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Item 2. Management’s Discussion and Analysis

2022-08-03 compared with 2022-05-05 · 199 added, 97 removed, 152 unchanged (66% of the section changed)

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Executive Summary

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:

Highlights of our financial results for the three months ended June 30, 2022 as compared to the same period of the prior year include the following:

• Net sales were $318.2 million, an increase of 14.6%

• Gross profit was $60.6 million, a decrease of 8.3%

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

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

• Income from operations decreased $14.3 million to a loss of $4.0 million

• Net income attributable to Astec decreased 147.0% to a loss of $3.9 million

• Diluted earnings per share were $(0.17), a decrease of 147.2%

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.

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 to reflect the correction of these errors.

Significant Items Impacting Operations in 2022

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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.

We anticipate incurring total costs associated with the ERP implementation in the range of $125 to $150 million, with an estimated $25 to $30 million incurred per year beginning in 2022.

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.

Costs incurred during the three and six months ended June 30, 2022 were $6.4 million and $11.7 million, respectively, which represent costs directly associated with the SFG initiatives 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.

Additionally, at June 30, 2022, we have capitalized $6.8 million in deferred implementation costs associated with the ERP implementation that will be amortized ratably over the remaining contract term once the ERP is ready for use, which are recorded in "Other long-term assets" in the Consolidated Balance Sheets.

MINDS Acquisition – We entered into a Share Purchase Agreement, dated as of March 22, 2022, by and between MINDS Automation Group, Inc.

("MINDS"), a leader in plant automation control systems and cloud-based data management in the asphalt industry in Canada.

The purchase price of $19.3 million was paid in cash.

This acquisition provides us with a broader line of controls and automation products designed to deliver enhanced productivity through improved equipment performance for our customers.

COVID-19 Pandemic – Our business has been significantly affected by the contributory effects of the COVID-19 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.

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.

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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.

The Tacoma facility's land, building and certain equipment assets of $15.4 million, which are currently being marketed for sale, are included in "Assets held for sale" in the Consolidated Balance Sheets at June 30, 2022.

Industry and Business Condition

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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 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.

We experienced continual strengthening of our backlog of orders throughout 2021, which has continued to grow during the first half of 2022 across our global organization.

The backlog of orders as of June 30, 2022 was $837.4 million compared to $436.1 million as of June 30, 2021, an increase of $401.3 million or 92.0%.

Increased orders are driven by (i) the continuation of the pent-up demand experienced in 2021 influenced by both customer retail and dealer inventory replenishment, (ii) ongoing economic uncertainty and longer lead times related to higher demand 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.

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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 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.

While oil prices have increased throughout the prior year and the first half of 2022, 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.

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

We have experienced a slowing of the rate of inflation on oil prices at the end of the second quarter and leading into July 2022.

Based on the current macroeconomic environment, including the ongoing impact of the conflict in Ukraine, we anticipate that the rate of price inflation will plateau during the third quarter and that oil prices will remain at relatively high levels throughout the remainder of 2022.

Steel is a major component of our equipment.

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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.

However, we have observed a decline in market demand as buyers are reducing on hand inventory by restricting purchases to immediate needs.

As such, we have experienced a slowing of the pace of recent price inflation.

We continue to employ flexible strategies to ensure supply and minimize the impact of price volatility.

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

We actively manage our global supply chain for any identified constraints and volatility.

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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.

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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.

In addition, the markets we serve are competitive in nature, and competition limits our ability to pass through

cost increases in many cases.

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 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.

Net sales for the second quarter of 2022 were $318.2 million compared to $277.6 million for the second quarter of 2021, an increase of $40.6 million or 14.6%.

The increase in net sales was primarily driven by changes in the volume, pricing and mix of sales that generated increases in (i) equipment sales of $33.7 million, (ii) parts and component sales of $7.2 million, (iii) service and equipment installation revenue of $2.2 million and (iv) freight revenue of $1.6 million partially offset by decreased used equipment sales of $3.5 million.

Included in these increases is $1.2 million of incremental net sales from an acquired business.

Sales reported by our foreign subsidiaries in U.S.

