Astec Industries, Inc. — Q1 2024 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2024, compared with Q1 2023. Astec designs, manufactures, markets and services equipment for road building, materials processing and related industries. Its reportable segments are Infrastructure Solutions and Materials Solutions.
Financial results
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Net sales | $309.2 million | $347.9 million |
| Gross profit / margin | $76.9 million / 24.9% | $89.2 million / 25.6% |
| Operating income | $6.3 million | $17.6 million |
| Net income attributable to controlling interest | $3.4 million | $12.1 million |
| Diluted EPS | $0.15 | $0.53 |
| Operating cash flow | $(47.0) million | $(19.2) million |
Sales declined 11.1%; management attributed the decrease mainly to unfavorable volume and mix, particularly lower equipment sales, partly offset by pricing and increased parts sales. Gross margin fell 0.7 percentage points. Lower volume/mix, manufacturing inefficiencies, inventory adjustments, inflation and scrap costs weighed on gross profit. The 2023 comparison included a $1.9 million benefit from correcting prior inventory-related over-accruals, which did not recur.
Segment Operating Adjusted EBITDA, a non-GAAP measure, was $18.9 million versus $35.2 million. Infrastructure Solutions generated $25.6 million, down from $28.5 million; Materials Solutions generated $5.3 million, down from $14.6 million; Corporate and Other net expenses were $12.0 million versus $7.9 million.
Cash, debt and liquidity
Cash, cash equivalents and restricted cash were $58.1 million at quarter-end, down from $63.2 million at December 31, 2023. Operating cash use increased year over year, driven principally by receivables and inventory-related working-capital needs. Investing activities used $5.9 million; financing activities provided $48.4 million, largely reflecting net borrowing. Capital expenditures were $5.8 million.
Total liquidity was $170.5 million: $55.3 million of cash available for operating purposes and $115.2 million of additional borrowing capacity under the revolving credit facility, subject to covenant compliance. Outstanding borrowings under the Credit Facilities were $125.0 million; short-term debt was $9.6 million. Astec reported compliance with its financial covenants. The company expects more frequent revolver use for working capital and elevated near-term interest expense. Total assets were $1.123 billion and total liabilities $472.5 million.
Backlog, outlook and management commentary
Backlog was $559.8 million at March 31, down 30.0% from $800.2 million a year earlier. Domestic backlog declined 36.2%; international backlog increased 6.6%. Management said backlog had been elevated by prior demand and production/logistics constraints, and has since declined as deliveries outpaced new orders. Higher inflation and interest rates, dealer ordering variability and shorter production lead times affect order patterns.
No specific sales or earnings forecast is provided. Management expects 2024 capital expenditures of $25–$35 million. The multi-year ERP transformation is expected to cost $125–$150 million in total, with an estimated $25–$30 million annually and costs expected through 2025; Q1 2024 costs were $6.5 million. Management expects completed lean-manufacturing investments to support improved gross margin at a large site in the second half of 2024.
Management believes available working capital, future operating cash flows and credit capacity will be sufficient for existing business needs for at least the next 12 months. Principal disclosed sensitivities include steel and oil prices, interest rates, competitive limits on passing through cost increases, geopolitical conflicts, customer demand and potential goodwill impairment. The company also has $147.6 million in open purchase obligations, mostly expected to be fulfilled during the remainder of 2024.
Contingencies and other notable items
- A shareholder lawsuit settlement was agreed in principle for $13.7 million, subject to court approval. The company recorded a $13.7 million current liability and a matching insurance receivable, and says insurers will fund the entire settlement.
- A separate Texas product-related judgment against a subsidiary had a recorded loss contingency of $8.1 million, including post-judgment interest, as of March 31; the company appealed.
- Another product-related lawsuit remains pending; the company said it cannot estimate any possible loss or range of loss.
- Uncertain tax-position liabilities were $13.2 million. The company is under IRS audit for tax year 2018 and other state and jurisdictional audits; management said it expects no material impact from the positions, while noting outcomes could differ from estimates.
- The ERP implementation is a significant multi-year project and is expected to change processes and internal controls as it proceeds. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether order trends and backlog stabilize, particularly in Materials Solutions and domestic markets.
- Whether manufacturing efficiency, inventory adjustments and margins improve as management expects.
- Working-capital conversion, cash use, revolver borrowings, interest expense and covenant headroom.
- ERP program costs, timing, execution risks and expected operational benefits.
- Final approval and insurance funding of the shareholder settlement, and the outcome and additional exposure from the Texas appeal and other litigation.
- Potential effects of higher input costs, interest rates, geopolitical developments and customer demand on results.