ASTEC INDUSTRIES INC

Previous wording

This Quarterly Report on Form 10-Q, particularly the following discussion and analysis of our results of operations, financial condition and liquidity in this "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains forward-looking statements within the meaning of the Securities Act of 1933, as amended, the Exchange Act, and the Private Securities Litigation Reform Act of 1995. Such statements relate to, among other things, income, earnings, cash flows, changes in operations, operating improvements, businesses in which we operate and the United States and global economies. Statements in this Quarterly Report on Form 10-Q that are not historical are hereby identified as "forward-looking statements" and may be indicated by words or phrases such as "anticipates," "supports," "plans," "projects," "expects," "believes," "should," "would," "could," "forecast," "management is of the opinion," or use of the future tense and similar words or phrases.

Current wording

This Quarterly Report on Form 10-Q, particularly the following discussion and analysis of our results of operations, financial condition and liquidity in this "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains forward-looking statements within the meaning of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Private Securities Litigation Reform Act of 1995. Such statements relate to, among other things, income, earnings, cash flows, changes in operations, operating improvements, businesses in which we operate and the United States and global economies. Statements in this Quarterly Report on Form 10-Q that are not historical are hereby identified as "forward-looking statements" and may be indicated by words or phrases such as "anticipates," "supports," "plans," "projects," "expects," "believes," "should," "would," "could," "forecast," "management is of the opinion," or use of the future tense and similar words or phrases.

Previous wording

Strategic Transformation –We are undergoing a multi-year phased implementation of a standardized ERP system, which is replacing much of our existing disparate core financial systems. During the second quarter of 2024, we modified the pace of deployment of future site conversions in order to improve efficiencies and reduce business disruptions at each manufacturing site, which will have the effect of reducing the scope to exclude sites outside North America. To date, we have launched the human capital resources module in our locations in the United States and converted the operations of three manufacturing sites along with Corporate, two of which occurred during the second quarter of 2024. We expect the project to conclude in 2027 with total approximate implementation costs anticipated to range from $180 to $200 million. Through the third quarter of 2024, we have incurred total implementation costs of approximately $127 million. Annual costs are expected to peak in 2024 to a range of $40 to $45 million and decrease annually each year through the final implementations in 2027.

Current wording

Strategic Transformation Program –Our strategic transformation program includes the ongoing multi-year phased implementation of a standardized ERP system, which is replacing much of our existing disparate core financial systems. To date, we have launched the human capital resources module in our U.S. locations and converted the operations of three manufacturing sites along with Corporate. We expect the project to conclude in 2028 or 2029 with total approximate implementation costs anticipated to range from $180 to $200 million. Through the first quarter of 2025, we have incurred total implementation costs of approximately $140 million.

Previous wording

See Note 11, Strategic Transformation, Restructuring, Impairment and Other Asset Charges, net of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional discussion of the costs related to these strategic initiatives.

Current wording

See Note 10, Strategic Transformation, Restructuring and Other Asset Gains, net of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional discussion of the costs related to these strategic initiatives.

Previous wording

Economic Conditions –We monitor macroeconomic and other factors that may affect our business such as steel and oil prices, interest rates and geopolitical conflicts, among others.

Current wording

Economic Conditions –We monitor macroeconomic and other factors that may affect our business such as steel and oil prices and geopolitical conflicts, among others.

Previous wording

Additionally, significant portions of our revenues from the Infrastructure Solutions segment relate to the sale of equipment involved in the production, handling, recycling or application of asphalt mix. Liquid asphalt is a by-product of oil refining, and changes in the price of oil impact the cost of asphalt, which is in turn likely to alter demand for asphalt and therefore affect demand for certain of our products. Based on the current macroeconomic environment, including ongoing international conflicts, we anticipate that oil prices will remain at relatively high levels throughout the remainder of 2024 and into 2025.

Current wording

Additionally, significant portions of our revenues from the Infrastructure Solutions segment relate to the sale of equipment involved in the production, handling, recycling or application of asphalt mix. Liquid asphalt is a by-product of oil refining, and changes in the price of oil impact the cost of asphalt, which is in turn likely to alter demand for asphalt and therefore affect demand for certain of our products. Oil prices have routinely fluctuated in recent years, and based on the current macroeconomic environment, we anticipate that oil prices will experience moderate fluctuation throughout 2025.

Previous wording

New or ongoing geopolitical conflicts may cause a downturn in the commercial and residential construction industries in which we operate, cause an increase in oil prices, damage a significant portion of our inventory or materially impair our ability to distribute our products to customers. We monitor, adjust and potentially cease our operations in affected jurisdictions to ensure compliance with any governmental actions made in response to such conflicts.

Current wording

New or ongoing geopolitical conflicts may cause a downturn in the construction industries in which we operate, cause an increase in oil prices, damage a significant portion of our inventory or materially impair our ability to distribute our products to customers. We monitor, adjust and potentially cease our operations in affected jurisdictions to ensure compliance with any governmental actions made in response to such conflicts.

Previous wording

Net sales for the first nine months of 2024 were $946.1 million compared to $1,001.0 million for the first nine months of 2023, a decrease of $54.9 million, or 5.5%. The decrease in net sales was primarily driven by net unfavorable volume and mix partially offset by favorable pricing that generated decreases in (i) equipment sales of $34.6 million, (ii) service and equipment installation revenue of $19.2 million, (iii) used equipment of $4.3 million and (iv) freight revenue of $3.1 million. These decreases were partially offset by an increase in other revenue and parts and component sales of $3.3 million and $3.0 million, respectively. Sales reported by our foreign subsidiaries in U.S. dollars for the first nine months of 2024 would have been $0.9 million higher had the first nine months of 2024 foreign exchange rates been the same as the first nine months of 2023 rates.

Current wording

Net sales for the first quarter of 2025 were $329.4 million compared to $309.2 million for the first quarter of 2024, an increase of $20.2 million, or 6.5%. The increase in net sales was primarily driven by net favorable pricing coupled with volume and mix that generated increases in (i) equipment sales of $20.4 million, (ii) used equipment sales of $2.3 million, (iii) freight revenue of $1.3 million and (iv) service and equipment installation revenue of $1.2 million. These increases were partially offset by a decrease in parts and component sales of $4.5 million. Sales reported by our foreign subsidiaries in U.S. dollars for the first quarter of 2025 would have been $1.6 million higher had foreign exchange rates been the same as 2024 rates.

Previous wording

Domestic sales for the third quarter of 2024 were $211.2 million, or 72.5% of consolidated net sales, compared to $229.6 million, or 75.8% of consolidated net sales, for the third quarter of 2023, a decrease of $18.4 million, or 8.0%. Domestic sales decreased primarily due to decreases in equipment and parts and components sales of $13.1 million and $6.8 million, respectively. These decreases were partially offset by increased service and equipment installation revenue of $1.1 million.

Current wording

International sales for the first quarter of 2025 were $55.6 million, or 16.9% of consolidated net sales, compared to $66.0 million, or 21.3% of consolidated net sales, for the first quarter of 2024, a decrease of $10.4 million, or 15.8%. International sales decreased primarily due to decreases in equipment and parts and component sales of $8.0 million and $2.7 million, respectively.

Previous wording

Restructuring, asset impairment charges and the loss (gain) on sale of property and equipment, net for the three and nine-month periods ended September 30, 2024 and 2023 are presented below:

Current wording

Restructuring charges and the gain on sale of property and equipment, net for the three-month periods ended March 31, 2025 and 2024 are presented below:

Previous wording

Interest expense of $2.6 million and $8.4 million was incurred in the three and nine months ended September 30, 2024, respectively, as compared to $2.4 million and $6.4 million in the three and nine months ended September 30, 2023, respectively, primarily related to higher average outstanding borrowings on the Credit Facility in 2024 as compared to the corresponding periods in 2023.

Current wording

Interest expense of $2.0 million was incurred in the three months ended March 31, 2025, as compared to $2.7 million in the three months ended March 31, 2024, primarily related to lower interest rates combined with lower average outstanding borrowings on the Credit Facility in the first quarter of 2025 as compared to the same period in 2024.

Previous wording

Our income tax benefit for the third quarter of 2024 was $2.3 million compared to $0.6 million for the third quarter of 2023. Our effective income tax rate was 27.1% for the third quarter of 2024 compared to 8.5% for the third quarter of 2023. The income tax benefit for the three months ended September 30, 2024 was higher compared to the same period in 2023 primarily due to higher pretax book loss and changes in the relative weighting of jurisdictional income and loss.

Current wording

Our income tax expense for the first quarter of 2025 was $5.4 million compared to $1.4 million for the first quarter of 2024. Our effective income tax rate was 27.4% for the first quarter of 2025 compared to 29.8% for the first quarter of 2024. The income tax expense for three months ended March 31, 2025 was higher compared to the same period in 2024, primarily due to higher pretax book income and changes in the relative weighting of jurisdictional income and loss.

Previous wording

Strong customer demand and logistics and manufacturing throughput disruptions in 2021 and 2022 resulted in a build of backlog, which peaked in late 2022. The order backlog began to decrease throughout 2023 driven by sales delivery outpacing new orders and is approaching a historical range. Macroeconomic factors such as higher inflation and increased interest rates, among other factors, have influenced customer ordering patterns and are expected to continue. We have experienced variability in the ordering patterns from our dealer customers, most notably in the Materials Solutions segment, as a result of these factors. In addition, our shorter production lead times allow for customers to place orders closer to when the equipment delivery is desired. In order to support sales delivery and maintain optimal backlog levels, we have completed prudent expansions of our production capacity at certain manufacturing sites that we anticipate will allow us to more effectively convert backlog to sales in the future with greater efficiency and shorter lead times.

Current wording

Our shorter production lead times and parts fill rates have allowed for customers to place orders closer to the desired delivery date. Additionally, we have experienced variability in the ordering patterns from our dealer customers as a result of macroeconomic factors such as higher inflation, including the impact of recently enacted or increased tariffs, and elevated interest rates, among other factors. These factors have influenced customer ordering patterns and are expected to continue.

Previous wording

Domestic sales for the Materials Solutions segment decreased by $20.3 million, or 27.1%, for the third quarter of 2024 compared to the same period in 2023, primarily driven by decreased equipment sales of $21.4 million. This decrease was partially offset by increases in other revenue and parts and component sales of $0.8 million and $0.7 million, respectively.

Current wording

Domestic sales for the Materials Solutions segment decreased by $5.2 million, or 9.1%, for the first quarter of 2025 compared to the same period in 2024, primarily driven by decreased equipment sales and freight revenue of $4.5 million and $0.7 million, respectively.

Previous wording

Segment Operating Adjusted EBITDA is the measure of segment profit or loss used by our CEO, who is considered to be the CODM, to evaluate performance and allocate resources to the operating segments. Segment Operating Adjusted EBITDA is defined as net income or loss before the impact of interest income or expense, income taxes, depreciation and amortization and certain other adjustments that are not considered by the CODM in the evaluation of ongoing operating performance. Our presentation of Segment Operating Adjusted EBITDA may not be comparable to similar measures used by other companies and is not necessarily indicative of the results of operations that would have occurred had each reportable segment been an independent, stand-alone entity during the periods presented. See Note 10, Segment Information, of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a reconciliation of Segment Operating Adjusted EBITDA to total consolidated net income attributable to controlling interest.

Current wording

Segment Operating Adjusted EBITDA is the measure of segment profit or loss used by the CEO, who is the CODM, to evaluate performance and allocate resources to the reportable segments. Segment Operating Adjusted EBITDA is defined as net income or loss before the impact of interest income or expense, income taxes, depreciation and amortization and certain other adjustments that are not considered by the CODM in the evaluation of ongoing operating performance. See Note 9, Operations by Industry Segment and Geographic Area, of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a reconciliation of Segment Operating Adjusted EBITDA to total consolidated income before income taxes.

Previous wording

Our primary sources of liquidity and capital resources are cash and cash equivalents on hand, borrowing capacity under the Credit Facility and cash flows from operations. As of September 30, 2024, our total liquidity was $195.1 million, consisting of $52.7 million of cash and cash equivalents available for operating purposes and $142.4 million available for additional borrowings under the Credit Facility, subject to our continued compliance with financial covenants under the Credit Agreement. Our foreign subsidiaries held $34.3 million of cash and cash equivalents available for operating purposes, which is considered to be indefinitely invested in those jurisdictions.

Current wording

Our primary sources of liquidity and capital resources are cash and cash equivalents on hand, borrowing capacity under the Credit Facility and cash flows from operations. As of March 31, 2025, our total liquidity was $238.9 million, consisting of $90.1 million of cash and cash equivalents available for operating purposes and $148.8 million available for additional borrowings under our revolving credit facility, to the extent our compliance with financial covenants permits such borrowings. Our foreign subsidiaries held $29.6 million of cash and cash equivalents available for operating purposes, which is considered to be indefinitely invested in those jurisdictions.