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%.

dollars for the second quarter of 2022 would have been $4.9 million higher had second quarter 2022 foreign exchange rates been the same as second quarter 2021 rates.

Net sales for the first six months of 2022 were $609.4 million compared to $562.0 million for the first six months of 2021, an increase of $47.4 million or 8.4%.

The increase in net sales was primarily driven by changes in the volume, pricing and mix of sales that generated increases in (i) equipment sales of $30.7 million, (ii) parts and component sales of $16.0 million, (iii) service and equipment installation revenue of $3.6 million and (iv) freight revenue of $2.4 million partially offset by decreased used equipment sales of $4.9 million.

Included in these increases is $1.2 million of incremental net sales from an acquired business.

Sales reported by our foreign subsidiaries in U.S.

dollars for the first six months of 2022 would have been $6.8 million higher had the first six months of 2022 foreign exchange rates been the same as the first six months of 2021 rates.

Domestic sales for the second quarter of 2022 were $248.4 million or 78.1% of consolidated net sales compared to $201.4 million or 72.6% of consolidated net sales for the second quarter of 2021, an increase of $47.0 million or 23.3%.

Domestic sales increased primarily due to:

(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.

(i) $44.0 million higher equipment sales (ii) $2.9 million higher parts and component sales, (iii) $2.0 million higher service and equipment installation revenue and (iv) $2.0 million higher freight revenue.

These increases were partially offset by lower used equipment sales of $3.2 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%.

Domestic sales for the first six months of 2022 were $482.9 million or 79.2% of consolidated net sales compared to $427.0 million or 76.0% of consolidated net sales for the first six months of 2021, an increase of $55.9 million or 13.1%.

Domestic sales increased primarily due to:

(i) $43.8 million higher equipment sales (ii) $10.5 million higher parts and component sales, (iii) $3.1 million higher freight revenue and (iv) $3.0 million higher service and equipment installation revenue.

These increases were partially offset by lower used equipment sales of $4.4 million.

International sales for the second quarter of 2022 were $69.8 million or 21.9% of consolidated net sales compared to $76.2 million or 27.4% of consolidated net sales for the second quarter of 2021, a decrease of $6.4 million or 8.4%.

International sales decreased primarily due to $10.3 million lower equipment sales partially offset by $4.3 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.

Included in these increases is $1.1 million of incremental net sales from an acquired business.

International sales for the first six months of 2022 were $126.5 million or 20.8% of consolidated net sales compared to $135.0 million or 24.0% of consolidated net sales for the first six months of 2021, a decrease of $8.5 million or 6.3%.

International sales decreased primarily due to $13.1 million lower equipment sales partially offset by $5.5 million increased parts and component sales.

Included in these increases is $1.1 million of incremental net sales from an acquired business.

Gross profit for the second quarter of 2022 was $60.6 million or 19.0% of net sales as compared to $66.1 million or 23.8% of net sales for the second quarter of 2021, a decrease of $5.5 million or 8.3%.

The decrease was primarily driven by the impact of inflation on materials, labor and overhead of $34.3 million and manufacturing inefficiencies of $0.8 million largely due to supply chain and logistics disruptions.

These decreases were partially offset by the impact of net favorable volume, pricing and mix that generated $29.1 million higher gross profit.

Gross profit for the first six months of 2022 was $126.7 million or 20.8% of net sales as compared to $134.3 million or 23.9% of net sales for the first six months of 2021, a decrease of $7.6 million or 5.7%.

The decrease was primarily driven by the impact of inflation on materials, labor and overhead of $59.8 million and manufacturing inefficiencies of $1.0 million largely due to supply chain and logistics disruptions.

These decreases were partially offset by the impact of net favorable volume, pricing and mix that generated $52.8 million higher gross profit.

Selling, General and Administrative Expenses

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%.

Selling, general and administrative expenses increased $5.7 million, or 11.9%, to $53.7 million or 16.9% of net sales for the second quarter of 2022, compared to $48.0 million or 17.3% of net sales for the second quarter of 2021 primarily due to:

(i) $4.3 million increased costs related to our SFG transformation program, (ii) increased net payroll and employee benefit costs of $1.7 million associated with increased headcount throughout our organization partially offset by $1.8 million of lower health insurance

claims experience, (iii) incremental expenses associated with the acquisition of MINDS that was completed in April 2022 of $0.9 million and (iv) $0.8 million of acquisition and integration related costs.

