Q2 2020 Astec Industries Inc Earnings Call
Thank you and welcome to the Astec Industries second quarter 2020, <unk> earnings Conference call. My name is Stephen Anderson and joining me on todays call.
Very rough below our chief Executive Officer, and Becky Weinberg, our Chief Financial Officer.
And just a moment I'll turn the call over to Barry to provide comments and then Becky will summarize our financial results.
Before we begin I'll remind you that our discussion. This morning may contain forward looking statements that relate to the future performance for the company and these statements are intended to qualify for the safe Harbor liability.
Status by the private Securities Litigation Reform Act.
Any such statements are not guarantees of future performance and are subject to certain risks uncertainties assumptions.
Factors that could influence our results are highlighted in todays financial news release and others are contained in our filings with the FCC as usual, we ask that you can figure out yourself with those factors you should also no comments made during today's call.
Well refer to the non-GAAP results in a reconciliation of GAAP to non-GAAP results. They are included in our news release at appendix of our slide deck at this point I'll turn the call over to Barry.
Thank you Steve Good morning, everyone and thank you for joining us on a call. This morning to discuss our second quarter 2020 results.
I'm very pleased with our team members are embracing adapted to the carbon 19 situation as an organization, we have safely and productively manage through this challenging environment.
The health and safety ever employee suppliers and customers continued to be our top priority as we navigate through this and work to control the things within our control.
Focus on driving long term profitable growth.
I'll start off today's call by highlighting key messages from the quarter and to provide an update on the cobot 19 response, followed by an update on <unk> operations.
I will also discuss what we're seeing in terms of demand in our supply chain before turning the call over to Becky for details on our financial results.
Well also highlight progress made on our strategic transformation plan and then open the call for Q1 day.
Beginning on slide four cure the key messages, we would like to share from the quarter.
As a result of the actions we took in 2019 to transform our company and our continued focus on driving operational excellence, we were able to drive solid performance in the second quarter.
47%, increasing adjusted EBITDA.
250 basis points increase in adjusted EBITDA margin compared to the prior year, despite the challenging macro environment and a reduction in revenue.
In a quarter, we continued to see resilient demand from our customers as our products are central for building infrastructure are used to facilitate the transportation needs of our communities.
Well, our customer space near term uncertainties, they're continuing to demand Astec solutions, and we will continue to support them and remain vigilant as we navigate through the ongoing pandemic.
Our backlog at the end of July slightly up led by demand for plant related products.
We remain well positioned to execute it all market conditions with a strong balance sheet and liquidity.
So we didn't importantly, a net cash position.
We also saw success in a quarter and improving our working capital turns and expect to make further improvement in coming quarters.
During the second quarter, we continued to make significant progress on our strategic transformation under our simplify focus and broke pillars.
With the closure of our backlog, Wisconsin facility during the quarter, we were able to leverage our global footprint more efficiently as our telsmith products are transferred to other aspects facilities.
Earlier this week further supporting our transformation plan, specifically our growth strategic pillar, we announced two acquisitions acquiring two premier full line concrete batched play manufacturers conoco and be in age both of which will strengthen our infrastructure solutions group the provider customers with access to the most robust lot of concrete.
Products in infrastructure industry.
We will continue to look for ways to grow in attractive markets to build upon our strong foundational product lines.
Overall, we're focused on remaining agile and flexible to execute against any economic scenario.
The good news is that where their transformation strategy. We also had a very advantageous head start to cost savings initiatives.
Which helped to drive margin improvement in the second quarter.
Turning to slide five as a reminder, as part of our continued transformation beginning this year, we went from three to two segments.
Under the two segments structure operations and organization is better aligned with the end markets, we serve and our customer base.
Positively this is already leading to more efficient and effective sales.
Our revenue mix during the quarter was 69% infrastructure solutions and 31% material solutions.
The key here that we refer to our businesses as being able to serve a rocky road value chain, which includes our two recent acquisitions.
That value chain includes everything from crushing and screening inquiries to asphalt and concrete plants to our best in class Road construction products.
Now turning to slide six we provide an update on are covered 19 response at the end of February.
We put in place an executive council to ensure we connect on a daily basis communicate effectively put the right policies in place we continually monitor your information from our sites government agencies and other sources.
Again I've been very pleased in regard of how we manage through the pandemic and all our organizations as part of Astec did a phenomenal job, resulting in no significant disruption thus far.
