Q3 2023 Astec Industries Inc Earnings Call

Any such statements are not guarantees of future performance and are subject to certain risks uncertainties and assumptions.

Factors that could influence our results are highlighted in today's financial news release and others are contained in our filings with the SEC as usual, we ask that you familiarize yourself with those factors.

In an effort to provide investors with additional information regarding the company's results. The company refers to various U S. GAAP, which are generally accepted accounting principles and non-GAAP financial measures, which management believes provides useful information to investors.

These non-GAAP financial measures have no standardized meaning prescribed by U S. GAAP and are therefore unlikely to be comparable to the calculation of similar measures for other companies.

Management of the company does not intend these items to be considered in isolation or as a substitute for the related GAAP measures.

Management the company uses both GAAP and non-GAAP financial measures to establish internal budgets and targets and to evaluate the company's financial performance against such budgets and targets are.

Reconciliation of GAAP to non-GAAP results are included in our news release and the appendix of our slide deck.

All related earnings materials are posted on our website at www Dot Aztec industries Dot com, including our presentation, which is under the Investor relations and presentations tabs and now I'll turn the call over to Yakov.

Thank you Steve Good morning, everyone and thank you for joining us then.

Going to slide four.

The third quarter turned out to be disappointing from a short term results perspective.

Yet positive from creating a stronger business for the long term.

As mentioned in the earnings release, our results for the quarter were negatively impacted by litigation loss contingency of $6 $4 million.

And related to equipment sold during 2017 thank.

Thank you will make more comments about this in her remarks.

Sales also ended lower than expected due to various infrastructure solutions related orders being delayed to Q4 due to craft somebody genus and payments.

From a long term performance point of view I'm excited about the 220 basis point improvement in margins, we realized during the quarter.

The investments, we are making in our factories and systems.

Well and I fully expect to see further benefits in future quarters.

The large transformation at one of our infrastructure to Lucent sites is developing well with most of the capital equipment and new shop floor layouts completed.

Margin development that best facility improved from last year, but ended below our Q3 expectations.

Gross margins are up 320 basis points year to date, and we have exceeded 20% gross margins for five consecutive quarters.

We continued to see funds flowing from the frame that all highway bill.

The supporting our long term confidence.

Year to date sales were up eight 3% with growth in both segments.

Our teams are working diligently to reduce inventory levels and we expect the results of these efforts flow through.

Over the next few quarters.

We expect operating cash flow to improve in Q4, as we convert inventory to cash and improve profitability.

During the quarter I visited various customers attended the National Radio mix concrete Association meetings and met with most of our mobile construction equipment dealers the.

The same demand remained strong and customers continue to express a desire to do business with <unk>.

The mobile construction do you list, we're specifically excited about the new products, we are bringing to the market.

What about this.

Later in my commentary.

I'm pleased to see the way our employees our pricing.

<unk> set of sustainable performance and improved execution.

Focusing on our employees clearly reflect in a new region.

I am proud that we announced the addition of paid parental leave for both Paydowns during the quarter and an increase in our company 401, K Max put out our employees effective January one 'twenty 'twenty four.

Lastly, we are excited about the release of our first corporate sustainability report during Q4.

The team has done a fantastic job with this.

We have now established a baseline from which we can safety improvement targets.

Slide five highlights our focus in 2020 city has been on execution.

There are a number of significant initiatives noted for your convenience.

But today I would like to tell you more about our progress on two specific things I'm passionate about.

Box on safety.

Having the right parts available as and when needed by our customers is key to success in the capital equipment markets. We operate in we.

We have made significant improvements in our thoughts for right. After the challenging first half of the year.

The investments we've made in our factories and the implementation of management dashboards on are helping us to improve further.

<unk> strong box business will further enhance our ability to create sustainable and predictable results in the long term.

Finally, our core values augment individual efforts into a team that works together to deliver results.

Safety is one of our core values and I would like to highlight our favorable yet safety performance.

Our recordable incident rate improved to 131 year to date below our 2022 performance in.

Investing in our factories has had a positive impact on our safety performance and our teams will continue to find further improvements to Mike.

Turning to slide six I would like to review the current business dynamic and now we are responding.

Our customers remain optimistic about 2024 as they already have solid backlog on the books.

As mentioned earlier last month I attended the National ready mix concrete Association meeting in Nashville, Tennessee.

All day, and I was able to connect with various customers and dealers.

We remain positive and this is reflected in our solid backlog, we have for our concrete plants and related equipment.

We are expecting that our material solutions national dealer confidence to be held in Q4 will yield strong demand for 2024.

Our current indication is that it will be stronger than last year.

Over the last 12 months, we have improved our dealer coverage and this has contributed to demand.

Rising interest rates could potentially have a negative effect on the conversion of dealer rental fleet to customer sales. We have seen examples of dealer customers extending at Intel agreements versus buying the equipment at the end of the lease.

Customers and equipment.

And we're still working.

But this could potentially put pressure on our dealer network.

Driving down our <unk> inventory will allow anybody to give us the ability to support stronger dealer floor plans to mitigate this if required.

However, with the appraisal and the macro environment inclusive of the rising interest rates, we are monitoring our high volume day less orders in the backlog for possible modification push outs or cancellations.

Funding from the Federal Highway Bill has started to flow with federal contract awards, increasing 12% year over year.

We view the favorable funding mechanism as providing long term stability.

Markets and customers.

Slide seven further illustrates our expanding global footprint.

Our international team has made significant improvements on our market coverage and payments.

While various of these dealer relationships are still new we are encouraged about the level of activity.

Our backlog continues to normalize as can be seen on slide eight.

As a reminder, Q3, yes, historically been a lower order intake quarter due to customers working and focusing on completing projects before the winter months.

Our October bookings are encouraging within the infrastructure solutions business and we have good inputs the material solutions National dealer conference will yield strong bookings as mentioned earlier.

I'm very excited about the release of our new region on slide nine.

To both industry changing solutions that can be hyped life changing opportunities.

This vision is focused on our employees, our customers and the resonates well with our legacy of strong customer service and innovation.

We will share more about our region and our <unk> 2030 strategy during our Investor day planned for the spring of 2024.

I am extremely pleased with how our employees are embracing the new visa and significance and the profound impact we will have on our people customers and the industry in the future.

Turning to slide 10, we continue to execute.

Our simplify focus and grow strategy to deliver value for employees customers and shareholders.

For example, we have simplified by streamlining our internal staffing and adopting branding as wanted to stick.

And the focus we are pursuing operational excellence.

Investments to optimize the manufacturer of mobile construction and crushing equipment domestically and internationally are example of putting capital to good use.

We're also focused on the inventory management and after market thoughts excellence.

<unk> customer value.

<unk> includes the introduction of new products and growing into new geographies as well as developing auto after market.

This includes getting more pork thoughts out of the door.

We are working closely with our dealers and direct sales teams understanding what they are seeing in the field and partnering with them to better serve our customers.

Slide 11 highlights a few of the innovative new products. We displayed earlier this year at the Con Expo trade show in Las Vegas.

Our new horizontal <unk>, where at least during Q3 and the milling machine and pay that are scheduled for release over the next two quarters.

These products at brakes specific market needs and our spark the interest of our dealers and customers.