These increases were partially offset by lower depreciation and amortization expense of $0.9 million and reduced expenses related to closing a site location of $0.8 million.

Selling, general and administrative expenses increased $6.7 million, or 6.7%, to $106.4 million or 17.5% of net sales for the first six months of 2022, compared to $99.7 million or 17.7% of net sales for the first six months of 2021 primarily due to:

(i) $6.4 million increased costs related to our SFG transformation program, (ii) $3.1 million of exhibit, promotional and travel costs due to the return of in-person industry conferences and business activities, (iii) $1.4 million of acquisition and integration related costs primarily associated with the acquisition of MINDS and (iv) incremental expenses associated with MINDS of $0.9 million.

These increases were partially offset by:

(i) lower net payroll and employee benefit costs of $1.9 million driven by lower health insurance claims experience of $5.7 million and reduced deferred compensation program costs associated with our stock price changes of $1.3 million which were offset by increased headcount throughout our organization, (ii) lower depreciation and amortization expense of $1.8 million and (iii) reduced expenses related to closing a site location of $0.8 million.

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.

In addition, we have incurred certain asset impairment costs.

Restructuring, asset impairment charges and the net gain on sale of property and equipment for the three and six month periods ended June 30, 2022 and 2021 are presented below:

Three Months Ended June 30, Six Months Ended June 30,

(in millions) 2022 2021 2022 2021

Restructuring charges:

Costs associated with closing Tacoma $ — $ 0.6 $ 0.8 $ 1.0

Costs associated with closing Enid 0.4 — 0.6 —

Costs associated with closing Mequon — 0.2 — 0.6

Total restructuring related charges 0.4 0.8 1.4 1.6

Asset impairment charges:

Other impairment charges 3.0 0.2 3.0 0.2

Total asset impairment charges 3.0 0.2 3.0 0.2

Gain on sale of property and equipment, net:

Gain on sale of property and equipment, net — (0.2) — (0.3)

Total gain on sale of property and equipment, net — (0.2) — (0.3)

Restructuring, impairment and other asset charges, net $ 3.4 $ 0.8 $ 4.4 $ 1.5

"Strategic Transformation and Restructuring, Impairment 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

Our income tax benefit for the second quarter of 2022 was $0.8 million compared to an income tax expense of $2.1 million for the second quarter of 2021.

Our effective income tax rate was 17.0% for the second quarter of 2022 compared to 20.2% for the second quarter of 2021.

The income tax benefit for the three months ended June 30, 2022 as compared to expense in the same period in 2021 was primarily driven by lower income from operations and changes in the relative weighting of jurisdictional income and loss reduced by the effect of a net discrete tax benefit in the prior year that did not recur in the current year related to the release of reserves for uncertain tax positions associated with Astec Mobile Machinery GmbH ("AMM") whose dissolution was completed during the second quarter of 2021.

Our income tax expense for the first six months of 2022 was $0.1 million compared to $2.9 million for the first six months of 2021.

Our effective income tax rate was 33.3% for the first six months of 2022 compared to 14.7% for the first six months of 2021.

The income tax expense for the six months ended June 30, 2022 was lower compared to the same period of 2021 primarily driven by lower earnings from operations and changes in the relative weighting of jurisdictional income and loss reduced by the effect of a release of reserves for uncertain tax positions associated with AMM in 2021 that did not recur in the current year and lower net discrete benefits from the vesting of employee shared-based compensation awards.

The backlog of orders as of June 30, 2022 was $837.4 million compared to $436.1 million as of June 30, 2021, an increase of $401.3 million or 92.0%.

Domestic backlog increased $366.3 million or 108.1% to $705.1 million and international backlog increased $35.0 million or 36.0% to $132.3 million.

The backlog increased $350.6 million to $568.3 million in the Infrastructure Solutions segment and increased $49.1 million to $267.5 million in the Materials Solutions segment.

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

Backlog generated by Corporate and Other during 2022 totaled $1.6 million.