Turning to slide seven as a result at the transformation progress we made prior to the covered 19 pandemic, we were able to react more quickly and efficiently they would've been possible under our prior organizational structure.
During the crisis, we had been in constant communication with our customers and even in the current environment. Most of our customers are still extremely busy for the backlog through 2020 and into 2021.
However, as expected covered 19 related uncertainties resulted in some delayed orders in Capex postponements.
As a result into second quarter, we saw order reduction across both of our reporting segments.
That being said the situation remains fluid for the remainder of 2020 as we continue to see bipartisan support for U.S. infrastructure construction and are prepared to support our customers as they continue to work and required critical architect solutions.
Regarding our operations Oliver Astec facilities around the globe are now operating with ability to flex operations as needed.
During the quarter, we temporarily closed two astec sites do preemptive government mandates in South Africa, and Northern Ireland.
The South Africa's site reopened on May 4th Northern Ireland facility reopened on May 11.
On the demand front, we continue to see near term uncertainty from our customers. That's dependent persist. However, many of our customers remain cautiously optimistic for a rebound once a pandemic is contained.
With respect to our supply chain today, we have not experienced any significant disruptions that we are constantly maintaining ongoing discussions where their suppliers to identify and mitigate risks.
We've also expanded the depth of our supply chain to support our risk mitigation efforts.
Before turning the call over to Becky I'd like to make a few comments on the importance of diversity and inclusion here at Astec.
I recently communicated to all of our team members on this topic and how it aligns with our company's core values of respect and integrity.
We will continue to focus on creating a diverse an exclusive culture as we grow our organization and I understand it it's not only the right thing to do what else are critical to our continued success and growth.
I'll now turn the call over to back to discuss our detailed financial results.
Thank you Barry and good morning, everyone.
I'm pleased to join you on today's call.
Starting on slide nine second quarter, adjusted revenues decreased 6.8% to 265.3 million compared to the prior year quarter.
Excluding the impact of foreign currency adjusted revenue decreased 5.4%.
Equipment sales decreased 6.5% well parts sales fell 10.4% compared to the prior year period.
Our backlog decreased 26% to 182 million at quarter end, driven by both materials, it infrastructure solutions orders, which were down 17% and 31% respectively.
Lower orders were driven by customer capital constraints, resulting from cobot 19, uncertainties.
Second quarter adjusted EBITDA.
Creased, 47% $25.3 million compared to $17.2 million in the prior year period, and adjusted EBITDA margin improved 350 basis points to 9.5% compared to the prior year period.
As Barry noted the margin improvement was driven by actions associated with our ongoing transformation and additional cobot 19 cost actions I.
Adjusted <unk> expenses declined 19% on a dollar basis, driven by reductions and consulting fees travel and employee related expenses.
In relation to the Companys efforts to simplify the organization during the second quarter, we incurred $7.9 million a pre tax restructuring an unusual costs.
These items were excluded from adjusted earnings per share and the restructuring charges related to asset impairment inventory write downs reduction Labor force and the closing up our Mak-kwan, Wisconsin facility.
No we've reduced our headcount nearly 16% year over year.
Adjusted earnings per share rose, 81% in the quarter to 67 cents compared to 36 cents in the second quarter of 29 team.
Overall, we reported strong second quarter results with limited covert 19 disruptions, despite the challenging macro environment.
On slide 10.
We highlight the key drivers of our year over year adjusted EBITDA margin expansion.
Adjusted EBITDA margin expansion up 350 basis points was primarily driven by a reduction in headcount and related savings. In addition to savings from supply chain management and other transformation savings. This was partially offset by volume and mix and an increase in corporate and other expenses at spirit.
Vesting and I T and wrapping up back office support.
Moving on to slide 11.
Our infrastructure solutions business revenue increased by 2.2% to $182 million in the quarter, driven primarily by asphalt plant sales and cobot 19 related customer delays shifting orders from Q1 to Q2.
Adjusted gross profit increased 6.3% to $40.2 million and adjusted gross margin expanded 90 basis points to 22.1% as a direct result of our restructuring actions pricing initiatives plant efficiencies and controlled spending.
We continue to execute on cost savings initiatives and further rightsized our business during the quarter with a large focus on reducing and controlling S.G.N. <unk>.
