ASTEC INDUSTRIES INC 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements This Quarterly Report on Form 10-Q, particularly the following discussion and analysis of our results of operations, financial condition and liquidity in this "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains forward-looking statements within the meaning of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Such statements relate to, among other things, income, earnings, cash flows, changes in operations, operating improvements, businesses in which we operate and the United States and global economies. Statements in this Quarterly Report on Form 10-Q that are not historical are hereby identified as "forward-looking statements" and may be indicated by words or phrases such as "anticipates," "supports," "plans," "projects," "expects," "believes," "should," "would," "could," "hope," and "forecast," and use of the future tense and similar words or phrases. These forward-looking statements are based largely on management's expectations, which are subject to a number of known and unknown risks, uncertainties and other factors described under the caption "Item 1A. Risk Factors" in Part II of this Report, elsewhere herein and in other documents filed by the Company with the Securities and Exchange Commission, including Part I, Item 1A. Risk Factors of the Company's Annual Report on Form 10-K for the year ended December 31, 2020, which may cause actual results, financial or otherwise, to be materially different from those anticipated, expressed or implied by the forward-looking statements. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements to reflect future events or circumstances, except as required by law. The financial condition, results of operations and cash flows discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations are those of Astec Industries, Inc. and its consolidated subsidiaries, collectively, the "Company," "Astec," "we," "our" or "us." The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2020. The financial position, results of operations, cash flows and other information included herein are not necessarily indicative of the financial position, results of operations and cash flows that may be expected in future periods. Overview We design, engineer, manufacture and market equipment and components used primarily in road building and related construction activities, as well as certain other products. Our products are used in each phase of road building, from quarrying and crushing the aggregate to application of the road surface for both asphalt and concrete. We also manufacture certain equipment and components unrelated to road construction, including equipment for the mining, quarrying, construction and demolition industries and port and rail yard operators; industrial heat transfer equipment; commercial whole-tree pulpwood chippers; horizontal grinders; blower trucks; commercial and industrial burners; and combustion control systems. Our products are marketed both domestically and internationally primarily to asphalt producers; highway and heavy equipment contractors; utility contractors; sand and gravel producers; construction, demolition, recycle and crushing contractors; mine and quarry operators; port and inland terminal authorities; power stations and domestic and foreign government agencies. In addition to equipment sales, we manufacture and sell replacement parts for equipment in each of our product lines and replacement parts for some competitors' equipment. The distribution and sale of replacement parts is an integral part of our business. See Note 11. "Segment Information," of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion of our reportable segments. Executive Summary Highlights of our financial results for the three months ended September 30, 2021 as compared to the same period of the prior year include the following: • Net sales were $267.0 million, an increase of 15.4% • Gross profit was $62.3 million, an increase of 24.1% • Income (loss) from operations increased $7.6 million to $6.7 million • Net income attributable to Astec increased to $9.3 million, or 481.3% • Diluted earnings per share were $0.41, an increase of 485.7% 20 INDEX Significant Items Impacting Operations in 2021 COVID-19 Pandemic – Our top priority continues to be protecting our employees and their families, our customers and suppliers and our operations from any adverse impacts by taking precautionary measures as directed by health authorities and local governments. We continually monitor the markets in which we operate for the effects of COVID-19 and the related actions of governments and other authorities to contain COVID-19. While our manufacturing and business operations have remained fully operational throughout 2021, there continues to be an effect on our results of operations, financial position and cash flows driven by contributory effects of the pandemic such as material price increases, increased lead times from production materials, supplies and parts and labor shortages. The COVID-19 pandemic may continue to negatively disrupt our business and results of operations in the future. The full extent of the COVID-19 pandemic on our operations and the markets we serve remains uncertain due to constantly evolving developments including, but not limited to, government directives, treatment availability and acceptance, vaccine