Previous wording

Our future cash requirements primarily include working capital needs, debt service obligations, capital expenditures, vendor-hosted software arrangements including the related implementation costs, unrecognized tax benefits and operating lease payments. In addition, our variable cash uses may include the payment of our quarterly cash dividend, financing other strategic initiatives of our business, including, but not limited to, transformation initiatives, strategic acquisitions and share repurchases under our share repurchase authorization. We believe that our current working capital, cash flows generated from future operations and available capacity under the Credit Facility will be sufficient to meet working capital and capital expenditure requirements for our existing business for at least the next 12 months.

Current wording

Our future cash requirements primarily include working capital needs, debt service obligations, capital expenditures, vendor-hosted software arrangements including the related implementation costs, unrecognized tax benefits and operating lease payments. In addition, our variable cash uses may include transformation initiatives, strategic acquisitions, dividend payments and share repurchases under our share repurchase authorization. We believe that our current working capital, cash flows generated from future operations and available capacity under the Credit Facility will be sufficient to meet working capital and capital expenditure requirements for our existing business for at least the next 12 months.

Previous wording

We had $99.0 million in outstanding borrowings under the Credit Facilities as of September 30, 2024. Our outstanding letters of credit totaling $8.6 million decreased borrowing availability to $142.4 million under the revolving credit facility as of September 30, 2024. We anticipate continuing to utilize the Credit Facilities with more frequency in the near term to support our working capital needs. Due to the increased borrowings under our Credit Facilities and higher interest rates, we expect our interest expense in the near term to remain at elevated levels.

Current wording

We had $96.0 million in outstanding borrowings under the Credit Facilities as of March 31, 2025. Our outstanding letters of credit totaling $5.2 million decreased borrowing availability to $148.8 million under the revolving credit facility as of March 31, 2025.

Previous wording

Certain of our international subsidiaries in Australia, Brazil, Canada, South Africa and the United Kingdom each have separate credit facilities with local financial institutions primarily to finance short-term working capital needs and to cover foreign exchange contracts, performance letters of credit, advance payment and retention guarantees. In addition, the Brazilian subsidiary also enters into order anticipation agreements on a periodic basis. Both the outstanding borrowings under the credit facilities of the international subsidiaries and the order anticipation agreements are recorded in "Short-term debt" in our Consolidated Balance Sheets. Each of the credit facilities are generally guaranteed by Astec Industries, Inc. and/or secured with certain assets of the local subsidiary.

Current wording

Certain of our international subsidiaries in Australia, Brazil, Canada, South Africa and the United Kingdom each have separate credit facilities with local financial institutions primarily to finance short-term working capital needs, as well as to cover foreign exchange contracts, performance letters of credit, advance payment and retention guarantees. In addition, the Brazilian subsidiary also enters into order anticipation agreements on a periodic basis. Both the outstanding borrowings under the credit facilities of the international subsidiaries and the order anticipation agreements are recorded in "Short-term debt" in our Consolidated Balance Sheets. Each of the credit facilities are generally guaranteed by Astec Industries, Inc. and/or secured with certain assets of the local subsidiary.

Previous wording

We regularly enter into agreements, primarily to purchase inventory, in the ordinary course of business. As of September 30, 2024, open purchase obligations totaled $121.9 million, of which $95.7 million are expected to be fulfilled within the remainder of 2024.

Current wording

We regularly enter into agreements, primarily to purchase inventory, in the ordinary course of business. As of March 31, 2025, open purchase obligations totaled $134.7 million, of which $131.6 million are expected to be fulfilled within the remainder of 2025.

Previous wording

We estimate that our capital expenditures will be between $20.0 million and $25.0 million for the year ending December 31, 2024, which may be impacted by general economic, financial or operational changes and competitive, legislative and regulatory factors, among other considerations.

Current wording

We estimate that our capital expenditures will be between $35.0 million and $45.0 million for the year ending December 31, 2025, which may be impacted by general economic, financial or operational changes and competitive, legislative and regulatory factors, among other considerations.