We remain focused on operational excellence to drive efficiencies as well as limiting discretionary spending.
Adjusted EBITDA increased 81% to $22.6 million, primarily due to cost saving actions.
Adjusted EBITDA margin increased 540 basis points to 12.4%.
On slide 12, our material solutions business revenues decreased 21.9% to $83.4 million compared to the same period, a year ago, driven primarily by cobot 19th.
Adjusted gross profit declined 16.9% $21.2 million, while adjusted gross margin expanded by 150 basis points to 25.4% as parts sales remained relatively stable in the quarter with positive margin contribution.
Adjusted EBITDA increased 7.1% to $12.1 million, primarily due to favorable mix and gross margin improvements from 2019 initiatives to rightsize operations to current market demand.
Adjusted EBITDA margin increased 390 basis points to 14.5%.
We continue to make progress on our material solutions 2020 transformation plan in the quarter with the closure of our Mac, one, Wisconsin location, which is where we built our telsmith products as Barry noted this closure will enable us to leverage our global footprint more efficiently as these products are transfer to different plants.
The shift in production location is also in line with a strategy that we highlighted last quarter approving key products to our South African Brazil, and Northern Ireland plans in order to lower our cost basis decrease our overall manufacturing footprint and manufacture closer to our global customers.
Overall improved earnings performance in the second quarter demonstrates the traction of our initiatives to rightsize operations to market demand, we remain flexible and committed to simplifying and focusing the business to continue to drive improved profitability.
Now turning to slide 14.
We continue to maintain a strong balance sheet with minimal debt net cash position of just over $119 million.
Given the current environment, we remain focused on strong liquidity and cash preservation to withstand sustained periods of market uncertainty.
No accounts receivable was down 15% year over year due to decreased sales at a more focused effort on collections.
Overall, we have available liquidity of $271 million, including nearly $120 million up cash on hand, with only $1.4 million in total debt as of June 30 F 2020.
We continue to make progress on our inventory reduction efforts as inventory decrease the only $98 million in the quarter and we saw improvement in inventory turns.
As Barry noted, we remain focused on maintaining a strong and flexible balance sheet with ample liquidity and believe that this will enable us to withstand a variety of economic situations.
On slide 15 I.
I will provide details on our capital deployment framework, which is consistent with what we have previously shared.
We continue to have a disciplined approach deploying our capital.
When we consider the various avenues of capital deployment, we do so in the context of our long term strategic objectives and related revenue earnings and cash flows in order to maximize shareholder value.
Our capital allocation priorities remain unchanged in the current environment.
On internal investments and property plant and equipment, we will continue to target greater than 40% return on invested capital for new investments regarding acquisitions, we are only considering strategic acquisitions that align with our growth strategy and meet our internal financial criteria.
Our strategy for M&A is to fill gaps that we see within our customer supply chain as we look to grow regionally in attractive markets. We seek to maintain the number one or two position within I'll walk to road value chain. We also believe that M&A is a mechanism that will potentially allow us to accelerate our investment.
<unk> technology and innovation.
Importantly, we remain committed to find deals that dividend and we have not repurchased any shares since 2018 and do not expect to do so in the near term out of an abundance of caution to preserve our financial flexibility.
With that I'll now turn it back over to Barry.
Thanks Becky.
As a reminder, on slide 16, we summarize our strategic and disciplined approach to M&A, which helps to support our grow color.
Our recent example lover execution of this growth strategy is highlighted here on slide 17.
Our recent acquisitions will strengthen our infrastructure solutions group provider customers with access to the most robust line of concrete products.
Overall, these acquisitions provide us with significant opportunities to support a profitable growth strategy over the long term.
We're excited to welcome to be Amazing Conoco teams to death Tech family and look forward to working with them to drive value by leveraging each teams innovative approach to Serbian are shared customers.
The combination of these three strong brands will present, many value creating opportunities.
Now turning to slide 18, our downturn playbook remains the same this summarizes action that we have already taken in additional levers that we can pull if necessary.
Since the onset of the pandemic, we've implemented several cost reduction initiatives across the business, including report is Asian of investments and a reduction of headcount and discretionary expenses.
Now moving to slide 19.
I will provide a quick overview of the three pillars of our strategy for profitable growth simplify focus and grow first simplify the second quarter marked another period of successful execution on our strategy to leverage our scale reduce organizational complexity consolidate rationalize our footprint in product portfolio.
