Q3 2024 Astec Industries Inc Earnings Call
Operator: Hello and welcome to the Astec Industries 3rd Quarter 2024 Earnings As a reminder, this conference call is being recorded.
Hello, and welcome to the Aztec industries third quarter 2024 earnings call.
As a reminder, this conference call is being recorded.
Stephen Anderson: It is my pleasure to introduce your host, Steve Anderson, Senior Vice President of Administration and Investor Relations.
Speaker Change: It is my pleasure to introduce your host Steve Anderson Senior Vice President of administration and Investor Relations. Mr. Anderson you may begin.
Stephen Anderson: Mr. Anderson, you may begin. Thank you and welcome to the ASTEC third quarter 2024 earnings conference call. Joining me on today's call are President and Chief Executive Officer, Jaku Thundermurva, our newly appointed Chief Financial Officer, Brian Harris, and Vice President of Finance for Infrastructure Solutions, Heinrich Jonker.
Steve Anderson: Thank you and welcome to the Aztec third quarter 2024 earnings Conference call.
On today's call are president and Chief Executive Officer, Yahoo, <unk>, our newly appointed Chief Financial Officer, Brian Harris, and Vice President of Finance for infrastructure solutions Heinrich Yakov.
Stephen Anderson: In just a moment, I'll turn the call over to Jaku to provide comments and then Brian and 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. Any 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.
Steve Anderson: And just a moment I'll turn the call over to Yahoo to provide comments and then Brian in Heidrick 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.
Steve Anderson: Any 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.
Stephen Anderson: As usual, we ask that you familiarize yourself with those factors.
As usual, we ask that you familiarize yourself with those factors.
Stephen Anderson: The company refers to various U.S. GAAP, which are generally accepted accounting principles, 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 for other companies. Management of the company does not intend these items to be considered in isolation or as a substitute for the related U.S. GAAP measure. A reconciliation of U.S. GAAP to non-GAAP results is included in our earnings release in the appendix of our slide. All related earnings materials are posted on our website.
Steve Anderson: The company refers to various U S GAAP, which are generally accepted accounting principles.
Steve Anderson: non-GAAP financial measures, which management believes provide useful information to investors.
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 U S. GAAP measures a reconciliation.
Steve Anderson: Filiation of U S. GAAP to non-GAAP results is included in our earnings release, and the appendix of our slide deck.
All related earnings materials are posted on our website.
Stephen Anderson: at www.AstecIndustries.com, including our presentation, which is under the Investor Relations and Presentation tabs.
Yahoo: At Www, Aztec industries Dot com, including our presentation, which is under the Investor Relations presentation tabs now I will turn the call over to Yahoo.
Jaco Merwe: Now I will turn the call over to Jaco. Thank you, Steve. Good morning, everyone, and thank you for joining us.
Speaker Change: Thank you Steve Good morning, everyone and thank you for joining us.
Jaco Merwe: Before I begin, I would like to welcome Brian Harris, who, as you know, joined us as Astec's new Chief Financial Officer a few weeks ago. We are thrilled to have Brian on board. He brings with him significant experience, having held leadership roles across several public companies. Most recently, he spent 10 years as the Chief Financial Officer of Summit Materials. a leading producer of aggregates, concrete, and asphalt. And we look forward to benefiting from his experience.
Yahoo: Before I begin I would like to welcome Brian Harris.
Yahoo: As you know joined us as <unk>, New Chief Financial Officer, a few weeks ago.
Yahoo: We are thrilled to have Brian on board.
Yahoo: He brings with him significant experience, having held leadership roles across several public companies.
Yahoo: Most recently he spent 10 years as the Chief financial Officer of summit materials, a leading producer of aggregates concrete and asphalt and we look forward to benefiting from user experience.
Brian Harris: I will hand it over to Brian to say a few words about himself at the start of the financial results.
Yahoo: I will hand, it over to Brian to say a few words about himself at the start of the financial results section.
Jaco Merwe: I would also like to take this opportunity to thank Heinrich for stepping in as Interim Chief Financial Officer. and providing the leadership needed at an important time in Astec.
Yahoo: I would also like to take this opportunity to thank Congress for stepping in as interim Chief Financial Officer.
Yahoo: Providing the leadership needed at an important time in <unk> journey.
Jaco Merwe: I look forward to continue working with Heinrich as vice president of finance in our infrastructure solutions With that, we will turn to our third quarter highlights, summarized on slide five. We remain focused on executing against our strategy and key operational initiatives. strengthen our foundation and position the company for growth. In the third quarter we had mixed results. On a consolidated basis, we delivered $291.4 million in net sales. which was slightly less on a year-over-year basis. due to reductions in equipment and parts. Gross margin was stable and generally in line with the priority. Importantly, we were cash flow positive in the quarter, having generated $19.9 million of free cash.
Yahoo: I look forward to continue working with him as vice President.
Yahoo: Our finance in our infrastructure solutions segment.
Yahoo: With that we will turn to our third quarter highlights summarized on slide five.
Yahoo: We remain focused on executing against our strategy and key operational initiatives.
Yahoo: <unk>, our foundation and position the company for growth.
Yahoo: In the third quarter, we had mixed results on.
Yahoo: On a consolidated basis, we delivered $291 4 million in net sales.
Yahoo: Which was slightly less on a year over year basis due to reductions in equipment and part sales.
Yahoo: Gross margin was stable and generally in line with the prior year.
Yahoo: Importantly, we were cash flow positive in the quarter, having generated $19 9 million of free cash flow.
Jaco Merwe: In infrastructure solutions, we benefited from the strong infrastructure construction market. which continued to generate healthy demand for asphalt and concrete lawn delivery. The infrastructure construction market is supported by a long-term runway for federal highway projects. Dealer inventory levels and interest rates continue to influence the material solutions sector. resulting in slower product conversion. As stated previously, we do believe inventory levels will moderate over the next two to three quarters, and the Federal Reserve's interest rate reduction of 50 basis points in September was welcome news to our dealers and customers.
