Astec Industries (ASTE) 2 Aug 232023 Q2 Earnings call transcript

Hello and welcome to the Astec Industries Second Quarter Earnings Call.

As a reminder, this conference call is being recorded.

It is my pleasure to introduce your host, Steve Anderson, Senior Vice President of Administration and Investor Relations. Mr. Anderson, you may begin.

to second welcome conference XXXX and call. you, the quarter Astec earnings Thank

today's van summarize In are Executive me and over call Joining on provide to Jaco results. I'll the Becky comments Chief to Jaco moment, Becky Officer; Weyenberg, der financial Financial a Officer. will just then turn call our and Chief Merwe,

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

today's are Any news are others in assumptions. statements subject that release to our future risks, contained the SEC. filings not such in performance Factors and results are financial guarantees of our could and and uncertainties influence with certain highlighted are

yourself ask factors. familiarize As usual, you with we those that

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

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

included considered slide does our these our not are Management for of the news company or of items in to release appendix deck. as related measures. in intend to A results GAAP non-GAAP be GAAP isolation and the substitute a reconciliation of

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

over I will Jaco. now the call to And turn

our with four. achieved end the quarter like I you thank summarized record sales of for and on to products. strong slide Steve. us. We you, Thank and messages everyone, on demand begin outputs comments my key morning, improved would during market second the Good joining

unique and on customers. building start Astec service solid the solutions to outstanding are team as the a to year delivered our We

to for and support value Road by concrete, chain. continues the customer asphalt, driven machinery to outlook to be aggregates demand Positive Rock

projects. new by Our been expanding well for their exciting received have products our customers

efforts, expansion team's adjusted basis to margin delivered points. we Due EBITDA the XXX tireless of

Our improvements of throughput in increases previously and operational excellence helped further contributed and realization to profitability. implemented drive revenue price have

of the organization we from across have by our am we built momentum united performance everyone proud objectives we the operating our about and of second are XXXX. optimistic going and contribution model. the into to I are elevating our OneASTEC achieve Internally, half

of in with As call of May, the I successful our major our one live sites. the mentioned in QX Oracle launch earnings went manufacturing ERP at we Cloud

integration continue are incremental as we throughout of improvements Additional complete solutions to our expected the the organization. ERP

from team As well, launch. causing ERP production disruptions expected, our implementation managed the minimal the

performance XXXX The Astec will continues team provide and and simplify, our XXXX. in is This our focus sites to call. implementation excellence additional improve and us upon an preparation to entire to update launch our continue later across strategy the grow excited will our as Becky in progress against allow crucial organization. on

we are to and you progress you for five. making. are priorities shown would slide Our remind on on of I these update like the XXXX

creating simplified is our First and through value strategy. growth focus

the be our making. record track dependent renewed build on proud objectives. to Value There consistent results creation of creating still of against is stability quarter profitability. reliably we as is and I'm second is culture progress focus strategic our results done, As we start execution demonstrated, show but are delivers we to a to a performance results are and beginning that work on

shareholders. and customers employees, to dedication is priority second The

customer experience. California region environmental of provide us This equipment service customer to the our further the forestry recycling expanded network During enable in the in quarter, and into entering by North we a our dealer for in distribution America an agreement with additional and Arizona. the agreement will and enhance distribution

July, requires Driving mind, moment Group. executive Ben am our Infrastructure announce team. With to to President shareholder pleased Solutions In as within in value our welcomed sustainable an leadership leadership. addition a creation to we I take Snyman that Group

experience including then executive Komatsu, of time our customers mining the years Global XX knowledge greatly equipment and drive performance Joy industry, and in with capital Ben will that over succeed. help for our With support brings

We are on have thrilled Ben to board.

