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Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2021-11-05 · 146 added, 219 removed, 103 unchanged (78% of the section changed)

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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:

Highlights of our financial results for the three months ended March 31, 2022 as compared to the same period of the prior year include the following:

• Net sales were $291.2 million, an increase of 2.4%

• 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%

• Gross profit was $66.1 million, a decrease of 3.1%

• Income from operations decreased $4.1 million to $5.4 million

• Net income attributable to Astec decreased to $4.1 million, or 51.8%

• Diluted earnings per share were $0.18, a decrease of 51.4%

During the first quarter of 2022, we identified errors in our previously issued financial statements and based on a quantitative and qualitative assessment determined the correction of these errors to be immaterial to the prior period consolidated financial statements taken as a whole.

To reflect the correction of the above errors, we have revised the previously issued consolidated financial statements and prior period information included in Management's Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report on Form 10-Q.

Immaterial Error Correction of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details of the revision impact on the prior period.

Significant Items Impacting Operations in 2022

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.

Simplify, Focus and Grow Strategic Transformation ("SFG") – Our ongoing strategic transformation initiative focused on implementing new business strategies and a new operating structure is concentrated on aligning our operations under the OneASTEC business model with the strategic pillars of Simplify, Focus and Grow.

SFG is a 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.

Currently, we have two elements of the SFG program in operation, which include the implementation of a standardized enterprise resource planning ("ERP") system and a gross margin-generating lean manufacturing initiative.

Our multi-year phased implementation of a standardized ERP system across our global organization 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.

An implementation of this scale is a major financial undertaking and has required, and will continue to require, substantial time and attention of management and key employees.

We expect to complete the ERP global design in 2022 and convert the operations of one site in 2023 to set the foundation before accelerating the implementation at additional sites.

Beginning in the first quarter of 2022, a lean manufacturing initiative at one of our largest sites was initiated and is expected to drive improvement in gross margin at that site.

This improvement is intended to serve as the optimal blueprint for our other manufacturing facilities.

Costs incurred, during the three months ended March 31, 2022 and March 31, 2021, were $5.3 million and $3.2 million, respectively, which represent costs directly associated with the SFG initiative and which cannot be capitalized in accordance with U.S.

These costs are included in "Selling, general and administrative expenses" in the Consolidated Statements of Operations.

COVID-19 Pandemic – The COVID-19 pandemic has caused significant disruptions to national and global economies and to our business.

Our business has been significantly affected by the contributory effects of the pandemic such as fluctuations in demand for our products, material price increases, increased shipping costs and lead times from production materials, supplies and parts, labor shortages and increased labor costs.

These trends continue to impact our business today and may continue to impact our business in the near-term.

Furthermore, while our business operations were fully operational during the first quarter of 2022, they were not at optimal manufacturing efficiency due to a spike in the COVID-19 omicron variant impacting our labor force.

The COVID-19 pandemic and its contributory effect on the economy may continue to negatively disrupt our business and results of operations in the future.

The ongoing impact of the COVID-19 pandemic on our operations and the markets we serve remains uncertain due to constantly evolving developments and cannot be accurately predicted.

Tacoma Site Closure - In January 2021, we announced plans to close the Tacoma facility in order to simplify and consolidate operations.

The Tacoma facility ceased manufacturing operations at the end of 2021.

The transfer of the manufacturing and marketing of Tacoma product lines to other facilities within the Infrastructure Solutions segment was completed during the first quarter of 2022.

We recorded the Tacoma facility's land, building and certain equipment assets of $15.4 million, which are currently being marketed for sale, as held for sale at March 31, 2022 in our Consolidated Balance Sheets.

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.

We experienced continual strengthening of our backlog of orders throughout 2021, which has grown again during the first quarter of 2022 in both the Infrastructure Solutions and Materials Solutions segments.

The backlog of orders as of March 31, 2022 was $834.7 million compared to $420.8 million as of March 31, 2021, an increase of $413.9 million or 98.4%.

Increased orders are driven by (i) continuation of the pent-up demand experienced in 2021, (ii) both customer retail and dealer inventory replenishment following economic uncertainty as a result of COVID-19 and (iii) the infrastructure investment by the United States' government under the Infrastructure Investment and Jobs Act ("IIJA") enacted in November 2021.

In addition, we are continuing to experience constrained production cycles due to increased lead times for certain production materials, parts and supplies and manufacturing labor shortages 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

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.