Yahoo: In infrastructure solutions, we benefited from the strong infrastructure construction market.
Yahoo: Which continued to generate healthy demand for asphalt and concrete blonde deliveries the.
Yahoo: The infrastructure construction market as supported by long.
Yahoo: Our runway will fade that'll highway projects.
Yahoo: Dealer inventory levels and interest rates continued to influence the materials solutions segment.
Yahoo: The resulting in slower product conversions.
Yahoo: As stated previously we do believe inventory levels will moderate over the next two to three quarters and the federal reserves interest rate reduction of 50 basis points in September was welcome news to our dealers and customers.
Jaco Merwe: Finally, turning to backlog, we ended the quarter at $476 million. As I have noted, we saw a bit of a divergence in backlog between our two sectors.
Yahoo: Finally, turning to backlog, we ended the quarter at $476 million.
Yahoo: As I have noted that we saw a bit of a divergence in backlog, but to me now two segments with.
Jaco Merwe: infrastructure solutions evidencing a relatively stable trend and material solutions showing moderate On slide six, we gave an update on our strategic roadmap. As you will recall, we introduced this new strategic framework earlier this year as we aligned the organization's focus on three core pillars. The combination of fostering empowered, enabled, and engaged employees. being laser focused on our customers. continuing to provide industry changing innovation. is our strategic roadmap for the remainder of 2024 and beyond. We are pleased to see our 2024 Voice of One ASTEC employee survey results showed positive trends and alignment on our goals and objectives was The positive changes made to our business over the past year and a half will enhance our ability to execute for our customers and drive value for our customers.
Yahoo: With infrastructure solutions evidence in a relatively stable trend and material solutions selling moderating trains.
Yahoo: On slide six we gave an update on our strategic roadmap.
Yahoo: As you will recall, we introduced this new strategic framework earlier this year as we align the organization's focus on three core pillars.
Yahoo: The combination of fostering empower enabled and engaged employees.
Yahoo: Being laser focused on our customers.
Yahoo: And continuing to provide industry changing innovations is our strategic roadmap for the remainder of 2024 and beyond.
Yahoo: We are pleased to see our 2020 for voice of one acetate employee survey results show positive trends.
Yahoo: And alignment on our goals and objectives was evident.
Yahoo: The positive changes made to our business over the past year and a half will enhance our ability to execute for our customers and drive value for you our shareholders.
Jaco Merwe: Turning now to slide 7. Let me share some observations on our current business dynamic. for our infrastructure solutions and material solutions.
Yahoo: Turning now to slide seven.
Yahoo: Let me share some observations on our current business dynamics put out infrastructure solutions and material solutions segments.
Jaco Merwe: Thank you. while the quarter experienced various sector challenges. The overall outlook for domestic road building is encouraging. The Infrastructure Investment Jobs Act disbursements are expected to continue at a high level and states continue to invest. For example, Texas Governor Abbott announced a record $148 billion 10-year investment for state transportation infrastructure. In addition, the Federal Highway Administration recently released $134 million to repair roads in North Carolina, Tennessee, and South Carolina damaged by Hurricane Iliad. We expect continued strong demand for asphalt road building and concrete production equipment moving forward. I should note that our paving and forestry products are also sold through a dealer distribution network that experiences the same interest rate pressures felt by our material solutions.
Yahoo: While the quarter experienced various sector challenges the overall outlook for domestic road building is encouraging.
Yahoo: The infrastructure investment jobs Act disbursements are expected to continue at a high level and states continue to invest.
Yahoo: For example, Texas Governor Abbott announced a record 148 billion 10 year investment for state transportation infrastructure.
Yahoo: In addition, the Federal Highway administration recently released $134 million to repair the roads in North Carolina, Tennessee, and South Carolina damaged by Hurricane Ilene.
Yahoo: We expect continued strong demand for asphalt road building and concrete production equipment moving forward.
Yahoo: I should note that our paving and forestry products are also sold through a dealer distribution network that the experience is the same interest rate trade offs fell by our material solutions dealer.
Jaco Merwe: That said, we are encouraged by the record bookings for parts in the infrastructure solution segment during the month of October. Many of the factors in the infrastructure solution segment are also positive for our material solutions. As I'm sure you know, aggregates are used as base materials for roads and are key ingredients for asphalt and concrete. Although dealer destocking continues to present a near-term headwind, lower interest rates promise to relieve debt servicing requirements for our dealers and NUs. Our one Astec business model has also helped. we have been able to share facility capacity among site, both of which are beneficial for absorption and workforce retention.
Yahoo: That said, we are encouraged by the record bookings for parts in the infrastructure solutions segment during the month of October.
Yahoo: Many of the factors in the infrastructure solutions segment are also positive for our material solutions segment.
Yahoo: As I'm sure you know aggregates all used as base with details for roads and our key ingredients for asphalt and concrete.
Yahoo: Although dealer Destocking continues to present, a near term headwind lower interest rates, but almost a relief debt servicing requirements for our dealers and end users.
Yahoo: Our one <unk> business model has also helped as we have been able to shade facility capacity among sites, both of which are beneficial for absorption and workforce at <unk>.
Jaco Merwe: As with the infrastructure solution segment, part bookings for the month of October were strong. Slide 8 shows our backlog levels, which continue to moderate. As I noted earlier, the backlog trends underscore the relative stability in infrastructure solutions. While material solutions has been challenged in the short term by excess inventory in the dealer channel and higher interest rates. On slide 9, our implied orders of $236 million were slightly higher than the prior year's third quarter level of $229 million. year-over-year growth of infrastructure solutions in applied order. 29 million was partially offset by a 21 million decline in materials.
Yahoo: As with the infrastructure solutions segment parts bookings for the months of October was strong.
