What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-04 compared with 2022-11-03 · 169 added, 255 removed, 105 unchanged (80% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The financial condition, results of operations and cash flows discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations are those of Astec Industries, Inc.

and its consolidated subsidiaries, collectively, the "Company," "Astec," "we," "our" or "us." The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2022.

The financial position, results of operations, cash flows and other information included herein are not necessarily indicative of the financial position, results of operations and cash flows that may be expected in future periods.

Forward-Looking Statements

1 unchanged sentence

Such statements relate to, among other things, income, earnings, cash flows, changes in operations, operating improvements, businesses in which we operate and the United States and global economies.

Statements in this Quarterly Report on Form 10-Q that are not historical are hereby identified as "forward-looking statements" and may be indicated by words or phrases such as "anticipates," "supports," "plans," "projects," "expects," "believes," "should," "would," "could," "hope," and "forecast," and use of the future tense and similar words or phrases.

Statements in this Quarterly Report on Form 10-Q that are not historical are hereby identified as "forward-looking statements" and may be indicated by words or phrases such as "anticipates," "supports," "plans," "projects," "expects," "believes," "should," "would," "could," "forecast," "management is of the opinion," or use of the future tense and similar words or phrases.

These forward-looking statements are based largely on management's expectations, which are subject to a number of known and unknown risks, uncertainties and other factors described under the caption "Item 1A.

2 unchanged sentences

All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements to reflect future events or circumstances, except as required by law.

We design, engineer, manufacture and market equipment and components used primarily in road building and related construction activities, as well as certain other products.

14 unchanged sentences

port and inland terminal authorities;

power stations and domestic and foreign government agencies.

power stations;

and domestic and foreign government agencies.

In addition to equipment sales, we manufacture and sell replacement parts for equipment in each of our product lines and replacement parts for some competitors' equipment.

The distribution and sale of replacement parts is an integral part of our business.

"Segment Information," of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion of our reportable segments.

See Note 10, Segment Information, of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion of our reportable segments.

Executive Summary

Highlights of our financial results for the three months ended September 30, 2022 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, 2023 as compared to the same period of the prior year include the following:

• Net sales were $347.9 million, an increase of 19.5%

• Gross profit was $89.2 million, an increase of 37.9%

• Income from operations decreased $4.5 million to $1.8 million

• Net income attributable to Astec decreased 92.2% to $0.7 million

• Diluted earnings per share were $0.03, a decrease of 92.3%

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.

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.

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 corresponding prior year three and nine months ended September 30, 2021.

• Income from operations increased $13.6 million to $17.6 million

• Net income attributable to Astec increased 195.1% to $12.1 million

• Diluted earnings per share were $0.53, an increase of 194.4%

• Backlog of $800.2 million, a decrease of 4.1% as compared to March 31, 2022

Significant Items Impacting Operations in 2023

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.

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.

Strategic Transformation – We are undergoing a multi-year phased implementation of a standardized ERP system across our global organization, which will replace much of our existing disparate core financial systems.

The upgraded ERP will initially convert our internal operations, manufacturing, finance, human capital resources management and customer relationship systems to cloud-based platforms.

This new ERP system will provide for standardized processes and integrated technology solutions that enable us to better leverage automation and process efficiency.

An implementation of this scale is a major financial undertaking and 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.

An implementation of this scale is a major financial undertaking and requires substantial time and attention of management and key employees.

We materially completed the ERP global design in 2022, launched the human capital resources module in our locations in the United States in January 2023 and expect to convert the operations of one manufacturing site along with Corporate in 2023 to set the foundation before accelerating the implementation at additional manufacturing 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.

In addition, 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.

We substantially completed the design efforts for this project during 2022.

We also began executing investments to acquire and install manufacturing equipment intended to drive increased efficiencies in our production processes.

We plan to continue these capital investments during 2023, which are anticipated to be completed by the end of the year.

Gross margin improvements are expected to be realized in conjunction with the project completion in early to mid-2024.

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

Costs incurred during the three and nine months ended September 30, 2022 were $7.0 million and $18.7 million, respectively, which represent costs directly associated with the SFG initiatives and which cannot be capitalized in accordance with U.S.

We incurred $7.2 million of non-capitalizable costs directly associated with these strategic transformation initiatives during the three months ended March 31, 2023.

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

Additionally, at September 30, 2022, we have capitalized $12.1 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.

Share Repurchases – We completed a series of repurchases under our approved share repurchase program during the three months ended September 30, 2022, acquiring 160,445 shares at an aggregate repurchase price of approximately $6.1 million.