Third, us model. the step implementation earlier through as we improvement an are an important ERP promotion our driving organization. of for the as operating continuous OneASTEC mentioned I

parts improve convert In addition, into we backlog help excellence using to operational are sales. fill and to rates

values always priority be a us. our Finally, core commitment to will for

our including You later will Sustainability in Report to see our planned many examples safety core for values action, Corporate commitment in distribution year. inaugural of the this

can I six. with focus made. culture deliver. update our are few we like and spend and progress you to growth slide discussing The to to simplified organization a create strategy of the strategy pillars value performance on three the the we and minutes a fully framework designed Turning unlock the to provide would our common

we We simplified our organizational as on our operations. optimize continue and progress make pillar to structure

know, we rationalizations, footprint this have leadership of streamlined other and executive year some and you As our earlier and team areas made business. our product we

actions realizing going do to are so we'll We now forward. the benefits and of these continue

OEM excellence operational of by increasing of able products throughput parts. and satisfy being I an earlier to The focus demand improvement example mentioned manufacturing aftermarket the are pillar, for requirements

customers, we for behavior. simplified the listed being initiatives and our the Finally, driving way and demonstrating profitably, is slide, to Overall, our right the enable the shareholders. we by grow convinced focus this value that that recognized and growth as right growing provide. framework customers we are I'm sustainable us on achieve partners will we employees, the value for create

Turning on share In we continue infrastructure provide serve we equipment, responding. parts for driving solutions Demand how to the market current an are to we provide. conversations remains business would from and and demand environment seven. update customers, our positive strong. dynamics the that they like a is business with I slide to

businesses. outlook their not observation, on for This a the short-term is a based view but long-range

and in to these capacity investing selectively completing to needs. throughput are increase projects We customer

is for Bill activity by Highway funding Project funds supported strong In being Federal ramping. the these is market deployed. addition to amount,

year-to-date As for Federal increase June stability Road long-term providing Federal mechanism a Association, XXXX customers XX% higher the funding the as & American for Astec. year-over-year turn well. reported Transportation and totals view and contracts our as by are We reflect in Builders awards

over elevated are few we Reviewing faced overall years, inflation have the environment chain the is Tight Supply stabilized external easing. wage last have at and challenges has logistic markets and normalizing, improved. although labor constraints levels.

be However, a components long lead continues on certain to times challenge. purchase

headwinds pressures rising are profitability, improving are inflationary to are performing efforts stabilizing profit line we ease. near-term effective, is, and restoring our costs Finally, bottom proving margins. better The and mitigate while

effective proving driving desired outcomes. are the in initiatives Our

on were below while our historically sequentially our excellence execute year's backlog operational against initiatives, improve peak to historical implied orders our eight. are second improved which to slide has continue Also, outlook. our We led to elevated successfully three-year show and output. levels, Backlog in the positive see encouraged of We average we supportive last above remain quarter.

Additionally, provided Highway dealer which Further for the stability in program, has which Federal demand. is place inventory remains below creates optimal several been by levels, additional decades.

demand continue current both We segments. are our we comfortable our customer of levels to in see strong with backlog as

customers, robust see pipeline our to a speak very projects. and demand I for to strong continue they As

and into our Turning product Sustainability business our model focus is nine. built to operations. with on a slide

social our shareholders. and to governance committed customers we environmental, as are employees, create to continue initiatives value our and We for

we the of devotion in be progress. share Due Responsibility numerous making Astec, Corporate proud the to first this the we journey, early will through Report year. Though employees are later to company's

exciting is We of very an quarter last introduced positive our suite enhances the This experience. with XX Digital Astec to reaction. as on greatly us slide initiative highlighted solutions, it CONEXPO customer attendees the for

be can performance that our product data and the with Road Rock used us chain provides for to to standardization Digital across drive Astec improve value customers.

and telematics, to software create and actionable intelligence. integrating continue controls We of equipment process connectivity, the upgrading our through

of to We and this are competency to advantage disruptive platform create I technology we value what a as look achieving we plan drive customers data our Astec. creating are introduce a and forward for both core competitive to transformation. our and across analytics

to call now With financial turn our the results. detailed over will to Becky discuss I that

Jaco, slide my XX. and results I'll Thank morning, you, on second good of review begin everyone. quarter

growth than up softened Materials sales. which sales segments, $XXX domestic XX% especially both were million, XX.X% increased in offset region, Sales strong international growth more with XX.X% year-over-year. By Solutions, in of

respectively. and and and second remains while decreased equipment and above elevated quarter, sales our sequentially, year-over-year X.X% levels, Both of at XX.X% the down end average. XX.X% three-year Backlog the X.X%, grew off backlog parts from peak

backlog international Domestic and down down was XX.X% XX%.