The large investments we have announced before for mobile crossing in construction equipment are progressing well at our o'meara Northern Islands, and Chattanooga, Tennessee facilities.

These investments are both transformational for the respective product lines and will yield positive results in the future quarters.

Slide 12 reflects <unk> business model.

This framework ties in well with our new region.

<unk>, our employees and customers in the St.

I'm very proud of our purpose of both to connect.

And it is meaningful and tells the story about what <unk> customers accomplish without equipment.

Lastly on slide 13, we are proud that we will release, our first corporate sustainability report during Q4.

This is a significant step forward on our ESG journey.

Our report highlights how we are investing resources to advance environmental and social initiatives, while maintaining sound governance.

Stephen Anderson: and Reform Act. Any such statements are not guarantees of future performance and are subject to certain risks and certainties and assumptions. Factors that could influence our results are highlighted in today's financial news release and others are contained in our filings with the SEC. As usual, we ask that you familiarize yourself with those factors. In an effort to provide investors with additional information regarding the company's results, the company refers to various U.S, gap, which are generally accepted accounting principles, and non-gap financial measures, which management believes provide useful information to investors.

Look forward to publishing out of board and updating you on our progress.

With that I will now turn the call over to Vicki <unk> to discuss our detailed financial results.

Thank you Yakov and good morning, everyone.

I'll begin my review of third quarter results on slide <unk>.

Sales were $303.1 million down three 8% slight decline simple cycle Ira.

By region strong international sales growth of 11, 7% was enhanced by positive margin development and was offset by softer domestic sales down 7.9% part sales grew two 4%, which was offset by a decline of four 5% <unk> sales.

Stephen Anderson: These non-gap financial measures have no standardized meaning prescribed by U.S, gap, and are therefore unlikely to be comparable to the calculation of similar measures for other companies. Management of the company does not intend these items to be considered in isolation, or is a substitute for the related gap measures. Management of the company uses both gap and non-gap financial measures to establish internal budgets and targets into evaluate the company's financial performance against such budgets and targets. A reconciliation of gap and non-gap results are included in our news release in the appendix of our slide debt.

Backlog continues to normalize down 36, 6% from the peak in the third quarter of 2020, and 10, 8% sequentially.

And so within our historical range of one and a half to two quarters.

Domestic backlog was down 37, 2% and international down 33, 4%.

Stephen Anderson: All related earnings materials are posted on our website at www.asvecindustries.com, including our presentation, which is under the investor relations and presentations tabs.

Order rates have remained steady over the last three quarters a trend we expect to continue as demand remains strong.

Supply chain disruptions are becoming less of an issue further incentivizing customers to resume normal order patterns.

Operator: And now, I'll turn the call over Yuckel.

We are also improving our ability to convert backlog into sales, suggesting backlog will stay within that historical range.

Jaco Merwe: Thank you, Steve.

Jaco Merwe: Good morning, everyone, and thank you for joining us. Turning you slide for. The third quarter turned out to be the supporting from a short-term results perspective. Yet, positive from creating a stronger business for the longer. As mentioned in earnings release, our results for the quarter were negatively impacted by a litigation loss continuously of $6.4 million. Related to equipment sold in 2017.

Adjusted EBIT decreased 39, 8% to $10 million.

<unk> adjusted EBIT margin 200 basis points to three 3%.

The biggest driver here, so verification loss reserve of $6 $4 million associated with an initial adverse verdict related to <unk>.

Jaco Merwe: Take you will make more comments about this in her remarks. Fails also ended lower than expected, due to various infrastructure solutions, related orders being delayed to Q4 due to customer readiness and payments. From a long-term performance point of view, I'm excited about the 220 basis point improvement and margins we realize during the quarter. The investments we are making in our factories and systems are progressing well, and I fully expect to see further benefits in future quarters.

Looking at ongoing operations, we expanded gross margins by 220 basis points to 23%.

Shaved further price realization and benefited from operational excellence. This is the fifth consecutive quarter gross margins have exceeded 20% and year to date gross margins are 21%.

SG&A increased so is that the litigation loss contingency and higher personnel costs as we invested in our business.

We are also experiencing increased consulting and project costs.

Jaco Merwe: The large transformation at one of our infrastructure solutions sites is developing well with most of the capital equipment and new shop floor layouts completed. Margin's development at best facility improves from last year, but ended below our Q3 expectations. Gross margins are up 320 basis point year to date, and we have exceeded 20% gross margins for five consecutive quarters. We continue to see funds flowing from the Fendral Highwayball, further supporting a long-term confidence.

But profitability was masked this quarter.

Litigation contingency the team is doing a good job of managing expenses and we are pleased with the progress one critical square, making on margins.

Adjusted earnings per share decreased to a loss of one.

From an income of 28 from the prior year.

Again, the litigation contingency was the biggest driver here decreasing EPS by approximately <unk> 28 farms and offsetting gross profit improvements.

Adjusted net effective tax rate for the quarter, plus 108.3% driven by the higher weighted tax impact of adjusted earnings add backs due to lower operational income.

Jaco Merwe: Yet today sales were up 8.3% with growth in both segments. Our themes are working diligently to reduce inventory length, and we expect the results of these efforts to flow through over the next few quarters. We expect operating cash flow to improve in Q4 as we convert inventory to cash and improve profitability. During the quarter, I visited various customers, attended the National Radymix concrete association meeting and met with most of our mobile construction equipment dealers. The customers continue to express a desire to do business with Astec. The mobile construction dealers were specifically excited about the new products we are bringing to the market.

We expect our normalized effective tax rate to continue to be in the 23% to 24% range for the remainder of the year.

Moving on to slide <unk>.

Infrastructure solutions net sales decreased five 5% to $198 million with international growth of three 4% being offset by softer domestic demand.

Construction equipment contributed to sales volume.

Concrete equipment sales declined.

A positive impact from our transformation initiatives on the manufacturer from alto equipment less experienced and greater contributions are expected going forward.

Jaco Merwe: More about this later in my commentary. I'm pleased to see the way our employees are bracing a culture of sustainable performance and improved execution. Focusing on our employees clearly reflect in our new vision. I'm proud that we announced the addition of paid parental leave for both parents during the quarter and an increase in our company 401k max for our employees' effective January 1, 2024.

Parts sales were up five 5% as we were a precursor cell parts orders for aftermarket demand.

Segment backlog decreased 27, 5%.

Primarily due to the normalization of customer order patterns.

Adjusted EBIT margin for the segment declined 10 basis points to eight 6% as favorable gross margin and was offset by higher operating expense as a percent of sales.

Jaco Merwe: Lastly, we are excited about the release of our first corporate sustainability report during Q4. The team has done a fantastic job with this. We have now established a baseline from which we can set the improvement targets. Flight 5 highlights that our focus in 2023 has been on execution.

Turning to slide seven.

Materials solutions net sales decreased one 2% to $105 million as strong international sales were offset by a decrease in domestic demand and mix.

International sales increased 27% as domestic sales declined 9%.

Jaco Merwe: There are a number of significant initiatives noted for your convenience, but today I would like to tell you more about our progress on two specific things I'm passionate about, parts and safety. Having the right parts available as and when needed by our customers is key to success in the capital equipment markets. We are operating. We have made significant improvements in our parts for eight after the challenging first half of the year.