As noted above, the U.S.

government enacted the IIJA in November 2021.

The IIJA allocates $548 billion in government spending to new infrastructure over the five-year period concluding in 2026, with certain amounts specifically allocated to fund highway and bridge projects.

We believe that multi-year highway programs (such as the IIJA) will have the greatest positive impact on the road construction industry and allow our customers to plan and execute longer-term projects.

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.

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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.

While increasing oil prices may have a negative financial impact on many of our customers, our equipment can use a significant amount of reclaimed 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.

While oil prices have increased throughout the prior year, 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.

Based on the current macroeconomic environment, including the ongoing impact of the conflict in Ukraine, we expect prices will continue to increase in 2022.

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.

With a drop in supply, similar to oil, steel prices increased throughout the prior year.

As a result, we have experienced a rising cost of steel.

We anticipate that steel demand will remain strong throughout 2022, bolstered by the IIJA domestically and impacted by international production capacity being restricted by the conflict in Ukraine.

However, we expect new steelmaking capacity to enter the market during 2022 that will move us towards a more historical balance of supply and demand, thus slowing the pace of price inflation we have recently experienced.

In response to these factors, we continue to employ flexible strategies to ensure supply and minimize the impact of price volatility.

Ongoing constraints in the supply of certain steel products will continue pressuring the availability of other components used in our manufacturing process.

Furthermore, given the recent volatility of steel prices and the nature of our customers' orders, we may not be able to pass through all of the increases in steel costs to our customers, which negatively impacts our gross profit.

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.

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 and expenses 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.

We continually monitor potential future supply costs and availability.

In addition, we have experienced a shortage of necessary production personnel and increasing labor costs to attract staff in our manufacturing operations.

Furthermore, we experienced a spike in the COVID-19 omicron variant impacting our labor force in December 2021 and in the beginning of the first quarter.

This has resulted in a variety of challenges in running our operations efficiently to meet strong customer demand.

We continue to adjust our production schedules and manufacturing workload distribution, outsource components, implement efficiency improvements and actively modify 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.

Backlog fulfillment times from the initial order to completing the contracted sale vary and can extend past twelve months with the growth we have experienced in the backlog.

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.

Through our operational excellence initiatives, we also strive to minimize the effect of inflation through cost reductions and improved manufacturing efficiencies.

Results of Operations

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.

Net sales increased $6.8 million or 2.4% to $291.2 million in the first quarter of 2022 from $284.4 million in the first quarter of 2021.

The increase was primarily driven by changes in the volume, pricing and mix of sales that generated increases in (i) parts

and component sales of $8.6 million, (ii) service and equipment installation revenue of $1.4 million and (iii) freight revenue of $0.9 million partially offset by decreased equipment sales of $2.3 million and $1.6 million in lower used equipment 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%.

dollars for the first quarter of 2022 would have been $1.7 million higher had foreign exchange rates been the same as 2021 rates.

Domestic sales for the first quarter of 2022 were $234.5 million or 80.5% of net sales compared to $225.6 million or 79.3% of net sales for 2021, an increase of $8.9 million or 3.9%.

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)

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.

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.

(i) $7.6 million higher parts and component sales, (ii) $1.1 million higher service and equipment installation revenue and (iii) $1.1 million higher freight revenue.

These increases were partially offset by lower used equipment sales of $1.3 million.

International sales for the first quarter of 2022 were $56.7 million or 19.5% of net sales compared to $58.8 million or 20.7% of net sales for 2021, a decrease of $2.1 million or 3.6%.

International sales decreased primarily due to $3.0 million lower equipment sales partially offset by $1.1 million increased parts and component sales.

Consolidated gross profit for the first quarter of 2022 was $66.1 million or 22.7% of net sales as compared to $68.2 million or 24.0% of net sales for the first quarter of 2021, a decrease of $2.1 million or 3.1%.

The decrease was primarily driven by the impact of inflation on materials, labor and overhead of $25.5 million, partially offset by the impact of net favorable volume, pricing and mix that generated $23.7 million higher gross profit.

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.

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

"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.

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.