As make Jaco mentioned continue earlier, output. patterns disruptions, operations customer order with chain fewer we are supply increase investments to in and normalizing, to

the led these initiatives have Overall, on as in continues sales implemented ease. and started moderation and backlog. our chain to has to are lead this times backlog Though constraints more they down, to exist. extended to components certain continue supply purchase come converting to anticipate We

We points as achieved basis fourth EBITDA adjusted are increased margin as strong by margins have million, year-to-date gross is expanded a adjusted XXX volumes margins quarter This XX% exceeded basis mix. we gross price to posted consecutive and bottom higher X.X%. EBITDA XX.X% to gross XXX the expanding We and with line favorable XXX.X% realization $XX.X margins to further points XX.X%.

personnel a slightly invested costs. we increased business as sales. declined SG&A percentage expenses Adjusted increased Adjusted higher of due costs and our consulting as to project in SG&A and

with improvements. driving pleased look progress on margins the We EBITDA continue to adjusted are and

changes was effective in driven $X.XX the adjusted The share tax XX.X%, from margin. income earnings net improved was our and per year. Adjusted increased relative the due for operating weighting by to jurisdictional loss. prior lower improvement $X.XX quarter the to the The of rate

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

increased performance, disruptions primarily were decreased the for XX.X%. up patterns Moving fewer was by noted were fulfill and supply domestic Solutions orders onto X.X% as due on which XX.X%, parts slide X.X% Jaco. million to net backlog Infrastructure Part Segment able to sales to of demand. order normalization XX. aftermarket chain strong sales as customer $XXX.X we up

operating margin favorable basis segment to partially EBITDA by points due XX.X% the margin, offset XXX higher gross expanded Adjusted expense. for to

XX. Slide to Turning

strong in were X.X%. Our and contributed $XXX.X segment sales. demand equipment domestic Materials sales. sales strong also XX.X% XX.X% mix increase Equipment increased the and to pricing in million sales increase and by to Favorable driven Solutions parts up grew

was XX.X% increased and XX.X%. Segment backlog Domestic XX.X%. down grew international sales sales

As fall, in prior dealer our years. indications show a early reminder, the place takes activity in annual two with line event the order

inflation increased offset materials, XX.X%. overhead to costs margins was points manufacturing higher basis and volume, well on pricing, labor for net inefficiencies. and positive mix partially due by the EBITDA segment to as XXX This as Adjusted largely

year-over-year offset Adjusted EBITDA On the higher personnel to to positive $XX.X million, points key impact contribution drivers more costs. XX, SG&A bridge. the still are of to Manufacturing mix X.X%. expenses disruptions basis XXX we expansion lingering volume, headwinds EBITDA to a an XXX.X% of higher of slide highlight from our improved inflation. having adjusted and due chain effect. pricing due supply slightly than efficiency were The

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

Turning to XX. slide

profitability and position expect ample cash grow million. sheet balance stood and remains debt, our the of our $XX.X low equivalents to cash levels. with cash continued Our and at With liquidity we and normalization inventory solid,

withstand cash to as support have to financial of We a shareholders. the economic return investment well strength as and situations plans variety

net leverage is Our think current interest low, rates. which rising prudent given ratio is we

Our times. target to between over X.X times range leverage cycles is X.X

slide capital growth XX. to and investments million. disciplined maintain year to quarter to million the in our to We Turning a capital spent target cash with range full improve and is balancing million framework, maintain shareholders. operationally. on $XX $X.X The $XX CapEx We returning second expenditures for deployment

quarter our went major with ERP As implementation of part one earlier, of slide as mentioned our XX. on we Jaco this Oracle live manufacturing Oracle sites Cloud shown at

the We closer systems to activated are process move of fine-tuning as an we in these implementation. organization-wide currently

and successful very systems I'm a on made after live in Our May of XXXX launch progress we've journey also began on our system and early mapping. January pleased diligent launch human Xst planning with thus corporate management far the Xst. capital with since our the went data

benefits progressive to production of Astec and from as disruption proud we I'm see implementation, the team to minimize able this were the expect anticipated We our quarter.

implementation we We will organization. successes continue date as the to entire throughout rollout our leverage

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

Thank Becky. you,

key our investment XX. to like I slide highlights. would summarize Turning to

within attractive our have leading built niche We positions markets.

