Q2 2024 Astec Industries Inc Earnings Call

Hello and welcome to Astec Industries' second quarter earnings call. As a reminder, this conference call is being recorded. It's my pleasure to introduce your host, Steve Anderson, Senior Vice President of Administration and Investor Relations. Mr. Anderson, you may begin.

Operator: Under this conference call, is being recorded.

Stephen Anderson: It's my pleasure to introduce your host, Steve Anderson, Senior Vice President of Administration and Investor Relations.

Stephen Anderson: Mr. Anderson, you may begin. Thank you and welcome to the Aztec second quarter 2024 earnings conference call. Joining me on today's call, our President and Chief Executive Officer, Jaco Vunder Merva, and our Interim Chief Financial Officer, Heinrich Jonker.

Operator: Thank you, and welcome to the ASTEC second quarter 2024 earnings conference call. Joining me on today's call are President and Chief Executive Officer Jaco Gunder Merwe and our Interim Chief Financial Officer Heinrich Jonker. In just a moment, I'll turn the call over to Jaco to provide comments, and then Heinrich will summarize our financial results. But before we begin, I'll remind you that our discussion this morning may contain forward-looking statements that relate to the future performance of the company, and these statements are intended to qualify for the safe harbor liability established by the Private Securities Litigation Reform Act.

Speaker Change: Thank you and welcome to the ASTEC second quarter 2024 earnings conference call.

Steve Anderson: Joining me on today's call are President and Chief Executive Officer, Jaco Gunder Merwe, and our Interim Chief Financial Officer, Heinrich Jonker. In just a moment, I'll turn the call over to Jaco to provide comments, and then Heinrich will summarize our financial results.

Stephen Anderson: In just a moment, I'll turn the call over to Jaco to provide comments, and then Heinrich 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 of the company. And these statements are intended to qualify for the safe harbor liability established by the Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions. Factors that can influence our results are highlighted in today's earnings release, and others are contained in our filings with the SEC.

Speaker Change: Before we begin, I'll remind you that our discussion this morning may contain forward-looking statements that relate to the future performance of the company, and these statements are intended to qualify for the safe harbor liability established by the Private Securities Litigation Reform Act.

Operator: Factors that can influence our results are highlighted in today's earnings release, and others are contained in our filings with the SEC. As usual, we ask that you familiarize yourself with those factors. I'll also note that the company refers to various U.S. GAAP and non-GAAP financial measures, which management believes provide useful information to investors.

Speaker Change: Factors that can influence our results are highlighted in today's earnings release and others are contained in our filings with the SEC. As usual, we ask that you familiarize yourself with those factors.

Stephen Anderson: As usual, we ask that you familiarize yourself with those factors. I'll also note that the company refers to various US GAAP and non-GAAP financial measures, which management believes provide 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 of other companies. The company does not intend these items to be considered in isolation or as a substitute for the related US GAAP measures. A reconciliation of GAAP to non-GAAP results is included in our earnings release in the appendix of our presentation.

Speaker Change: 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 of other companies.

Stephen Anderson: All related earnings materials are posted on our website at www.astechindustries.com under the Investor Relations and Presentation tabs.

Jaco: All related earnings materials are posted on our website at www.AstecIndustries.com under the Investor Relations and Presentation tabs. And now, I'll turn the call over to Jaco.

Jaco Merwe: And now I'll turn the call over to Jaco. Thank you, Steve. Good morning, everyone, and thank you for joining us. Before I begin, I would like to thank our employees for their hard work and engagement. It is through their effort and dedication. We stay focused on our customers and provide industry-changing solutions. Our second quarter highlights are summarized on slide four. While we continue to face some industry headwinds that impacted our results, we are encouraged by the trajectory of our second quarter performance. Our infrastructure solution segment, so continued solid performance in the quarter with an increase in implied orders due to high demand for asphalt and concrete loans.

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

Jaco: Before I begin, I would like to thank our employees for their hard work and engagement. It is through their effort and dedication we stay focused on our customers and provide industry-changing solutions.

Jaco Merwe: It is through their effort and dedication that we stay focused on our customers and provide industry-changing solutions. We are encouraged by the trajectory of our second quarter performance, with solid dealer quoting for future bookings and sales. With our backlog continuing to stabilize, we are confident in our ability to meet current and future demand for our product. We anticipate more conversions and solid performance in the latter half of the year. Moving to our headline results, in the second quarter, we delivered $345.5 million in net sales and a gross margin of $23.5 billion, with consolidated implied orders up 5.9% sequentially, and this supports our view for continued performance in the second half.

Jaco: Our second quarter highlights are summarized on slide 4.

Jaco: Our infrastructure solutions segment saw continued solid performance in the quarter with an increase in implied orders due to high demand for asphalt and concrete plans.

Jaco Merwe: Strength and infrastructure construction market is anticipated through the beginning of 2025. We also saw improvement from the first quarter in material solutions, with solid dealer quoting for future bookings and sales. With our backlog continuing to stabilize, we are confident in our ability to meet current and future demand for our products. We anticipate more conversions and solid performance in the latter half of the year.

Jaco: Strength in the infrastructure construction market is anticipated through the beginning of 2025.

Jaco: With our backlog continuing to stabilize, we are confident in our ability to meet current and future demand for our products.