As of September 30, 2022, $119.7 million remains available for repurchase under the approved share repurchase program.

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.

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.

Additionally, at March 31, 2023, we have capitalized $23.1 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, of which $2.3 million and $20.8 million were included in "Prepaid expenses and other assets" and "Other long-term assets" in the Consolidated Balance Sheets, respectively.

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

1 unchanged sentence

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.

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

The Tacoma facility's land, building and certain equipment assets of $15.4 million were included in "Assets held for sale" in the Consolidated Balance Sheets at December 31, 2022.

The sale of these assets was completed in the first quarter of 2023 for $19.9 million.

We recorded a $3.4 million gain for the sale of these assets in "Restructuring and other asset charges, net" in the Consolidated Statements of Operations.

Leadership Change and Overhead Restructuring – As previously announced on January 6, 2023, Mr.

Ruffalo's employment as President and Chief Executive Officer was terminated and he was succeeded by Mr.

Jaco van der Merwe.

In accordance with the terms of Mr.

Ruffalo's separation agreement, we recorded $1.8 million of restructuring costs related to the modification of Mr.

Ruffalo's equity awards as well as third-party transition support costs in "Restructuring and other asset charges, net" in the Consolidated Statements of Operations.

The related recovery of $1.6 million of incurred share-based compensation expense was recorded in "Selling, general and administrative expenses" in the Consolidated Statements of Operations.

Management continually reviews our organizational structure and operations to ensure they are optimized and aligned with achieving our near-term and long-term operational and profitability targets.

In connection with this review, in February 2023, we implemented a limited restructuring plan to right-size and reduce the fixed cost structure of certain overhead departments.

Charges of $5.3 million for employee termination costs, including equity award modifications, were incurred in the first quarter of 2023 in "Restructuring and other asset charges, net" in the Consolidated Statements of Operations.

The related recovery of $0.8

million of incurred share-based compensation expense was recorded in "Selling, general and administrative expenses" in the Consolidated Statements of Operations.

Industry and Business Condition

2 unchanged sentences

In addition, many of our markets are highly competitive, and our products compete worldwide with similar products produced and sold by a number of other manufacturers and dealers.

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

The backlog of orders as of September 30, 2022 was $969.0 million compared to $620.5 million as of September 30, 2021, an increase of $348.5 million or 56.2%.

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.

Backlog represents the dollar value of orders for equipment and parts which are expected to be recognized in net sales in the future.

Orders are contractually binding purchase commitments from customers, which are included in backlog when we are in receipt of an executed contract and any required deposits or security and have not yet been recognized into net sales.

Certain orders for which we have received binding letters of intent or contracts will not be included in backlog until all required contractual documents and deposits are received.

Backlog is not a measure defined by U.S.

GAAP, and our methodology for determining backlog may vary from the methodology used by other companies in determining their backlog amounts.

In addition, our backlog should not necessarily be viewed as an accurate indicator of revenue for any particular period.

Backlog levels provide management and investors additional details surrounding the expectation of committed orders that are expected to convert to future net sales.

Management uses backlog information for capacity and resource planning as well as to monitor inventory levels in our facilities relative to expected future net sales.

Our $800.2 million backlog of orders at March 31, 2023 continues to remain strong.

The backlog of orders decreased $34.5 million, or 4.1%, compared to $834.7 million as of March 31, 2022 and decreased 12.3% from $912.7 million at December 31, 2022.

The decrease in backlog was driven by strong first quarter 2023 sales volumes outpacing new orders compared to a build of backlog throughout 2022 largely due to strong customer demand and logistics and manufacturing throughput disruptions.

We expect backlog levels to normalize from the historically high levels we have experienced in recent years based on macroeconomic factors such as high inflation and rising interest rates influencing customer spending.

Additionally, we are focused on prudent expansion of our production capacity that we anticipate will allow us to more effectively convert backlog to sales in the future.

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.

As noted above, the U.S.

government enacted the IIJA in November 2021.

government enacted the Infrastructure Investment and Jobs Act ("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.

5 unchanged sentences

We continue to develop products and initiatives to reduce the amount of oil and related products required to produce asphalt.

Oil prices increased throughout the prior year and entering 2022.

Although stabilizing in 2022, oil prices continue to remain at relatively high levels with price volatility making it difficult to predict the costs of oil-based products used in road construction such as liquid asphalt and gasoline.