Selling, general and administrative expenses for the first quarter of 2022 were $52.7 million or 18.1% of net sales compared to $51.7 million or 18.2% of net sales for the first quarter of 2021, an increase of $1.0 million, or 1.9%, primarily due to:

(i) $2.4 million of exhibit, promotional and travel costs due to the return of in-person industry conferences and business activities, (ii) $2.1 million increased costs related to our SFG transformation program, (iii) increased technology expenses of $0.6 million and (iii) $0.6 million of transaction costs primarily associated with the acquisition of MINDS Automation Group, Inc.

("MINDS") that was completed in April 2022.

These increases were partially offset by lower health insurance claims experience of $2.6 million, reduced deferred compensation program cost driven by our stock price changes of $1.6 million and reduced depreciation and amortization expense of $0.9 million.

Our income tax expense for the first quarter of 2022 was $0.9 million compared to $0.8 million for the first quarter of 2021.

Our effective income tax rate was 18.0% for the first quarter of 2022 compared to 8.6% for the first quarter of 2021.

The income tax expense for 2022 was higher compared to 2021 primarily due to lower net discrete benefits from the vesting of employee shared-based compensation awards offset by an increased net benefit for foreign-derived income.

The backlog of orders as of March 31, 2022 was $834.7 million compared to $420.8 million as of March 31, 2021, an increase of $413.9 million or 98.4%.

Domestic backlog increased $384.1 million or 119.0% to $707.0 million and international backlog increased $29.8 million or 30.4% to $127.7 million.

The backlog increased $263.1 million to $517.7 million in the Infrastructure Solutions segment and increased $150.8 million to $317.0 million in the Materials Solutions segment.

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 %

Increased orders were driven by (i) continuation of the pent-up demand experienced in 2021, (ii) both customer retail and dealer inventory replenishment following economic uncertainty as a result of COVID-19 and (iii) the infrastructure investment by the United States' government under the IIJA enacted in November 2021.

Segment Net Sales :

Three Months Ended March 31,

(in millions) 2022 2021 $ Change % Change

Infrastructure Solutions $ 197.5 $ 201.5 $ (4.0) (2.0) %

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 93.7 82.9 10.8 13.0 %

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

Sales in this segment were $197.5 million for the first quarter of 2022 compared to $201.5 million for the same period in 2021, a decrease of $4.0 million or 2.0%.

The decrease was primarily driven by unfavorable net volume, pricing and the mix of sales that resulted in lower new and used equipment sales of $8.0 million and $1.2 million, respectively.

These decreases were partially offset by higher (i) parts and component sales of $3.6 million, (ii) service and equipment installation sales of $1.1 million and (iii) freight revenue of $0.7 million, respectively.

Domestic sales for the Infrastructure Solutions segment increased $1.7 million or 1.0% for the first quarter of 2022 compared to the same period in 2021 primarily due to (i) increased parts and component sales of $4.4 million, (ii) increased freight revenue of $1.0 million and (iii) increased service and equipment installation sales of $0.9 million.

These increases were partially offset by lower new and used equipment sales of $3.2 million and $1.3 million, respectively.

International sales for the Infrastructure Solutions segment decreased $5.7 million or 15.6% for the first quarter of 2022 compared to the same period in 2021 primarily due to lower equipment and parts and component sales of $4.8 million and $0.9 million, respectively.

Materials Solutions

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

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 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

Sales in this segment were $93.7 million for the first quarter of 2022 compared to $82.9 million for the same period in 2021, an increase of $10.8 million or 13.0% driven by the favorable impact of volume, pricing and the mix of sales that generated increases in equipment and parts and component sales of $5.7 million and $5.1 million, respectively.

Domestic sales for the Materials Solutions segment increased by $7.2 million or 11.9% for the first quarter of 2022 compared to the same period in 2021 primarily due to increased equipment and parts and component sales of $3.9 million and $3.1 million, respectively.

International sales for the Materials Solutions segment increased $3.6 million or 16.1% for the first quarter of 2022 compared to the same period in 2021 primarily due to increased parts and component and equipment sales of $2.0 million and $1.8 million, respectively.

Segment Operating Adjusted EBITDA :

Segment Operating Adjusted EBITDA is the measure of segment profit or loss used by our Chief Executive Officer, whom is determined to be the chief operating decision maker ("CODM"), to evaluate performance and allocate resources to the operating segments.

Segment Operating Adjusted EBITDA, a non-GAAP financial measure, is defined as net income or loss before the impact of interest income or expense, income taxes, depreciation and amortization and certain other adjustments that are not considered by the CODM in the evaluation of ongoing operating performance.