Yahoo: Slide eight shows our backlog levels, which continued to moderate.
Yahoo: As I noted earlier, the backlog trends underscore the relative stability in infrastructure solutions, while material solutions has been challenged in the short term by excess inventory in the dealer channel and higher interest rates.
Yahoo: On slide nine.
Yahoo: Implied orders of $236 million were slightly higher than the prior year's third quarter level of $229 million.
Yahoo: Year over year growth of infrastructure solutions implied orders of $29 million was partially offset by a $21 million decline in material solutions.
Jaco Merwe: Despite an overall reduction in sequence We are encouraged by solid dealer quoting for future material solutions bookings and sales.
Yahoo: Despite an overall reduction sequentially, we are encouraged by solid dealer quoting for future material solutions bookings and sales.
Jaco Merwe: As previously shared, our strategic roadmap includes an industry-changing innovation pillar. And I am proud of our progress on new product development shown on slide. through our 52-year history. Astec has been recognized as a leader in innovation, which is a fundamental element of our company. A great example of this is our new Astec Remix Cold Central Plant Recycle, or CCPR. The CCPR system is a cold recycling technology. It is a sustainable approach to road construction that minimizes the environmental impact. by using reclaimed asphalt pavement materials and mixing them at ambient temperature. Our system minimized cost by significantly reducing the need for both virgin aggregate and the energy needed for heating them.
Yahoo: As previously shared our strategic roadmap includes an industry changing innovation pillar and I am proud of our progress on new product development shown on slide 10.
Yahoo: 352 year history.
Yahoo: <unk> has been recognized as a leader in innovation, which is a fundamental element of our company.
Yahoo: A great example of this is our new assay could remix cold central plant III cycle or <unk> system.
Yahoo: The <unk> system is a cold recycling technology.
Yahoo: It is a sustainable approach to their outcomes production that minimizes the environmental impact.
Yahoo: By using reclaimed asphalt pavement materials and mixing them at A&P and temperatures our system minimized costs by significantly reducing the need for both Virgin aggregate and the energy need that for eating the mix.
Jaco Merwe: We have multiple prototypes running in the field with positive results. We are excited about providing this solution to our customers. Slide 11 also showcases the sustainability of our product. which is a critical important component of our. We strive to be environmentally responsible pillars of the communities in which we work and live. We are also committed to decreasing the carbon footprint of our own operations while supporting our customers on their sustainability goals. The good example of this is our 6750B wood grinder, which enables high-volume recycling of organic waste and supports the production of alternative biomass fuels.
Yahoo: We have multiple prototypes running in the field with positive results we.
Yahoo: We are excited about providing this solution to our customers.
Yahoo: Slide 11 also showcases the sustainability of our products, which is a critical important component of our offerings.
Yahoo: We strive to be environmentally responsible for less of the communities in which we work and live.
Yahoo: We are also committed to decreasing the carbon footprint of our own operations, while supporting our customers on their sustainability journey.
Yahoo: A good example of this is our 67 50, b would grind them, which enables high volume recycling of organic waste and supports the production of alternative biomass fuels.
Jaco Merwe: Another example is our RX-405 cold planer, which utilizes a stage 5 engine to minimize emissions while facilitating the reclaiming and reuse of asphalt materials from existing roads. And finally, our double-barrel XHR produces asphalt materials with up to 65% recycled carbon. These products and many others evidence our commitment to continually develop innovative products that drive progress towards a more sustainable environment.
Yahoo: Another example is our <unk> 405 coal planar.
Yahoo: Which utilizes a stage five engine to minimize emissions, while facilitating the reclaiming and the knee use of asphalt materials from existing routes.
Yahoo: And finally, our double battle ex HR produces asphalt materials with up to 65% recycled content.
Yahoo: These products and many others evidenced our commitment to continually develop innovative products that drive progress towards a more sustainable environment.
Jaco Merwe: That concludes my remarks.
Speaker Change: That concludes my remarks, so let me now turn it over to Brian to introduce himself Brian.
Brian Harris: So let me now turn it over to Brian to introduce himself. Brian. Thank you, Jaco. It's a pleasure to be here and to be part of the Astec team. Having been in the industry over the last 10 years, I have long admired and respected Astec for its high quality, innovative products and the high caliber of its people. I am particularly excited to join Astec at this pivotal stage. Jaco and the team have navigated through a challenging time and have built a strong foundation for the business. There's more work to do, but I'm very encouraged by everything I've seen thus far and I'm confident in the opportunity for growth and value creation ahead.
Brian: Thank you Yakov.
Brian: It's a pleasure to be here and to be part of the <unk> team.
Brian: Having been in the industry over the last 10 years I have long admired and respected Aztec for its high quality innovative products and the high caliber of its people.
Brian: I am, particularly excited to join us at this pivotal stage.
Brian: Jaco and the team have navigated through a challenging time and have built a strong foundation for the business.
Brian: There's more work to do but I'm very encouraged by everything I've seen thus far and I am confident in the opportunity for growth and value creation ahead.
Brian Harris: As I continue to settle into this new role, I look forward to speaking with you about Q4 and fiscal 2024 results in the new year.
Brian: As I continue to settle into this new role and look forward to speaking with you about Q4 and fiscal 2024 results in the new year.
Heinrich Jonker: With that, let me turn it over to Heinrich to review Q3 results. Thank you, Brian, and good morning, everyone. Diving into the numbers on slide 13, net sales decreased 3.9% to $291.4 million in a quarter year over year. As Jaco said earlier, we continue to see strong demand for asphalt and concrete plant equipment and a decrease for material solutions products. By region, domestic sales accounted for approximately 72% of consolidated net sales, with international comprising the remaining 28%. Overall, natomastic sales were down 8% year-over-year, while international sales increased 9.1%. By segment, infrastructure solutions net sales increased 1.1% year over year, while material solution sales decreased 9.6%.