trends, are from including markets population and growth long-term Our secular infrastructure. benefiting aging

was Government level work put place for on infrastructure our provide domestic been the Federal place a spending customers. decades National continues has Interstate in to when core US XXXX. and for Highways Act of also into funding in Defense

we Through products services. Solutions, Infrastructure and our are Materials in delivering leading and best-in-class positions

Astec our have combination is a We for helped Digital grow with reputation which built forward innovation, of us factors has The installed solutions. carrying base. our these

our We to will parts serve continue this revenue stream. and reoccurring to drive our aftermarket initiative customers grow

liquidity the we grow, further bottom to to initiatives, needed including shareholders. sheet line balance return and strengthened top our our a fund As provide growth our to

is progress as on sustainable profitable our simplified growth XX. strategy goals we driving slide Our shown long-term towards growth focus and

and of employees start our good dedication grateful a hard am to their have are We to and year. to our and half the second I optimistic this XXXX work loyalty customers their for about and for support.

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

will Instructions] from [Operator Stifel. Elliott question come Your first with Stanley

Your is open line now

Good on This Brophy morning. Hi. is for Brian Stanley.

backlog. you're trend backlog one kind from sense normal? guys thinking out? Can where is you wanted things you might expect going us on Just bottom ask a to how on feel here to do What is and we to of level give

good Jaco is Hey, This here. morning, Brian.

about As far, I feel so the mentioned still we in the positive call market.

a have customers pipeline. Our very strong

are expecting order writing our to Materials we during And Solutions in we this happen August. Group for last QX. year, that During the year, had

in reflecting QX. the for still that see we backlog So

were If we around comfortable can to forward. X running you historically always going backlog. we'll we if those X.X stabilize quarters look of feel at levels And

drive parts customers the We are provide backlog, service ensuring with we still continuing us. to down can need that from our they

So have in that's very we that a place. effort specific

helpful. net you pipeline M&A? Obviously, of capital about your position to how have little helpful. would are allocation. here. leverage guys That's close Any priorities some I allocation? Share one cash a thinking a What you on thoughts the are And repurchases on below looking What targets. a then wanted be M&A taken is Okay. pause guys at? of are to guess, bit capital there the I ask getting

Yes.

year good stability good have before. create year was from a our this to in Our the far and focus results so transition

potential I we the shift to Brian. start to to think acquisitions, well side. And So are include now that positioned our focus growth will obviously

we product or us looking, pipeline although last for time every time. And like opportunities share there's so. to we portfolio. our are We the fill not believe that the that active And are something or here repurchases six those. always dividends Things in at gaps if we were in obviously various and to fill right, will months look also Board reviews the is

other Okay. Thank one then you. And one.

a guys CONEXPO, to my you in, hadn't competing products as I of at understanding introduced has some I'm reception past. in you handful initial You guys been what to the been of introduced? categories those guess on new some customer products curious new

Yes.

have mobile on referring equipment the products specifically to that you're So we our side.

been The in those customers year release testing the actually the complementary will of sale We products very for designs. who've been September and new have prototypes October.

see So fourth products. market. the those we are to those really excited in about taking orders through to for those And we quarter expect to come

you. Great. Thank on. pause I'll it

Thank you.

comes with question next Baird. Your from Mig Dobre

is line open. now Your

everyone. Hey, good Mig Joe on Grabowski It's morning. for morning, this

Joe. morning, Good

morning. Good

shipments just to Backlogs sounds So lumpy like it down else infrastructure levels equipment I throughput driven by was were improving. surprised X%. elevated, there? still that on sales Was this see or are going anything are

Yes.

Joe, reflects We go a one May that than live, in June. look our sites Solutions biggest it Solutions I to And I'm had did did our numbers better Infrastructure higher sales we for Group. if year-over-year. So at our lower the the teams like little for during output obviously looks say data, glad bit in we and Infrastructure in plans. internal planned our what of

you output going to in sales months. the of levels So obviously, from that will and that couple see here next the normal that in comes back

didn't we that that docks. we end that machines had ship And And few at a was most the still had driver. So was of probably biggest the left quarter. specifically, parts the at the some

system. last through here tweaks is small in months in So we the of board some to had We've a job much done team on there. better work the all the the

the that. driver that's for So biggest

sales, impact the down international year-over-year? was see. was implementation, guess, that I were, I XX% international? Did that which that And

Yes.