Jaco Merwe: Additionally, we've been focusing on inventory management and reduced our inventory by 5.9% or 28.7 million versus the first quarter of 2024. Moving to our headline results in the second quarter, we delivered 345.5 million in net sales and gross margin of 23.5%. As I mentioned, the healthy demand in infrastructure solutions for asphalt and concrete plant deliveries helped to drive positive results, with implied orders up 3.4% sequentially. Material solutions were impacted by longer product conversions from rental to buy and continued finance capacity constraints due to the current interest rate environment. Despite this, implied order for material solutions were up 11.8%.

Jaco: Moving to our headline results. In the second quarter we delivered $345.5 million in net sales and gross margin of 23.5%.

Jaco: Material solutions were impacted by longer product conversions from rental to buy and continued finance capacity constraints due to the current interest rate environment.

Jaco: Despite this, implied orders for material solutions were up 11.8%.

Jaco Merwe: Our backlog levels continued to stabilize at 531.1 million due to solid performance in infrastructure solutions and support our view for continued performance in the second half.

Jaco: Our backlog levels continue to stabilize at 531.1 million due to solid performance in infrastructure solutions and support our view for continued performance in the second half.

Jaco Merwe: Turning to slide 5, we give an update on our strategic roadmap. As you will recall, we introduced this new strategic framework last quarter as we aligned the organization's focus on three core pillars: empowered, enabled and engaged employees; customer focused; and industry changing innovation. I've been pleased to see that this framework has been embraced by our employees across the company, and we are all working together to execute across the three pillars. At the same time, we believe that achieving goals requires accountability, which is why we have taken the next step to define key metrics to track our progress towards our long-term goals.

Jaco: Turning to slide 5, we give an update on our strategic roadmap.

Jaco Merwe: As you will recall, we introduced this new strategic framework last quarter as we aligned the organization's focus on three core pillars. And we are all working together to implement across the three pillars. At the same time, we believe that achieving goals requires accountability, which is why we have taken the next step to define key metrics to track our progress towards our long-term goal, an increase of 11% year-over-year, which decreased 60 basis points primarily due to manufacturing inefficiencies and higher SG&A costs that were partially offset by positive net volume and mix and pricing net of inflation. Results were impacted by lower net volume and need, supporting the strength we are seeing in employed workers.

Jaco: Empowered, Enabled and Engaged Employees, Customer-Focused and Industry-Changing Innovation.

Jaco: I've been pleased to see that this framework has been embraced by our employees across the company, and we are all working together to execute across the three pillars.

Jaco: At the same time, we believe that achieving goals requires accountability, which is why we have taken the next step to define key metrics to track our progress towards our long-term goals.

Jaco Merwe: The progress we've made on operational improvements over the past several quarters gives us confidence in our ability to execute on these three strategic pillars.

Jaco: The progress we've made on operational improvements over the past several quarters gives us confidence in our ability to execute on these three strategic pillars.

Jaco Merwe: Turning now to slide 6 to look at current business dynamics, we start with Infrastructure Solutions. We are confident in the strength of the segment overall and are focused on driving efficiency, ensuring strong inventory control, and cost reduction. We saw net sales of $221.4 million, an increase of 11% year over year. As I mentioned earlier, this increase was due to strong performance from equipment sales and pricing actions we've taken while the infrastructure construction market remains strong. We also saw segment operating adjusted EBITDA margin of 12.3%. Which decreased 60 basis points primarily due to manufacturing inefficiencies and higher SDN8 costs that were partially offset by positive net volume and nicks and pricing net of inflation.

Jaco: Turning now to slide 6 to look at current business dynamics, we start with infrastructure solutions.

Jaco: We saw net sales of $221.4 million, an increase of 11% year-over-year.

Jaco Merwe: On the material solution side, we reported net sales of $124.1 million, which decreased 17.7% year over year. This reflects lower equipment sales due to longer product conversions and continued finance capacity constraints with contractors and dealers. Our segment operating adjusted either our margin of 8.2% decreased 390 basis points. Results were impacted by lower net volume requirements, manufacturing inefficiencies, and higher S&A costs, vastly offset by pricing net of inflation and other period costs.

Jaco: Our segment operating adjusted EBITDA margin of 8.2% decreased 390 basis points.

Jaco: Results were impacted by lower net volume and mix, manufacturing inefficiencies, and higher S&A costs, partially offset by pricing net of inflation and other period costs.

Jaco Merwe: We also wanted to provide a brief update on the basic road building, a foundational element to our business. With total state budgets up 12% year-to-year, we are seeing increased activity in the domestic road building market. We expect continued strong demands for asphalt road building and concrete production equipment moving forward, supporting strength we are seeing in implied orders. Looking at a macro level, total federal highway funding allocations total 350 billion through 2026. We've committed funds to date, achieving 133.7 billion and 73.4 billion in funding reimburse to the states. We believe the continued allocation of this funding provides stability for our industry, and we are confident in our ability to capitalize on consistent spending.

Jaco: We also wanted to provide a brief update on domestic road building, a foundational element to our business.

Jaco Merwe: Looking at a macro level, total federal highway funding allocations total $350 billion through 2026, with committed funds to date achieving $133.7 billion and $73.4 billion in funding reimbursed to the state. We believe the continued allocation of this funding provides stability for our industry. On slide 7, you will see our implied orders are up 5.9% sequentially at $317 million. This aligns with our continued expectations for steady momentum for the rest of the year and into 2025, and Materials Solutions saw implied orders increase by 11.8% sequentially to $100 million versus $89 million last year.

Jaco: Looking at a macro level, total federal highway funding allocations totaled $350 billion through 2026, with committed funds to date achieving $133.7 billion and $73.4 billion in funding reimbursed to the states.

