, if instituted against us, could result in substantial costs and a diversion of management's attention and resources.

At December 31, 2023, Arcosa's backlog was approximately $1.4 billion within our Engineered Structures and $253.7 million within our Transportation Products segments. Arcosa's ability to meet customer delivery schedules for backlog is dependent on a number of factors including, but not limited to, sufficient manufacturing plant capacity, adequate supply channel access to raw materials and other inventory required for production, an adequately trained and capable workforce, engineering expertise, and appropriate planning and scheduling of manufacturing resources. We may also encounter capacity limitations due to changes in demand despite our forecasting efforts. Some of the contracts we enter into with our customers, such as for barges, traffic structures and wind towers, require long manufacturing lead times and contain penalty clauses or liquidated damages provisions related to late delivery. Failure to deliver in accordance with contract terms and customer expectations could subject us to financial penalties, damage existing customer relationships, increase our costs, reduce our sales and have a material adverse effect on Arcosa's business.

Acquisitions and divestitures may bring known and unknown risks to Arcosa. If we fail to adequately perform due diligence during the acquisition process, we may be subject to unexpected liabilities in connection with such transaction. Acquisitions and divestitures also bring risks that the counterparties to the transactions may fail to perform their obligations, which could result in costly litigation, divert management's attention and disrupt our business operations. Third parties could also seek to hold Arcosa responsible for these liabilities, and there can be no assurance that any indemnity from our counterparties or any insurance we obtain in connection with the transaction will be sufficient to protect Arcosa against the full amount of such potential liabilities. Furthermore, an element of Arcosa's long-term strategy is to reduce the complexity and cyclicality of the overall business which may result in divestitures. Divestitures pose risks and challenges that could negatively impact Arcosa's business, including retained liabilities related to divested businesses, obligations to indemnify counterparties against contingent liabilities and potential disputes with counterparties. If we do not realize the expected benefits of these divestitures or our post-completion liabilities and continuing obligations are substantial and exceed our expectations, our financial position, results of operations and cash flows could be negatively impacted. Any divestiture may result in a dilutive impact to our future earnings if we are unable to offset the dilutive impact from the loss of revenue and profits associated with the divestiture, as well as significant write-offs, including those related to goodwill and other intangible assets, which could result in a material adverse effect on Arcosa's business.

Some of Arcosa's customers place orders for Arcosa's products (i) in reliance on their ability to obtain and utilize tax benefits or tax credits such as accelerated depreciation or the production tax credit or investment tax credit for renewable energy or (ii) to utilize federal-aid programs that allow for purchase price reimbursement or other government funding or subsidies, any of which benefits, credits, or programs could be modified, discontinued or allowed to expire without extension thereby reducing demand for certain of Arcosa's products and reducing certain tax credits for which Arcosa may be eligible. Additionally, the recently enacted Inflation Reduction Act of 2022 (the "IRA") 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, like Arcosa Wind Towers. For the year ended December 31, 2023, the Company has recognized $32.4 million in AMP tax credits for wind towers produced and sold in 2023. The issuance of comprehensive guidance and interpretation as to the eligibility for, calculation of, and methods for claiming many of the IRA's various tax benefits, tax credits, subsidies, and programs remains ongoing. If forthcoming guidance interprets the AMP in a restrictive manner or if any benefits, credits, subsidies, or programs under the IRA are allowed to expire or are otherwise modified or discontinued, the demand for Arcosa's products could decrease and/or the amount of AMP tax credits for which Arcosa may be eligible may be reduced, thereby creating the potential for a material adverse effect on Arcosa's business and future financial results.

We use controlled hazardous materials in our business and generate wastes that are regulated as hazardous wastes under U.S. federal, state, and local environmental laws and under equivalent provisions of law in those and other jurisdictions in which our manufacturing facilities are located. Our use of these substances and materials is subject to stringent, and periodically changing, regulation that can impose costly compliance obligations on us and have the potential to adversely affect our manufacturing activities. We are also subject to potential liability for claims alleging property damage and personal and bodily injury or death arising from the use of or exposure to our products, especially in connection with products we manufacture that our customers use to transport or store hazardous, flammable, toxic, or explosive materials. The risk of accidental contamination or injury from these materials cannot be completely eliminated. If an accident involving these substances occurs, we could be held liable for any damages that result, as well as incurring clean-up costs and liabilities, which can be substantial. Additionally, an accident could damage our facilities, resulting in delays and increased costs.