from international equipment the sites piece big of US. come in a that So here the had comes our from sales mobile large we

that So, to they the obviously, the invoice in machines didn't have quarter. backlog have all they during

see. I

revenue. expand those service Okay. on strong about maybe side, domestic And segment, trends I upon you that? are in and positive guess flip talked then installation Infrastructure sustainable? And the the you Can

and of over or improve our and construction a team mean we is job I capabilities the growing the our one the has for customers our focus Yes. that's to our last work year really do areas service good done two.

and So that grow obviously, accordingly. should yes, install we we continue to more that equipment, business intentional, as will it's as grow --

it. Got

rate rate kind the while of maybe Infrastructure implied been last sticking the on QX be like looks the sort kind we've for like run down then And past on Okay. orders feel does last and the of here? somewhat run question, a stabilized But with kind It it segment. couple years. there of quarters from will of stable we've of the QX, the obviously, is were versus two

seen Yes. stabilizing. definitely it We've

you're business, as a QX at you especially correct is busy is look very season there. So QX. the Historically, customers if asphalt our for plant-related

us typical their it's going customers as for A our those two lot see into during So quarters. lower to orders well. budgeting of are process now

expect latter delivery for the we early in So late will of order part majority then QX. fully the year's here be of QX next writing and the QX,

see. I

Thanks Okay. Great. for my appreciate it. questions. I taking

Thanks, Joe.

Instructions] [Operator next comes Stephen from Sidoti. Ferazani question with Your

Your now open. line is

Good Good around quarters, Becky. of of particularly orders. line and Jaco. around from When you over questions backlog. revenue of you've a thinking this Are this did the are or top grow really orders be two plants. spending going cycle elevated lot you've top plan, the in follow-up we loaded you strongly the this quarters. two really some your here? some trends these converted cycle peak had backlog and where fact order morning, about line the that morning, with I think think should can are strong converted asphalt front-end quarters your last the When you've to as we and Obviously, two want new about clearly,

very XX teams the to We, XX And booking capacity. really good a strong had last creating months. a Yes. have season job obviously, done our additional

have to what even So to we in backlog HX and in delivered the our had we've HX. or with theoretically, less more be what here capability HX. factories higher we as We that line pretty numbers have confident will strong feel deliver compared still in

Okay. words of That's margin looks Last there. you the like targeting want a It Thanks. you're year. put but XX% XX%, fair. don't mouth, were I for quarter in tracking gross sort your still to and

about feel that? good still You

Yes, we do.

year. the quarter Just the a the third lowest typically reminder is quarter that of parts

overall right So that on definitely little range will now. that applicable bit weigh is a that feel But margins. we

we've a of inflationary 'XX from there's then know have haven't years, we you stuff, a that's pressures about margin be the about a I where percentage had two else you parts Do I the here which given the going target. margin backseat. be XX% higher and model And lot margin three -- efforts should everything stronger lot plus to over a through. substantial lift that you margin when took know 'XX, forefront. branding improvements of that to you of margin sort three talked the think would back make thinking reduced of we come that Right. OneASTEC plus those SKUs have just maybe theoretically But start EBITDA been that with and and share reduce the sales, on, next the through years? other But can two, over

put structures all operational results. Yes. we've of really in those manufacturing, to good good will in team. deliver some our place do. factories built created I really quality say, all, engineering. mean in I are We've terms strong investments of a engineering, I starting first things and I We've think

expand on around we're the very to and of don't years. will terms pricing market market movements seeing to We're over if some be of dynamic, are the keep prices. the So watch me eye going couple we But continuously an still personally inflation. course, closely and vendors next in raising of see that disappointed is

we watching it the at closely So are definitely moment.

All Right. Thanks, Jaco

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

your appreciate this on Thank interest participation you, Astec. for and in Again, Briana. we your thank right. you conference All call,

be webcast As conference this through will seven Astec days. The of within Relations the been be today's August be XXth, available news the the and under available XX Investor call A XXXX, indicates, conference Industries will an has days. website for transcript archived today's section next will available release recorded. of replay

of the This All information all. contained with additional earlier day. you questions release distributed and morning. have concludes Thank news that happy of this our a I'm later. is Have to this in call connect good you any

Ladies and does Thank today's this gentlemen, you your participation. for conclude teleconference.

a your You may lines disconnect have at wonderful and this time day.