This non-GAAP financial measure can be useful to investors in understanding operating results and the performance of our core business from management's perspective.

Our presentation of Segment Operating Adjusted EBITDA may not be comparable to similar measures used by other companies and are not necessarily indicative of the results of operations that would have occurred had each reportable segment been an independent, stand-alone entity during the periods presented.

"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 a reconciliation of Segment Operating Adjusted EBITDA to total consolidated net income attributable to controlling interest.

Three Months Ended March 31, $ Change % Change

(in millions) 2022 2021

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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.

Segment Operating Adjusted EBITDA for the Infrastructure Solutions segment was $16.4 million for the first quarter of 2022 compared to $26.2 million for the same period in 2021, a decrease of $9.8 million or 37.4%.

The decrease in Segment Operating Adjusted EBITDA resulted primarily from:

(i) the impact of higher inflation on materials, labor and overhead costs of $17.3 million, (ii) increased general and administrative costs of $3.5 million and (iii) $0.7 million in manufacturing inefficiencies due to supply chain and logistics disruptions as well as pandemic related labor restrictions.

Annual incentive compensation was recorded in Corporate in the prior year period and has been reflected in the Infrastructure Solutions segment in the current year resulting in a $1.5 million impact.

These increased costs were partially offset by the impact of favorable volume, pricing and mix that generated $11.7 million higher gross profit.

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 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.

Segment Operating Adjusted EBITDA for the Materials Solutions segment was $12.2 million for the first quarter of 2022 compared to $9.7 million for the same period in 2021, an increase of $2.5 million or 25.8%.

The increase in Segment Operating Adjusted EBITDA between periods resulted primarily from the impact of favorable volume, pricing and mix that generated $12.0 million higher gross profit.

These increases were partially offset by the impact of higher inflation on materials, labor and overhead costs of $8.2 million and increased general and administrative costs of $1.5 million.

Annual incentive compensation was recorded in Corporate in the prior year period and has been reflected in the Materials Solutions segment in the current year resulting in a $0.7 million impact.

Corporate operations had net expenses of $9.8 million for the first quarter of 2022 compared to $15.0 million for the first quarter of 2021, a decrease of $5.2 million or 34.7%.

The decrease in expenses was driven by lower health insurance claims

experience of $2.6 million, $2.2 million of annual incentive compensation that was recorded within the reportable segments in the current year as compared to at Corporate in the prior year period and reduced deferred compensation program cost driven by our stock price changes of $1.6 million.

These decreases were partially offset by increases in consultant costs and stock compensation expenses.

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.

Our primary sources of liquidity and capital resources are cash and cash equivalents on hand, borrowing capacity under a $150.0 million revolving credit facility (the "Credit Facility") and cash flows from operations.

We had $111.4 million of cash and cash equivalents available for operating purposes as of March 31, 2022, of which $21.8 million was held by our foreign subsidiaries.

Our future cash requirements include working capital needs, capital expenditures, vendor hosted software arrangements including the related implementation costs, unrecognized tax benefits and operating lease payments.

In addition, we intend to fund other initiatives of our business including the SFG transformation and may identify strategic acquisitions which cash uses are variable in nature.

In April 2022, we acquired MINDS with a total cash consideration payable to the selling shareholders of $18.2 million, subject to adjustment for cash, indebtedness and net working capital and was funded from cash on hand.

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.

We did not have any outstanding borrowings on the Credit Facility at March 31, 2022 or December 31, 2021.

In addition, no borrowings have been made under the Credit Facility during 2022.

Our outstanding letters of credit totaling $2.5 million decreased borrowing availability to $147.5 million under the revolving credit facility as of March 31, 2022.

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.

We were in compliance with the financial covenants of the Credit Facility at March 31, 2022.

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.

In addition, the Brazilian subsidiary maintains an independent credit facility at a separate financial institution and also enters into order anticipation agreements 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" in 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.

and/or secured with certain assets of the local subsidiary.

We regularly enter into agreements primarily to purchase inventory in the ordinary course of business.

As of March 31, 2022, open purchase obligations totaled $298.5 million, of which $274.4 million are expected to be fulfilled within one year.

We estimate that our capital expenditures will be between $40 and $50 million for the year ending December 31, 2022, which may be impacted by general economic, financial or operational changes, including the impact of COVID-19 on our operating results, and competitive, legislative and regulatory factors, among other considerations.