I'm proud of the progress or team has made to simplify our business and drive efficiencies across the portfolio.
Second focus we continue to strengthen our customer centric approach driving commercial excellence and streamlining processes and instilling a performance based culture.
Finally grow we are reinvigorating innovation, leveraging technology to unlock internal synergies, while also enhancing the customer experience exploring global growth opportunities and carefully allocating capital to maximize shareholder value.
We have made great progress so far this year within these three pillars, especially given the current environment.
I am confident that our team will be able to execute on our strategy regardless of the economic environment.
Slide 20 outlined some of the major milestones we are executing against our transformational journey and the progress we have made to date.
Under simplify where the majority of the work has been done thus far we were able to further consolidator footprint and product lines with the closure of the Mak-kwan, Wisconsin plant in the second quarter.
Under focus as we highlighted last quarter, we aligned our management incentive programs and hired and senior Vice President of operational excellence and still operational excellence across the organization and a chief information officer, who oversee implementing the enterprise data analytic platform to further develop data connectivity across our businesses and streamline financial.
40.
Under grow we recently completed acquisition of Conoco, and B M age, which will significantly strengthen our infrastructure solutions business.
With expected cost savings from the actions we have taken we plan to reinvest in our businesses to drive profitable growth and maximize shareholder value.
We remain focused on improving our working capital turns and its back you mentioned, we made further progress in accomplishing this goal.
I'll conclude on slide 21.
Our key investment highlights which have not changed.
I'm very pleased with the progress that our team has made in the quarter on our transformation journey and actions that we have taken to in order to simplify focus and grow the business.
Our team continues to show great passion adaptability as we support our customers through design certain environment.
Well also executing on our strategy.
We also have a great group of leaders, who are consistently focused on operational excellence and sharing best practices across the organization.
Well uncertainty remains relative to the impact of covered 19 general sentiment continues to be optimistic for rebound once the economy opens backup.
While we remain cautious given the global pandemic, we're well positioned to navigate the economic challenges ahead of us with a more efficient and streamlined organizational structure strong balance sheet and ample liquidity.
I'm excited about the future for AD Tech as we continue to execute against our strategy to simplify focused and grow the business.
We continue to evaluate the could be thinking situation, our and our proactively preparing for changes in the market demand conditions, including maintaining flexibility to ramp up for future increased demand when the pandemic subsides.
I am confident that we will come out of this was a stronger and more resilient organization I look forward to sharing continued progress of our strategic transformation at an upcoming conference calls.
With that operator, we're now ready to open up the call for any questions.
Thank you very much.
Ladies and gentlemen at this time, we will be combustion question boards decision.
Good luck you asked a question. Please press Star then one.
Hey, consummation equal indicate your line is integration.
You might be star ending two if you wish to lose your question so much.
All participants using speaker equipment, it making this would seem to be NCR.
The stocking.
Off his question is from maybe the breadth of Baird.
Thank you good morning, Barry Mbeki, well, Bob I'll start by saying, there's I don't I don't say very often but great quarter guys. I mean, this uh huh.
Your performance and versus our numbers were.
Just quite remarkable.
Maybe the place to start Barry is.
With a little more color on.
Where you where you see demand from a near term perspective.
As I understood it from your prepared remarks.
For some orders that were disrupted by by the pandemic and where maybe shifted.
Into subsequent quarters can you, maybe quantify bad or give a sense or how demand is trending in three Q.
And related to that you know that the way on kind of thinking about it.
If I'm looking at your orders in Q2.
Roughly call. It 202 million dollar is that a fair number you could kind of think about in terms of potential realized revenue into Q3 or are there other dynamics that we need to be aware here, so, but let's maybe thought there. Thanks.
Hey, good morning.
Thank you for your comments.
Relative to the demand.
As I reported in the back in the.
Prepared comments our backlog.
At the end of July.
Is up about 5% from where we actually finished in June.
We are we're not giving a lot of color around what we expect for the rest of year I think theres enough uncertainty.
We would be careful to do so.
But as you probably know the Q the third quarter is typically one of our weakest quarters as well so I think.
We're going to be careful to a two to give too much a projection there other than just the backlog that we realized at 10 a month.
With all that being said.
We feel like of the company, we continued to take the right actions around our transformation.