mandates and the spread of new variants, such as the Delta variant, and cannot be accurately predicted. Closure of Tacoma Facility – In January 2021, we announced plans to close our Tacoma facility in order to simplify and consolidate operations. We expect the Tacoma facility to cease operations at the end of 2021. Manufacturing and marketing of Tacoma product lines are expected to be fully transferred to other facilities within the Infrastructure Solutions segment by early 2022. Simplify, Focus and Grow Strategic Transformation ("SFG") – Beginning in late 2019, we initiated a strategic transformation initiative focused on implementing new business strategies and a new operating structure. This transformation is concentrated on aligning our operations under the OneASTEC business model with the strategic pillars of Simplify, Focus and Grow. SFG is an ongoing, multi-year program with the primary goals of optimizing our manufacturing footprint and centralizing our business into common platforms and operating models to reduce complexity and cost, improve productivity and embed continuous improvement in our processes. These efforts are considered critical to enabling us to operate competitively and supporting future growth, which are expected to broadly benefit our customers, partners, employees and shareholders. During 2019 and 2020, we consolidated certain of our sites as a key part of these initiatives. In addition, we have one additional site consolidation underway in 2021, as discussed above. Site consolidation costs including headcount reductions, inventory movement and facility shut-down costs are included in "Restructuring, impairment and other asset charges, net" in the Consolidated Statements of Operations. In addition, in late 2020 we launched a multi-year phased implementation of a standardized enterprise resource planning ("ERP") system across our global organization, which will replace much of our existing disparate core financial systems. The upgraded ERP will initially convert our internal operations, manufacturing, finance, human capital resources management and customer relationship systems to cloud-based platforms. This new ERP system will provide for standardized processes and integrated technology solutions that enable us to better leverage automation and process efficiency. An implementation of this scale is a major financial undertaking and will require substantial time and attention of management and key employees. Costs incurred, during the three and nine months ended September 30, 2021, were $2.4 million and $7.7 million, respectively, which represent costs directly associated with the SFG initiative and which cannot be capitalized in accordance with U.S. GAAP. These costs are included in "Selling, general and administrative expenses" in the Consolidated Statements of Operations. Industry and Business Condition Our financial performance is affected by a number of factors, including the cyclical nature and varying conditions of the markets we serve. Demand in these markets fluctuates in response to overall economic conditions and is particularly sensitive to the amount of public sector spending on infrastructure development, privately funded infrastructure development and changes in the prices of liquid asphalt, oil and natural gas and steel. In addition, many of our markets are highly competitive, and our products compete worldwide with a number of other manufacturers and dealers that produce and sell similar products. We ended 2020 with a strong backlog of orders, which has grown throughout 2021 across our global organization as well as in both the Infrastructure Solutions and Materials Solutions segments. The backlog of orders as of September 30, 2021 was $620.5 million compared to $218.5 million as of September 30, 2020, an increase of $402.0 million or 184.0%. Increased orders were driven by pent-up demand, both customer retail and dealer inventory replenishment, following economic uncertainty in 2020 as a result of COVID-19 as well as in anticipation of future infrastructure investment by the United States' government. Additionally, we are continuing to experience slower production cycles due to manufacturing labor shortages and increased lead times for certain production materials, parts and supplies, which have and may continue to impact our ability to satisfy the orders in our backlog in a manner that meets the timelines of our customers. Federal funding provides a significant portion of all highway, street, roadway and parking construction in the United States. We believe that federal highway funding influences the purchasing decisions of our customers, who are typically more amenable to making capital equipment purchases with long-term federal legislation in place. Federal transportation funding under the Fixing America's Surface Transportation Act ("FAST Act"), which was set to expire on September 30, 2020, was temporarily extended for one year through September 30, 2021 and was subsequently further extended through December 3, 2021. We believe a multi-year highway program (such as the FAST Act) will have the greatest positive impact on the road construction industry and allow our customers to plan and execute longer-term projects. While the Biden administration has recently proposed an infrastructure plan with meaningful funding for transportation-related projects, given the inherent