Astec Industries, Inc. — FY2022 Form 10-K
Reporting period: Year ended December 31, 2022; this is an annual filing, not a standalone fourth-quarter report. Astec designs and manufactures road-building, asphalt and concrete production, aggregate processing, and related equipment, as well as replacement parts and services. Its reportable segments are Infrastructure Solutions and Materials Solutions.
Financial performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $1,274.5 million | $1,095.5 million |
| Gross profit / margin | $264.1 million / 20.7% | $249.5 million / 22.8% |
| Operating income | $7.5 million | $19.9 million |
| Net income (loss) attributable to Astec | $(0.1) million | $15.8 million |
| Diluted EPS | $0.00 | $0.69 |
| Operating cash flow | $(73.9) million | $7.4 million |
| Capital expenditures | $40.7 million | $20.1 million |
| Year-end backlog | $912.7 million | $762.6 million |
Revenue rose 16.3%, led by higher equipment, parts and component sales and pricing. Gross profit increased 5.9%, but margin fell 2.1 percentage points: favorable volume, pricing and mix added gross profit, while inflation in materials, labor and overhead and manufacturing inefficiencies offset much of the benefit. Operating income declined $12.4 million. Results included $25.5 million of strategic-transformation costs in SG&A and $9.0 million of restructuring, impairment and other asset charges. The tax provision was $5.0 million, including a $5.5 million valuation allowance for Brazilian tax losses; the reported effective tax rate was 113.6%.
Infrastructure Solutions sales were $847.4 million, up 14.0%; segment Operating Adjusted EBITDA was $73.0 million versus $73.9 million. Materials Solutions sales were $422.7 million, up 20.1%; segment Operating Adjusted EBITDA was $44.5 million versus $39.1 million. Segment Operating Adjusted EBITDA is a company-defined non-GAAP measure.
Balance sheet, debt and liquidity
- Cash, cash equivalents and restricted cash were $66.0 million at year-end, down from $134.4 million. Inventory increased to $393.4 million from $298.7 million, primarily reflecting higher backlog and supply constraints.
- Total liquidity was $232.0 million: $62.8 million of cash available for operations and $169.2 million of additional availability under the revolving facility, subject to covenant compliance.
- Borrowings under the new $250 million revolving credit facility were $78.0 million; outstanding letters of credit were $2.8 million. International short-term debt was $9.4 million, and the Brazilian term loan had $0.3 million outstanding. Astec was in compliance with its credit covenants at year-end.
- The revolving agreement matures in December 2027 and includes an additional incremental facility of up to $125 million. Management expected 2023 interest expense to be significantly higher, reflecting increased borrowings and interest rates.
- Cash dividends paid were $11.2 million in 2022; the annual dividend was $0.49 per share. The board retains discretion over future dividends.
Changes, outlook and notable items
- Backlog increased 19.7% year over year, with most of the increase from domestic orders. Management cited dealer inventory replenishment and U.S. infrastructure investment, including the Infrastructure Investment and Jobs Act, as demand drivers. Backlog conversion remained constrained by component lead times and manufacturing labor shortages.
- Management expected steel prices to remain historically high into 2023 and said competitive conditions and long order lead times may limit its ability to pass cost increases to customers. Supply-chain constraints had eased but persisted at some suppliers.
- Astec estimated 2023 capital expenditures of $25 million to $35 million. It provided no formal consolidated revenue or earnings guidance in the supplied filing text.
- The multi-year ERP implementation was estimated to cost $125 million to $150 million in total, with $25 million to $30 million expected annually beginning in 2022. Domestic human-resources functionality launched in January 2023; management planned initial operational conversions in 2023. A manufacturing-efficiency project was expected to begin yielding gross-margin improvements in early to mid-2024.
- Astec acquired MINDS Automation Group for $19.3 million in cash in April 2022. The former CEO’s separation resulted in $4.4 million of 2022 charges; a February 2023 overhead restructuring was expected to incur another $3 million to $4 million, primarily in the first quarter.
- The filing reports immaterial prior-period errors involving overstated work-in-process inventory and revenue-recognition calculations. Astec revised its 2021 and 2020 comparative financial statements and concluded the errors were not material to those statements taken as a whole.
- Risks include economic and infrastructure-spending cyclicality, inflation and supply constraints, labor availability, higher interest rates, foreign exchange and geopolitical exposure, execution of the ERP and transformation programs, litigation, and potential goodwill impairment. Materials Solutions goodwill fair value exceeded carrying value by only 3.2% in the 2022 test; no impairment was recorded.
- KPMG gave unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded internal controls were effective at December 31, 2022.
Investor verification priorities
- Assess whether backlog can be converted to revenue on schedule and at profitable margins, given supply, labor and production constraints.
- Track gross margin recovery, steel and labor costs, and the extent to which price increases offset inflation.
- Monitor operating cash flow and inventory levels; FY2022 operating cash use was driven substantially by working-capital needs.
- Verify debt utilization, covenant headroom, interest expense and available revolver capacity as rates and working-capital needs change.
- Compare actual ERP spending and implementation milestones with the $125 million to $150 million total estimate, and assess whether projected manufacturing efficiencies materialize.
- Review the revised comparative statements and monitor Materials Solutions goodwill assumptions and impairment headroom.
- Follow the status and potential exposure of disclosed litigation, including the shareholder action in discovery and the GEFCO equipment dispute, for which the company could not estimate a possible loss.