Speaker Change: With that let me turn it over to Heinrich to review Q3 results.
Heinrich Yakov: Thank you, Brian and good morning, everyone.
Heinrich Yakov: Diving into the numbers on slide 13, net sales decreased three 9% to $291 4 million in the quarter year over year as.
Heinrich Yakov: Jaco said earlier, we continue to see strong demand for asphalt and concrete plant equipment and a decrease for material solutions products.
Brian: By region the.
Brian: <unk> sales accounted for approximately 72% of consolidated net sales with international comprising the remaining 28%.
Brian: Overall make domestic sales were down 8% year over year.
Brian: While international sales increased nine 1%.
Brian: By segment infrastructure solutions net sales increased one 1% year over year, while material solution sales decreased nine 6%.
Heinrich Jonker: Adjusted EBITDA increased 74% and adjusted EBITDA margin increased 270 basis points. As seen on the slide, adjusted EBITDA margins increase largely due to positive NAICS volume, mix and pricing. Lower SG&A costs from a favourable legal settlement initially recorded in last year's third quarter. Lower bad debt and employee-related costs. Offset by manufacturing inefficiencies. Adjusted Earnings Per Share was $0.31 compared to a loss of $0.01 in the prior year. Adjusted EPS excludes transformation and other costs of $0.58 in Q3 2024 and $0.28 in Q3 2023. Our adjusted effective tax rate was 18.6%.
Brian: Adjusted EBITDA increased 74% and adjusted EBITDA margin increased 270 basis points.
Brian: As seen on the slides adjusted EBITDA margins increased largely due to positive volume mix and pricing lower SG&A costs from a favorable legal settlement initially recorded in last year's third quarter, lower bad debts and employee related costs offset by manufacturing inefficiencies.
Brian: Adjusted earnings per share was 31, <unk> compared to a loss of <unk> in the prior year.
Brian: Adjusted EPS excludes transformation and other costs of 58 cents in the third quarter 2024, and 28 <unk> in the third quarter 2023.
Brian: Our adjusted effective tax rate was 18, 6%.
Heinrich Jonker: On slide 14, I'll discuss the results from Infrastructure Solutions Sector. Net sales increased 1.1% to $165 million. which was a result of a $8.4 million increase in equipment sales that was partly offset by a $7.7 million decline in part sales. And based on customer feedback, we believe that a climb is a result of timing and not a downward trend. Segment Operating Adjusted EBITDA increased 17.3% to $15.6 million and Segment Operating Adjusted EBITDA Margin improved 140 basis points to 9.5%. mainly due to positive net volume, mix in pricing, and lower SG&A costs partly offset by manufacturing inefficiency.
Brian: On slide 14, I will discuss the results from infrastructure solutions segment.
Brian: <unk> sales increased one 1% to $165 million.
Brian: Which was a result of $8 4 million increase in equipment sales that was partly offset by a $7 $7 million decline in bulk sales.
Brian: Based on customer feedback we believe the decline is a result of finding and moderate downward trend.
Brian: Segment operating adjusted EBITDA increased 17, 3% to $15 6 million and segment operating adjusted EBITDA margin improved 140 basis points to nine 5% mainly.
Brian: Mainly due to positive net volume mix and pricing and lower SG&A costs, partly offset by manufacturing inefficiencies.
Heinrich Jonker: Moving to slide 15, material solutions net sales decreased 9.6% to $126.4 million. Driven by lower domestic equipment sales, which were attributable to continued finance capacity constraints with contractors and dealers. as well as longer product conversions. This decline was partly offset by stronger part sales, which increased 9.6%. Segment Operating Adjusted EBITDA increased 52.6% to $14.5 million and Segment Operating Adjusted EBITDA Margin increased 470 basis points to 11.5%. This was primarily due to a $2 million benefit from a legal settlement as compared to the initial $6.4 million legal charge in the prior year. We continued our cost reduction efforts in the quarter, and sharing facility capacity to help meet demand within the infrastructure solution statement, which contributed to our adjusted EBITDA as well.
Brian: Moving to slide 15 material solutions net sales decreased nine 6% to $126 4 million.
Brian: Driven by lower domestic equipment sales, which were attributable to continued to finance capacity constraints with contractors and dealers as well as longer product conversions.
Brian: This decline was partly offset by stronger part sales, which increased nine 6%.
Brian: Segment operating adjusted EBITDA increased 52, 6% to $14 5 million and segment.
Brian: Operating adjusted EBITDA margin increased 470 basis points to 11, 5%.
Brian: This was primarily due to a 2 million benefit from a legal settlement as compared to the initial $6 4 million legal charge in the prior year third quarter.
Brian: We continued our cost reduction efforts in the quarter and sharing facility capacity to help meet demand within the infrastructure solutions segment, which contributed to our adjusted EBITDA as well.
Heinrich Jonker: Turning to our adjusted EBITDA bridge on slide 16. For the quarter, we delivered an increase in adjusted EBITDA of $7.4 million. We realize the benefits from volume, pricing and mix, and experience negative impacts from inflation, manufacturing inefficiencies, and other period costs.
Brian: Turning to our adjusted EBITDA Bridge on Slide 16.
Brian: For the quarter, we delivered the increase in adjusted EBITDA of $7 4 million.
Brian: We realize the benefits from volume pricing and mix and experienced negative impacts from inflation manufacturing inefficiencies and other direct costs.
Heinrich Jonker: On slide 17, you can see we ended the quarter with cash and cash equivalents of $52.7 million, available credit of $142.4 million, and total available liquidity of $195.1 million. Our operating activities were a $22.5 million source of cash for the third quarter. Our free cash flow was $19.9 million in the quarter and we continue to have ample liquidity and a strong balance. Driving commercial and operational excellence will continue to be our capital allocation priorities while continuing to explore inorganic growth opportunities.