uncertainty in the political process, the level of governmental funding for federal highway projects will similarly continue to be 21 INDEX uncertain. Although continued funding under the FAST Act or funding of a bill passed by the current administration is expected, it may be at lower levels than originally approved or anticipated. Significant portions of our revenues from the Infrastructure Solutions segment relate to the sale of equipment involved in the production, handling, recycling or application of asphalt mix. Liquid asphalt is a by-product of oil refining. An increase or decrease in the price of oil impacts the cost of asphalt, which is likely to alter demand for asphalt and therefore affect demand for certain of our products. While increasing oil prices may have a negative financial impact on many of our customers, our equipment can use a significant amount of recycled asphalt pavement, thereby partially mitigating the effect of increased oil prices on the final cost of asphalt for the customer. We continue to develop products and initiatives to reduce the amount of oil and related products required to produce asphalt. While oil prices have increased throughout 2021, its price volatility makes it difficult to predict the costs of oil-based products used in road construction such as liquid asphalt and gasoline. Oil prices have routinely fluctuated in recent years and are expected to continue to fluctuate in the future. During the first nine months of 2021, oil prices have increased and we expect that with increasing demand from the rebound of industrial activity after the slowdown experienced in 2020 with the COVID-19 pandemic that prices will continue to increase through the remainder of 2021. Steel is a major component of our equipment. With a drop in supply, similar to oil, steel prices began increasing in the latter part of 2020, continuing throughout the first nine months of 2021 and into Q4. As a result, we have experienced a rising cost of steel throughout 2021. We anticipate the steel demand will remain strong through the remainder of 2021 driving continued price inflation. In response, we continue to utilize strategies that include forward-looking contracts and advanced steel purchases to ensure supply and minimize the impact of price volatility. Constraints on the supply of steel may also put pressure on the availability of other components used in our manufacturing process. We actively manage our global supply chain for any identified constraints and volatility. Challenges related to our supply chain, including potential labor shortages at our vendors and logistics partners and the availability of shipping containers, cargo ships and unloading space, have continued to drive increased lead times for certain components used in our manufacturing processes. We cannot estimate the full impact that any future disruptions might have on our operations. We will continue to monitor potential future supply costs and availability. In addition, in certain manufacturing locations, we have experienced a shortage of necessary production personnel and increasing labor costs to attract staff in our manufacturing operations. This resulted in a variety of challenges in running our operations efficiently as well as meeting manufacturing demand. We are focused on adjusting our production schedules and manufacturing workload distribution, outsourcing components, reinitiating efficiency improvements and are actively modifying our recruitment process and compensation and benefits to attract and retain production personnel in our manufacturing facilities. Whenever possible, we attempt to cover increased costs of production by adjusting the prices of our products. Backlog fulfillment times from the initial order to completing the contracted sale vary and can extend past twelve months. For this reason, we have limitations on our ability to pass on cost increases to our customers on a short-term basis. In addition, the markets we serve are competitive in nature, and competition limits our ability to pass through cost increases in many cases. We strive to minimize the effect of inflation through cost reductions and improved manufacturing efficiencies. Results of Operations Net Sales Net sales for the third quarter of 2021 were $267.0 million compared to $231.4 million for the third quarter of 2020, an increase of $35.6 million or 15.4%. The increase in net sales was primarily driven by: (i) $37.6 million higher equipment sales, (ii) $6.0 million higher parts and component sales and (iii) $3.3 million of net incremental sales from acquired businesses. These increases were partially offset by reduced sales from the exit of our Enid oil and gas drilling product lines of $9.3 million and $0.8 million of lower service and equipment installation sales. Sales reported by our foreign subsidiaries in U.S. dollars for the third quarter of 2021 would have been $3.8 million lower had third quarter 2021 foreign exchange rates been the same as third quarter 2020 rates. Net sales for the first nine months of 2021 were $829.4 million compared to $785.5 million for the first nine months of 2020, an increase of $43.9 million or 5.6%. The increase in net sales was primarily driven by: (i) $33.1 million of net incremental sales from acquired businesses, (ii) $29.4 million higher equipment sales and (iii) $17.7 million higher parts and component sales. These