Jaco Merwe: On slide 7, you will see our implied orders are up 5.9% sequentially at 317 million in comparison to 299 million last quarter. So increases for both infrastructure solutions and material solutions. This aligns with our continued expectations for steady momentum to the rest of the year and into 2025. Infrastructure solutions on increase of 3.4% sequentially to 217 million in comparison to 210 million last quarter, and material solutions for implied orders increased by 11.8% sequentially to 100 million versus 89 million last quarter. We are encouraged by solid dealer quoting for future bookings and sales.

Speaker Change: On slide 7, you will see our implied orders are up 5.9% sequentially at $317M in comparison to $299M last quarter.

Speaker Change: Infrastructure solutions saw an increase of 3.4% sequentially to $217 million in comparison to $210 million last quarter.

Speaker Change: and Materials Solutions saw implied orders increase by 11.8% sequentially to $100 million versus $89 million last quarter.

Jaco Merwe: We are encouraged by solid dealer quoting for future bookings and sales, a decrease of 16% year-over-year, and our backlog for material solutions was $163 million, a decrease of 35.1% year-over-year, while net sales were strong at $345.5 million. At the UK's largest quarrying, construction, and recycling exhibition, we showcased 16 products and unveiled three of our new Astec products. A record number across the exhibitions, 42 years.

Speaker Change: We are encouraged by solid dealer quoting for future bookings and sales.

Jaco Merwe: Flight 8 shows our historical backlog trends. We are seeing backlog stabilizing, supported by strong performance in infrastructure solutions. Total backlog of 531 million as of June 30th, 2024, is returning to the historical range. Our backlog for infrastructure solutions was 369, a decrease of 16% year over year, and our backlog for material solutions was 163 million, a decrease of 35.1% year over year, while net sales were strong at 345.5 million. As I stated earlier, consolidated implied orders were up in both segments. We remain focused on delivering for our customers and expect increased conversions in the back half of the year.

Speaker Change: a decrease of 16% year-over-year and our backlog for material solutions was $163 million, a decrease of 35.1% year-over-year, while net sales were strong at $345.5 million.

Speaker Change: We remain focused on delivering for our customers and expect increased conversions in the back half of the year.

Jaco Merwe: Slide 9 showcases Astec's presence at Hillhead 2024, the UK's largest quarrying, construction, and recycling exhibition. During the event, we had the opportunity to highlight new products and do live demonstrations to current and potential customers. On display, we showcase 16 products and unveiled three of our new Astec products. Whether there's been more time at the show than ever before, with over 19,000 attendees, a record number across the exhibition's 42-year history. We were excited to present live in front of this audience and showcase how product development and innovation is a central component of our strategy. At the show, Astec made a meaningful statement to the market with our significant presence and new products on display.

Speaker Change: Slide 9 showcases Astec's presence at Hillhead 2024, the UK's largest quarrying, construction and recycling exhibition.

Widdersburg: Visitors spend more time at the show than ever before, with over 19,000 attendees, a record number across the exhibition's 42-year history.

Jaco Merwe: We were excited to present live in front of this audience and showcase how product development and innovation is a central component of our strategy. At the show, Astec made a meaningful statement to the market, with our significant presence and new products on display. Just last week, I had the opportunity to visit our sites in Brazil and Chile. The new products being displayed at the O8 will be instrumental to our success in these regions.

Jaco Merwe: Just last week, I had the opportunity to visit our sites in Brazil and Chile. The new products being displayed at Hillhead will be instrumental for our success in these regions. To complement this, I am encouraged by the skill and enthusiasm of our employees and how they service and interact with our customers.

Jaco Merwe: To complement this, I am encouraged by the skill and enthusiasm of our employees and how they serve and interact with our customers. With that, I will now turn the call over to Heinrich to discuss our detailed financial results.

Heinrich Jonker: With that, I will now turn the call over to Aynric to discuss our detailed financial results. Thank you, Yaku. Good morning, everyone. Diving into the numbers on Slide 11 made sales decrease slightly by 1.3% to 345.5 million in the quarter. After a record second quarter in 2023, as Yaku shared earlier, we continued to see stronger demand for asphalt and concrete plants and an increase in implied orders for both infrastructure and material solutions. By region, net domestic sales were down across our markets, where the decrease of 14.3 million or 5%. As for international sales, we saw an increase of 9.8 million, or 15.4%.

Heinrich Jonker: Thank you, Jaco. And good morning, everyone.

Widdersburg: Thank you, Jaco. And good morning, everyone. Diving into the numbers on slide 11, net sales decreased slightly by 1.3 percent to $345.5 million in the quarter, after a record second quarter in 2023.

Heinrich Jonker: Diving into the numbers on slide 11, net sales decreased slightly by 1.3% to $345.5 million in the quarter, after a record second quarter in 2020. As Jaco shared earlier, we continue to see strong demand for asphalt and concrete plants and an increase in implied orders for both infrastructure and material solutions. By region, net domestic sales were down across our markets, with a decrease of 14.3 million, or 5%. As a reminder, the U.S. represents about 80% of our consolidated sales. Our adjusted effective tax rate was 23.9 percent.

Widdersburg: By region, net domestic sales were down across our markets, with a decrease of 14.3 million or 5 percent.

Widdersburg: As for international sales, we saw an increase of 9.8 million, or 15.4%, primarily due to increased activity in Canada, Mexico, Africa and Europe .