Oil prices stabilized at relatively high levels during the fourth quarter of 2022 and have continued to remain consistent through the first quarter of 2023.

Price volatility continues to make 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 anticipate that oil prices will remain at relatively high levels throughout the remainder of 2022.

Based on the current macroeconomic environment we anticipate that oil prices will remain at relatively high levels throughout 2023.

Steel is a major component of our equipment.

Driven by supply constraints, steel prices increased throughout the prior year.

We anticipate that steel demand will remain relatively steady through the end of 2022, driven by the IIJA domestically and impacted by international production capacity being restricted by the conflict in Ukraine.

However, we have observed a recent slowing in market demand and reduced lead times as buyers are continuing to restrict purchases to immediate needs.

As a result, while steel prices have stabilized, they continue to remain at historically high levels.

We anticipate that trend will remain consistent through the balance of 2022 and heading into 2023.

Driven by supply constraints, steel prices increased throughout the prior year, stabilizing at historically high levels at the end of 2022, which we expect to carry through into the second quarter of 2023.

During 2022, we observed a slowing in market demand and reduced lead times as buyers were responding to recessionary pressures and restricted their purchases to near-term needs.

However, lead times have increased during the first quarter of 2023 and we anticipate that steel demand will remain relatively strong during 2023, driven by the IIJA domestically and impacted by international production capacity restrictions.

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.

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 and margins.

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

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

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 and expenses for certain components used in our manufacturing processes.

Supply chain constraints have eased recently;

however, we continue to experience challenges related to vendor capacity, albeit at a decreasing number of suppliers.

As a result, we have elevated lead times in certain components used in our manufacturing processes.

We are continuing to focus on identifying and qualifying alternative suppliers wherever possible, which has helped alleviate the challenges in our supply chain.

We also continually monitor potential future supply costs and availability in an effort to proactively address challenges that might occur.

We cannot estimate the full impact that any future disruptions might have on our operations.

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.

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

In addition, while we have continued to experience shortages of necessary production personnel in certain markets we have seen a slight easing in the tight labor market.

However, higher turnover during the pandemic periods of 2020 through 2022 have contributed to lower tenured production staff.

Higher labor costs to attract staff in our manufacturing operations are normalizing at elevated levels.

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.

1 unchanged sentence

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.

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.

1 unchanged sentence

Results of Operations

Net sales for the third quarter of 2022 were $315.2 million compared to $266.9 million for the third quarter of 2021, an increase of $48.3 million or 18.1%.

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 $34.7 million, (ii) parts and component sales of $8.8 million, (iii) service and equipment installation revenue of $2.8 million, (iv) used equipment sales of $1.9 million and (v) freight revenue of $1.3 million partially offset by decreased other revenue of $1.2 million primarily driven by increased utilization of our interest subsidy programs offered to certain of our dealer customers.

Included in these net increases is $1.5 million of incremental net sales from an acquired business.

Sales reported by our foreign subsidiaries in U.S.

dollars for the third quarter of 2022 would have been $6.7 million higher had third quarter 2022 foreign exchange rates been the same as third quarter 2021 rates.

Net sales for the first nine months of 2022 were $924.6 million compared to $828.9 million for the first nine months of 2021, an increase of $95.7 million or 11.5%.

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 $65.4 million, (ii) parts and component sales of $24.8 million, (iii) service and equipment installation revenue of $6.4 million and (iv) freight revenue of $3.7 million partially offset by decreased used equipment sales of $3.0 million.

Net sales for the first quarter of 2023 were $347.9 million compared to $291.2 million for the first quarter of 2022, an increase of $56.7 million or 19.5%.

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 $43.4 million, (ii) service and equipment installation revenue of $10.0 million, (iii) parts and component sales of $4.4 million and (iv) freight revenue of $1.1 million.

These increases were partially offset by a decrease in other revenue of $1.5 million, primarily driven by increased utilization of our interest subsidy programs offered to certain of our dealer customers and decreased used equipment sales of $0.7 million.

Included in these net increases is $3.9 million of incremental net sales from an acquired business.

Sales reported by our foreign subsidiaries in U.S.

dollars for the first nine months of 2022 would have been $13.5 million higher had the first nine months of 2022 foreign exchange rates been the same as the first nine months of 2021 rates.

Domestic sales for the third quarter of 2022 were $249.4 million or 79.1% of consolidated net sales compared to $201.8 million or 75.6% of consolidated net sales for the third quarter of 2021, an increase of $47.6 million or 23.6%.