Increased orders were driven by (i) the continuation of the pent-up demand experienced in 2021 influenced by both customer retail and dealer inventory replenishment, (ii) ongoing economic uncertainty and longer lead times related to higher demand and (iii) the infrastructure investment by the United States' government under the IIJA enacted in November 2021.

Segment Net Sales-Three Months Ended :

Three Months Ended June 30, $ Change % Change

(in millions) 2022 2021

Infrastructure Solutions $ 209.6 $ 179.8 $ 29.8 16.6 %

Materials Solutions 107.4 97.8 9.6 9.8 %

Corporate and Other 1.2 — 1.2 100.0 %

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.

Sales in this segment were $209.6 million for the second quarter of 2022 compared to $179.8 million for the same period in 2021, an increase of $29.8 million or 16.6%.

The increase was primarily driven by favorable net volume, pricing and the mix of sales that generated increased (i) new equipment sales of $23.5 million, (ii) parts and component sales of $5.4 million, (iii) service and equipment installation revenue of $1.8 million and (iv) freight revenue of $1.6 million.

These increases were partially offset by lower used equipment sales of $2.5 million.

Domestic sales for the Infrastructure Solutions segment increased $36.0 million or 26.8% for the second quarter of 2022 compared to the same period in 2021 primarily due to (i) increased new equipment sales of $31.7 million, (ii) increased parts and component sales of $3.1 million, (ii) increased service and equipment installation sales of $2.0 million and (iii) increased freight revenue of $1.6 million.

These increases were partially offset by lower used equipment sales of $2.5 million.

International sales for the Infrastructure Solutions segment decreased $6.2 million or 13.6% for the second quarter of 2022 compared to the same period in 2021 primarily due to lower equipment sales of $8.2 million partially offset by increased parts and component sales of $2.3 million.

Materials Solutions

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.

Sales in this segment were $107.4 million for the second quarter of 2022 compared to $97.8 million for the same period in 2021, an increase of $9.6 million or 9.8%.

The increase was primarily driven by favorable net volume, pricing and the mix of sales that generated increased new equipment and parts and component sales of $9.3 million and $1.7 million, respectively.

These increases were partially offset by lower used equipment sales of $1.0 million.

Domestic sales for the Materials Solutions segment increased by $10.9 million or 16.2% for the second quarter of 2022 compared to the same period in 2021 driven by increased equipment sales of $12.2 million partially offset by decreased used equipment sales $0.7 million.

International sales for the Materials Solutions segment decreased $1.3 million or 4.2% for the second quarter of 2022 compared to the same period in 2021 primarily due to lower equipment sales of $2.9 million partially offset by increased parts and component sales of $1.9 million.

Segment Net Sales-Six Months Ended :

Six Months Ended June 30, $ Change % Change

(in millions) 2022 2021

Infrastructure Solutions $ 407.1 $ 381.3 $ 25.8 6.8 %

Materials Solutions 201.1 180.7 20.4 11.3 %

Corporate and Other 1.2 — 1.2 100.0 %

Infrastructure Solutions

Sales in this segment were $407.1 million for the first six months of 2022 compared to $381.3 million for the same period in 2021, an increase of $25.8 million or 6.8%.

The increase was primarily driven by favorable net volume, pricing and the mix of sales that generated increased (i) new equipment sales of $14.8 million, (ii) parts and component sales of $9.1 million, (iii) service and equipment installation revenue of $2.9 million and (iv) freight revenue of $2.3 million.

These increases were partially offset by lower used equipment sales of $3.6 million.

Domestic sales for the Infrastructure Solutions segment increased $37.7 million or 12.6% for the first six months of 2022 compared to the same period in 2021 primarily due to (i) increased new equipment sales of $27.7 million, (ii) increased parts and component sales of $7.6 million, (ii) increased service and equipment installation sales of $2.9 million and (iii) increased freight revenue of $2.6 million.

These increases were partially offset by lower used equipment sales of $3.7 million.

International sales for the Infrastructure Solutions segment decreased $11.9 million or 14.5% for the first six months of 2022 compared to the same period in 2021 primarily due to lower equipment sales of $12.9 million partially offset by increased parts and component sales of $1.5 million.