increases were partially offset by: (i) reduced sales from the exit of our Enid oil and gas drilling product lines of $24.2 million, (ii) lower used equipment sales of $7.1 million and (iii) $4.2 million of lower service and equipment installation sales. Sales reported by our foreign subsidiaries in U.S. dollars for the first nine months of 2021 would have been $12.5 million lower had the first nine months of 2021 foreign exchange rates been the same as the first nine months of 2020 rates. Domestic sales for the third quarter of 2021 were $201.8 million or 75.6% of consolidated net sales compared to $181.1 million or 78.3% of consolidated net sales for the third quarter of 2020, an increase of $20.7 million or 11.4%. Domestic sales increased primarily due to: (i) $26.2 million higher equipment sales, (ii) $2.9 million of net incremental sales from acquired businesses and (iii) $2.8 million higher parts and component sales. These increases were partially offset by: (i) reduced sales from the exit of our Enid oil and gas drilling product lines of $8.9 million and $1.5 million of lower service and equipment installation sales. Domestic sales for the first nine months of 2021 were $628.8 million or 75.8% of consolidated net sales compared to $636.6 million or 81.0% of consolidated net sales for the first nine months of 2020, a decrease of $7.8 million or 1.2%. Domestic sales decreased primarily due to: (i) reduced sales from the exit of our Enid oil and gas drilling product lines of $23.1 million, (ii) lower used equipment sales of $5.9 million, (iii) 22 INDEX reduced service and equipment installation sales of $5.3 million and (iv) lower equipment sales of $5.0 million largely due to lower production throughput from labor shortages and supply chain constraints. These decreases were partially offset by net incremental sales of $26.0 million from acquired businesses and $7.5 million of higher parts and components sales. International sales for the third quarter of 2021 were $65.2 million or 24.4% of consolidated net sales compared to $50.3 million or 21.7% of consolidated net sales for the third quarter of 2020, an increase of $14.9 million or 29.6%. International sales increased primarily due to: (i) higher equipment sales of $11.4 million mainly from COVID-19 related temporary site closures in the prior year, (ii) $3.1 million of higher parts and components sales and (iii) higher service and equipment installation sales of $0.7 million. International sales for the first nine months of 2021 were $200.6 million or 24.2% of consolidated net sales compared to $148.9 million or 19.0% of consolidated net sales for the first nine months of 2020, an increase of $51.7 million or 34.7%. International sales increased primarily due to: (i) higher equipment sales of $34.5 million mainly from COVID-19 related temporary site closures in the prior year, (ii) $10.2 million of higher parts and components sales and (iii) net incremental sales of $7.1 million from acquired businesses. Gross Profit Consolidated gross profit increased $12.1 million or 24.1% to $62.3 million for the third quarter of 2021 compared to $50.2 million for the third quarter of 2020. Gross profit as a percentage of sales increased 160 basis points to 23.3% for the third quarter of 2021 compared to 21.7% for the third quarter of 2020 due to pricing realization and improved sales volumes/mix combined with manufacturing efficiencies, partially offset by inflation. Consolidated gross profit increased $14.6 million or 8.0% to $197.8 million for the first nine months of 2021 compared to $183.2 million for the first nine months of 2020. Gross profit as a percentage of sales increased 50 basis points to 23.8% for the first nine months of 2021 compared to 23.3% for the first nine months of 2020 primarily due to increased pricing realized in the third quarter of 2021, partially offset by inflation. Selling, General and Administrative Expenses Selling, general and administrative expenses increased $5.4 million, or 12.5%, to $48.6 million or 18.2% of net sales for the third quarter of 2021, compared to $43.2 million or 18.7% of net sales for the third quarter of 2020 primarily due to (i) increased costs for centralization and infrastructure efforts associated with our transformation initiatives, (ii) $0.8 million of higher technology and software licensing costs, (iii) $0.8 million of incremental expenses for acquired businesses and (iv) $0.6 million of increased travel expenses as certain limited travel activities have resumed. These increases were partially offset by approximately $0.6 million of lower trade show and promotional expenses. Selling, general and administrative expenses increased $18.1 million, or 13.9%, to $148.3 million or 17.9% of net sales for the first nine months of 2021, compared to $130.2 million or 16.6% of net sales for the first nine months of 2020 primarily due to: (i) increased costs for centralization and infrastructure efforts associated with our transformation initiatives, (ii) $7.2 million of higher technology and software licensing costs and (iii) $5.4 million of incremental expenses for acquired businesses. These increases were partially offset by decreases of $6.1 million for reduced expenses associated with closed locations and $5.8 million of lower trade show and promotional expenses. 