Astec Industries, Inc. — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are primarily with FY 2022. Astec designs, manufactures, sells and services road-building, materials-processing and related equipment, with replacement parts and service also contributing to sales. Its reportable segments are Infrastructure Solutions and Materials Solutions.
Financial performance and condition
| Metric | FY 2023 | FY 2022 |
|---|---|---|
| Net sales | $1,338.2 million | $1,274.5 million |
| Gross profit / margin | $330.8 million / 24.7% | $264.1 million / 20.7% |
| Income from operations | $48.6 million | $7.5 million |
| Net income (loss) attributable to controlling interest | $33.5 million | $(0.1) million |
| Diluted EPS | $1.47 | $0.00 |
| Operating cash flow | $27.8 million | $(73.9) million |
| Capital expenditures | $34.1 million | $40.7 million |
- Sales increased 5.0%, driven mainly by pricing and higher service, installation, equipment, parts and component revenue. Domestic sales rose 6.8% to $1,083.4 million; international sales fell 2.1% to $254.8 million.
- Gross profit rose 25.3%. Favorable pricing was the principal driver; inflation in materials, labor and overhead reduced gross profit by $40.8 million. SG&A increased 11.6% to $276.4 million, including litigation, personnel, project and transformation costs.
- Infrastructure Solutions sales were $878.8 million, up 3.7%; segment Operating Adjusted EBITDA was $105.8 million, up 44.9%. Materials Solutions sales were $450.0 million, up 6.5%; segment Operating Adjusted EBITDA was $50.8 million, up 14.2%. Segment measure is non-GAAP.
- At year-end, total assets were $1,059.3 million and equity was $653.7 million. Cash, cash equivalents and restricted cash totaled $63.2 million; inventory was $455.6 million, up $62.2 million year over year.
- Astec reported $234.5 million of liquidity: $59.8 million of cash available for operations and $174.7 million of additional revolver capacity, subject to covenant compliance. Domestic revolver borrowings were $72.0 million; short-term debt was $11.0 million and current maturities were $0.1 million. Interest expense increased to $8.9 million from $2.5 million.
- Backlog fell 37.6% to $569.8 million from $912.7 million. Infrastructure Solutions backlog was $404.6 million; Materials Solutions backlog was $162.7 million.
Changes, outlook and material items
- Backlog and demand: Deliveries exceeded new orders, and management reported reduced order intake. It expects backlog to continue declining, particularly among dealer customers, amid inflation, higher interest rates and customers ordering closer to delivery. Management nevertheless described backlog as strong and expects shorter lead times and capacity improvements to support conversion to sales.
- Costs and operating initiatives: Management expects steel prices and labor costs to remain elevated in 2024. It said supply constraints had eased overall, though some key inputs still had elongated lead times and not all cost increases can be passed on to customers.
- ERP and manufacturing transformation: ERP rollout is planned to accelerate across additional sites in 2024 and 2025. Expected total ERP implementation costs are $125–$150 million, with an estimated $25–$30 million incurred per year beginning in 2022. Transformation initiatives incurred $29.7 million of costs in 2023. A major-site lean manufacturing project was largely completed by year-end; gross-margin improvement is expected in early to mid-2024.
- Capital spending: Estimated FY 2024 capital expenditures are $25–$35 million. The company believes working capital, future operating cash flow and available revolver capacity will fund existing-business working capital and capital expenditure needs for at least 12 months.
- Unusual items: Astec recorded a $7.9 million loss contingency for the 37 BP litigation judgment; a $3.4 million gain on sale of the Tacoma site; and $7.3 million of leadership-change and overhead restructuring charges. A $1.9 million benefit from correcting prior-period inventory-related over-accruals was recorded in 2023; management characterized the prior-period errors as immaterial.
- Contingencies: Telsmith is appealing the 37 BP judgment; a supersedeas bond of approximately $4.2 million was filed. The company also disclosed ongoing shareholder litigation and the VenVer/GEFCO equipment lawsuit, for which it could not estimate a possible loss. Management believes current claims, individually and in aggregate, are not expected to materially affect financial position, cash flows or results, but adverse outcomes remain possible.
- Risk factors: Results are exposed to economic and infrastructure-spending cycles, customer financing conditions, steel and other input costs, labor availability, supply disruptions, competition, foreign exchange and geopolitical risks. Management also identifies ERP execution, leadership transitions, cybersecurity, product liability, warranty costs and covenant compliance as risks. The company was compliant with credit covenants at December 31, 2023.
- The financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective as of year-end. The auditor identified revenue recognition for completed equipment stored at Astec’s facilities as a critical audit matter. Deloitte was appointed auditor in 2023, succeeding KPMG.
Important facts for investors to verify
- Whether new orders and backlog stabilize, and how backlog converts to revenue and cash.
- Whether improved gross margins persist after 2023 pricing benefits and the one-time inventory correction, and whether the lean initiative delivers expected gains in 2024.
- Cash conversion and working-capital trends, especially the increase in inventory, alongside revolver usage, interest expense and covenant headroom.
- Actual ERP implementation costs, timing, operating disruption and effects on financial reporting controls as deployment expands.
- Resolution and financial exposure from the 37 BP appeal, VenVer/GEFCO litigation and other contingencies.
- Assumptions behind management’s 2024 capital-spending outlook and its expectation that liquidity will be sufficient for at least 12 months.