Brian: On Slide 17, you can see we ended the quarter with cash and cash equivalents of $52 7 million.
Brian: <unk> created of $142 4 million and total available liquidity of $195 1 million.
Brian: Operating activities were $22 5 million source of cash for the third quarter.
Brian: Our free cash flow was $19 9 million in the quarter and we continue to have ample liquidity and a strong balance sheet.
Brian: Driving commercial and operational excellence will continue to be our capital allocation priorities, while continuing to explore inorganic growth opportunities.
Jaco Merwe: That concludes our financial overview and I will turn the call back over to Jaco. Thank you, Heinrich. As noted on slide 18, we continue to work through a challenging market environment in the third quarter. have made important progress on our key initiatives. underlying fundamentals of the business remain robust. As we look at our two segments, Infrastructure solutions remain strong with healthy demand for asphalt and concrete plant deliveries through the beginning of 2025. We are seeing strong dealer, rental, and quoting activity in material solutions. However, there continue to be near-term headwinds from ample dealer inventory levels and interest rate carrying costs.
Brian: That concludes our financial overview, and I will turn the call back over to Yahoo.
Brian: Okay.
Speaker Change: Thank you Nick as noted on slide 18, we continue to work through a challenging market environment in the third quarter of.
Speaker Change: <unk> made important progress on our key initiatives and the underlying fundamentals of the business has remained robust.
Speaker Change: As we look at our two segments.
Speaker Change: Infrastructure solutions remained strong with healthy demand for asphalt and concrete blonde deliveries through the beginning of 2025.
Brian: We are seeing strong dealer of Intel and quoting activity in material solutions.
Brian: They will continue to be near term headwinds from ample dealer inventory levels and interest rate cutting costs.
Jaco Merwe: We have taken action to optimize our footprint, which includes cross-site manufacturing at select sites to balance demand and capacity. We are focused on driving cost. taking pricing action and making operational enhancements to support margin improvement. We are confident that we are taking the right steps to position Astec to drive sustainable growth.
Brian: We have taken action to optimize our footprint, which includes cross site manufacturing at select sites to balance demand and capacity.
Brian: We are focused on driving cost efficiencies, taking pricing action and making operational enhancements to support margin improvement.
Speaker Change: We're confident that we are taking the right steps to position <unk> to drive sustainable growth.
Speaker Change: As markets improve.
Jaco Merwe: concluding with investment highlights on slide nine. Astec is a trusted source of globally recognized brands and high quality solutions for our customers. Many of our customers have told us they have considerable backlogs stretching into next Our operational excellence efforts will continue to position us to provide our customers with the products they need, when they need them. Our business has several growth drives. few of which are our exciting new product by that currently represents 25% to 30% of our total revenue. increased multi-year federal and state funding for interstates and highways. expansion opportunities in current and future international markets.
Brian: Concluding with investment highlights on slide 19.
Brian: <unk> as a trusted source of globally recognized brands and high quality solutions for our customers.
Brian: Many of our customers have told us they have considerable backlog stretching into next year.
Brian: Our operational excellence efforts will continue to position us to provide our customers with the products they need when they need them.
Brian: Our business has several growth drivers.
Brian: Few of which are our exciting new product pipeline at <unk>.
Brian: Stable and growing recurring revenue business that currently represents 25% to 30% of our total revenue.
Brian: Increased multiyear federal and state funding for Interstate highways.
Brian: Expansion opportunities in current and future international markets and inorganic growth opportunities that are strategically aligned and meet our financial criteria.
Jaco Merwe: and Inorganic Growth Opportunities. that are strategically aligned and meet our financial criteria. Based on current sales and order activity in Q4, we expect full year sales to be broadly flat compared to the prior year. Equipment, parts and service mix in Q4 are expected to result in gross margins at the lower end of our previously provided range. 24 to 25.5. We continue to feel quarterly SG&A will be in the range of $59 million to $62 million. CapEx for the full year are expected to be in the $20 to $25 million.
Brian: Based on current sales and order activity in Q4, we expect full year sales to be broadly flat compared to the prior year.
Brian: The equipment parts and service mix in Q4 are expected to result in gross margins at the lower end of our previously provided range of 24 to 25, 5%.
Brian: We continued to feel quarterly SG&A will be in the range of 59 million to $62 million.
Brian: Capex for the full year are expected to be in the $20 million to $25 million range.
Jaco Merwe: We are diligently working to build consistency, to realize the full potential of Astec, and are excited about the future.
Brian: We are diligently working to both consistency to realize the full potential of <unk> and are excited about the future.
Operator: With that, Operator, we are happy to... Thank you.
Brian: With that operator, we are happy to take questions.
Operator: We will now begin the question and answer session. If you have dialed in and would like to ask a question, simply press star 1 on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, please press star 1 to join the.
Speaker Change: Thank you we will now begin the question and answer session.
Speaker Change: If you have dialed in and we'd like to ask a question simply press star one on your telephone keypad to raise your hand and join the queue.
Brian: And if you would like to withdraw your question simply press Star one again.
Brian: If you are called upon to ask your question and listening biologic speaker in your device. Please pickup your handset and ensures that your phone is not on mute when asking your question.
Brian: Again, Please press star one to join the queue.
Joseph Grabowski: And your first question comes from the line of Meag Dobre of Baird. Please go ahead. Hey, good morning, guys. It's Joe Grabowski on for MIG This Morning. Good morning, and Brian, welcome.
Speaker Change: And your first question comes from the line of Tom <unk> of Baird.
Speaker Change: Go ahead.
Speaker Change: Hey, good morning, guys, it's Joe Grabowski on for Mig This morning.
Speaker Change: Hey, Bob.
Speaker Change: Good morning, and Brian welcome.
Brian Harris: Maybe starting with you, maybe talk a little bit more about what attracted you to the opportunity at Astec, and again, maybe a little more on any initial thoughts you've had. Yeah, thanks, Joe. Thanks for the question and appreciate everybody's participation on the call today. You know, it's been a journey for Astec. Jaco and the team have been working on their strategic roadmap and their transformation journey for the past 18 months. They've built this tremendous foundation. As I said in my opening remarks there, there's a fantastic management team here, deep industry knowledge, great expertise and really professional approach to the business.
Joe Grabowski: Maybe starting with you may be talk a little bit more about what attracted you to the opportunity at <unk>.
Joe Grabowski: Again, maybe a little more on any initial thoughts you've had.
Brian: Yeah.
Bob: Yeah. Thanks, Joe Thanks for the question and I appreciate everybody's participation on the call today.
Brian: Yes.
Brian: It's been a journey for us.
Brian: Thank you and the team have been working on that strategic roadmap on their transformation journey for the past 18 months. They built this tremendous foundation.
Brian: I said in my notes.
Brian: Any remarks that there's a fan.
Brian: <unk>.
Brian: Management team here deep industry knowledge, great expertise.
Brian: And really professional approach to the business.
Brian Harris: You know, I saw this as an opportunity for value creation for shareholders. Jaco just talked about some of the growth drivers that we have in the business from products to parts revenue growth, new product pipeline. We've got a lot of infrastructure funding already in place, which will be there for the next several years, international growth opportunities. So it's really a great time to be at Astec and I'm just delighted to be part of the team. Great. Well, again, welcome. I look forward to working with you.
Brian: And.
Brian: So this is an opportunity for us.
Brian: Value creation for shareholders.
Brian: We just talked about some of the growth drivers that we have in the business.
Brian: From products to cause revenue growth.
Brian: Our new product pipeline.
Brian: We've got a lot of infrastructure funding already in place, which will be there for the next several years.
Brian: International growth opportunities.
Brian: Really.
Brian: A great time to be at as tank.
Brian: I'm just delighted to be part of the Jeep.
Speaker Change: Great well again, welcome and look forward to working with you.
Joseph Grabowski: And my next question would be just a clarification. I know last third quarter, there was a $6.4 million litigation charge. Was there a favorable impact to EBITDA from a legal settlement in this third quarter, or are we just saying it was a favorable comparison? I can maybe start with that, Joe. So, you know, first of all, I just want to make a comment overall, is that, you know, we are really driving consistency here and getting these historic legal cases out of our system is one of those things that we're focusing on. But yes, last year in the third quarter, we booked 6.4 million.
Speaker Change: And then my next question would you be would be just a clarification.
Speaker Change: No last third quarter, there was a $6 $4 million litigation charge.
Speaker Change: Is there a favorable impact to EBITDA from a legal settlement in this third quarter or are we just saying it was a favorable comparison.
Speaker Change: I can I can Mike.
Speaker Change: We started with that.
Steve Anderson: And Joe So first of all I just wanted to make a comment overall.
Steve Anderson: That we are really driving consistency.
Steve Anderson: And getting the startup legal cases out of our system is.
Speaker Change: One of those things that we focusing on.
Speaker Change: But yes loss last year in the third quarter, we booked six 4 million.
Heinrich Jonker: And then since that time, we've accrued additional expenses for, you know, an outcome that we anticipated, interest, things like that. So when the case settled, there was about 2 million that was released during Q3 of this year connected to that case. Okay, got it. Thanks. Thanks for that clarification.
Speaker Change: And then since that time.
Speaker Change: Crude additional expenses for.
Speaker Change: And the outcome that we anticipated.
Speaker Change: And things like that.
Speaker Change: So when the case they felt there was about 2 million that was sort of lease during Q3 of this year connected to that case.
Speaker Change: Okay got it. Thanks, Thanks for that clarification, and then maybe moving on to materials solutions, you've been talking about dealer destocking for the last few quarters.
Joseph Grabowski: And then maybe moving on to material solutions, you've been talking about dealer destocking for the last few quarters. You know, maybe, how much has dealer destocking been impacting sales and orders? And I know you kind of mentioned it in your prepared remarks, but how do you see that destocking playing out over the next few quarters? Yeah, we've seen, you know, we've seen some positive momentum there. You know, just quarter over quarter, we saw about a 4-5% reduction in dealer inventory. So, you know, they continuously doing the de-stocking. You know, we speak to our dealers frequently.
Speaker Change: Maybe how much has the dealer destocking fan impacting.
Speaker Change: Sales and orders and I know you kind of mentioned it in your prepared remarks, but how do you see that destocking playing out over the next few quarters.
Speaker Change: Yes, we've seen we've seen some positive momentum there.
Speaker Change: Just quarter over quarter, we saw about a 45% reduction in dealer inventory.
Speaker Change: So they continuously doing it doing.
Speaker Change: Destocking.
Speaker Change: You know we speak to all dealers frequently.
Joseph Grabowski: Just a couple of weeks ago, we had, you know, multiple of our key dealers in place. And they, you know, they quite positive about next year. We see strong quoting activity. So, you know, it will continue, like we said, for a couple of quarters, but at least we've seen positive momentum in their de-stocking efforts. You know, we still have a little bit of finished goods inventory. So, you know, we have to work through that. They have to work through their inventory. But, you know, looking at our parts business, it's very clear that our customers are running our equipment.
Speaker Change: Just a couple of weeks ago, we had.
Speaker Change: Multiple of our key dealers in place.
Speaker Change: And.
Speaker Change: They are quite positive about next year, we see strong quoting activity.
Speaker Change: So it will continue like we say it for a couple of quarters, but at least we have seen positive momentum.
Speaker Change: In data Destocking efforts.
Speaker Change: We still have a little bit of finished goods inventory so.
Speaker Change: We have to work through that they have to work through.
Speaker Change: Inventory.
Speaker Change: But.
Speaker Change: Looking at our box business is very clear that our customers are running our equipment.