Equipment sales fell <unk>, 6% and parts were down three 2%.

Segment backlog was down 51, 7%.

As a reminder, our annual dealer event takes place later in the fall, we anticipate order activity will be in line with the prior two years.

Adjusted EBITDA margins for this segment declined 420 basis points to seven 5%.

Jaco Merwe: The investments we've made in our factories and the implementation of management dashboards are helping us to improve further. Creating strong parts business will further enhance our ability to create sustainable and predictable results in the long term. Finally, our core values opened individual efforts into a team that worked together to deliver results. Safety is one of our core values, and I would like to highlight our favorable year-to-year safety performance. Our affordable instrument rate improves to 1.31 year-to-date below our 2022 performance. Investing in our factories has had a positive impact on our safety performance and our teams will continue to find further improvements to make.

This was largely due to the litigation loss contingency offsetting the positive gross margin impact.

On slide <unk>, we highlight the key drivers of our year over year adjusted EBIT of branch.

Adjusted EBITDA decreased 39, 8% to $10 million, a contraction of 200 basis points to three 3%.

Positive contribution from pricing net of unfavorable volume and mix more than offset the impact from inflation.

Manufacturing inefficiency headwinds due to supply chain disruptions were all one 8 million dollar impact and SG&A expenses were higher due to the $6 4 million dollar litigation contingency and higher personnel costs.

Jaco Merwe: Turning to slides fixed, I would like to review the current business dynamic and how we are responding. Our customers remain optimistic about 2024 as they already have solid backlog on the books. As mentioned earlier, last month I attended the National Radio Mix Concrete Association meeting in Nashville, Tennessee. While there, I was able to connect with various customers and Miller. They remind positive, and this is reflected in the solid backlog, we have for our concrete plans and related equipment.

Looking ahead, we continue to expect further benefit from the implementation of our transformation strategy to drive increased EBITDA to deliver our long term targets.

Turning to slide 19.

Cash and cash equivalents available for operations stood at $71 $3 million as we increased borrowings on our credit facility.

We expect this to reverse in Q4 as we work through working capital.

Jaco Merwe: We are expecting that our material solutions, national dealer conference, to be helped in Q4, will yield strong demand for 2024. Our current indication is that it will be stronger than last year. Over the last 12 months, we have proved our dealer coverage, and this has contributed to demand. Piring interest rates could potentially have a negative effect on the conversion of dealer rental fleet to customer sales. We have seen examples of dealer customers, extending rental agreements versus buying equipment at the end of the lease.

We maintain sufficient liquidity and a solid balance sheet to support our operations and balanced capital deployment strategy.

Our current net leverage ratio is <unk> five times with a target leverage range over cycles between one five to two five times.

Turning to slide 20.

We maintain a disciplined capital deployment framework balancing investments in growth with returning cash to shareholders.

We spent $7 $9 million on Capex in the third quarter to maintain and improve operationally.

Jaco Merwe: Customers and equipment are our ever still working, but this could potentially put pressure on our dealer may work. Traveling down our in-house inventory will now ever give us the ability to support stronger dealer four plans to mitigate this if required. However, we have the pressure in the macro environment inclusive of the rising interest rates, we are monitoring our high volume dealers, orders in the backlog for possible modification, push-outs or cancellations. Funding from the Federal Highway Ballastar at the flow, the Federal Contract Awards increase in 12% year over year.

Our targeted full year capital expenditures are estimated not to exceed $35 million.

As Jack mentioned earlier, we are making progress with our Oracle cloud ERP implementation as shown on slide 21.

In addition to the previously launched human capital management and the ERP at two operating sites, including one of our largest sites. We also launched in the current quarter, our consolidation kind of reporting Montreal.

Implementation at both sites is going well and we've already seen improved production output.

As more sites are added to the system, we anticipate achieving progressive benefits I am pleased with the performance and support of everyone involved I remain confident that we will continue to see measurable benefits as we complete the remaining implementations throughout the entire organization.

Jaco Merwe: We view the Federal Funding Mechanism providing long-term stability for our markets and customers. So I'd seven further illustrates our expanding global footprint. Our international team has made significant improvements on our market coverage and payzons. While various of these dealer relationships are stone-new, we are encouraged about the level of activity.

I will now turn it back over to Yakov for his closing comments.

Thank you Becky.

Turning to slide 22.

I'd like to summarize our key messages.

Jaco Merwe: Our backlog continues to normalise as can be seen on slide-ate. As a reminder, Q3S historically being a lower-order intake holder due to customers working and focusing on completing projects before the winter months. Our October bookings are encouraging, within the infrastructure solutions business, and we have good inputs that the material solutions, national dealer conference, will yield strong bookings as means in the earlier.

Although Q3 was disappointing domestic team continues to work together.

Customers and driving operational excellence, our customers continue to convey a positive sentiment to us supported by positive long term end market drivers, including funds from the Federal Highway Bill.

<unk> operating model is guiding us to create a culture of consistent performance and execution.

We delivered the highest gross margins in the third quarter on lower sales with EBITDA margin performance masked by the litigation loss contingency.

Jaco Merwe: I'm very excited about the release of our new vision on slide-9. The both industry-changing solutions that create life-changing opportunities. This vision is focused on our employees, our customers, and the resonates well with our legacy of strong customer service and innovation.

We are transforming and improving our operations and finally, our simplify focus and grow strategy establishes a framework to drive long term shareholder value.

Unlikely, we are hitting and im optimistic about our future as we drive towards our long term goals shown on slide 23.

Jaco Merwe: We will share more about our vision and our aspect-20-30 strategy during our invasive by planned for the spring of 2024. I'm extremely pleased with our employees or embracing the new vision significance and the profound impact we will have on our people, customers, and industry in the future. Then in this slide-ate, we continue to execute our exemplified focus and growth strategy to deliver value for employees, customers, and share. For example, we have simplified by streamlining our internal staffing and adopting branding as one elastic.

I also like to share that we are putting the finishing touches on our <unk> 2030 business plan and look forward to shape those details in 2024.

I'm grateful to our employees for their dedication and hard work and to our customers for their loyalty and support.

With that operator, we are now ready to open the call for questions.

In order to ask a question. Please press Star then the number one Andre telephone keypad. Please limit yourselves to one question and one follow up if you have additional questions. Please reenter the queue, we'll pause for just a moment to compile the Q&A roster.

Jaco Merwe: Under focus, we are pursuing operational excellence, investments to optimize the manufacture of mobile, construction and crossing equipment domestically and internationally are examples of putting capital to reduce. We are also focused on inventory management and aftermarket parts excellence. This includes the introduction of new products and growing into new geographies as well as developing our off the market. This includes getting more parts out of the door. We are working closely with our dealers and our Excel teams, understanding what they are seeing in the field and partnering with them to better serve our customers.

And your first question is from the line of Stanley Elliott with Stifel. Please go ahead.

Hey, good morning, everyone. Thank you for the question.

And when would we start can we start off by talking about kind of what's happening on the margin front.

And namely kind of the.

Move sequentially down I mean, even if you back out the litigation charge Youre still looking at maybe flattish sort of margins.

We would hope that there had been enough pricing in the backlog and an improved.