23 INDEX Restructuring, Impairment and Other Asset Charges, Net We are in the process of a strategic transformation under which we have completed various restructuring and right-sizing actions. Restructuring, asset impairment charges and the net gain on sale of property and equipment for the three and nine month periods ended September 30, 2021 and 2020 are presented below: Three Months Ended September 30, Nine Months Ended September 30, (in millions) 2021 2020 2021 2020 Restructuring charges: Costs associated with closing Tacoma 0.1 $ — 1.1 $ — Costs associated with closing Mequon — $ 0.7 0.6 2.1 Costs associated with closing Enid 0.4 1.9 0.4 2.2 Costs associated with closing Albuquerque — 0.3 — 1.3 Costs associated with closing AMM — — — 0.3 Workforce reductions at multiple sites — — — 1.3 Other restructuring charges — 0.2 — 0.2 Total restructuring related charges 0.5 3.1 2.1 7.4 Asset impairment charges: Airplane impairment charges (recovery) — (0.3) — 2.3 Goodwill impairment charges — — — 1.6 Other impairment charges — — 0.2 0.2 Total asset impairment charges — (0.3) 0.2 4.1 Gain on sale of property and equipment, net: Gain on sale of property and equipment, net (0.2) (0.6) (0.5) (1.2) Total gain on sale of property and equipment, net (0.2) (0.6) (0.5) (1.2) Restructuring, impairment and other asset charges, net $ 0.3 $ 2.2 $ 1.8 $ 10.3 See Note 12. "Strategic Transformation and Restructuring and Other Asset Charges" of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for discussion of the individual restructuring actions taken and the impairment charges recorded. Income Tax Provision For the third quarter of 2021, we recorded an income tax benefit of $2.8 million compared to an income tax benefit of $1.2 million for the third quarter of 2020. Our effective income tax rate was (43.1)% for the third quarter of 2021 compared to (300.0)% for the third quarter of 2020. The change in effective tax rate for the third quarter of 2021 compared to the same period of the prior year is primarily due to a current year discrete benefit of $3.5 million from the release of a valuation allowance associated with the Company's Brazilian subsidiary, partially offset by a reduced net benefit of $1.2 million from the research and development ("R&D") credit for 2021 and the recently filed 2020 R&D credit as part of the prior year consolidated corporate income tax return. The income tax provision for the first nine months of 2021 was $0.4 million compared to an income tax benefit of $4.5 million for the first nine months of 2020. Our effective income tax rate was 1.5% for the first nine months of 2021 compared to (16.7)% for the first nine months of 2020. The change in the effective tax rate for the nine months ended September 30, 2021 compared to the same period of the prior year is primarily due to a net discrete tax benefit of $9.5 million resulting from provisions of the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") in the prior year. Among other provisions, the CARES Act modified the net operating loss ("NOL") carryback provisions, which allowed the Company to carryback its 2018 NOL to prior tax years. This change not only favorably impacted the timing of the NOL benefit, but also increased the tax benefit amount as the federal tax rates in the prior years (35%) were higher than the current federal tax rate (21%). The income tax provision increase was partially offset by the $3.5 million release of a valuation allowance associated with the Company's Brazilian subsidiary and a $1.4 million higher equity compensation deduction. Backlog The backlog of orders as of September 30, 2021 was $620.5 million compared to $218.5 million as of September 30, 2020, an increase of $402.0 million or 184.0%. Domestic and international backlogs increased $357.3 million or 236.2% and $44.7 million or 66.5%, respectively. The backlog increased $192.6 million to $341.4 million in the Infrastructure Solutions segment and increased $209.4 million to $279.1 million in the Materials Solutions segment. Increased orders were driven by pent-up demand, both customer retail and dealer inventory replenishment, following economic uncertainty in 2020 as a result of COVID-19 as well as in anticipation of future infrastructure investment 24 INDEX by the United States' government combined with slower production cycles due to manufacturing labor shortages and increased lead times for certain production materials, parts and supplies. Segment Net Sales-Three Months Ended : Three Months Ended September 30, $ Change % Change (in millions) 2021 2020 Infrastructure Solutions $ 176.3 $ 151.1 $ 25.2 16.7 % Materials Solutions 90.7 80.3 10.4 13.0 % Infrastructure Solutions: Sales in this segment were $176.3 million for the third quarter of 2021 compared to $151.1 million for the same period in 2020, an increase of $25.2 million or 16.7%. Domestic sales for the Infrastructure Solutions segment increased $14.9 million or 11.6% for the third quarter of 2021 compared to the same period in 2020 driven by: (i) increased equipment sales of $21.7 million, (ii) $2.9 million of net incremental sales from acquisitions and (iii) increased parts and component sales of $1.3 million. These increases were partially offset by $8.9 million of sales in the prior year associated with the exited Enid business, and $1.3 million of lower service and equipment installation sales. International sales for the Infrastructure Solutions segment increased $10.3 million or 