Domestic sales increased primarily due to:

(i) $35.3 million higher equipment sales (ii) $7.9 million higher parts and component sales, (iii) $2.2 million higher service and equipment installation revenue, (iv) $2.2 million higher used equipment sales and (v) $1.2 million higher freight revenue.

These increases were partially offset by decreased other revenue of $1.2 million primarily driven by higher utilization of our interest subsidy programs offered to certain of our dealer customers.

dollars for the first quarter of 2023 would have been $3.3 million higher had foreign exchange rates been the same as 2022 rates.

Domestic sales for the first quarter of 2023 were $281.3 million, or 80.9% of consolidated net sales, compared to $234.5 million, or 80.5% of consolidated net sales, for the first quarter of 2022, an increase of $46.8 million, or 20.0%.

Domestic sales increased primarily due to (i) $35.1 million higher equipment sales, (ii) $9.8 million higher service and equipment installation revenue, (iii) $3.5 million higher parts and component sales and (iv) $0.8 million higher freight revenue.

These increases were partially offset by decreased other revenue of $1.6 million, primarily driven by higher utilization of our interest subsidy programs offered to certain of our dealer customers and decreased used equipment sales of $0.8 million.

Included in these increases is $1.5 million of incremental net sales from an acquired business.

Domestic sales for the first nine months of 2022 were $732.3 million or 79.2% of consolidated net sales compared to $628.8 million or 75.9% of consolidated net sales for the first nine months of 2021, an increase of $103.5 million or 16.5%.

Domestic sales increased primarily due to:

(i) $79.1 million higher equipment sales (ii) $18.4 million higher parts and component sales, (iii) $5.2 million higher service and equipment installation revenue and (iv) $4.3 million higher freight revenue.

These increases were partially offset by lower used equipment sales of $2.2 million.

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

International sales for the third quarter of 2022 were $65.8 million or 20.9% of consolidated net sales compared to $65.1 million or 24.4% of consolidated net sales for the third quarter of 2021, an increase of $0.7 million or 1.1%.

International sales increased primarily due to higher parts and components sales and service and equipment installation revenue of $0.9 million and $0.6 million, respectively.

These increases were partially offset by lower new equipment sales of $0.6 million.

International sales for the first quarter of 2023 were $66.6 million, or 19.1% of consolidated net sales, compared to $56.7 million, or 19.5% of consolidated net sales, for the first quarter of 2022, an increase of $9.9 million, or 17.5%.

International sales increased primarily due to (i) $8.3 million higher new equipment sales, (ii) $0.9 million higher parts and components sales and (iii) $0.3 million higher freight revenue.

Included in these increases is $2.4 million of incremental net sales from an acquired business.

International sales for the first nine months of 2022 were $192.3 million or 20.8% of consolidated net sales compared to $200.1 million or 24.1% of consolidated net sales for the first nine months of 2021, a decrease of $7.8 million or 3.9%.

International sales decreased primarily due to $13.7 million lower equipment sales partially offset by $6.4 million higher parts and component sales.

Included in these net increases is $1.6 million of incremental net sales from an acquired business.

Gross profit for the third quarter of 2022 was $65.4 million or 20.7% of net sales as compared to $61.9 million or 23.2% of net sales for the third quarter of 2021, an increase of $3.5 million or 5.7%.

The increase was primarily driven by net favorable volume, pricing and mix that generated $38.7 million higher gross profit.

These increases were partially offset by the impact of inflation on materials, labor and overhead of $29.0 million and manufacturing inefficiencies of $6.8 million largely due to logistics and manufacturing throughput disruptions.

Gross profit for the first nine months of 2022 was $192.1 million or 20.8% of net sales as compared to $196.2 million or 23.7% of net sales for the first nine months of 2021, a decrease of $4.1 million or 2.1%.

The decrease was primarily driven by the impact of inflation on materials, labor and overhead of $88.8 million and manufacturing inefficiencies of $7.8 million largely due to logistics and manufacturing throughput disruptions.

These decreases were partially offset by the impact of net favorable volume, pricing and mix that generated $91.5 million higher gross profit.

Consolidated gross profit for the first quarter of 2023 was $89.2 million, or 25.6% of net sales, as compared to $64.7 million, or 22.2% of net sales, for the first quarter of 2022, an increase of $24.5 million or 37.9%.

The increase was primarily driven by the impact of net favorable volume, pricing and mix that generated $39.3 million higher gross profit and $2.3 million of gross profit generated by an acquired business.