Previous wording

The following table summarizes cash flows during the nine months ended September 30, 2024 and 2023, respectively:

Current wording

The following table summarizes cash flows during the three months ended March 31, 2025 and 2024, respectively:

Previous wording

Net cash used in operating activities

Current wording

Net cash provided by (used in) operating activities

Previous wording

Net cash used in operating activities decreased by $5.2 million during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to lower net cash usages for our operating assets and liabilities of $24.2 million partially offset by reduced cash inflows from net income reduced by non-cash charges of $19.7 million. The decreased net cash usage for our operating assets and liabilities were mainly driven by the timing of inventory purchases of $49.8 million and increases in customer deposits of $21.7 million. The decreased net cash usage was partially offset by the timing of payments on trade accounts payables of $35.6 million and higher employee-related payments of $14.0 million.

Current wording

Our operating activities provided net cash of $20.5 million for the three months ended March 31, 2025 as compared to a net use of $47.0 million for the three months ended March 31, 2024. This increase is primarily due to lower net cash usages for our operating assets and liabilities of $52.5 million coupled with increased cash inflows from net income reduced by non-cash charges of $15.0 million. The decreased net cash usage for our operating assets and liabilities were mainly driven the timing impacts of (i) collections on trade and other receivables of $35.2 million, which includes $13.7 million recorded in the first quarter of 2024 related to a subsequently finalized litigation settlement, (ii) inventory purchases of $19.7 million, (iii) payments of trade accounts payables of $10.1 million and (iv) lower employee-related payments of $7.8 million. The decreased net cash usage was partially offset by decreased customer deposits of $15.2 million associated with lower backlog and the timing impacts for accrued liabilities of $14.9 million, which includes $13.7 million recorded in the first quarter of 2024 related to a subsequently finalized litigation settlement.

Previous wording

Net cash provided by financing activities

Current wording

Net cash (used in) provided by financing activities

Previous wording

Our financing activities provided net cash of $19.5 million during the nine months ended September 30, 2024 as compared to providing net cash of $30.8 million during the nine months ended September 30, 2023, primarily due to decreased borrowings, net of repayments, of $12.5 million.

Current wording

Our financing activities used net cash of $15.0 million during the three months ended March 31, 2025 as compared to providing net cash of $48.4 million during the three months ended March 31, 2024, primarily due to net repayments on our Credit Facilities in 2025 as compared to net borrowings in 2024.

Previous wording

We paid quarterly dividends of $0.13 per common share to shareholders in the third quarter of both 2024 and 2023.

Current wording

We paid quarterly dividends of $0.13 per common share to shareholders in the first quarter of both 2025 and 2024.

Previous wording

Our total current assets increased to $740.1 million as of September 30, 2024 from $719.5 million as of December 31, 2023, an increase of $20.6 million, or 2.9%, due primarily to (i) increases of $22.5 million in trade and other receivables, which includes a $13.7 million receivable from our insurance carriers recorded in the first quarter of 2024 related to a pending litigation settlement and (ii) increased inventory of $10.8 million. These increases were partially offset by decreases in cash, cash equivalents and restricted cash of $7.9 million.

Current wording

Our total current assets increased to $737.2 million as of March 31, 2025 from $722.8 million as of December 31, 2024, an increase of $14.4 million, or 2.0%, due primarily to increases in (i) inventories of $12.2 million, (ii) trade and other receivables of $5.4 million and (iii) cash, cash equivalents and restricted cash of $1.8 million. These increases were partially offset by a decrease in prepaid and refundable income taxes of $4.6 million.

Previous wording

Our total current liabilities increased to $299.2 million as of September 30, 2024 from $299.0 million as of December 31, 2023. Increases of $20.9 million and $13.8 million in other current liabilities and customer deposits, respectively, were partially offset by

Current wording

Our total current liabilities increased to $277.0 million as of March 31, 2025 from $271.7 million as of December 31, 2024. Increases of $12.4 million and $1.7 million in accounts payables and accrued product warranty, respectively, were partially offset by (i) decreases in customer deposits of $5.0 million, (ii) decreases in short term debt of $1.8 million and (iii) decreases in other current liabilities of $1.8 million.

Previous wording

Our critical accounting estimates are described "Part II, Item 7. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2023. With the exception of the estimates utilized in the quantitative assessment for goodwill related to our Materials Solutions reporting unit, there have been no significant changes to our critical accounting estimates since our Annual Report on Form 10-K for the year ended December 31, 2023 was filed.

Current wording

Our critical accounting estimates are described in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2024. There have been no significant changes to our critical accounting estimates since our Annual Report on Form 10-K for the year ended December 31, 2024 was filed.