45.2% for the third quarter of 2021 compared to the same period in 2020 primarily due to increased equipment sales of $8.2 million and increased parts and component sales of $2.2 million related to the recovery from COVID-19 related business disruptions in the prior year. Materials Solutions: Sales in this segment were $90.7 million for the third quarter of 2021 compared to $80.3 million for the same period in 2020, an increase of $10.4 million or 13.0%. Domestic sales for the Materials Solutions segment increased by $5.8 million or 11.0% for the third quarter of 2021 compared to the same period in 2020 driven by increased equipment and parts and component sales. International sales for the Materials Solutions segment increased $4.6 million or 16.7% for the third quarter of 2021 compared to the same period in 2020 driven by higher equipment, parts and components and service and equipment installation sales, which increased 17.1% for the third quarter of 2021 compared to the same period in 2020 related to the recovery from COVID-19 related temporary site closures in the prior year. Segment Net Sales-Nine Months Ended : Nine Months Ended September 30, $ Change % Change (in millions) 2021 2020 Infrastructure Solutions $ 558.0 $ 535.6 $ 22.4 4.2 % Materials Solutions 271.4 249.9 21.5 8.6 % Infrastructure Solutions: Sales in this segment were $558.0 million for the first nine months of 2021 compared to $535.6 million for the same period in 2020, an increase of $22.4 million or 4.2%. Domestic sales for the Infrastructure Solutions segment decreased $17.2 million or 3.7% for the first nine months of 2021 compared to the same period in 2020 driven by: (i) $23.1 million of sales in the prior year associated with the exited Enid business, (ii) reduced equipment sales of $10.3 million largely due to lower production throughput from labor shortages and supply chain constraints, (iii) reduced used equipment sales of $6.0 million, (iv) lower service and equipment installation sales of $4.5 million and lower freight revenue of $1.8 million. These decreases were partially offset by $26.0 million of net incremental sales from acquisitions and $3.3 million of higher parts and components sales. International sales for the Infrastructure Solutions segment increased $39.6 million or 52.2% for the first nine months of 2021 compared to the same period in 2020 primarily from COVID-19 related business disruptions in the prior year and $7.1 million of net incremental sales from acquisitions. Materials Solutions: Sales in this segment were $271.4 million for the first nine months of 2021 compared to $249.9 million for the same period in 2020, an increase of $21.5 million or 8.6%. Domestic sales for the Materials Solutions segment increased by $9.4 million or 5.3% for the first nine months of 2021 compared to the same period in 2020, which was driven by increased equipment sales of $5.7 million and increased parts and component sales of $4.2 million. International sales for the Materials Solutions segment increased $12.1 million or 16.6% for the first nine months of 2021 compared to the same period in 2020 primarily due to increased equipment sales of $10.1 million in part related to COVID-19 related temporary site closures in the prior year. Segment Profit (Loss)-Three Months Ended : Three Months Ended September 30, $ Change % Change (in millions) 2021 2020 Infrastructure Solutions $ 13.8 $ 6.3 $ 7.5 119.0 % Materials Solutions 8.0 7.2 0.8 11.1 % Corporate (12.8) (11.7) (1.1) (9.4) % Infrastructure Solutions segment: Segment profit for the Infrastructure Solutions segment was $13.8 million for the third quarter of 2021 compared to $6.3 million for the same period in 2020, an increase of $7.5 million or 119.0%. The increase in segment profits resulted 25 INDEX primarily from by an increase in gross profit of $10.4 million due to a 310 basis point increase in gross margins between periods (22.6% and 19.5% for the third quarter of 2021 and 2020, respectively) and lower restructuring and net other asset gains of $1.3 million. These increases in segment profits were partially offset by increased general and administrative expenses and inflation. Materials Solutions segment: Segment profit for the Materials Solutions segment was $8.0 million for the third quarter of 2021 compared to $7.2 million for the same period in 2020, an increase of $0.8 million or 11.1%. The increase in segment profits between periods resulted from an increase in gross profit of $1.8 million partially offset by decreased restructuring costs of $0.9 million and inflation. Corporate: Corporate operations had a loss of $12.8 million for the third quarter of 2021 compared to a loss of $11.7 million for the third quarter of 2020, an increase in expenses of $1.1 million or 9.4%. The increase in expenses was driven by increased costs for centralization and infrastructure efforts associated with our transformation initiatives. Segment Profit (Loss)-Nine Months Ended : Nine Months Ended September 30, $ Change % Change (in millions) 2021 2020 Infrastructure Solutions $ 46.6 $ 37.7 $ 8.9 23.6 % Materials Solutions 27.3 21.7 5.6 25.8 % Corporate (47.5) (28.2) (19.3) (68.4) % Infrastructure Solutions segment: Segment profit for the Infrastructure Solutions segment was $46.6 million for the first nine months of 2021 compared to $37.7 million for the same period in 2020, an increase of $8.9 million or 