Legislation and new rules to regulate emission of greenhouse gases ("GHGs") have been introduced in numerous state legislatures, the U.S. Congress, and by the USEPA. Some of these proposals would require industries to meet new standards that may require substantial reductions in carbon emissions. There is also a potential for climate change legislation and regulation that could adversely impact the cost of certain manufacturing inputs, including the increasing cost of energy and electricity. While Arcosa cannot assess the direct impact of these or other potential regulations, new climate change protocols could affect demand for its products and/or affect the price of materials, input factors, energy costs, and manufactured components. Potential impacts of climate change include physical impacts, such as disruption in production and product distribution due to impacts from major storm events, shifts in regional weather patterns and intensities, and sea level changes. Other adverse consequences of climate change could include an increased frequency of severe weather events, low river levels, drought, flooding, and rising sea levels that could affect operations at Arcosa's manufacturing facilities as well as the price and/or availability of insurance coverage for the Company assets or other unforeseen disruptions of Arcosa's operations, systems, property, or equipment. We also communicate certain initiatives and goals regarding GHG and related matters in our public disclosures. These initiatives and goals may be difficult and expensive to implement or may not advance at a pace sufficient to meet our goals, and we could be criticized for the scope, accuracy, adequacy or completeness of the disclosure. Further, statements about our GHG-related initiatives and goals, and progress towards these goals, may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve and assumptions that are subject to change in the future. If our GHG-related data, processes and reporting are inaccurate or incomplete, or if we fail to achieve progress with respect to these goals or initiatives on a timely basis or at all, our operations and financial performance could be adversely affected. In addition, California enacted two new climate disclosure laws in September 2023 that (1) require U.S.-based businesses with total annual revenues over one billion dollars and doing business in California to annually report their Scope 1, 2, and 3 GHG emissions, and (2) require U.S.-based businesses with total annual revenues over five hundred million dollars and doing business in California to prepare biennial risk reports disclosing the entity's climate-related financial risk and measures adopted to reduce and adapt to climate-related financial risk. A lawsuit challenging the new California climate disclosure laws was filed in a federal district court in California on January 30, 2024. The California Air Resources Board is required to adopt regulations implementing the new California disclosure requirements, but has not, to date, issued any such regulations. Furthermore, if the SEC's proposed climate disclosure requirements are adopted on substantially similar terms as proposed, we will be required to incur significant time and money to comply with the disclosure requirements and may be required to modify certain of our operations. These compliance costs could adversely impact our future business. The impacts of climate change and related regulations on our operations and the Company overall are highly uncertain and difficult to estimate, but such effects could be materially adverse to our business.

Terrorist activities, anti-terrorist efforts, and other armed conflict involving the U.S. or its interests abroad or other foreign actors, including the war in Ukraine and the Israeli-Hamas conflict, may adversely affect the U.S. and global economies, potentially negatively affecting the industries in which Arcosa operates. For example, this could result in delays in or cancellations of the purchase of Arcosa's products or shortages in raw materials, parts, or components, any of which could prevent Arcosa from meeting its financial and other obligations.

Some of the markets Arcosa serves have a limited number of customers. For example, Arcosa's wind tower customer base is highly concentrated due to a limited number of companies constructing wind towers. The volumes purchased by customers in each of Arcosa's business segments vary from year to year, and not all customers make purchases every year. Furthermore, the timing of the completion, delivery, and customer acceptance of orders, including backlog orders, may cause Arcosa's revenues and income from operations to vary substantially each quarter. As a result, the order levels for Arcosa's products have varied significantly from period to period in the past and may continue to vary significantly in the future. For example, GE Renewable Energy, a customer in our Engineered Structures segment, accounted for approximately 8.1% of our consolidated revenues in 2023 down from 9.3% of consolidated revenues in 2022. As a result of these fluctuations, Arcosa believes that comparisons of its sales and operating results between periods may not be meaningful and should not be relied upon as indicators of future performance.

Any material nonpayment or nonperformance by any of our customers could have a material adverse effect on our revenue and cash flows. While our contracts with our customers, including backlog orders, include terms and provisions that protect us in the event of a breach, we may be unable to enforce payment or performance obligations in a timely manner or at all or recover the entire amount we anticipated receiving under such contract. If we were to pursue legal remedies against a customer that failed to purchase the contracted amount of product under a fixed-volume contract or failed to satisfy the take-or-pay commitment under a take-or-pay contract, we may receive significantly less in a judgment or settlement of any claimed breach than we would have received had the customer fully performed under the contract. In the event of any customer's breach, we may also choose to renegotiate any disputed contract on less favorable terms (including with respect to price and volume) in order to preserve the relationship with that customer.