Heinrich Jonker: Primarily due to increased activity in Canada, Mexico, Africa, and Europe. As a reminder, the U.S. represents about 80% of our consolidated sales. Additionally, while part sales decrease 3.4 million or 3.7% the overyear, they are about 7.3 million or 3.7% in the first half of 2024 compared to the first half of 2023. Finally, equipment sales increased 13.2 million, or 5.8%, in the quarter. Both adjusted EBITDA and adjusted EBITDA margin declined in the quarter, where the decrease of 14.3% to 27.6 million and a decrease of 120 basis points to 8%, respectively. Adjusted EBITDA margin decreased due to lower manufacturing efficiencies at select sites and higher HGNA cost.

Widdersburg: As a reminder, the U.S. represents about 80% of our consolidated sales.

Widdersburg: Finally, equipment sales increased $13.2 million, or 5.8% in the quarter.

Widdersburg: Adjusted EBITDA margin decreased due to lower manufacturing efficiencies at select sites and higher SG&A costs.

Heinrich Jonker: Adjusted EPS was 61 cents. Adjusted EPS exclude transformation and other cost of $1.22 in the second quarter this year, $0.89 of which is related to goodwill impairment. Our adjusted effective tax rate was 23.9%.

Widdersburg: Adjusted EPS excludes transformation and other costs of $1.22 in the second quarter this year, $0.89 of which is related to goodwill and payment. Our adjusted effective tax rate was 23.9%.

Heinrich Jonker: On slide 12, I highlight specifics of infrastructure solutions. Net sales increased 11% to 221.4 million, which, as I mentioned, was a result of strong performance from equipment sales and pricing actions. We saw strong performance in domestic sales, international sales, and equipment sales, which increased 9.5%, 39.2%, and 32.2% respectively, while part sales were down 4.6%. Segment operating adjusted EBITDA increased 5.8% to 27.2 million, and segment operating adjusted EBITDA margin decreased 60 basis points to 12.3%. Primarily due to manufacturing inefficiencies and higher SG&A costs, which were partly offset by positive net volume and mix, pricing net off inflation and other period cost.

Widdersburg: On slide 12 I highlight specifics of infrastructure solutions. Net sales increased 11% to $221.4 million, which as I mentioned was a result of strong performance from equipment sales and pricing actions.

Widdersburg: We saw strong performance in domestic sales, international sales and equipment sales, which increased 9.5%, 39.2% and 32.2% respectively, while part sales were down 4.6%.

Heinrich Jonker: Segment Operating Adjusted EBITDA increased 5.8% to $27.2 million, and Segment Operating Adjusted EBITDA Margin decreased 60 basis points to 12.3%, primarily due to manufacturing inefficiencies and higher SG&A costs, which were partly offset by positive net volume and mix, pricing net of inflation, and other period costs. Segment Operating Adjusted EBITDA decreased 44.3% to 10.2 million, and Segment Operating Adjusted EBITDA Margin decreased 390 basis points to 8.2%, primarily due to lower net volume and mix, manufacturing inefficiencies from lower volumes, and higher SG&A costs, partly offset by pricing, net of inflation, and other period costs.

Heinrich Jonker: Moving to slide 13, material solutions made sales decreased 17.7% to 124.1 million, driven by low-equipment sales, which were attributable to fewer product conversions and continued finance capacity constraints with contractors and dealers. The domestic equipment and part sales were down 33.4%, 23.4%, and 2.3%, respectively, while international sales were up 10.9%. Segment operating adjusted EBITDA decreased 44.3% to 10.2 million, and segment operating adjusted EBITDA margin decreased 390 basis points to 8.2%. Primarily due to lower net volume and mix, manufacturing inefficiencies from lower volumes and higher SGNA costs, partly offset by pricing net off inflation and other period cost.

Widdersburg: Moving to slide 13, Materials Solutions net sales decreased 17.7% to $124.1 million, driven by lower equipment sales, which were attributable to fewer product conversions and continued finance capacity constraints with contractors and dealers.

Widdersburg: Domestic equipment and parts sales were down 33.4%, 23.4%, and 2.3% respectively, while international sales were up 10.9%.

Widdersburg: Segment Operating Adjusted EBITDA decreased 44.3% to $10.2 million and Segment Operating Adjusted EBITDA Margin decreased 390 basis points to 8.2%.

Widdersburg: primarily due to lower net volume and mix, manufacturing inefficiencies from lower volumes and higher SG&A costs.

Heinrich Jonker: Turning to our adjusted EBITDA bridge, on slide 14, as I said before, we added a client and adjusted EBITDA of 14.3% to 27.6 million, and a decline in adjusted EBITDA margin of 120 basis points to 8%. We saw a benefit of 10.5 million from volume, pricing, and mix, with a 3.7 million impact from inflation and an impact of 7.6 million from manufacturing inefficiencies, partly offset with other period cost and a 3.8 million impact from SGNA. The decrease in our adjusted EBITDA margin is due to lower volumes, which affected manufacturing inefficiencies at select sites and higher SG&A, partly offset with pricing net off inflation and other period cost.

Heinrich Jonker: Turning to our adjusted EBITDA bridge, on slide 14, as I said before, we had a decline in adjusted EBITDA of 14.3% to $27.6 million and a decline in adjusted EBITDA margin of 120 basis points to 8%. We saw a benefit of $10.5 million from volume, pricing, and mix, with a $3.7 million impact from inflation, an impact of $7.6 million from manufacturing inefficiencies, partly offset by other period costs, and $3.8 million impact from SG&A.

Widdersburg: We saw a benefit of $10.5 million from volume, pricing and mix with a $3.7 million impact from inflation and impact of $7.6 million from manufacturing inefficiencies.

Widdersburg: partly offset with other period costs and $3.8 million impact from SG&A.