23.6%. Segment profits were favorably impacted by an increase in gross profit of $7.9 million due to a 50 basis point increase in gross margins between periods (22.9% and 22.4% for the first nine months of 2021 and 2020, respectively) and a decrease in restructuring, impairment, and other charges of $4.3 million. This was partially offset by increased general and administrative expenses and inflation. Materials Solutions segment: Segment profit for the Materials Solutions segment was $27.3 million for the first nine months of 2021 compared to $21.7 million for the same period in 2020, an increase of $5.6 million or 25.8%. The increase in segment profits between periods resulted from an increase in gross profit of $7.0 million due a 60 basis point increase in gross margins inclusive of government subsidies received in an international market. These increases were partially offset by increased general and administrative and research and development expenses and the impact of inflation. Corporate: Corporate operations had a loss of $47.5 million for the first nine months of 2021 compared to a loss of $28.2 million for the first nine months of 2020, an increase in expense of $19.3 million or 68.4%. The increase in expenses was primarily driven by increased costs for centralization and infrastructure efforts associated with our transformation initiatives, including a $1.5 million out-of-period expense recorded during the first quarter of 2021 for certain vendor hosted software licensing fees for contract costs incurred in the fourth quarter of 2020, and $6.8 million of increased income tax expense partially offset by $2.3 million of airplane impairment charges recorded in 2020 that did not recur in 2021. Liquidity and Capital Resources Our future cash needs are currently expected to be primarily related to operating activities, inclusive of ongoing transformation initiatives, working capital, strategic acquisitions and capital investments. We estimate that our capital expenditures will be between $15 and $20 million for the year ending December 31, 2021, which may be impacted by general economic, financial or operational changes, including the ongoing impact of COVID-19 and related disruptions on our operating results, among other considerations. Our ability to satisfy our cash requirements depends on our ongoing ability to generate and raise cash. We expect to finance these expenditures using currently available cash balances, internally generated funds, available credit under our credit facilities and access to capital markets, if necessary. Capital expenditures are generally for machinery, equipment and facilities used in the production of our various products. We believe that our current working capital, cash flows generated from future operations and available capacity under our credit facility will be sufficient to meet working capital and capital expenditure requirements for at least the next 12 months. Our primary sources of liquidity and capital resources are cash on hand, borrowing capacity under a $150.0 million revolving credit facility (the "Credit Facility") and cash flows from operations. We had $164.6 million of cash available for operating purposes as of September 30, 2021, of which $28.0 million was held by our foreign subsidiaries. We did not have any outstanding borrowings on the Credit Facility at September 30, 2021 or December 31, 2020. In addition, no borrowings were made under the Credit Facility during 2021. Our outstanding letters of credit totaling $5.3 million decreased borrowing availability to $144.7 million under the Credit Facility as of September 30, 2021. The Credit Facility agreement contains certain financial covenants, including provisions concerning required levels of annual net income and minimum tangible net worth. We were in compliance with the financial covenants of the agreement at September 30, 2021. Our Brazilian subsidiary maintains a separate term loan for working capital purposes with a bank in Brazil, which is secured by its manufacturing facility. 26 INDEX Certain of our international subsidiaries in South Africa, Australia, Brazil and the United Kingdom each have separate credit facilities with local financial institutions to finance short-term working capital needs, as well as to cover foreign exchange contracts, performance letters of credit, advance payment and retention guarantees. In addition, the Brazilian subsidiary also enters into order anticipation agreements with a local bank on a periodic basis. Both the outstanding borrowings under the credit facilities of the international subsidiaries and the order anticipation agreements are recorded in "Short-term debt" on our Consolidated Balance Sheets. Each of the credit facilities are generally guaranteed by Astec Industries, Inc. and/or secured with certain assets of the local subsidiary except in Brazil where the credit facilities are supported by letters of credit issued under the Credit Facility. Cash Flows from Operating Activities : Nine Months Ended September 30, Increase / Decrease (in millions) 2021 2020 Net income $ 27.0 $ 31.4 $ (4.4) Depreciation and amortization 22.6 19.4 3.2 Provision for warranties 8.5 7.1 1.4 Deferred tax provision 0.3 14.0 (13.7) Asset impairment charges 0.2 4.1 (3.9) Increase in receivables and other contract assets (31.3) (2.0) (29.3) (Increase) decrease in inventories (33.4) 43.2 (76.6) Decrease in