These increases were partially offset by the impact of inflation on materials, labor and overhead of $13.8 million and manufacturing inefficiencies due in part to the effects of lower tenured production staff associated with the turnover experienced in the prior year of $3.5 million.

Manufacturing inefficiencies are inclusive of the impact of an out-of-period benefit of $1.9 million associated with the correction of over-accruals of inventory-related expenses recorded in the first quarter of 2023.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $6.4 million, or 13.2%, to $55.0 million or 17.4% of net sales for the third quarter of 2022, compared to $48.6 million or 18.2% of net sales for the third quarter of 2021 primarily due to:

(i) $4.6 million increased costs related to our SFG transformation program, (ii) increased consulting fees of $1.1 million, (iii) incremental expenses associated with the acquisition of MINDS that was completed in April 2022 of $0.8 million, (iv) increased travel costs due to the return of in-person business activities of $0.6 million and (v) $0.5 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 $0.7 million.

Selling, general and administrative expenses increased $13.1 million, or 8.8%, to $161.4 million or 17.5% of net sales for the first nine months of 2022, compared to $148.3 million or 17.9% of net sales for the first nine months of 2021 primarily due to:

(i) $11.0 million increased costs related to our SFG transformation program, (ii) $3.4 million of exhibit, promotional and travel costs due to the return of in-person industry conferences and business activities, (iii) $1.9 million of acquisition and integration related costs primarily associated with the acquisition of MINDS and (iv) incremental expenses associated with MINDS of $1.7 million.

These increases were partially offset by:

(i) lower depreciation and amortization expense of $2.7 million, (ii) reduced expenses related to closing a site location of $1.5 million and (iii) lower net payroll and employee benefit costs of $2.0 million driven by lower health insurance claims experience of $7.7 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.

Research and Development Expenses

Research and development expenses increased $1.8 million or 26.9% to $8.5 million in the third quarter of 2022 from $6.7 million in the third quarter of 2021.

Research and development expenses increased $3.0 million or 15.0% to $23.0 million for the first nine months of 2022 from $20.0 million for the first nine months of 2021.

Increased research and development costs were primarily driven by higher prototype materials costs and increased personnel-related 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.

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 nine month periods ended September 30, 2022 and 2021 are presented below:

Three Months Ended September 30, Nine Months Ended September 30,

Selling, general and administrative expenses for the first quarter of 2023 were $67.9 million, or 19.5% of net sales, compared to $59.7 million or 20.5% of net sales, for the first quarter of 2022, an increase of $8.2 million, or 13.7%, primarily due to (i) $2.9 million of higher exhibit and promotional costs primarily due to the ConExpo industry trade show held once every three years, (ii) increased net payroll and employee benefit costs of $2.3 million, comprised of increased headcount throughout our organization, increased health insurance claims experience of $1.5 million, increased deferred compensation program costs associated with our stock price changes of $0.8 million, partially offset by lower share-based compensation expense of $2.9 million related to the

recovery of share-based compensation expense for awards that were forfeited or modified in conjunction with the termination of our previous CEO and the limited overhead restructuring action implemented in February 2023, (iii) $1.9 million increased costs related to our strategic transformation program and (iv) incremental expenses associated with the acquisition of MINDS that was completed in April 2022 of $1.1 million.

These increases were partially offset by lower amortization expense of $1.0 million and reduced acquisition costs of $0.6 million primarily associated with the acquisition of MINDS.

Restructuring and Other Asset Charges, Net

Restructuring and the net gain on sale of property and equipment for the three month periods ended March 31, 2023 and 2022 are presented below:

Three Months Ended March 31,

(in millions) 2023 2022

Restructuring charges:

Costs associated with leadership change and overhead restructuring $ 7.0 $ —

Costs associated with exited operations - Enid 0.1 0.2

Costs associated with closing Tacoma — 0.8

Costs associated with closing Enid 0.1 0.4 0.7 0.4

Costs associated with closing Mequon — — — 0.6

Total restructuring related charges 7.1 1.0

Asset impairment charges:

Other impairment charges 0.4 — 3.4 0.2

Total asset impairment charges 0.4 — 3.4 0.2

Gain on sale of property and equipment, net:

1 unchanged sentence

Total gain on sale of property and equipment, net (3.4) —

Restructuring, impairment and other asset charges, net $ 0.1 $ 0.3 $ 4.5 $ 1.8

"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 expense for the third quarter of 2022 was $0.7 million compared to an income tax benefit of $2.9 million for the third quarter of 2021.