Heinrich Jonker: On slide 15, you can see we ended the quarter with cash and cash equivalence of 60.6 million, available credit of 115.2 million, and total available liquidity of 175.8 million, which decreased 25% as compared to December 31, 2020. 3. Our operating activities were at $10.9 million source of cash for the second quarter. Slide 16 shows the execution of our Balance Capital Deployment framework. We returned cash to shareholders by issuing a dividend of $0.13 per share in the second quarter, and we spent $7.6 million on capital expenditure to increase capacity and improve efficiency. Our approach to M&A continues to closely align to our overall growth strategy, and we have $116 million remaining in our authorised share repurchase programme.

Heinrich Jonker: On slide 15, you can see we ended the quarter with cash and cash equivalents of $60.6 million, available credit of $115.2 million, and total available liquidity of $175.8 million, which decreased 25% as compared to December 31, 2023. Our operating activities were a $10.9 million source of cash for the second quarter. Slide 16 shows the execution of our Balanced Capital Deployment Framework. Turning to slide 17, I will turn the call back over to Jaco. Thanks.

Widdersburg: On slide 15, you can see we ended the quarter with cash and cash equivalents of $60.6 million, available credit of $115.2 million.

Widdersburg: and total available liquidity of $175.8 million, which decreased 25% as compared to December 31st, 2023.

Widdersburg: Our operating activities were a $10.9 million source of cash for the second quarter.

Widdersburg: Slide 16 shows the execution of our Balanced Capital Deployment Framework. We returned cash to shareholders by issuing a dividend of $0.13 per share in the second quarter and we spent $7.6 million on capital expenditure to increase capacity and improve efficiency.

Widdersburg: Our approach to M&A continues to closely align to our overall growth strategy, and we have $116 million remaining in our authorized share repurchase program.

Heinrich Jonker: Turning to slide 17, I will turn the call back over to Yaku.

Widdersburg: Turning to slide 17, I will turn the call back over to Jaku.

Jaco Merwe: Thanks, Heinrich. While various market dynamics continue to present challenges, we are confident in the fundamentals of our business and our ability to capitalise on opportunities as market conditions improve. We are focused on delivering consistent results for our customers and are working to derive further cost efficiencies. In support of these efforts, we implemented a restructuring programme across our segments during the quarter to address manufacturing inefficiencies across the organisation. The infrastructure solution segment remains strong, underscored by the healthy demand in the infrastructure construction markets that we highlighted today. As noted earlier, material solutions continue to face near-term headwinds.

Jaco: Thanks, Heinrich.

Jaco Merwe: We are confident in the fundamentals of our business and our ability to capitalize on opportunities as market conditions improve. We are focused on delivering consistent results for our customers and are working to drive further cost efficiency. In support of these efforts, we implemented a restructuring program across our segments during the quarter to address manufacturing inefficiencies across the organization. We will continue to drive margin improvements through cost efficiencies and pricing action, as backlog further stabilizes during Q2. And in polite order, stand positive.

Jaco: While various market dynamics continue to present challenges, we are confident in the fundamentals of our business and our ability to capitalize on opportunities as market conditions improve.

Jaco: We are focused on delivering consistent results for our customers and are working to drive further cost efficiencies.

Speaker Change: As noted earlier, material solutions continue to face near-term headwinds. However, our long-term outlook is encouraging due to Q2 increase in plight orders, demonstrating solid dealer interest for future bookings and sales.

Jaco Merwe: However, our long-term outlook is encouraging due to acute to increased implied orders, demonstrating solid dealer interest for future bookings and sales. We will continue to drive modern improvements through cost efficiencies and pricing actions. As backlog further stabilized in Q2 and implied orders turn positive, we expect full-year sales to be flat or grow low single digits versus 2023.

Jaco Merwe: We expect full-year sales to be flat or grow low single digits versus 2020. Their efforts enable us to be recognized as the trusted source for high-quality solutions we provide to our customers. As you know, domestic road construction is foundational to our business model. Consistent federal government and state highway funding continues to provide strength and resilience for our company, customers, and shareholders at each manufacturing site. With these modifications, we now expect the annual expense to decrease after 2024 and any implementations after 2027 to be completed with internal resources.

Jaco Merwe: Concluding with slide 18, as I mentioned before, I am proud of the dedication and hard work of the employees of Aztec. Their efforts enable us to be recognised as the trusted source for high-quality solutions we provide to our customers. As you know, the domestic road construction is foundational to our business model. Consistent federal government and state highway funding continues to provide strength and resilience for our company, customers, and shareholders. Over the past several months, I have spent a lot of time with customers by visiting their facilities and attending trade shows. They have strong backlogs stretching into 2025 and remain positive about the future.

Speaker Change: Their efforts enable us to be recognized as the trusted source for high quality solutions we provide to our customers.

Speaker Change: Over the past several months, I have spent a lot of time with customers by visiting their facilities and attending trade shows.

Jaco Merwe: They have improved the rate of orders this quarter, and yet to date growth in our aftermarket parts business supports their sentiment. I am also encouraged by our major transformational efforts. We are changing the pace of deployment of future site conversions to add enhancements and reduce business disruptions at each manufacturing site. With these modifications, we now expect the annual expense to decrease after 2024, and any implementations after 2027 to be completed with internal results.

Speaker Change: Our improved rate of orders this quarter and year-to-date growth in our aftermarket parts business supports their sentiment.

Jaco Merwe: I'm especially excited about the new product offerings initiated during my first 18 months in the role of CEO. We will celebrate the 52nd anniversary of Astec this week, but I have no doubt the best is yet to come.