Joseph Grabowski: Quoting activity is good. So, you know, we're cautiously optimistic about next year, you know, based on the feedback we get from our dealers. Great.
Speaker Change: Quoting activity is good so.
Speaker Change: We are cautiously optimistic about next year based on the feedback we get from our dealer Sam Joe.
Joseph Grabowski: And last question, maybe just a further expansion on this. You mentioned positive quartering activity in material solutions. Do you think that that translates to orders in the fourth quarter? Or is it, does it maybe... shift all the way into the first half of twenty-five. So, you know, historically, customers have converted quite a bit of their rental agreements here in the fourth quarter. So if we look at historical trends, you know, we are positive about what we're seeing in the fourth quarter. I think one of the other things is that, you know, over the last two or three quarters, we've been refocusing the team also on, you know, selling larger systems and not just mobile equipment.
Speaker Change: Great.
Speaker Change: Last question, maybe just a.
Speaker Change: Further expansion I Miss you you mentioned positive quoting activity in.
Speaker Change: And material solutions.
Speaker Change: <unk>.
Speaker Change: Do you think that that translates to orders in the fourth quarter or is it does it.
Speaker Change: Does it maybe.
Speaker Change: <unk>.
Speaker Change: A shift all the way into the first half of 'twenty five.
Speaker Change: Yes, so historically customers have converted quite a bit of data rental agreements you have in the fourth quarter.
Speaker Change: So if we look at historical trends, we are positive about.
Speaker Change: What we're seeing in the fourth quarter.
Speaker Change: I think one of the other things is that.
Speaker Change: Over the last.
Speaker Change: Last two or three quarters.
Speaker Change: We've been refocusing the team also on selling larger systems and not just mobile equipment.
Joseph Grabowski: And you know, we're really seeing that gaining momentum, and I think it will balance out a little bit the business that's purely dependent on rental conversion. Got it, okay. Thanks for taking my questions. Good luck.
Speaker Change: We really seeing that gaining momentum and I think it will it will.
Speaker Change: Balanced out a little bit.
Speaker Change: The business Thats purely.
Speaker Change: And on the Rainbow convergence.
Speaker Change: Got it okay. Thanks for taking my questions. Good luck.
Joseph Grabowski: Thanks, Joe.
Speaker Change: Thanks, Tim.
Stephen Ferazani: And your next question comes from the line of Steve Ferazani of Sidoti. Your line is now open. Morning, everyone. Appreciate the detail on the call. Morning. I want to ask about the ongoing manufacturing efficiencies. It sounds like you are taking some efforts to reduce that with some some cross sector use of capacity. Can you talk about how you further eliminate that? Or is that really going to require a pickup on the MS side from a demand standpoint? Yeah, yeah, no, good question, Stephen. I will be honest with you, I'm actually very happy with the work our teams have done, you know, company-wide.
Speaker Change: And your next question comes from the line of Steve <unk>.
Speaker Change: Many of Sidoti Your line is now open.
Speaker Change: Good morning, everyone appreciate the detail on the call.
Speaker Change: Good morning.
Steve Anderson: I wanted to ask about the ongoing manufacturing efficiencies. It sounds like you are taking some efforts to reduce that with some.
Steve Anderson: Some cross sector use of capacity can you talk about how you further eliminate that or is that really going to require a pickup on the EMS side from a demand standpoint.
Speaker Change: Yeah, No. Good question, Steve and I will be honest I'm actually really happy with where the work our teams have done.
Speaker Change: Company wide.
Jaco Merwe: As we mentioned in the prepared remarks, the teams have done a really good job moving production between facilities and, you know, between groups as well. Most of this under absorption or manufacturing efficiencies comes from one or two sites, and, you know, the teams are working through that. You know, we are very positive about that side of the business, and the challenge for us is how do we balance cost reductions with what we expect to see from an output point of view next year. You know, we want to retain our people and because we know the sales is out there once we get the output to the level that we expect it to be, you know, during next year.
Speaker Change: As we mentioned.
Speaker Change: <unk> remarks that teams have done a really good job moving production between facilities and.
Speaker Change: Between groups as well.
Speaker Change: Most of this under absorption or manufacturing efficiencies comes from from one or two sites.
Speaker Change: Teams are working.
Speaker Change: Working through that.
Speaker Change: We are really positive about that.
Speaker Change: That side of the business and the challenge for Us is.
Speaker Change: Is how do we balance.
Speaker Change: Cost reductions with what we expect to see from an output point of view next year.
Speaker Change: We wanted to retain our people.
Speaker Change: Because we know we know that sales is our data.
Speaker Change: Once we get the output to the level that we expect it to be.
Speaker Change: During next year.
Heinrich Jonker: That's helpful. Given some of the numbers you provided your outlook for 2024, obviously this was a strong cash flow quarter, typically the second half is, but you're guiding for a higher capex quarter in 4Q. Do you think based on the numbers you provided that you can get close to or above breakeven on a cash flow basis this year? For the for the quarter, we are expecting positive cash flow. Heinrich, maybe you can help on a four-year basis? Yeah, Jaco, I mean for us on a four-year basis we continue to focus very much here in Q4 on cash flow generation.
Speaker Change: Okay. That's helpful.
Speaker Change: <unk> given some of the numbers you provided your outlook for 2024, obviously this was a strong cash flow quarter typically the second half is Budd youre guiding a more.
Speaker Change: A higher capex quarter in <unk> do you think based on the numbers you provided that you can get close to or above breakeven on a cash flow basis. This year.
Speaker Change: Yes, so the quarter, we are expecting positive cash flow, maybe you can help on a full year basis.
Speaker Change: Yes.
Speaker Change: On a full year basis, we continue to focus very much in Q4 on cash flow generation.