Our effective income tax rate was 58.3% for the third quarter of 2022 compared to (47.5)% for the third quarter of 2021.

The income tax expense for the three months ended September 30, 2022 as compared to benefit in the same period in 2021 was primarily driven by prior year net discrete tax benefits that did not reoccur in the current year related to the release of a valuation allowance associated with our Brazilian subsidiary and a research and development ("R&D") credit partially offset by the tax effect of lower pre-tax earnings.

Our income tax expense for the first nine months of 2022 was $0.8 million, reflecting a 53.3% effective tax rate, compared to nominal expense for the first nine months of 2021.

The income tax expense for the nine months ended September 30, 2022 was higher compared to the same period of 2021 primarily driven by prior year net discrete tax benefits that did not reoccur in the current year related to the release of a valuation allowance associated with our Brazilian subsidiary, a favorable net benefit from the R&D credit and the release of reserves for uncertain tax positions associated with Astec Mobile Machinery GmbH partially offset by the tax effect of lower pre-tax earnings.

The backlog of orders as of September 30, 2022 was $969.0 million compared to $620.5 million as of September 30, 2021, an increase of $348.5 million or 56.2%.

Domestic backlog increased $304.1 million or 59.8% to $812.7 million and international backlog increased $44.4 million or 39.7% to $156.3 million.

The backlog increased $258.8 million to $600.2 million in the Infrastructure Solutions segment and increased $87.2 million to $366.3 million in the Materials Solutions segment.

The Corporate and Other backlog represents our controls and automation business and totaled $2.5 million as of September 30, 2022.

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 September 30, $ Change % Change

(in millions) 2022 2021

Restructuring and other asset charges, net $ 3.7 $ 1.0

See Note 11, 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.

Interest Expense

Interest expense for the first quarter of 2023 increased $1.6 million to $2.0 million from $0.4 million in the first quarter of 2022, primarily related to outstanding borrowings on our revolving credit facility in the first quarter of 2023.

No borrowings were outstanding on our prior revolving credit facility during the first quarter of 2022.

Other Income, Net

Other income was $0.4 million for the first quarter of 2023 compared to $1.2 million in the first quarter of 2022, primarily related to higher net foreign currency transaction gains in 2022 that did not recur in 2023.

Our income tax expense for the first quarter of 2023 was $4.4 million compared to $0.9 million for the first quarter of 2022.

Our effective income tax rate was 26.7% for the first quarter of 2023 compared to 18.0% for the first quarter of 2022.

The income tax expense for 2023 was higher compared to 2022, primarily due to higher pretax book income and valuation allowance increases related to a domestic subsidiary partially offset by a net discrete tax benefit related to a research and development credit.

The backlog of orders as of March 31, 2023 was $800.2 million compared to $834.7 million as of March 31, 2022, a decrease of $34.5 million, or 4.1%.

Domestic backlog decreased $21.3 million, or 3.0%, and international backlog decreased $13.2 million, or 10.3%, respectively.

The backlog decreased $4.2 million to $513.5 million in the Infrastructure Solutions segment and decreased $32.6 million to $284.4 million in the Materials Solutions segment.

The Corporate and Other backlog represents our controls and automation business and totaled $2.3 million as of March 31, 2023.

Additionally, we are focused on prudent expansion of our production capacity that we anticipate will allow us to more effectively convert backlog to sales in the future.

Segment Net Sales :

Three Months Ended March 31,

(in millions) 2023 2022 $ Change % Change

Infrastructure Solutions $ 229.9 $ 197.5 $ 32.4 16.4 %

2 unchanged sentences

Infrastructure Solutions

Sales in this segment were $201.9 million for the third quarter of 2022 compared to $174.5 million for the same period in 2021, an increase of $27.4 million or 15.7%.

The increase was primarily driven by favorable net volume, pricing and the mix of sales that generated increased (i) new equipment sales of $14.7 million, (ii) parts and component sales of $7.4 million, (iii) service and equipment installation revenue of $2.2 million, (iv) used equipment sales of $1.8 million, (v) freight revenue of $0.7 million and (vi) other revenue of $0.6 million.

Domestic sales for the Infrastructure Solutions segment increased $22.9 million or 16.0% for the third quarter of 2022 compared to the same period in 2021 primarily due to (i) increased new equipment sales of $11.5 million, (ii) increased parts and component sales of $6.0 million, (iii) increased used equipment sales of $2.3 million, (iv) increased service and equipment installation sales of $2.0 million, (v) increased other revenue of $0.6 million and (vi) increased freight revenue of $0.5 million.