Materials Solutions

Sales in this segment were $201.1 million for the first six months of 2022 compared to $180.7 million for the same period in 2021, an increase of $20.4 million or 11.3%.

The increase was primarily driven by favorable net volume, pricing and the mix of sales that generated increased new equipment and parts and component sales of $15.0 million and $6.8 million, respectively.

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

Domestic sales for the Materials Solutions segment increased by $18.1 million or 14.2% for the first six months of 2022 compared to the same period in 2021, driven by (i) increased equipment sales of $16.0 million, (ii) increased parts and component sales of $2.9 million and (iii) increased freight revenue of $0.5 million.

These increases were partially offset by decreased used equipment sales $0.7 million.

International sales for the Materials Solutions segment increased $2.3 million or 4.3% for the first six months of 2022 compared to the same period in 2021 primarily due to increased parts and component sales of $3.9 million partially offset by reduced equipment sales of $1.0 million.

Segment Operating Adjusted EBITDA

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"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

Segment Operating Adjusted EBITDA-Three Months Ended:

Three Months Ended June 30, $ Change % Change

(in millions) 2022 2021

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Materials Solutions 9.5 15.9 (6.4) (40.3) %

Corporate (9.8) (15.0) 5.2 34.7 %

Corporate and Other (12.3) (11.9) (0.4) (3.4) %

Infrastructure Solutions segment:

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.

Segment Operating Adjusted EBITDA for the Infrastructure Solutions segment was $15.9 million for the second quarter of 2022 compared to $16.5 million for the same period in 2021, a decrease of $0.6 million or 3.6%.

The decrease in Segment Operating Adjusted EBITDA resulted primarily from the impact of higher inflation on materials, labor and overhead costs of $19.3 million and increased general and administrative costs of $1.1 million.

Incorporated in these increased costs is a $1.8 million impact of annual incentive compensation, which was recorded in Corporate and Other in the prior year period and has been reflected in the Infrastructure Solutions segment in the current year, as well as the benefit from improved health insurance claims experience allocated from Corporate of $3.1 million.

These increased costs were partially

offset by the impact of favorable net volume, pricing and mix that generated $18.0 million higher gross profit, manufacturing efficiencies of $1.0 million and reduced expenses related to a closed site location of $0.8 million.

Materials Solutions segment:

Segment Operating Adjusted EBITDA for the Materials Solutions segment was $9.5 million for the second quarter of 2022 compared to $15.9 million for the same period in 2021, a decrease of $6.4 million or 40.3%.

The decrease in Segment Operating Adjusted EBITDA between periods resulted primarily from the impact of higher inflation on materials, labor and overhead costs of $15.0 million, increased general and administrative costs of $0.9 million and manufacturing inefficiencies of $1.6 million due to supply chain and logistics disruptions.

Incorporated in these increased costs is a $1.0 million impact of annual incentive compensation, which was recorded in Corporate and Other in the prior year period and has been reflected in the Materials Solutions segment in the current year, as well as the benefit from improved health insurance claims experience allocated from Corporate of $0.9 million.

These increased costs were partially offset by the impact of favorable volume, pricing and mix that generated $11.1 million higher gross profit.

Corporate and Other:

Corporate and Other operations had net expenses of $12.3 million for the second quarter of 2022 compared to $11.9 million for the second quarter of 2021, an increase of $0.4 million or 3.4%.

The increase in expenses was primarily driven by $1.8 million of increased health insurance costs net of $4.0 million that was allocated to Infrastructure Solutions and Materials Solutions and increased deferred compensation program cost driven by our stock price changes of $0.4 million.

These increases were partially offset by lower professional services fees of $1.3 million and lower net annual incentive compensation of $0.8 million including $2.8 million that was recorded within Infrastructure Solutions and Materials Solutions in the current year as compared to at Corporate in the prior year period.