Cash Flows from Operating Activities :

Nine Months Ended September 30, Increase / Decrease

Three Months Ended March 31, Increase / Decrease

(in millions) 2022 2021

Net income $ 4.1 $ 8.5 $ (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)

Deferred compensation (benefit) expense (0.8) 0.7 (1.5)

Deferred tax (benefit) provision (4.0) 0.8 (4.8)

Sale (purchase) of trading securities, net 0.6 (1.4) 2.0

Decrease (Increase) in receivables and other contract assets 5.3 (26.4) 31.7

(Increase) decrease in inventories (53.7) 5.3 (59.0)

Decrease in prepaid expenses 0.2 7.5 (7.3)

Increase (decrease) in accounts payable 26.6 (8.0) 34.6

Increase in prepaid expenses (1.0) 0.7 (1.7)

Increase in accounts payable 17.3 15.8 1.5

Increase in accrued payroll and related expenses 3.6 2.6 1.0

Increase in other accrued liabilities 10.3 2.9 7.4

Decrease in accrued product warranty (8.3) (7.3) (1.0)

Decrease in other accrued liabilities (2.9) (0.3) (2.6)

Increase (decrease) in customer deposits 9.3 (0.9) 10.2

1 unchanged sentence

Other, net 8.2 8.4 (0.2)

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.

Net cash (used in) provided by operating activities $ (9.6) $ 14.6 $ (24.2)

Net cash (used in) provided by operating activities decreased $24.2 million for the first three months of 2022 as compared to the first three months of 2021.

The decrease was primarily driven by the increase of inventories on hand due to higher backlog and supply chain logistics challenges of $59.0 million, changes in the deferred tax benefit of $4.8 million and lower net income partially offset by the timing of receivables and other contract assets of $31.7 million and increased customer deposits of $10.2 million associated with increased backlog.

Cash Flows from Investing Activities:

Nine Months Ended September 30, Increase / Decrease

Three Months Ended March 31, Increase / Decrease

(in millions) 2022 2021

Acquisitions, net of cash acquired $ — $ 0.1 $ (0.1)

Proceeds from (price adjustment on prior) sale of subsidiary (1.1) 1.1 (2.2)

Price adjustment on prior sale of subsidiary — (1.1) 1.1

Expenditures for property and equipment (11.6) (3.3) (8.3)

2 unchanged sentences

Sale of investments — 0.1 (0.1)

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.

Net cash used in investing activities $ (11.7) $ (3.0) $ (8.7)

Net cash used in investing activities increased by $8.7 million for the first three months of 2022 as compared to the same period in 2021 primarily due to increased purchases of property and equipment in the first quarter of 2022 driven by our transformation initiatives.

Cash Flows from Financing Activities:

Nine Months Ended September 30, Increase / Decrease

Three Months Ended March 31, Increase / Decrease

(in millions) 2022 2021

Payment of dividends $ (2.8) $ (2.5) $ (0.3)

Repayments, net under bank loans (1.1) (0.3) (0.8)

Borrowings (repayments), net under bank loans 1.8 (0.3) 2.1

Withholding tax paid upon vesting of share-based compensation awards (1.3) (3.0) 1.7

Other, net — 0.2 (0.2)

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.

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.

Net cash used in financing activities $ (2.3) $ (5.6) $ 3.3

Net cash used in financing activities decreased by $3.3 million for the first three months of 2022 compared to the same period in 2021 primarily due to increased borrowings under bank loans at our Brazilian site and lower withholding tax payments on the vesting of share-based compensation awards.

We paid quarterly dividends of $0.12 and $0.11 per common share to shareholders in the first quarter of 2022 and 2021, respectively.

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.

Our total current assets increased to $675.7 million as of March 31, 2022 from $636.0 million as of December 31, 2021, an increase of $39.7 million or 6.2%, due primarily to an increase in inventories of $54.2 million and the recording of $15.4 million assets at our Tacoma site as held for sale partially offset by a decrease in cash and cash equivalents of $22.7 million during the first three months of 2022.

Our total current liabilities increased to $256.5 million as of March 31, 2022 from $223.3 million as of December 31, 2021, an increase of $33.2 million, or 14.9%, due primarily to increased accounts payable and customer deposits of $17.5 million and $9.6 million during the first three months of 2022.

Contingencies

1 unchanged sentence

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.

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.

2 unchanged sentences

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis