Smith-Midland Corporation Common Stock 17th Annual Midwest IDEAS Conference

That's where you get into trouble. Good morning. Our next presenting company is Smith-Midland, trades on the NASDAQ under the symbol SMID. Leading player in the precast concrete space. Ashley has a couple things to demo here for you on how their barriers work. Here to lead off the presentation today, Ashley Smith, CEO. With him is Dominic Hunter, the company CFO. Smith-Midland's a client of Three Part. If you have any questions after the presentation, you can catch Ashley and Dominic on the way out or at lunch, which we'll be doing right after this. Or feel free to catch me in the hallway and we're happy to set something up when we all get back home. Ashley? All right. Thanks, John.

Thanks, everybody for being here. Can you all hear me okay? Yeah, thanks for being here. I wanted to start out, this is a replica of a concrete barrier. As John was saying, concrete barriers, concrete products are a big part of our business. The one thing to take away today, all the concrete barriers across the country are in the process of being replaced. I'll talk about that tailwind and what it means to us and our business as we go through the presentation. I'm the third-generation family member to run the company. Our company was started by my grandfather on his family farm in 1960. My dad came in right after that. I've been in the business full-time for over 40 years, but part-time 10 or 15 years before that. We manufacture precast concrete products that are proprietary to us.

We also make generic precast concrete products. The products that you see on the screen are our proprietary products, and they are number one in each one of their categories. The concrete barrier that you see is branded J-J Hooks. That's the number one private brand of barrier in the country. The top middle is our Easi-Set, Easi-Span utility product. The bottom left is our SoftSound. SlenderWall, which is a Class A lightweight precast concrete panel systems that we make and install. Then over on the right are products that we've been making. They're having a renaissance because of the data center market, which we'll talk a little more about. Please read the Safe Harbor statement. At a glance, we have proprietary patented precast products.

On the J-J Hooks end of the business, our proprietary information includes trademarks, trade dress, patents, crash test, Federal Highway approval, state approvals. Then the Easi-Set, Easi-Span building is the number one small building across the country. We have patents and trademarks around that. All of our patented products do have multiple types of proprietary protection. Revenue, we had our best year ever last year, $93 million. We're on track to hit that again. Market cap is around $145 million. Our backlog is 57.4, which is up, and Dominic will talk a little more about that. Besides our proprietary products, we also manufacture specialty products. You can see military security decorative. There's a lot of work. The project on the left, the decorative, that is a security wall around an electric substation.

As you know, they are susceptible to terrorist attacks, so there is a big demand nowadays to harden. We have a good relationship with Dominion Energy in Virginia. We are talking to them about protecting their infrastructure. Besides producing precast concrete products at all three of our factories in Virginia, Maryland, and D.C., Concrete Safety Systems is a barrier rental division that we started in the late 1970s. For the first 35 years, we only had about 50,000 feet, about 10 miles of rental barrier in our fleet. Starting five or six years ago, we aggressively increased the amount of barrier in our rental fleet. We have gotten up to about 50 miles of barrier. We doubled that about four years ago. We bought about 50 miles of barrier back from one of our customers that we had sold it to on a big project in Northern Virginia.

When we sold the project, we wrote into the contract that we would buy it back at the end of the job. When that job was over, we bought that 50 miles back. We went from 50 miles to 100 miles of inventory. Over the past four or five years, we have been adding through manufacturing new barrier at our own factories. Right now we have about 150 miles of barrier for rent. The reason we did that is before we were probably a little conservative. We did not have the cash. That is why we never had more than about 50,000 feet of barrier. We saw a rental model in Pennsylvania. There was a rental company in South Carolina. We had that opening. We had already been doing it, so we had the cash. That is why we have aggressively increased that part of the business.

Also, about three or four years ago, we started adding crash cushions, also known as attenuators, to our rental fleet. Now we have about 500 of these crash cushions, which would be attached to the end of a run of barrier. They are made out of steel, so when a car hits it does not run into the end of the barrier. It hits this cushion. The cushion absorbs the energy. That has been a nice growing part of the rental business. Also, a very good return on capital. If you look at the rental business, we have installation. When we take a project, we install the barrier. We pick it up if it needs to be moved during the life of the project. We also provide that service. That part of the business, we like it because it is recurring revenue. The returns are very good.

We also like the cash flow. Once we put the barrier out on the project, we get all of the money. We get the money for the life of the rental, the return freight, the return installation. We use that to reinvest in the company. I kind of joke we are the kind of Warren Buffett insurance precast division. We take that cash and reinvest it in the business. It also helps as we are building new barrier inventory out. It helps to pay for that investment as well. We also provide licensing. Our products are good enough that people that make precast concrete around North America, Canada, pay us to make our products. We typically get a 6% royalty fee. That is growing. Back to the barrier, it is driving. There is a big tailwind.

I started off by saying all the barriers being replaced across the country. We are probably in the second or third inning of all the barrier being replaced. It is a federal mandate because about every 15 years, Federal Highway Administration comes out with higher crash test level on all roadside safety features. The date was 2020. Each state gets to decide when the old barrier has to go off and the new barrier comes on. Right now, we are starting to see more and more states say it is time for you to change to the new barrier. When we develop a barrier, we can produce it at our two factories, South Carolina, North Carolina. We can rent it. Our Virginia plant, we only rent barrier. Delaware, Maryland, Virginia, we only sell it down South because of our competitor down there that rents the barrier.

We have a lot of contractors doing business, South Carolina and North Carolina, that want to buy it. In Virginia, we do not even quote sale. We only quote rental, because that is the way we are moving the business, is toward that rental model. We license the technology, and across the country, there is more demand as each state is adopting the new MASH standards. For example, the state of California, their deadline is that is used has to be the new MASH-tested barrier. Our licensee in California has been ramping up production. They are the largest independent precaster in the state. They have multiple plants, but right now they are making our J-J Hooks in Northern California plant, and one in Southern California, and also in Reno, Nevada. That is driving our rental across the country. We make the barrier. We sell it. We rent it. We have a new design that we have crash tested.

We are designing right now. It is what we call Limited Deflection Barrier, and we believe that this barrier design is going to be good enough that we will capture 80%-90% of the market. The product that we are competing against, our product will be about 80% less expensive to put in the field, labor, material to put in the field. We are excited about that. We are in development as we speak. Also, once we get that new product developed, we will be able to rent it, be able to make it, and then be able to put it into our royalty program. A lot of different tailwinds, a lot of different revenue streams. Another big tailwind, probably one of the biggest, is the infrastructure spend tailwind.

Everybody has heard about the infrastructure needs of the country, and the nice thing in Washington, typically both sides of the aisle, Democrats and Republicans, can all agree, and there is never a big fight, kind of like on the farm bill. That usually passes. Infrastructure passes. Even if they do not have a big bill, they would do a continuing, so there is always money there for infrastructure. My theory is every congressman has a ready-mix plant or a precast plant or an asphalt plant in their backyard, so there is always somebody knocking on their door saying, "Get that bill passed." Right now in Congress, the big infrastructure bill that was passed by the last administration is coming to an end this September. About 40% of that money still has to be spent.

What's happening in Congress right now is that a new bill, a new infrastructure bill, is being crafted. What we've heard is that the last bill had a lot of money for green projects. We've heard that the money in the new bill directly tied to highways, roads, bridges, is going to be even more than what was in the last bill. The last bill had the most money for our industry that we've ever had. This one's supposedly even bigger. The need is there. The funding is there at a federal level. There's obviously a lot of funding for all types of infrastructure. States are spending a lot of money on water quality, and there's a lot of money in all of the different sectors that we produce products for.

If you look at the next to the last quote, this was in Larry Fink's letter to his shareholders in 2025. He said, "Between '25 and '40, the global demand for new infrastructure investment is $68 trillion." That's equivalent to I'm not used to saying trillion dollars, but that's equivalent to building the entire interstate highway system and the transcontinental railroad start to finish every 6 weeks for the next 15 years. That's the tailwind in infrastructure, and that benefits all sectors of our business. Right now, our SlenderWall panel system, we have 7 projects in the hopper. That's either we've just signed a couple of contracts, and the rest we're working with the architects and developers to draw our panel system onto the building. We've never had that many SlenderWall projects in the hopper at one time.