To try and right size, our business takeout costs, both on the Cogs in SGT lines.
And we believe we're prepared for the turbulent so we're actually going to potentially experience either up or down as we go through the rest of year and as we mentioned in 2021.
And.
Sure another quarter as I talked to our customers.
They got a backlog generally that goes into 2021, and so I think thats positive I think it maybe other some more color I would put around to me is that when you think about.
Some of our products, namely our asphalt plant.
Those are significant capital purchases by customers that typically are well planned out and Dave.
Yes.
They have visibility is what their capital expenditure plan is we've got a good enough relationship for their customers that we know what that is it's really just more about them getting comfortable that they have enough confidence that thats going to be money well spent and so we stay very closely engaged with them.
All the time and especially now to make sure we understand you know what that.
What that potential might be so we we stay very close or customers to make sure we're ready to support them.
Thats cycle.
Understood but.
Barry.
That backlog figure being up 5%.
Is that because of a pickup in order like the conversion of the maybe pushed out orders.
Or is it because you are normalizing frankly, youre your recognized revenue versus the order intake level.
That we've seen in it.
I would say it's more of the latter me, it's not a push out of orders. We we did have a push out of orders from Q1 into Q2, but we haven't seen that as much from Q to Q3.
Okay, all right understood then.
I guess my my next question is on the cost side and.
I appreciate the bridge that you provided Becky on slide 10.
Maybe what I'm looking for is a little more context or color as to how we should be thinking about cost item cotton cost item going forward by my math right sizing it call it.
Million dollar benefit.
The.
The other bucket is closer to 9 million as you're thinking about the the second half a year.
Do you have sort of similar saving quite and are there. Some variances again that we need to kind of factoring door.
Yes, Mike Thank you.
Going forward, we think theres, probably are calling 150 basis points on SJ any that will continue to give us some benefit.
That's not a unrelated.
Oh.
Really is tied to people some consulting and east and then just some changes and the way we want to go to show.
Got it Mark as some space there and they are marketing front. So we think that those are step change kind of moves.
And our.
And our transformation efforts that will kick off the bat continue throughout the remaining corridors.
Yes, and maybe also add back to.
No on the right sized infused Mig.
Looked at it and say from an absorption perspective, we had a 6 million dollar year over year improvement.
From the Cogs side of it as well correct.
Right and I guess I'm wondering you gave us a head count number being down 16% year over year I'm presuming that that part of this rightsizing organization and transformation rather than the second bucket the cost savings initiatives is that correct.
Correct.
Understood and then last question for me.
On the inventory.
On the inventory front I'm very good progress there I guess I'm more I'm wondering how much more you expect to sort of take out of that working capital item.
And from a production standpoint, given that your inventories have come down quite a bit I'm wondering how you sort of thinking about just your own production on a year over year basis in the back half a year.
Yeah, I think I can take an attempt at that where where frankly with our inventory on finished and used equipment sales are all where we see opportunity front that future corridors as rod in west. So when covert hit you know we had approximately 890.
In an inventory.
And we can shut off the pipeline not so we do have some surplus and I don't get burned through Wes.
Next quarter's production I think we'll see some more inventory reductions and I think year asked me are looking at.
Organization, as we try and get our turns.
Total level, we're not quite area, where we're certainly seeing many of our site right in line with our expectations, but I'm going forward.
But what you're saying is that on a on a finished goods side you're in pretty good shape, that's what I'm understanding here.
Alright, okay.
Because the margin performance there then look.
Frankly that much more different you haven't had as much cost absorption as maybe some of your peers have that.
I've had very different inventory progression.
That does the point I was trying to make so thank you for the put a clarification appreciate it.
Yes, let me just as a follow up to your statement ended Bakkies answers. We we at the end of 2019 made a big push on inventories both at our sites as finished goods and also at our dealers and so we believe we're very very close to the market right now relative to finished goods.
We're very pleased with the team's efforts to get us to that point.
So.
Yes, I think that.
We've got more work to do it back you alluded to but we made a lot of great progress so far and that's really credit to all the teams of Astec to make sure. This is a focus to drive working capital turns and free cash flow.
You know a efficiently effectively.
Great. Thank you guys.
Thanks Big.
Thank you very much. The next question is from Stanley Elliott. Please.
Okay.
Hi, good morning, everybody congratulations and thank you guys for taking the question.