International sales for the Infrastructure Solutions segment increased $4.5 million or 14.4% for the third quarter of 2022 compared to the same period in 2021 primarily due to increased new equipment and parts and component sales of $3.2 million and $1.4 million, respectively.

Sales in this segment were $229.9 million for the first quarter of 2023 compared to $197.5 million for the same period in 2022, an increase of $32.4 million, or 16.4%.

The increase was primarily driven by favorable net volume, pricing and the mix of sales that generated increased (i) new equipment sales of $19.3 million, (ii) service and equipment installation revenue of $9.6 million, (iii) parts and component sales of $3.6 million and (iv) freight revenue of $0.6 million.

These increases were partially offset by lower used equipment sales of $0.6 million.

Domestic sales for the Infrastructure Solutions segment increased $23.8 million, or 14.3%, for the first quarter of 2023 compared to the same period in 2022 primarily due to (i) increased new equipment sales of $11.7 million, (ii) increased service and equipment installation sales of $9.8 million and (iii) increased parts and component sales of $2.9 million.

These increases were partially offset by lower used equipment sales of $0.8 million.

International sales for the Infrastructure Solutions segment increased $8.6 million, or 27.9%, for the first quarter of 2023 compared to the same period in 2022 primarily due to increased new equipment sales and parts and component sales of $7.6 million and $0.7 million, respectively.

Materials Solutions

Sales in this segment were $111.8 million for the third quarter of 2022 compared to $92.4 million for the same period in 2021, an increase of $19.4 million or 21.0%.

The increase was primarily driven by favorable net volume, pricing and the mix of sales that generated increased (i) new equipment sales of $18.9 million, (ii) parts and component sales of $1.3 million, (iii) freight revenue of $0.6 million and (iv) service and equipment installation revenue of $0.5 million.

Sales in this segment were $113.9 million for the first quarter of 2023 compared to $93.7 million for the same period in 2022, an increase of $20.2 million, or 21.6%.

The increase was primarily driven by favorable net volume, pricing and the mix of sales that generated increased (i) new equipment sales of $20.8 million, (ii) parts and component sales of $0.6 million and (iii) freight revenue of $0.5 million.

These increases were partially offset by decreased other revenue of $1.8 million primarily driven by increased utilization of our interest subsidy programs offered to certain of our dealer customers.

Domestic sales for the Materials Solutions segment increased by $23.7 million or 40.4% for the third quarter of 2022 compared to the same period in 2021 driven by increased (i) equipment sales of $23.0 million, (ii) parts and component sales of $1.8 million

and (iii) freight revenue of $0.7 million.

Domestic sales for the Materials Solutions segment increased by $21.3 million or 31.4% for the first quarter of 2023 compared to the same period in 2022 driven by increased (i) equipment sales of $22.1 million, (ii) parts and component sales of $0.5 million and (iii) freight revenue of $0.5 million.

These increases were partially offset by decreased other revenue of $1.8 million, primarily driven by increased utilization of our interest subsidy programs offered to certain of our dealer customers.

International sales for the Materials Solutions segment decreased $4.3 million or 12.7% for the third quarter of 2022 compared to the same period in 2021 primarily due to decreased new equipment sales of $4.1 million.

Segment Net Sales - Nine Months Ended :

Nine Months Ended September 30, $ Change % Change

(in millions) 2022 2021

Infrastructure Solutions $ 609.0 $ 555.8 $ 53.2 9.6 %

Materials Solutions 312.9 273.1 39.8 14.6 %

Corporate and Other 2.7 — 2.7 100.0 %

Infrastructure Solutions

Sales in this segment were $609.0 million for the first nine months of 2022 compared to $555.8 million for the same period in 2021, an increase of $53.2 million or 9.6%.

The increase was primarily driven by favorable net volume, pricing and the mix of sales that generated increased (i) new equipment sales of $29.5 million, (ii) parts and component sales of $16.5 million, (iii) service and equipment installation revenue of $5.1 million and (iv) freight revenue of $3.0 million.

These increases were partially offset by lower used equipment sales of $1.8 million.

Domestic sales for the Infrastructure Solutions segment increased $60.6 million or 13.7% for the first nine months of 2022 compared to the same period in 2021 primarily due to (i) increased new equipment sales of $39.2 million, (ii) increased parts and component sales of $13.6 million, (iii) increased service and equipment installation sales of $4.9 million and (iv) increased freight revenue of $3.1 million.

These increases were partially offset by lower used equipment sales of $1.4 million.