Heinrich Jonker: As Jaco mentioned for us, Q4 typically is a strong quarter from a cash flow perspective as well. Now, however, we do have some additional cash outflow that will happen during the Q. We mentioned also about the Denver legal case that we settled. That case, that cash will flow out during the fourth quarter as well for us. But we will continue during Q4 to push really hard on working capital development and focus on receivable and driving inventory down.
Speaker Change: You mentioned plus Q4 <unk>.
Speaker Change: It's a strong quarter from a cash flow perspective as well.
Speaker Change: No.
Speaker Change: We do have some some additional cash outflow that will happen.
Speaker Change: Q, we mentioned also about.
Speaker Change: Legal case that we settled.
Speaker Change: Guys that cash will flow out during the fourth quarter as well for us, but we will continue to be in Q4 to push really hard on working capital development focus on receivable and driving inventory down.
Jaco Merwe: Great. That being said, obviously your cutbacks will be well down from where it was last year. As you start budgeting for next year, I'm assuming you're getting close to maintenance levels. How long can you stay at this level of capacity? and still be in a position to grow. Yeah, no, good question, Steve. So, you know, we still believe that investing in our own operations is a really good use of cash. You know, over the last couple of years, we've built a really strong operational team. And, you know, with that comes some great opportunities for us to further improve and automate our manufacturing processes.
Speaker Change: Great that being said, obviously your capex will be well down from where it was last year.
Speaker Change: As you start budgeting for next year, I'm, assuming you're getting close to maintenance levels. How long can you stay at this level of Capex.
Speaker Change: And still be in a position.
Speaker Change: No.
Speaker Change: Yes, no good question.
Speaker Change: So we still believe that investing in our own operations.
Speaker Change: Yes.
Speaker Change: Really good use of cash.
Speaker Change:
Speaker Change: Over the last couple of years, we've built a really strong operational theme and.
Speaker Change: With that comes.
Speaker Change: Some great opportunities for us to further improve and automate our manufacturing processes. So.
Jaco Merwe: So, you know, CapEx next year will be another strong year. You know, we've also communicated to the market our efforts in India and establishing manufacturing operations in India. That has been growing significantly. And, you know, we will probably invest in some manufacturing capacity over there in the future.
Speaker Change: Capex next year will be it will be another strong year.
Speaker Change: We've also.
Speaker Change: Two meeting guys, it's due to market our hour.
Speaker Change: India and establishing manufacturing operations in India.
Speaker Change: That has been good.
Speaker Change: Significantly.
Speaker Change: And.
Speaker Change: We will probably invest in so many factoring capacity.
Jaco Merwe: So I will say the range for next year will probably be equal to this year. You talked about, you know, obviously concrete and asphalt plant demand has been very healthy throughout. You talked about demand. Orders running into early 2025. But can you talk about pace of orders now? Are you expecting it after such strong growth, such strong demand of the last couple of years? Would you expect to see some moderating demand into 2025? Yeah, so a couple of things here. As I mentioned earlier, when we meet with our customers, and I have the opportunity to do that on a frequent basis, they have strong backlogs.
Speaker Change: In the future. So I will say the range for next year.
Speaker Change: We will probably be equal to this year.
Speaker Change: Okay. That's helpful.
Speaker Change: You talked about.
Speaker Change: Obviously concrete and asphalt plant demand has been very healthy throughout you talked about demand.
Speaker Change: Orders running into early 2025, but can you talk about pace of orders now are you expecting it after such strong growth such strong demand over the last couple of years would you expect to see some moderating demand into 2025.
Speaker Change: Yes.
Speaker Change: Yes, so a couple of things yes.
Speaker Change: Mentioned earlier, when when we meet with our customers.
Speaker Change: And.
Speaker Change: I have the opportunity to do that on a frequent basis.
Speaker Change: They have strong backlogs.
Jaco Merwe: We've seen strong order quoting activity. We have quite a bit of new products that's getting into their market.
Speaker Change: <unk> seen strong orders quoting activity.
Speaker Change: We have we have quite a bit of new products, that's getting into that market.
Jaco Merwe: So there's a lot of things that gives us cautious optimism for next year, Steve, but obviously we're early in our process and I think we'll give the market a better idea when we talk early Q1 of next year about our full expectations for the year.
Speaker Change: So there is a lot of things that that gives us cautious optimism.
Speaker Change: For next year, Steve, but obviously, we early in our process and I think we will give the market a better idea when we spoke.
Steve Anderson: Thank you.
Speaker Change: Q1 of next year.
Speaker Change: About our full expectations for the year.
Stephen Ferazani: That's great. Thanks so much, Jaco.
Speaker Change: That's great. Thanks, so much jaco, thanks, Brian and welcome aboard.
Brian Harris: Thanks, Brian, and welcome aboard, Brian. Thanks, Steve.
Steve Anderson: Thanks, Steve.
Operator: There are no further questions in the queue.
Speaker Change: There are no further questions in the queue I'd like to hand, the call back to Steve Anderson for closing remarks.
Stephen Anderson: I'd like to hand the call back to Steve Anderson for closing remarks. All right, thank you, Kathleen. We appreciate your participation on our conference call and thank you for your interest in Aztec. As today's news release indicates, the conference call has been recorded. A replay of this conference call will be available through November 20th, 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.
Steve Anderson: Alright. Thank you carefully we appreciate your participation on our conference call and thank you for your interest in asset.
Steve Anderson: Today's news release indicates the conference call has been recorded a replay of this conference call will be available through November 28, 2024, and an archived webcast will be available for 90 days. The transcript will be available under the Investor Relations section of the <unk> industries website within the next seven days.
Speaker Change: All of that information is contained in the news release was distributed this morning. So as we said this concludes our call happy to connect with many of you. If you have questions. Later on so thank you all have a good day.
Stephen Anderson: So, as we said, this concludes our call. Happy to connect with any of you if you have questions later on. So, thank you all. Have a good day.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Operator: You may now disconnect.
Speaker Change: Okay.
Speaker Change: Yes.
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