Can we go back on that that assay in a cost savings you just to make sure.
But I heard that correctly, so out of that.
It was 10 million kind of 310 basis points.
The idea is that about 150 basis points or let's say half of that as is kind of more permanent.
And that the other half will end up kind of creeping back as incentive comp comes back and things like that.
Yes, I was I would say I'll take a shot that once daily and I'll, let the Becky jump in afterwards, that's correct and.
We believe we're obviously taken actions across the board in SNA to keep as much of that 310 as we can.
Well, we suspect that as as markets beginning it opened up in our sales people continue to start to travel maybe more so than they have in the past relieves as much as a more than they have in the last probably five or six months than we should expect to some of that will come Bakken and certainly commissions as a part of it as well and we want to pay commissions, meaning we've actually done well from the sale.
Ill side. So yes, I think your assessment is pretty correct is that fair.
Yes.
The acquisitions interesting and congratulations for for moving onto the grow phase.
Would you describe our these more regional players Ito is there anything you can tell us maybe from a revenue or profit standpoint healing kind of ultimately where you see how you all fit within the batch plant market I guess.
And in the U.S. would be would be helpful.
Yeah, Let me first by say, let me say, we're really excited about bringing on the BMS conoco teams enthusiastic family as I've gotten to know them through the process great Great group of people obviously.
Right now and product lines within a concrete plans space and and other types of accessory products. If they produce and we're really excited about it we believe that from an engineering and just from an innovative an entrepreneur perspective, so really going to add a lot to to our concrete plants product line infrastructure.
And as tuck ins agenda as general in general So we're really excited about bringing to sign and we also went the fact that when you look at.
Oh the slide this shows the three brands together I think that really portrays.
What we're getting from this and you can see here that you know from a dry batch plant perspective, that's not an area that we as Rex Han have really participated in very much in the past and Conoco brands you know our great great position within the market and what gives us better broader portfolio of products and solutions.
The image obviously also that has products that we pick up that adds to the portfolio. But in addition, while we get from the GMH focus is actually a stronger footprint on that product line in Canada.
And not only with concrete plants, but then as you might know most of our customers today. They may have growing up in asphalt plant operators are owners, but today because they are diverse advising diversify their business as well. There are also in the concrete space and so as we started talking to some of the customers of the brand in June.
Researchers from both kind of Columbia MH, we find that they're excited about AD stack now being part of that brand as well because they recognize from their AD tech.
Asphalt plant or other products that we have a great reputation we have the best best in class service and so we look at the cross selling opportunities in regards to how do we leverage that presents in Canada for they'd be amazed perspective on order to to having better presence with asphalt plants there another products as well.
In addition, some of the products that they actually have in market today will help us in the Latin American market and so it gives us a product portfolio that lets us expand more effectively into other regions of the world as well.
Perfect, yet and I agree with you on the Crown the cross selling opportunities with the customers. It at <unk> I can't remember off the top my head do these gets sold to the same sort of distribution same sales network.
The asphalt as well as the concrete plants.
Yes, that's a great question and so today, you know everything that Weve historically done we're both asphalt plants and Rex Scott have been through a direct selling model what conical brings to us as some very strong dealer networks as well and so we've met with the dealers of Conoco, we believe that there's some great value that they bring the markets.
And so we look forward to working with them as well.
So leverage their relationships and their presence within those markets and and pick the best of both worlds or move forward to leverage what we do best dress and leverage what they do best through direct and come up with something that makes more sense for customers.
Perfect and then lastly from me thanks for the historical information.
Just housekeeping is the gross profit did you're referencing there was that gap or is that the adjusted gross profit that that we're kind of talking about on a go forward basis.
Adjusted.
Perfect. Thanks, very much appreciate the time select.
Thank you.
[noise]. Thank you.
Next question is from gentleman below of Sidoti and company. Please go ahead.
Good morning, Joe Hi, good morning.
Well.
So as far as the backlog how much of that backlog is expected to be delivered and say the third quarter or the second half of the year and as far as your comment that you made on July orders was that sort of the.
The first month that you've seen sort of a sequential improvement since the April shutdown.
Yes, so as we look forward.
No.
We've done a lot of work over the last many months to clean up the backlog. So the backlog that we report today and the improvement that we see in July we very much expected. The majority of that will actually be delivered within 2000 and.