prepaid expenses 0.2 7.5 (7.3) Increase (decrease) in accounts payable 26.6 (8.0) 34.6 Increase in accrued payroll and related expenses 9.3 1.0 8.3 Increase in other accrued liabilities 10.3 2.9 7.4 Decrease in accrued product warranty (8.3) (7.3) (1.0) Increase (decrease) in customer deposits 4.0 (18.0) 22.0 Income taxes payable/prepaid (5.7) 8.6 (14.3) Other, net (3.0) (1.8) (1.2) Net cash provided by operating activities $ 27.3 $ 102.1 $ (74.8) Net cash provided by operating activities decreased $74.8 million for the first nine months of 2021 as compared to the first nine months of 2020. The primary drivers were the timing of inventories of $76.6 million, receivables and other contract assets of $29.3 million and payable/prepaid income taxes of $14.3 million. These decreases were partially offset by the timing of accounts payables payments of $34.6 million and customer deposits of $22.0 million. Cash Flows from Investing Activities: Nine Months Ended September 30, Increase / Decrease (in millions) 2021 2020 Acquisitions, net of cash acquired $ 0.1 $ (28.3) $ 28.4 Proceeds from (price adjustment on prior) sale of subsidiary (1.1) 1.1 (2.2) Expenditures for property and equipment (10.9) (10.9) — Proceeds from sale of property and equipment 1.7 6.0 (4.3) Purchase of investments (0.8) (0.9) 0.1 Sale of investments 1.8 1.2 0.6 Net cash used by investing activities $ (9.2) $ (31.8) $ 22.6 Net cash used by investing activities decreased by $22.6 million for the first nine months of 2021 as compared to the same period in 2020 primarily due to the acquisitions of CON-E-CO and BMH Systems in the third quarter of 2020 and lower proceeds on sales of property and equipment. 27 INDEX Cash Flows from Financing Activities: Nine Months Ended September 30, Increase / Decrease (in millions) 2021 2020 Payment of dividends $ (7.5) $ (7.5) $ — Repayments, net under bank loans (1.1) (0.3) (0.8) Withholding tax paid upon vesting of share-based compensation awards (3.4) (0.7) (2.7) Other, net 0.6 0.2 0.4 Net cash used by financing activities $ (11.4) $ (8.3) $ (3.1) Net cash used by financing activities increased by $3.1 million for the first nine months of 2021 compared to the same period in 2020 due primarily to withholding tax payments on the vesting of share-based compensation awards. Dividends We paid quarterly dividends of $0.11 per common share to shareholders in the first, second and third quarters of 2021 and 2020. Our Board of Directors approved an increase to the dividend payment of $0.01 to a total of $0.12 per common share to shareholders effective with the dividend payment to be made during the fourth quarter of 2021. Financial Condition Our total current assets increased to $644.8 million as of September 30, 2021 from $565.8 million as of December 31, 2020, an increase of $79.0 million or 14.0%, due primarily to an increase in inventories of $33.1 million and net trade receivables and contract assets of $29.9 million during the first nine months of 2021. Our total current liabilities increased to $212.0 million as of September 30, 2021 from $170.3 million as of December 31, 2020, an increase of $41.7 million, or 24.5%, due primarily to increased accounts payable of $25.2 million and accrued payroll and related liabilities of $9.1 million during the first nine months of 2021. Contingencies We have reviewed all claims and lawsuits and have made adequate provision for any losses that are probable and can be reasonably estimated. Based upon currently available information and with the advice of counsel, we believe that the ultimate outcome of our current claims and legal proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position, cash flows or results of operations. However, claims and legal proceedings are subject to inherent uncertainties and rulings unfavorable to us could occur. If an unfavorable ruling were to occur, there exists the possibility of a material adverse effect on our financial position, cash flows or results of operations. See Note 8. Commitments and Contingencies of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for discussion of contingent liabilities for customer purchases, various guarantees including letters of credit, advance payments and retention guarantees as well as contingencies related to legal proceedings in which we are involved. Off-balance Sheet Arrangements See Note 8. Commitments and Contingencies of the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for discussion of contingent liabilities for customer purchases and various guarantees including letters of credit, advance customer payments and retention guarantees. Contractual Obligations In late 2020 and early 2021, we entered into certain vendor hosted software arrangements in conjunction with our transformation initiatives to convert our internal operations, manufacturing and finance systems to cloud-based platforms globally. These agreements include payments of $46.4 million to be paid through September 2027. Payments of $1.0 million will be made during the remaining periods of 2021, $12.4 million during the years 2022 to 2023, $19.7 million during the years 2024 to 2025 and $13.3 million after 2025. Other than the contract described above, there were no material changes in the Company's commitments or contractual liabilities disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020 during the nine months ended September 30, 2021.