Jaco Merwe: I'm especially excited about the new product offerings initiated during my first 18 months in the role of CEO. We will celebrate the 52nd anniversary of ASTEC this week, but I have no doubt the best is yet to come.

Speaker Change: We will celebrate the 52nd anniversary of ASTEC this week, but I have no doubt the best is yet to come. With that, we are happy to take your questions.

Jaco Merwe: With that, we are happy to take your questions. If your question has been answered and you want to remove yourself from the queue, press star one.

Speaker Change: If you would like to ask a question, press star 1 on your telephone keypad. If your question has been answered and you would like to remove yourself from the queue, press star 1.

Mick Dobre: We'll go first to the line of Mitch, the brief with Baird.

Mick Dobre: Yes, this is actually Mick Dobre with Baird. Good morning, everyone. Are you? Good morning, Mick. Quick question. Appreciate all the color in terms of how you're viewing the back half, but if we're looking at material solutions specifically, how do you think about revenue here relative to what you were able to put up in the second quarter, that $124 million figure? Yeah, Mick, I mean, you know, for us to reach that level same to last year or, you know, the low single digit upside, you know, we see the material solution sales more or less in line with what we had in the beginning of the year.

Meg Dobre: Yes, this is actually Meg Dobre. Good morning, everyone. How are you? Good morning. How do you think about revenue here relative to what you were able to put up in the second quarter, that $124 million?

Speaker Change: How do you think about revenue here relative to what you were able to put up in the second quarter, that $124 million figure?

Speaker Change: Yeah, Mick, I mean, you know, for us to reach that level same to last year, or

Speaker Change: or, you know, the low single-digit upside.

Jaco Merwe: We still need, you know, some orders to convert in order for us to reach that level, so we don't have everything in backlog at the moment. But, as we mentioned on the call, you know, our activity and quoting activity is strong and supplemented by really good activity coming from our international sites. Keep in mind, you know, that we do about, you know, maybe about 35 to 40 million and parts on the material solution side as well per quarter. And we've seen some really nice activity on the part side here. So far, so far this year and even into July already.

Speaker Change: with what we had in the beginning of the year. We still need some orders to convert in order for us to reach that level. So we don't have everything in backlog at the moment.

Jaco Merwe: But, as we mentioned on the call, our activity and quoting activity is strong and supplemented by really good activity coming from our international site.

Jaco Merwe: So I'm sorry, just to make sure that I'm clear on this, are you saying that the second half revenues are going to be similar to the first half, were similar to the second quarter? And then let's see what we had in the first and second quarter. We had 124 million in the second quarter and, you know, for us to reach that level, material solutions need to do about 216 million in H2. So Nick, we, we, we, we feel it comfortable that we will be in that range for the next couple of quarters. Okay. And as we're thinking about margins here, you know that in the second quarter on the 124 million of revenue delivered a little north of 8% EBITDA margin in this segment, is that a good run rate?

Speaker Change: So, I'm sorry, just to make sure that I'm clear on this, are you saying that the second half revenues are going to be similar to the first half or similar to the second quarter?

Jaco Merwe: We had $124 million in the second quarter, and for us to reach that level, material solutions need to do about $260 million in H2. So, Meg, we're fairly comfortable that we will be in that range for the next couple of quarters.

Speaker Change: We had a hundred and twenty four million...

Speaker Change: Okay.

Speaker Change: And as we're thinking about margins here...

Speaker Change: you know that in the second quarter on the hundred and twenty four million of revenues

Speaker Change: delivered a little north of 8% EBITDA margin in this segment. Is that a good run rate as we think about the second half if you achieve these levels of revenues or are there some specific

Jaco Merwe: As we think about the second half, if you achieve these levels of revenues, or are there some specific inefficiencies that you think you're going to be able to wind down and have. and different looking origins in the back end. Yeah. Actually, if you look at Elmtearo Solutions' side of the business, the guys have done a really good job actually to minimize our underabsorption in our factories. So we feel confident that, you know, the Martin outlook for the race staff of H2 will be in line with what we've seen in Q2. You know, we are also utilizing some of the facilities to manufacture components for our asphalt plant business. As we mentioned, you know, that business is doing really well, and we're using that capacity that we have available, you know, in certain of the material solution sites.

Speaker Change: inefficiency that you think you're going to be able to wind down and have.

Speaker Change: different-looking margins in the background.

Speaker Change: Yeah.

Speaker Change: Yeah, actually, if you look at our material solutions side of the business, the guys have done a really good job.

Speaker Change: actually to minimize our under absorption in our factories. So we feel confident that, you know, the margin outlook for the rest of H2 will be in line with

Speaker Change: with what we've seen in Q2.

Speaker Change: You know, we are also utilizing some of the facilities.

Jaco Merwe: Got it.

Operator: Got it. And then, the last question on...

Jaco Merwe: And then last question, on even that bridge that you presented on slide 14, I'm sort of curious when we're thinking about this 7.6 million drag from inefficiencies and maybe also included in this, the drag on this G&A. Can you kind of give us a sense in terms of what you are doing to try to generate savings to offset some of these drags? And at what point in time should we start to see normalization? Is that a 2025 event? Does the stretch even be on that? So, yeah, you know, a little bit of head holding here would be helpful.

Speaker Change: Eva Dobridge that you presented on slide 14. I'm sort of curious when we're thinking about this 7.6 million drag from inefficiencies and maybe also included in this the drag on SG&A.