20, we are you know on some of the larger capital equipment purchases, namely asphalt plants, we're already engage with customers to start locking up.
Amendments in the beginning in 2021 issued as you know probably Joe many of these types of products require permitting and in some level of engineering.
So it takes a little bit longer too.
To get that through the process, but generally we we'd like to backlog. We think it's very clean we expected liver most of it in 2020.
Relative to.
What from a from a sequential improvement perspective, our backlog has moved around a little bit hearing there. Obviously as you can expect with some of the market conditions, but.
We feel good that it's going up and as I reported earlier with next question.
This is a quarter, it's typically pretty relatively soft for us and so I want to improve if we see got a month over month basis, we we feel pretty good about.
Okay and regarding the costs.
Sort of the strategy in the restructuring and everything that you've been doing you made these two acquisitions and you've done a lot structurally in fact no more than.
Needed. This quickly since her arrival, where are we with sort of the structural changes at the company.
I just frame that just given the fact that you are starting to make acquisitions and you are we sort of Don what sort of the structural changes are still more to be had just wondering where we are with that.
[noise], Yeah, I would say from a baseball terminology perspective, we're probably in the third inning I think that.
We made a lot changes and I'll give credit to the organization you know as we talked about.
Many probably quarters ago, one of the first things I did as a as coming on to there'd been a job I travel around remember the leaders and.
You know the decentralization that we had historically in the opportunity to group ourselves and structure. So it's really been two reporting segments I think that was really driven by the organization.
And so I'm really pleased with the pace that the company and the teams with an AD stack have taken.
To to drive these trends this drives this transformation.
To support that our customers have been very pleased with it as well I mean, they understand it they see benefit from their perspective, and so we're excited about that we.
We within the organization, we're always looking at driving improvements in making ourselves better I think thats part of a new culture.
We believe we're able to now focus on from a product line rock the roads, so things that don't fit within that value chain.
I don't fit the strategy moving forward and so therefore, it allows us to to make decisions about Jeff Cohen and to make decisions about adding a kind of going to be amazed because that is the just go piece. Unfortunately doesn't fit our strategy and the rock the road strategy and any kind of Columbia, which clearly do so we feel good about the way we're structure does it.
Company, both internally with the two reporting segments. We feel good do we have a good strategy in regards to what we're going to be as we go through time in regards to rocked road and so that allows us to make decisions allocating capital pretty effectively.
Okay, and then just lastly, I'm just with the highway.
Construction below sort of expiring in September I believe it is not sure if that was.
That's right.
Thank you it was but what do you what are your thoughts on that.
Is that just a push it down.
So to next year, and maybe it'll get resolved. So it's not a negative not a positive or just what are your overall thoughts with what's going on there.
Yes, great Great question Joe.
You're right the fast act actually.
And in September and certainly a reauthorization of the fact that would be a nice shot in the arm to our customers in us as an organization that confidence that there is going to be some spending.
As we move passed that point in time I think the great News is as you probably know and others, Joe Theres a lot of dialogue recently around infrastructure and bills both from.
The house in the said and Democrats and Republicans.
The House Democrats.
No identified and are talking about a 1.5 trillion dollar infrastructure proposal.
So there's there's a lot of a lot of our conversations a lot of dialogue around.
What that looks like passed the fast act and the good news is that it looks like a had support from both sides, which I think ultimately is good for us and to me, it's a with all that being said.
We all know from just driving down the road ourselves as a lot of plus spending just in U.S. other needs to happen in order to get us to the right level of infrastructure help obviously, there's a lot of investments around the world and were able to take advantage of as we continue to build out and support our international footprint.
So to me, it's not a matter of really if it's more hydro wind and whether that happens you know before the election or after I think that.
Right now we believe it's a it's a it's certainly a strong short medium and long term.
Driver for us than we expect that something to happen.
Probably a soon I'm not going to put a timeline on it because I don't know I'm not in those conversations but as I said, it's not necessarily matter of if it's probably a matter when.
Okay, and just a follow on to that if it.
Sort of the spending I guess.
He gets pushed out the next year and deal with that after the election is there a risk can say you know the six to nine month timeframe, especially particularly given budget constraints with state and local.
At the state local level that.
[noise] spending may slow a bit for a time period or or maybe it slows in other parts of the but not so much in construction what do you what do you think of that.