Segment Operating Adjusted EBITDA-Six Months Ended :

Six Months Ended June 30, $ Change % Change

(in millions) 2022 2021

Infrastructure Solutions $ 32.3 $ 42.7 $ (10.4) (24.4) %

Materials Solutions 21.7 25.6 (3.9) (15.2) %

Corporate and Other (22.1) (26.9) 4.8 17.8 %

Infrastructure Solutions segment:

Segment Operating Adjusted EBITDA for the Infrastructure Solutions segment was $32.3 million for the first six months of 2022 compared to $42.7 million for the same period in 2021, a decrease of $10.4 million or 24.4%.

The decrease in Segment Operating Adjusted EBITDA resulted primarily from the impact of higher inflation on materials, labor and overhead costs of $36.6 million, increased general and administrative costs of $4.6 million.

Incorporated in these increased costs is a $3.3 million impact of annual incentive compensation, which was recorded in Corporate and Other in the prior year period and has been reflected in the Infrastructure Solutions segment in the current year, as well as the benefit from improved health insurance claims experience allocated from Corporate of $3.1 million.

These increased costs were partially offset by the impact of favorable volume, pricing and mix that generated $29.7 million higher gross profit, reduced expenses related to closed site locations of $0.8 million and manufacturing efficiencies of $0.3 million.

Materials Solutions segment:

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.

Segment Operating Adjusted EBITDA for the Materials Solutions segment was $21.7 million for the first six months of 2022 compared to $25.6 million for the same period in 2021, a decrease of $3.9 million or 15.2%.

The decrease in Segment Operating Adjusted EBITDA resulted primarily from the impact of higher inflation on materials, labor and overhead costs of $23.2 million, increased general and administrative costs of $2.4 million and manufacturing inefficiencies of $1.4 million due to supply chain and logistics disruptions.

Incorporated in these increased costs is a $1.7 million impact of annual incentive compensation, which was recorded in Corporate and Other in the prior year period and has been reflected in the Materials Solutions segment in the current year, as well as the benefit from improved health insurance claims experience allocated from Corporate of $0.9 million.

These increased costs were partially offset by the impact of favorable volume, pricing and mix that generated $23.1 million higher gross profit.

Corporate and Other:

Corporate and Other operations had net expenses of $22.1 million for the first six months of 2022 compared to $26.9 million for the first six months of 2021, a decrease of $4.8 million or 17.8%.

The decrease in expenses was driven by lower net annual incentive compensation of $2.8 million including $5.0 million that was recorded within Infrastructure Solutions and Materials Solutions in the current year as compared to at Corporate in the prior year period, reduced professional fees of $1.6 million and reduced deferred compensation program cost driven by our stock price changes of $1.3 million.

These decreases were partially offset by increases in payroll expenses related to increased headcount of $0.9 million and share-based compensation expenses of $0.5 million.

Liquidity and Capital Resources

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.

At June 30, 2022, we had total cash, cash equivalents and restricted cash of $50.6 million.

Cash and cash equivalents available for operating purposes was $48.0 million, of which $27.4 million was held by our foreign subsidiaries and is considered to be indefinitely invested in those

jurisdictions.

In April 2022, we acquired MINDS with a total cash consideration paid to the selling shareholders of $19.3 million funded from cash on hand.

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.

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.

In addition, our variable cash uses may include the payment of our quarterly cash dividend, financing other strategic initiatives of our business, including the SFG transformation and strategic acquisitions and share repurchases under our share repurchase authorization.

We did not have any outstanding borrowings on the Credit Facility at June 30, 2022 or December 31, 2021.

Our outstanding letters of credit totaling $2.6 million decreased borrowing availability to $147.4 million under the revolving credit facility as of June 30, 2022.

We anticipate utilizing the Credit Facility with more frequency in the near-term to support our domestic working capital needs in response to supply chain disruptions.

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 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.

We were in compliance with the financial covenants of the Credit Facility at June 30, 2022.

The Credit Facility expires on December 29, 2023.

Certain of our international subsidiaries in South Africa, Australia, Brazil, Canada 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 maintains an independent credit facility at a separate financial institution and also enters into order anticipation agreements on a periodic basis.

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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.

As of June 30, 2022, open purchase obligations totaled $405.3 million, of which $351.3 million are expected to be fulfilled within the remainder of 2022.