Jaco Merwe: Yeah, no, absolutely. And there's, you know, the restructuring efforts that we've, that we've put in across the company, you know, that will give us a run rate savings of about 1.5 to 1.8 million a quarter. And then the majority of this is actually coming from one of our facilities that we are, you know, doing our major transformation in. So, this is a facility where we combined, you know, two facilities that was announced, you know, a couple of years ago. That execution, you know, is coming to a close now, although it's been, it's been a real challenge for us.

Speaker Change: Yeah, no, absolutely. And there's, you know, there's two things here, Mick, that we can talk about. One, we talked about the restructuring efforts that we've put in across the company. You know, that will give us a run rate savings of

Speaker Change: that that we are doing our major transformation in.

Jaco Merwe: We've also, you know, invested quite a bit of money into new equipment there, manufacturing equipment. You know, it's been taking us a while to get the utilization up on that equipment. And, you know, when we combine these sites, obviously, we brought in manpower to overcome, you know, the inefficiencies by just bringing the lines together. We, we made some adjustments in our manpower here in the past quarter. And we feel that by age two of 2025, you know, this will be something that will be contributing instead of, instead of detracting the way it does at the moment.

Speaker Change: and we feel that by H2 of 2025,

Speaker Change: This will be something that will be contributing instead of detracting the way it does at the moment.

Mick Dobre: Great. Thank you so much.

Stephen Ferazani: Thanks, thanks. Your next question is from Stephen Ferazani, Wicidoti. Morning, Jaco, Heinrich; thanks off for all the detail and call. Want to ask if I'm going up on the margin? I want to follow up on the margin question because you had been indicating gross margins should be in the 24 to 25 and a half percent range for the year. You were in the middle of that range last year, but clearly you're cracking lower through the first half of this year last year.

Stephen Ferazani: Your next question is from Stephen Ferazani with Sidoti.

Bing: Thanks, Meng.

Speaker Change: Your next question is from Stephen Ferazani with Sidoti.

Stephen Ferazani: I wanted to ask a follow-up on the margin question, because you had been indicating

Jaco Merwe: Gross margin should be in the 24 to 25 and a half percent range for the year. You were in the middle of that range last year, but clearly, you're tracking lower through the first half of this year compared to last year. Do you want to adjust that target?

Stephen Ferazani: Gross margin should be in the 24 to 25.5% range for the year. You were in the middle of that range last year, but clearly you're tracking lower through the first half of this year to last year. Do you want to adjust that target?

Jaco Merwe: Do you want to adjust that target? Yeah, we've actually done a really deep dive in that, Steve. At this point in time, we feel comfortable to keep that range. We obviously had a big shift in the mix in capital and parts year in Q2. I mean, in total, there was about a $19 million shift between capital and parts. We feel that the teams have a lot of good work that will position us to still get to that 24 to 25 percent range or 25 per year range, so we still feel comfortable that we can get to that level.

Stephen Ferazani: Yeah, we've actually done a really deep dive in that, Steve, and at this point in time, we feel comfortable to keep that range.

Steve Anderson: You know, we obviously had a big shift in the mix in capital and parts here in Q2. I mean, in total, there was about a $90 million shift between capital and parts.

Jaco Merwe: And we feel that, you know, the teams have done a lot of good work that will position us to still get to that 24% to 25% range, or 25.5% range, by year end. So we still feel comfortable that we can get to that level.

Jaco Merwe: So the lower than target margin was mixed.

Jaco Merwe: To the lower than target margins mix, primarily? Yes, for Q2, definitely. If you look at it, we had about 70, 60 million higher capital sales in Q1, and we had about 25 million lower, but all sales in Q1. How much of that was, I know when you reported Q1, there are a couple of, I believe, was either as well to concrete plants that pushed into Q2 because of some issues with electronic opponents. Was that resolved? And at that time, you also indicated it could also push some orders into Q3, such that Q3 would not be as seasonally weak as maybe it traditionally is.

Speaker Change: So the lower-than-target margin was mixed, primarily.

Jaco Merwe: I believe it was either asphalt or concrete plants that pushed into Q2 because of some issues with electronic components. Was that resolved? And at that time, you also indicated it could also push some orders into Q3 such that Q3 would not be as seasonally weak as maybe it traditionally is.

Jaco Merwe: Yeah, so I will say the electronic component issue we talked about in Q1 is largely resolved. We don't think that it will affect any deliveries going forward, and, you know, we didn't push much over to Q3 as we indicated in Q1.

Jaco Merwe: Yeah, so I will say that the electronic component issue we talked about in Q1 is largely resolved. We don't think that it will affect any deliveries going forward, and we didn't push much over to Q3 as we indicated in Q1.

Jaco Merwe: So you would expect more of it traditionally, seasonally soft Q3? Yeah, I mean, you can say that Q3 will be softer than the other two quarters so far this year. Although, you know, if you think about what we said, you know, flat to low single digit sales grow for the year, you know, we do expect a fairly strong age too. Yeah, because if Q3 is really seasonally soft and you would have to get to that number, you would have to have a massive Q4. Yeah, yeah, absolutely. So, you know, it just depends on exactly when customers will take deliveries. You know, see one thing that is highly dependent is when our customer sites are ready to take plans. And right now, obviously, we see, you know, the outlook for H2. One thing to remember is that, you know, we cannot bolt everything just in one quarter.

Jaco Merwe: So, you know, it just depends on exactly when customers will take delivery. You know, Steve, one thing that is highly dependent is when our customer sites are ready to take plants. And right now, obviously, we see the outlook for H2. One thing to remember is that, you know, we cannot build everything just in one quarter. So, you know, manufacturing will actually be pretty strong in the third quarter, even though, you know, let's say sales might be seasonally soft because, you know, for us to deliver.

Jaco Merwe: So, you know, manufacturing will actually be pretty strong in the third quarter, even though, you know, let's say sales might be seasonally soft, because, you know, for us to deliver the outlook, you know, we will have pretty strong production in the third quarter as you know, you know, we will have pretty strong production in the third quarter as you know, we will have pretty strong production in the third quarter, I'm assuming people don't necessarily want deliveries of plants in Q3, right, fair?

Speaker Change: Strong in the third quarter.

Speaker Change: Even though let's say sales might be seasonally soft.

Speaker Change: Because for us to deliver to deliver.

Speaker Change: The outlook.

We will have pretty strong production in the third quarter as well.

Jaco Merwe: I'm assuming people don't necessarily want deliveries of plants in Q3. No, I mean that's the peak season, you know, our customers are all running, and But we obviously have some deliveries planned into q q3 because some customers, you know, Well run right through the year depending on where they are in the country And especially when it goes to Greenfield sites, you know, it doesn't just about it doesn't make these right reductions

Speaker Change: I'm, assuming people don't necessarily want deliveries plants in Q3 right.

Jaco Merwe: No, that's the big season. Our customers are all running, but we obviously have some deliveries planned into Q3 because some customers will run right through the year depending on where they are in the country. And it's basically when it goes to Greenfield sites; you know, it doesn't disrupt, it doesn't disrupt the productions.

Speaker Change: Fair.

Speaker Change: No I mean, that's.

Speaker Change: That's the peak season.

Speaker Change: Our customers are all all running and but we obviously have some deliveries.

Speaker Change: Planned into into Q Q3, because some customers.

Speaker Change: We will run right through the year, depending on where they are in the country.

Speaker Change: And its basically when it goes to Greenfield sites.

Speaker Change: It doesn't it.

Speaker Change: It doesn't just right production.

Speaker Change: <unk>.

Jaco Merwe: Okay, you mentioned a couple of times on the call, and I just want to get a clear reference point. You talked about concrete and asphalt demand being really strong and expected into Q1 of 25. Can you sort of break that down for us a little bit about how healthy demand for your sort of core business and your market leadership business? How strong that is? What backlog is like? Can you break out that business specifically how that's looking and how far out you can have some visibility? Yeah, absolutely, you know, so that part of the business, we have the backlog at hand to deliver the sales that we have now outlook for H2.

Speaker Change: Okay.

Speaker Change: Just you mentioned a couple of times on the call and I just wanted to get a clear reference point, you talked about concrete and asphalt demand being really strong and expected into.

Speaker Change: Q1 of 'twenty five can you give us sort of break that down for us a little bit about how healthy demand for your sort of core business and your market leadership business. How strong that is what backlog is like can you breakout that business, specifically, how that's looking and how far out you can have some visibility.

Jaco Merwe: So it's back before for what we included in our outlook view. On the concrete side, you know, we have certain of our product lines that we well into 2025 already. On the asphalt side, you know, the guys are buzzing up Q1 of next year. So it's a really good position to begin. I will also say, you know, our guys in that part of the business from a manufacturing point of view has done a really good job to, you know, improve our capacity and output. And as we mentioned earlier, you know, we're also using some of our material solutions facilities to further, you know, improve our capabilities for that product lines or for those broad lines.

Jaco Merwe: Because that was really the concern, Yago, right, with that a lot of the asphalt and concrete plant demand was going to come in the early first couple of stages of the infrastructure spending bill. Would you say that you have clarity now that that's just not the case? And yeah, so I will say, you know, if you look at, if you look at where we are on the, we're right in the middle, basically. And actually, you know, two weeks ago, we were at the National Asphalt Paving Association where, you know, we got some great updates on the status of funding and spending.

Jaco Merwe: And, you know, so from a federal point of view, you know, funding is maybe in the third year from an actual flow of money. It's probably maybe in the second year. And then the states are following with their matching. So, you know, we still believe that 2025 on the asphalt and concrete side should be, you know, should be relatively strong. Although we think that the spending next year will be, you know, will be in line with this year from a federal funding point of view.

Operator: Okay, that's helpful. Thanks, Jaco.

Stephen Ferazani: Okay, that's helpful. Thanks, Yago.

Operator: Thanks, Jaco.

Operator: There are no further questions in the queue at this time.

Stephen Anderson: I will like to hand the call back to Steve Anderson for closing remarks. All right. Thank you, Tamika. We appreciate your participation on our conference call and thank you for your instant Aztec. As today's news release indicates, this conference call has been recorded. A replay of the conference call will be available through August 21st, 2024. An archive webcast will be available for 90 days. The transcript will be available under the Investor Relations section of the Aztec Industries website within the next seven days. All of that information is contained in the news release. We distributed this morning.

Operator: All right. Thank you, Tameka.

Operator: We appreciate your participation in our conference call, and thank you for your interest in Aztec. As today's news release indicates, this conference call has been recorded. A replay of the conference call will be available through August 21, 2024, and an archived webcast will be available for 90 days. The transcript will be available under the Investor Relations section of the Aztec Industries website within the next seven days. All of that information is contained in the news release we distributed this morning. And so, as we said, this concludes our call. I'll be happy to connect with any of you later on, and thank you all for your time. Have a good day.

Stephen Anderson: And so, as we said, this concludes our call. I'm happy to connect with any of you later on, and thank you all for your time. Have a good day.

Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.

Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.