No I think it's a it's a good question I wish I knew I read answer to it I think it's I think to the point from our perspective is that we're prepared for anything and I think that says we talked about the transformation efforts. So we started in 2019 really give us that agility to be able to respond either way.
You know obviously revenue in states has declined.
But that doesn't necessarily tied directly to transportation spending so I think it's a little bit of to be determine Joe.
But I think I really I feel really good that we're prepared for whether that swing back up or if it stays where it's at today. So I don't have a great answer for I apologize.
I do feel good about where we're positioned.
No I understand and appreciate the color regardless so thanks, a lot. Thanks for taking my questions and have a good day.
Yes, I think just add one more piece of that you know when you look at our performance in Q2, you know when the drop in revenue the reported an improvement on the bottom line I think that and just shows that we're making good strides in our transformation to teams are working hard.
And working at the right pace and I'm very pleased with the efforts are putting into our delivered the results that we did.
Thank you very much.
Your next question comes from Bryan Spillane upcoming funds. Please go ahead.
Hey, Brian Yes.
Barry.
Good how are you doing.
Okay, Yes.
Yeah, when you mentioned.
Being one or two from a product standpoint, either nationally or read any of the portfolio, where there are opportunities to really grow in and if you're thinking about what your size looks like when you get to one or two in the product categories that that you want to be what does that look like.
[noise], Yeah I think.
It's a good question, Brian we obviously are one or two and many of what we many of the product lines we have today.
There are certain of our product lines, where we are not you know as we as we move through the rest of this year, we're doing a lot of strategic.
Where are those gaps are and I'm, not probably going to speak specifically to you know.
Where are those gaps are because obviously those are things that we need to strategize and then just decide whether we want to.
Them through a developing products on an owner through acquisition.
And I wouldn't want to give you have too much information or go to market too much information on that at this point in time anyway. So I just.
There are areas, where we have room for improvement we're going to address those as we move through the rest of this year into 2021 and.
The team is excited about it and put a lot of hard working there right now to the to help put the analysis together to determine from a value chain perspective, if if there is.
They are going to be accretive to our business than certainly anytime we look at those types of adept feeling opportunities through acquisition, we always want to put them through our strategic filters, which wed now identified we want to make sure we understand where RAF romaine leverage point relative to EBITDA and.
And we have bought it you know we still have a long term financial.
Metrics that weren't where aspiring to achieve and and so all those things will force us to have been very disciplined approach to.
Determining whether we should or shouldn't didn't enter into our gas drilling opportunities.
Yes, so if you're thinking about that and obviously the balance sheet in great shape wood with an acquisition as chunky as it.
Oh outflow be first of all be something that you'd be interested in.
And with that fit within where you want to keep the balance sheet.
[noise], yes, no I think that.
There are going to be opportunities, they're going to be a larger into your point chunkier than what we just actually.
Transaction on and we're definitely looking at all different sizes of deals. So I wouldn't count anything out, but we certainly want to be disciplined as I've talked about with the filters and and if we do a larger deal. Obviously, we want to very very comfortable that we see forward to make sure that we have good cash generation.
Oh, we grow the bottom line more than we grew the topline we're not going to do deals just a gross sales I want to make sure. This deal actually you know has value the distribution actually than delivered to our shareholders.
So you know we know that the range, we've established wanted a half to two and half times.
EBITDA to debt, that's a range and there's going to be times, when we're going to might now be much below that you know where you know are there's going to be times, and we're going to be above that but that's the range that we expect to operate in regardless of the size of the deals on a regular basis.
Understood, but best of luck for the balance of the year that can't afford to.
Personally.
And again.
Thanks, Thanks, Brian I appreciate your support.
Thank you yeah that further questions in queue I'd like to end the call back to Steve Anderson for some closing remarks.
Alright. Thank you Chris we appreciate your participation on this conference call.
Thank you for years and Astec as today's news release indicates todays call has been recorded replay of this conference call will be available through August 19th 2020, and archive webcast will be available for 90 days. The transcript will be available under the Investor Relations section of the Astec industries website within the next seven days.
All that information is contained in the news release, we sent out. This morning. This concludes our costs and thank you all and.
Connecting some of you with the follow up questions later have a good way.
Ladies and gentlemen that does conclude todays teleconference. Thank you for your participation you may disconnect your lines and every once a day.
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