Within the order book that we would actually continue to see the margin trajectory kind of like what you saw in the first half of the year.

Yes.

Thanks Sandy.

Jaco Merwe: Flight 11 highlights a few of the innovative new products we displayed earlier this year at the Connex boat trade show in Las Vegas. Our new horizontal grinders were released during Q3 and the milling machine and paper are scheduled for release over the next two quarters. These products address specific market needs and a spot the interest of our dealers and customers. The large investments we have announced before for mobile, crossing and construction equipment are progressing well at our OMA Northern Island and Telenuget, Tennessee facilities. These investments are both transformational for the respective product lines and will yield positive results in the future quarters.

So.

You can see that overall margins continued to improve for the.

The quarter and then obviously.

The year over year.

I think.

It's important to note that.

In the third quarter as we as we.

<unk> mentioned previously has a different profile mix with regards to Boston capital.

So obviously that.

Contributes and then also if you look at last year.

In the third quarter the mix between.

Lance and mobile.

<unk>.

Construction equipment was.

And then this year.

Jaco Merwe: Flight 12 reflects our one Aztec business model. This framework ties in well with our new vision, placing our employees and customers in the center. I'm very proud of our purpose of both to connect and it is meaningful and tells the story about what Aztec's customers accomplish with our equipment.

And that contributed to what you see so.

Overall, I will say it was a mix of products that we have.

The change in the mix on balance for the quarter.

That's what you can expect during a difficult third quarter, which we didn't have last year.

And I guess as a quick follow on did did the mix of international versus domestic revenues kind of contribute to that in any way.

Jaco Merwe: Lastly, on slide 13, we are proud that we will release our first corporate sustainability report in Q4. This is a significant step forward on our ESD journey. Our report highlights how we are enraging resources to advance environmental and social initiatives while maintaining found governance. I look forward to publishing our report and updating you on our progress.

Yes.

No not really in fact, we are very.

Pleased with the performance that we.

We've seen on our international business.

And you'll remember that on the international side.

Surprising to comply to local jurisdiction obviously.

Rebecca Weyenberg: With that, I will now turn the call over to Becky to discuss our detailed financial results. Thank you, Jaco and good morning everyone. I'll begin my review of third quarter results on slide 15. Sales were 303.1 million dollars, down 3.8 percent, slight declines in both segments. By region, strong international sales growth of 11.7 percent was enhanced by positive margin development and was offset by softer domestic sales, down 7.9 percent. Part sales grew 2.4 percent, which was offset by a decline of 4.5 percent in equipment sales.

Rebecca Weyenberg: Backlog continues to normalize, down 36.6 percent from the peak in the third quarter of 2022 and 10.8 percent sequentially and still within our historical range of 1.5 to 2.4. Domestic backlog was down 37.2%, and international down 33.4%. Order rates have remained steady over the last three-quarters, but trying to expect to continue as demand remains strong. Supply change disruptions are becoming less of an issue, further incentivizing customers to resume normal order patterns.

Instruction equipment side.

So we we feel confident and we have really good visibility.

Rebecca Weyenberg: We are also improving our ability to convert backlog into sales, suggesting backlog will stay within that historical range. Adjusted EBITDA decreased 39.8% to $10 million, decreasing adjusted EBITDA margin 200 basis points to 3.3%. The biggest driver here is a litigation loss reserve of $6.4 million associated with an initial adverse verdict related to equipment sold in 2017. Looking at ongoing operations, we expanded gross margins by 220 basis points to 23%, as we achieved further price realization and benefited from operational excellence.

That that that order writing will be strong.

We've also seen you know a good <unk> thing for asphalt and concrete blonde's yet in October and we've actually seen a pretty nice development on thoughts orders for October as well. So we are we are expecting that.

The backlog boom moderate a little bit more.

Especially as we focusing on you know to do you sing or hourly times and reducing thoughts backlog, so, but but we have very ready goods view on what we think is gonna happen to you I didn't Q4.

Rebecca Weyenberg: This is the fifth consecutive quarter gross margins have exceeded 20% and year-to-day gross margins are 24.1%. As GNA increased due to the litigation loss contingency and higher personnel costs as we invested in our business. We are also experiencing increased consulting and project costs. What profitability was masked as quarter due to the litigation contingency, the team is doing a good job of managing expenses and we are pleased with the progress and improvements we are making on margins.

Perfect. Thanks, so much.

Your next questions from the line of Meg of debris with Bird. Please go ahead.

Yes, good morning.

Putting burned normalization has been used repeatedly on the call and it's gonna use the prior quarter's as well so I'm trying to understand exactly what what is normal.

Normal orders have normalized.

If we look at you know <unk>.

Three months from now.

After you report Q4, if we look at your combined order intake for 2023.

Rebecca Weyenberg: Adjusted earnings per share decreased to a loss of one cent from an income of 28 cents the prior year. Again, the litigation contingency was the biggest driver here, decreasing EPS by approximately 28 cents and offsetting gross profit improvements. The adjusted net effective tax rate for the quarter was 108.3% driven by the higher weighted tax impact of adjusted earnings addbacks due to lower operational income. We expect our normalized net effective tax rate to continue to be in the 23 to 24% range for the remainder of the year.

Would you say that that is the normal run right four orders in both your business.

Yeah somebody I think once again, if we look at what we have on slide eight we gave the the the started go I'm writing. So we always talked about that one and a half to two.

If you look at the order patterns for the first three quarters.

I think I don't think you should take that and just multiply its by four.

Especially if we look at you know the the peak of the backlog in the third quarter last year.

Rebecca Weyenberg: Moving on to slide 16, infrastructure solutions net sales decreased 5.5% to 190.8 million dollars with international growth of 3.4% being offset by softening domestic demand. Mobile construction equipment contributed to sales volume while asphalt and concrete equipment sales declined. A positive impact from our transformation initiative on the manufacture of mobile equipment was experienced and greater contributions are expected going forward. Part sales were up 5.5% as we were able to fulfill parts orders for aftermarket demand.

As we improve availability and as we improve our our own lead times, our dealers will not have the need to place orders as far in advance as what they did in the past uhm So from my perspective.

If we if we study and that's 400 to 500 million range.

You know that that is a range that we already comfortable with and that we've dealt with in the past you know anytime I think that we go below that that's that's you know for myself that's way that eight lives will come up a little bit.

Rebecca Weyenberg: Segment backlog decreased 27.5%, primarily due to the normalization of customer order patterns. Adjusted even a margin for the segment declined 10 basis points to 8.6%, a favorable gross margin was offset by higher operating expense as a percent of sales, materials. Turning to slide 17, material solutions net sales decrease 1.2% to $110.5 million as strong international sales are offset by decreasing domestic demand and mix. International sales increase 20.7% as domestic sales declined 9%.

But at this point in time, you know India.

<unk> that you four will be.

It will be a strong booking sculptor.

You know customer sentiment is is still very positive.

You know the dealer interaction that we've had is is really good.

You know I'm very excited about the new products that'd be bringing to market you know the new the new milling machine that we have in the presentation.

Uhm has been performing really well and <unk> and you know when a customer with a customer tells you that he wants to buy the prototype machine and then you know you're up to something so.

I think there's a lot of positive.