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 :

Three Months Ended March 31, Increase / Decrease

Six Months Ended June 30, Increase / Decrease

(in millions) 2022 2021

Net income $ 0.2 $ 16.8 $ (16.6)

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

Deferred tax (benefit) provision (8.0) 5.4 (13.4)

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)

Asset impairment charges, net 3.0 0.2 2.8

Purchase of trading securities, net (0.5) (3.1) 2.6

Receivables and other contract assets (21.5) (32.5) 11.0

Increase in inventories (71.5) (6.6) (64.9)

Increase in prepaid expenses (3.8) (0.1) (3.7)

Increase in other assets (4.8) (0.5) (4.3)

Increase in accounts payable 22.7 25.5 (2.8)

Increase in accrued payroll and related expenses 3.6 2.6 1.0

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

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

Increase in other accrued liabilities 2.0 6.6 (4.6)

Increase in customer deposits 14.2 0.9 13.3

Income taxes payable/prepaid 1.8 (7.3) 9.1

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Net cash (used in) provided by operating activities $ (41.9) $ 30.5 $ (72.4)

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.

Net cash (used in) provided by operating activities decreased $72.4 million for the first six months of 2022 as compared to the first six months of 2021.

The decrease was primarily driven by (i) the increase of inventories on hand of $64.9 million due to higher backlog and supply chain disruptions, (ii) lower net income and changes in the deferred tax position of $13.4 million and (iii) the timing of payments on accounts payable and accrued liabilities of $7.4 million.

These incremental cash uses were partially offset by (i) the timing of receivables and other contract assets of $11.0 million, (ii) increased customer deposits of $13.3 million associated with increased backlog and (iii) the timing of income tax payments of $9.1 million.

Cash Flows from Investing Activities:

Three Months Ended March 31, Increase / Decrease

Six Months Ended June 30, Increase / Decrease

(in millions) 2022 2021

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Net cash used in investing activities $ (36.9) $ (6.8) $ (30.1)

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.

Net cash used in investing activities increased by $30.1 million for the first six months of 2022 as compared to the same period in 2021 primarily due to the acquisition of MINDS in the second quarter of 2022 and increased purchases of property and equipment in part due to our manufacturing facility transformation initiative.

Cash Flows from Financing Activities:

Three Months Ended March 31, Increase / Decrease

Six Months Ended June 30, Increase / Decrease

(in millions) 2022 2021

Payment of dividends $ (5.5) $ (5.0) $ (0.5)

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

Proceeds from (repayments of) borrowings, net on credit facility and bank loans 3.2 (0.4) 3.6

Withholding tax paid upon vesting of share-based compensation awards (1.6) (3.2) 1.6

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Net cash used in financing activities $ (3.7) $ (8.1) $ 4.4

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.

Net cash used in financing activities decreased by $4.4 million for the first six months of 2022 compared to the same period in 2021 primarily due to increased net proceeds from 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 second quarter of 2022 and 2021, respectively.

Share Repurchases

As announced in a Form 8-K filing on July 30, 2018, we approved a share repurchase program, which authorizes us to repurchase up to $150.0 million of our common stock.

As of June 30, 2022, the maximum dollar value of shares available for repurchase under the plan is approximately $126.0 million.

No shares were repurchased under the plan during the six months ended June 30, 2022, however, we may conduct opportunistic share repurchases under this authorization in future periods, subject to market conditions utilizing cash on hand or borrowings under our Credit Facility.

Financial Condition

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.

Our total current assets increased to $661.5 million as of June 30, 2022 from $636.0 million as of December 31, 2021, an increase of $25.5 million or 4.0%, due primarily to an increase in inventories of $72.4 million, an increase in trade receivables and contract assets of $18.4 million and the recording of $15.4 million assets at our Tacoma site as held for sale partially offset by a decrease in cash, cash equivalents and restricted cash of $83.8 million during the first six months of 2022.

Our total current liabilities increased to $273.4 million as of June 30, 2022 from $223.3 million as of December 31, 2021, an increase of $50.1 million, or 22.4%, due primarily to increased accounts payable, customer deposits and accrued payroll and related liabilities of $22.1 million, $13.2 million and $7.2 million, respectively, during the first six months of 2022.

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.

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.

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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