Rebecca Weyenberg: Equipment sales fell 0.6% and parts were down 3.2%. Segment backlog was down 51.7%. As a reminder, our annual dealer event takes place later in the fall. We anticipate order activity will be in line with prior two years. Adjusted EBITDA margins for the segment declined 420 basis points to 7.5%. This was largely due to the litigation loss contingency offsetting the positive gross margin impacts. On slide 18, we highlight the key drivers of our year-over-year adjusted EBITDA bridge.

You know momentum that we are seeing in terms of just the order arrived and we see the seasonality and and you know the new products that we bring to the market.

So.

Again, when you're a valuating your order intake for full year of 2023 would you consider that to be a normal like level of demand or are there are distortions felt that we need to be aware.

Yeah, I think it's the <unk> I mean, if you look at the the order said we got eating.

2013, and how the how the backlog in three so I mean, if you just look at Q City of 21 to Q3 of 282.

Rebecca Weyenberg: Adjusted EBITDA decreased 39.8% to $10 million, a contraction of 200 basis points to 3.3%. The positive contribution from pricing net of unfavorable volume and mix more than offset the impact from inflation. Manufacturing any efficiency headwinds due to supply chain disruptions were a $1.8 million impact and SGN expenses were higher due to the $6.4 million litigation contingency and higher personnel costs. Looking ahead, we continue to expect further benefit from the implementation of our transformation strategy to drive increased EBITDA to deliver our long-term targets.

There was a buildup of 50% you know city on <unk> on all the additional backlogs and and we we still working through that so uhm make I I have no no concerns right now that we're gonna that we're gonna see a significant drop in the in the output 2024.

And and.

I I think that's interesting right because right now your production your shipmates are obviously exceeding afford it and take hence backlog coming down at all.

What point in time backlog normalization, if you call. It actually has to result in lower production.

Yeah, I mean, we we obviously I'm reviewing production levels on a consistent basis.

Rebecca Weyenberg: Turning to slide 19, our cash and cash equivalents available for operations stood at $71.3 million as we increased borrowings on our credit facility. We expect this to reverse in Q4 as we work through working capital. We maintain sufficient liquidity and a solid balance sheet to support our operations and balance capital deployment strategy. Our current net leverage ratio is 0.5 times with a target leverage range over cycles between 1.5 to 2.5 times.

Uhm, we have multiple labor so that we can bull if if we get to that point, but right. Now we are not making any of those plans our our <unk> at various of our product lines is really strong and robust.

And we have three good visibility of what's coming.

You know we.

We have we have good visibility on our uhm quoting pipeline, which is which is a really strong right now so so I'm not concerned at the moment I think the teams have really good handle on that.

Rebecca Weyenberg: Turning to slide 20, we maintain a disciplined capital deployment framework balancing investments and growth with returning cash to shareholders. We spend $7.9 million on catbacks in the third quarter to maintain and improve operationally. Our targeted for your capital expenditures are estimated not to exceed $35 million. As Jaco mentioned earlier, we are making progress with our Oracle Cloud ERP implementation as shown on slide 21. In addition to the previously launched human capital management and the ERP at two operating sites including one of our largest sites, we also launched in the current quarter our consolidation and reporting module. Implementation at both sites is going well, and we already seen improved production output. As more sites are added to the system, we anticipate achieving progressive benefits.

Of course, you know the moment, we see those indications.

Will will pull some of the labor that we have and.

Some of our facilities, we are already working significant overtime littles, because because we have we have the visibility of what needs to be delivered within the next in the next couple of quarters.

Our international business is continuously going as we expand our foot print.

Yeah, and the U S over the last yeah, we've we've expanded our footprint for.

Our mobile construction equipment and on the material solution side. So.

There's a lot of other positive factors that can can mitigate anthony external praise us from into <unk> or the macro environment can make I would just add to that unlike some that are are parents. We're not we're not planning any laos <unk> with what we have in front of a cell.

Rebecca Weyenberg: I am pleased with the performance and support of everyone involved and remain confident that we will continue to see Thank you, Becky. Tenning to slide 22.

<unk>, we're not we're not concerned about the capacity right size and start running pretty.

Pretty significant over in certain locations.

Jaco Merwe: I would like to summarize our key messages. Although Q3 was disappointing, the Astec team continues to work together, serving customers and driving operational excellence. Our customers continue to convey a positive sentiment to us. Supported by positive long term in market drivers, including funds from the Federal Highwayball. The one aspect operating model is guiding us to create a culture of consistent performance and execution. We delivered higher gross margins and the third quarter on lower sales, with EBITDA margin performance mass by the litigation loss contingency. We are transforming and improving our operations. And finally, our simplified focus and gross strategy establishes a framework to drive long-term general development.

Okay I guess my final question.

And your preferred prepared remarks.

<unk> <unk>, maybe an infrastructure orders can you.

Can you comment.

<unk>, a little bit more when do you yeah Pittsburgh reversed.

Yeah, No I I can uhm <unk> as you know when we when we sell.

A big asphalt plants, you know it can be.

$5 million to $10 million on the deal. So you have two of those deals do not shipped uhm it can have.

You know a noticeable impact and that is exactly what what we saw during the quarter.

The <unk>.

Jonathan those the funds are already float from our customers and the teams are in the process of shipping. So it's not something that will <unk>. It was literally just.

Jaco Merwe: I like where we are heading, and I am optimistic about our future, as we drive towards our long-term goals shown on slide 23. I also like to share that we are putting the finishing touches on our Astec 23 bonus plan, and look forward to sharing those details in 2024.

A couple of weeks that we didn't get into the quarter.

Okay. Thanks for the call.

Your next question is from the line of Steve <unk> with Sidoti and company. Please go ahead.

Jaco Merwe: I am grateful to our employees for their dedication and hard work, and to our customers for their loyalty and support.

Morning, Jaco package I appreciate the detail on the call.

Operator: With that operator, we are now ready to open the call for questions. In order to ask a question, please press star the number one on your telephone keypad. Please limit yourselves to one question and one follow-up. If you have additional questions, please re-enter the queue. We'll pause for just a moment to compile the Q&A roster.

At Wanna ask a little bit about SG&A, even if I back out the <unk> litigation contingencies still looks like SG&A was up pretty substantially sequentially in euro per year, and what's seasonally slower quarter can you help out a little bit on the higher costs and whether that station.

Yeah. So.

Our rains all 57 to 60 million this is still.

Stanley Elliott: And your first questions from the line of Stanley Elliott with Steve. Please go ahead.

You know what we are what we are seeing uhm.

Jaco Merwe: Good morning, everyone. Thank you for the question. Can we start off by talking about what's happening on the margin front? You know, and mainly kind of, you know, the moves are coincidentally down. I mean, even if you back out, the litigation charge, you're still looking at, maybe flat-ish sort of margin. And I think we had hoped that there had been enough pricing in the backlog and, you know, an improved kind of within the order book that we would actually continue to see the margin trajectory, kind of like what you saw on the first half of the year.

During the call without obviously, we both the litigation loss I'm. There we had some threw up on our bonus.

Structure, we have a specific.

Project that we working on that we talk about you know modularization way to we have quite a bit of our engineering team.

Working to change various other immortals from a E D O.

A model to more of a configured to order model and and that is to.

Jaco Merwe: Yes, I can thank that, Stanley. So, as the board, you can see that, you know, over all margins, continued to improve for the quarter, and then obviously, you know, nice the year over year. I think, you know, it's important to note that, you know, the third quarter, as we mentioned previously, has a different profile mix with regards to bark and capital. And so, obviously, that it contributes. And then, also, if you look at last year, in the third quarter, the mix between plants and mobile construction equipment was different in this year.

To prepare us for for out transitions at some of the sides to to <unk>.

And you know so those those that's about another million dollars that and that is one time items in the quarter. So going forward, we still feel comfortable in that we will be in that range that that we communicated before I'm Steve.

Okay. Thanks for that thanks for the help on that.

Uhm.

What's the new products, becoming available I know one of the three became available this quarter, but the other tour next quarter.

When you roll out new products like S for order, how much cannot provide a bump.

Yeah no. Good good question. So the first machine. It was a significant upgrade of of you know one of our best sellers that we've had in the portfolio. We've had really goods customers feedback on that and then in in this case.

Jaco Merwe: And that contributed to what you see. So, overall, I will say with a mix of products that we have with the chains in the mix on parts for the quarter, you know, that's what you're going to expect during a typical third quarter, which we didn't have last year. Megas is a quick follow-on. Did the myth of international versus domestic revenues can it contribute to that in any way? No, not really. In fact, we are very pleased with the performance that we've seen on our international business and remember that on the international side, you know, transfer pricing to comply to local jurisdiction, obviously dictates a little bit the margins that you make on the international side.

It's more of a a cost improvements opportunity.

On the the milling machine that will go next.

If you go and look at the market that is the single biggest.

Product model that is sold in the money markets.

And so it's it's a significant opportunity for US you know if you look at <unk>. If every dealer sells two of those and she was next year. We talk about you know 15 machines plus Sir.

It it actually can I have a nice.

Jaco Merwe: But, you know, as I said, we are actually very pleased with the development on our international business. And I guess the follow-up is a fair amount of positive commentary from some of the dealer events. Are we saying that order rates are going to start turning positive? You know, in the fourth quarter and in the early next year, because these trade shows, or should we think of you all continue to work down the backlogs to get more to that historical norm?

A nice bump for us and then on the on the <unk> same comedy. It's the single biggest market segment, where we didn't really play in the past we still have some some face thing to do the <unk> you know being worked on but the.

Same Coleman every dealer just sell do of those machines you talk about you know.

Another another 50 machines.

Jaco Merwe: Yeah, no good question. And once again, as a reminder, you know, in the prior two years, especially on the material solution slide, the dealer order writing took place in earlier quarters, you know, last year and the year before, this year we will have it in Q4. And as mentioned, you know, we believe that it's going to be a strong order writing period, at least in line with what we've seen in the last few years.

Okay.

The last couple of quarters or maybe even more you've been talking about the <unk> temperature of plant efficiency.

Can you tell what's your take on line will start seeing that and your numbers.

Yeah now so we have obviously, we investing in all our facilities and you know that is what you're starting to see too you know.

[noise] flowing through in the margins over the last four.

<unk> the two significant ones that we are making us in our factory in Northern Ireland.

Jaco Merwe: You know, we still have relatively low dealer inventory, especially on the mobile constructs in equipment site. So, you know, we feel confident and we have pretty good visibility that that order writing will be strong. We've also seen, you know, a good order writing for asphalt and concrete plants here in October. And we've actually seen a pretty nice development on parts orders for October as well. So, you know, we are expecting that the backlog will moderate a little bit more, especially as we focus on, you know, reducing our lead times and reducing parts backlogs. But you have very, very good view on what we think is going to happen here in Q4.

And then one of our big.

Dr Solutions factories, you haven't Chattanooga and.

Stanley Elliott: Perfect. Thanks so much.

In the last factory you know as I'm ancient in the script all the all the capital equipment to some place the lightning out so I'm now in place. So now it's a matter of putting the final final thoughts this online balancing and and getting everybody trained in the new.

New processes. So we already expect that Q4, we'll start to see some of that improvements and then and then you know quite a bit in the next year.

Yes. Please I would also add that what we're expecting a R. C is fat yeah about six months after our site <unk> or seen that this operation on programs from the system. So we are ready seen them now and that first sight and certainly in our corporate teams in their work.

So it really confirm Sarah that's natural have solid returns uhm, we're saying that a little bit ahead of fluffy anticipated that definitely six months after a life per each site. So.

Mircea Dobre: Your next question from the line of Megidobre with Beard, please go ahead. Yes, good morning. The firm normalization has been used repeatedly on the call and it's been used in prior quarters as well. So, I'm trying to understand exactly what it means that normal orders have normalized. If we look at, you know, three months from now, after you report Q4, if we look at your combined order intake for 2023, would you say that that is the normal run rate for orders in both your...

The the investments we making in in the factory in Northern Ireland and are they significant new product development that is included in that project. So that will take a little bit longer we will we will probably start to see the benefits of that.

The next year and even even into 2020.

<unk> 25.

You know however, we we will actually produce some of the the models that we currently so uhm at at that facility and you know that will give us additional capacity for you know both of you of this but for the for the rest of the world as well.

Mircea Dobre: Yes, I think once again, if we look at what we have on slide 8, we gave the historical range, so we always talked about that one and a half to do, if you look at the order patterns for the first three quarters, I don't think you should take that and just multiply it by four, especially if we look at the peak of the backlog in the third quarter last year. As we improve our availability and as we improve our own lead times, our dealers will not have the need to place orders as foreign advances what they did in the past, so from my perspective, if we stay in that 400 to 500 million range, that is a range that we are really comfortable with and that we've dealt with in the past, anytime I think that we go below that for myself, that's where the rate lives will come up a little bit, but at this point in time, indication is that Q4 will be a strong booking quarter, customer sentiment is still very positive, the dealer interaction that we've had is really good and I'm very excited about the new products that we bring into the market, the new milling machine that we have in the presentation has been performing really well in trials and when a customer tells you that he wants to buy the prototype machine, then you know you're up to something, so I think there's a lot of positive momentum that we are seeing in terms of just the order I think we're seeing the seasonality and then the new products that we bring to the market.

Alright, thanks, Thanks Becky.

As a reminder, in order to asking questions simply press star than the one on your telephone keypad.

Your next questions from the line, but Larry D Maria with William Blair. Please go ahead.

Thanks, Good morning, I wanted to go back to a couple of things here you know we expect in order to moderate given the time and the dealer event I think you'd call that out.

Discussed it last quarter.

Well that'd be also commented that you expect to write a lot of tickets and get back to a sort of higher levels that applied we should be looking for.

The orders that are in the range from three Q of 22, which which really high at 450 million. So.

Now what's the reason for like vacation to think about for pickup and orders are based on the common Tonight.

Mmm.

Yeah I.

I must probably need to come back to you on that one.

I don't have a clear answer sir.

Yeah, Larry this this <unk>, it's okay, if I jump in but still you know that's at 450 million dollar range. It you mentioned when you're doing the implied orders obviously backlogs.

He factor there two three of last year was our peak backlog at 969, but if you looked at the applied orders overall I mean, we've been in that 230.

Five 240, plus or minus implied order right for the past three quarters. So we have seen the normalization, where it's been in that range and then you know have some chance for some upside going forward.

Okay. That's a good thank you.

Secondly, can you go into further detail inventory I think we're at a point where deals for short and Victoria were still there to some degree and I couldn't get it fast enough and now we have too much. So can you talk about what happened there, maybe where you're an inventory might land and if there's a level of cancellation definitely to that higher inventory.

Mircea Dobre: So, again, when you're evaluating your order intake for four years, 2023, would you consider that to be a normalized level of demand or are there distortions still that we need to be aware? Yeah, I think it's the thought that I mean, if you look at the orders that we've got during 2013 and how the backlog increased. I mean, if you just look at Q3 of 21 to Q3 of 22, there was a build up of 50 percent, 300 million of additional backlog and we're still working through that.

I'll I'll I'll take that one Larry good morning inventory, what's the make up that probably the increase this quarter with large diet and finished <unk>, which is up 25 million and wet purchase at 21 million. So it's really that conversion and we have the one site that that <unk>.

<unk> the lion's share at the inventory and that's the one that's going throughout the transformation works out their their ability that played that down will come next year for sure I mean, we might see some of that in queue for that that's gonna be the meaningful one and when it drops it should dropped fairly significantly.

Mircea Dobre: So, Meg, I have no concerns right now that we're going to see a significant drop in the outbrewed for 2024. I think that's interesting because right now your production, your shipments are obviously exceeding order intake and backlog coming down. At what point in time does this backlog normalization, as you call it, actually has to result in lower production? Yeah, I mean, we obviously are reviewing production levels on consistent basis. We have multiple levers that we can pull if we get to that point.

And it's been <unk>, hi backlog in paperwork with marijuana not a change. So so that's really I would say the lion's share.

Half half turns and pregnant cause you gotta keep in mind inventory also has that incremental pricing uhm.

From our supplier so the normal value will remain higher which were pricing <unk>.

Certainly are confident in our ability of price spreads translation.

Also jaco had mentioned that a couple of deals that just didn't get through on the reporting line and that you know those were certainly an inventory at quarter end, but that'll get it really does you know those shipments are delivered on a couple of the bigger plants mmm.

And it just to make a comment on the finished goods that Becky mentioned, we we've had you know we've had some cancellations, but maybe maybe a little too to maintain actually <unk>.

Mircea Dobre: But you know, right now we are not making any of those plans. Our SNOP processes at various of our product lines is really strong and robust. And we have pretty good visibility of what's coming. You know, we have, we have good visibility on our quoting pipeline, which is, which is really strong right now. So I'm not concerned at the moment. I think the teams are really good handle on that. But of course, you know, the moment we we see those indications, we'll pull some of the levers that we have.

That's not the most most of that inland <unk>.

Is <unk> is part of the county over so we'll we'll see that change.

If you look at the year, we you know the cost the cost of that email. Three you can you can work on about six per se, though so that is just pure inflation over here.

So you know when you calculate that the change is not that significant you know we mentioned last quarter that uhm supplier Lee times is still elevated so that's still the case, even though we have <unk>.

Mircea Dobre: And, you know, at some of our facilities, we are already working, you know, significant over time levels because because we have the visibility of what needs to be delivered in the next, in the next couple of quarters. Our international businesses continuously growing as we expand our footprint year in the US over the last year. We've expanded our footprint for our mobile construction equipment and on the material solution sites. So, you know, there's, there's a lot of other positive factors that can can mitigate, you know, any external pressures from interest rates or the macro environments.

Uhm issues lead times are so high.

You know I got confirmation just yesterday from our teams that we are continuously updating our supply lead times. So as lead thumbs come down you know inventory will will <unk> will be a reflection of that.

So so yeah, we have some work to do today for sure obviously, it's it's costing us.

In terms of interest. So you know we are we are really focused on.

That over the next couple of quarters.

Okay, if I could just make one more in here. Thank you for that color.

Mircea Dobre: Yeah, and my guy we just said, too, that unlike some of our, our peers, we're not, we're not planning any way off. There's, there's no reason for us to go to that level yet with what we have in front of us. So, to get what's point, we're not, we're not concerned about that. The capacity is right size and we're still running pretty significant over time in certain locations. Okay. Then, I guess my final question.

Porter with law respect margin, even solving for the litigation hired inventory plenty of what factory going through a transformation.

Concerned on a European limitation. So can you maybe discuss that a little bit more maybe the impact ERP outside of expectations in the corner and and how that ultimately is garlic.

Some concerned that you know that's having some impact thank you.

Yeah.

Great question I think it's important to separate two things going on at this one site. So.

Jaco Merwe: In your prepared remarks, you mentioned some delays, maybe in infrastructure orders, can you in the comment on that a little bit more and when do you expect that? Yeah, that's what I'll reverse. Yeah, no, I can mix. So, as you know, when we, when we sell a big asphalt plant, you know, it can be, you know, five to 10 million dollars on a deal. So, if two of those deals do not ship, it can have, you know, a noticeable impact.

There's two different transformation efforts <unk> implementation, which happened in may for the last two years all of his slash <unk> $25 million capital improvements that are calling on and when you have a tight for footprint, it's like like a quilt.

Yeah, you pick out a patch of EMU named lose any weight equipment and you keep playing musical chairs until everything comes in South it's that same facility. So it's not just one effort.

Jaco Merwe: And that is exactly what we saw during the quarter, you know, the majority of those, the funds have already flowed from our customers and the teams are in the process of shipping. And so, it's not something that will linger for it was literally just, you know, a couple of weeks that we didn't get into the quarter. Okay, thanks for the call.

Colleen on if you will so they will they will be turning the corner here and is Yakov mentioned, they're just about through the last <unk> Uhm, it's happening right now in the mail.

<unk> paint system in Q1.

And then a capital investment there is really complaint.

Or a call first and it is in in their perfecting that we're seeing some operational improvements from.

Steve Ferazani: Your next question is from the line of Steve Varazani with Sadoori in company. Please go ahead. Good morning, Yaka. I appreciate the detail on the call. It did want to ask a little bit about SGNA, even if I back out the solid litigation contingencies still looks like SGNA was up pretty substantially sequentially in year over year and what's a seasonally slower quarter. Can you help out a little bit on the higher costs and whether that stays in?

Already but it it's gonna be meaningful more set next year.

Okay. Thanks, So aside from that facility then there's nothing outside the ordinary and what the specific to the earpiece system broadly aspect this quarter.

I mean right now we we in the middle of designing that U D O module for the future sites and the teams are getting ready for the 2024.

<unk>, we have we have a significant.

Number of our infrastructure solutions sites that will go live next year.

We are continuously monitoring the cost you know right now we still in the minds of some what we reported before if we if we see anything change on that will will obviously inform the market about that yeah, but to be very specific now impacts in K K for kite performance expect that from you.

<unk>.

Okay. Thank you very much and good luck.

Okay.

There are no further questions in queue I'd like to hand, the call back to Steve Anderson Foreclosing remarks.

Alright. Thank you date as we appreciate your participation in the conference call. This morning, and thank you for your interest in Aztec.

Today's news released indicates today's conference call has been recorded a replay of this conference call will be available through November 15th 2023.

In an archived webcast will be available for 90 days the transcript will be available under the Investor Relations section for the second Street website.

Within the next seven days all of that information is contained in the news release distributed earlier. This morning. This concludes our call, but I'm happy to connect with you. If you have any additional questions. So thank you all in and have a good day.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.

[music].

Mmm.

[music].

Steve Ferazani: Yes, Steve, I would also add that what we're expecting and what we're seeing is that about six months after a site goes live with Oracle, we're seeing those operational improvements from the system. So we are already seeing them now in that first site and certainly in our corporate teams and their work balanced. So it really confirms that our investments will have solid returns. We're seeing it a little bit ahead of what we anticipated, but definitely six months after go live per each site.

Steve Ferazani: The investments we're making in the fact of the Northern Ireland, you know, there's significant new product developments that is included in that project. So that will take a little bit longer. We will, we will first probably start to see the benefits of that later next year and even into 20, 20, 25. You know, however, we will actually produce some of the models that we currently sell at that facility and you know that will give us additional capacity for, you know, both the US but for the rest of the world as well.

Operator: All right, thanks, Jakko. Thanks, Becky. As a reminder, in order to ask a question, simply press star, then the next one, on to our telephone keypad.

Lawrence Maria: Your next questions from the line of Larry D.

Lawrence Maria: Maria with William Blair, please go ahead. Thanks, good morning. What's it going back to a couple of things here? You know, we expect to order some moderate, given the timing, the dealer event. I think you call that out. We would like to discuss it in the last quarter. And then you also commented that you expect to write a lot of tickets and get back to sort of prior levels. But then implied where you should be looking for, you know, orders that are in the range from 3Q of 22, which was really high at 450 million.

Lawrence Maria: So, yeah, we're just now at what the reason we like to be patient to think about for a pick-up in orders based on the comments made. Yeah, I, I must probably need to come back to you on that one. I don't have a clear answer. Yeah, Larry, this is easy. It's okay if I jump in. But, you know, that's 450 million dollar range that you mentioned when you're doing the implied orders.

Lawrence Maria: Obviously, backlogs. The key factor there, Q3 of last year, was our peak backlog at 9.69. But if you look to the implied orders overall, I mean, we've been in that 230, 5, 240 plus or minus implied order rate for the past three quarters. So, we have seen the normalization where it's been in that range and then, you know, have some chance for some upside-doing forward.

Lawrence Maria: Okay, that's a good, very thank you.

Lawrence Maria: Secondly, can you go into some further detail in the inventory? I think we're at a point where deals with short inventory and we're still there to some degree. We couldn't get it fast enough, and now we have too much. So, can you talk about what happened there? Maybe we're here in the inventory might land, and if there's a level of cancellation, just leading to that higher inventory? I'll take that one, Larry.

Lawrence Maria: Good morning. Infantory to make up really the increase this quarter was largely in finished goods, which is up 25 million, and whip, which is up 21 million. So, it's really that conversion, and we have the one site that carries the lion share of the inventory, and that's the one that's going through all the transformation work. So, their ability to bleed that down will come next year for sure, and we might see some of that in queue for, but that's going to be the meaningful one, and when it drops, it should drop fairly significantly, and it's been, they've got high backlog and they've been working through a lot of, not a change.

Lawrence Maria: So that's really, I would say the lion share, our sites have, have turns and improvements, because we've got to keep in mind inventory also has that incremental pricing from our suppliers. So the normal value will remain higher, which we're pricing for, and certainly our confidence and our ability to price further for inflation. Yeah, there you go. Also, Y'all have mentioned about a couple of deals that, you know, just didn't get through on the reporting line, and that, you know, those were certainly an inventory at quarter in, but that'll get really this, you know, those shipments are delivered on a couple of the bigger plans.

Lawrence Maria: Now, just to make a comment on the finish goods that Becky mentioned, we've had, you know, we've had some cancellations, but very, very little to, to mention actually, and so that's not the risk. Most of that inventory is, is carryover, it's part of the carryover, so we'll, we'll see that change. If you look at the year over year, you know, the cost, the cost of that inventory, you can, you can work on about 6% or so, there's just pure inflation year over year.

Lawrence Maria: So, you know, when you calculate that in, that change is not that significant. You know, we mentioned last quarter that supplier Lee Thans is still elevated, so, you know, that's still the case, even though we have less supplier issues, Lee Thans are still high, you know, I got confirmation just yesterday from our teams that we are continuously updating our supplier Lee Thans, so as Lee Thans come down, you know, inventory will, will be a reflection of that.

Lawrence Maria: So, so yeah, we have some work to do there for sure, obviously it's costing us the in terms of interest, so, you know, we are, we are really focused on, on diving that, um, over the next couple of quarters.

Lawrence Maria: Okay, if I could just make one more in here, thank you for that color. You know, look, we had a quarter with low respect margin to even developing for the litigation, higher inventory, and you have one factor going through a transformation. I believe this would be a little concerned on the ERP implementation, so can you maybe discuss that a little bit more, maybe the impact of the ERP outside of the expectations in the quarter, and, you know, and how that ultimately is going because, you know, obviously the be some concern that, you know, that's having some impact.

Lawrence Maria: Thank you. Yeah, Larry, great question. I think it's important to separate two things going on at this one site, so there's two different transformation efforts going on. They have the Oracle implementation, which happened in May, but for the last two years, all of last year and all of this year, there's been 25 million of capital improvements that are going on, and when you have a tight floor footprint, it's like, like a quilt, right?

Lawrence Maria: You, you've picked out a path and you move it and then you move it to equipment and you keep playing musical chairs, and so everything comes in, so it's that same facility, so it's not just one effort. That's that, going on, if you will. So they will they will be turning the corner here and as Jaco mentioned, they're just about through the last investment is happening right now and will turn on a state of their paint system and Q1 and then the capital investment there is really complete and their oracle system is in and they're perfecting that for things I'm operational improvements from both are ready but it's going to be meaningful more so next year.

Lawrence Maria: Okay thanks so besides now facility then there's nothing outside the ordinary in the specific to the European system broadly at Astec this quarter. I mean right now we we in the model of designing the ETO module for the future sites and the teams are getting ready for the 2024 launches. We have you know we have a significant number of our infrastructure solutions sites that will go live next year. We are continuously monitoring the cost you know right now we still in the ranges and what we reported before. If we if we see anything change on that will obviously inform the market about that. Yeah but to be very specific no impacts and Q3 or Q4 to performance expected from ERP.

Lawrence Maria: Okay thank you very much and good luck. Thank you.

Stephen Anderson: There are no further questions and Q I'd like to hand the call back to Steve Anderson for closing remarks. All right thank you Dennis we appreciate your participation on the conference call this morning and thank you for your interest in Astec. As today's news release indicates today's conference call has been recorded. A replay of this conference call will be available through November 15, 2023 and an archive webcast will be available for 90 days.

Stephen Anderson: The transcript will be available under the investments to relations section for the in the Astec Industries website. Within the next seven days all of that information is contained in the news release distributed earlier this morning. This concludes our call but I'm happy to connect with you if you have any additional questions so thank you all and have a good day.

Operator: Ladies and gentlemen this desk include today's teleconference thank you for your participation. You may disconnect your lines at this time and have a wonderful day. Thank you very much.