International sales for the Infrastructure Solutions segment decreased $7.4 million or 6.5% for the first nine months of 2022 compared to the same period in 2021 primarily due to lower equipment sales of $9.7 million partially offset by increased parts and component sales of $2.9 million.

Materials Solutions

Sales in this segment were $312.9 million for the first nine months of 2022 compared to $273.1 million for the same period in 2021, an increase of $39.8 million or 14.6%.

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 $33.9 million and $8.1 million, respectively.

These increases were partially offset by decreased other revenue of $2.7 million primarily driven by increased utilization of our interest subsidy programs offered to some of our dealer customers.

Domestic sales for the Materials Solutions segment increased by $41.8 million or 22.4% for the first nine months of 2022 compared to the same period in 2021, driven by increased new equipment and parts and component sales of $39.0 million and $4.7 million, respectively.

These increases were partially offset by decreased other revenue of $2.6 million primarily driven by increased utilization of our interest subsidy programs offered to certain of our dealer customers and decreased used equipment sales $0.8 million.

International sales for the Materials Solutions segment decreased $2.0 million or 2.3% for the first nine months of 2022 compared to the same period in 2021 primarily due to lower new equipment sales and freight revenue of $5.1 million and $0.5 million, respectively, partially offset by increased parts and component sales of $3.4 million.

International sales for the Materials Solutions segment decreased $1.1 million or 4.2% for the first quarter of 2023 compared to the same period in 2022, primarily due to decreased new equipment sales of $1.3 million.

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 is the measure of segment profit or loss used by our Chief Executive Officer, whom is determined to be the 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.

1 unchanged sentence

Our presentation of Segment Operating Adjusted EBITDA may not be comparable to similar measures used by other companies and is 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.

Segment Operating Adjusted EBITDA-Three Months Ended:

Three Months Ended September 30, $ Change % Change

(in millions) 2022 2021

Infrastructure Solutions $ 17.6 $ 18.3 $ (0.7) (3.8) %

Materials Solutions 13.1 10.7 2.4 22.4 %

Corporate and Other (14.2) (12.9) (1.3) (10.1) %

Infrastructure Solutions segment:

Segment Operating Adjusted EBITDA for the Infrastructure Solutions segment was $17.6 million for the third quarter of 2022 compared to $18.3 million for the same period in 2021, a decrease of $0.7 million or 3.8%.

The decrease in Segment Operating Adjusted EBITDA resulted primarily from the impact of higher inflation on materials, labor and overhead costs of $18.5 million, manufacturing inefficiencies of $4.1 million largely due to logistics and manufacturing throughput disruptions, increased general and administrative costs of $2.3 million and higher research and development costs of $1.0 million.

These increased costs were partially offset by the impact of favorable net volume, pricing and mix that generated $24.4 million higher gross profit and reduced expenses related to closed site locations of $0.7 million.

Materials Solutions segment:

Segment Operating Adjusted EBITDA for the Materials Solutions segment was $13.1 million for the third quarter of 2022 compared to $10.7 million for the same period in 2021, an increase of $2.4 million or 22.4%.

The increase in Segment Operating Adjusted EBITDA between periods resulted primarily from the impact of favorable net volume, pricing and mix that generated $14.2 million higher gross profit and lower general and administrative costs of $1.2 million.

These increases were partially offset by the impact of higher inflation on materials, labor and overhead costs of $10.5 million and manufacturing inefficiencies of $2.4 million largely due to logistics and manufacturing throughput disruptions.

Corporate and Other:

Corporate and Other operations had net expenses of $14.2 million for the third quarter of 2022 compared to $12.9 million for the third quarter of 2021, an increase of $1.3 million or 10.1%.

The increase in expenses was primarily driven by personnel costs including employee benefit and travel costs.

Segment Operating Adjusted EBITDA-Nine Months Ended :

Nine Months Ended September 30, $ Change % Change

See Note 10, 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) 2023 2022

3 unchanged sentences

Infrastructure Solutions segment:

Segment Operating Adjusted EBITDA for the Infrastructure Solutions segment was $49.9 million for the first nine months of 2022 compared to $61.0 million for the same period in 2021, a decrease of $11.1 million or 18.2%.

The decrease in Segment Operating Adjusted EBITDA resulted primarily from the impact of higher inflation on materials, labor and overhead costs of $55.1 million, increased general and administrative costs of $6.3 million and manufacturing inefficiencies of $3.8 million largely due to logistics and manufacturing throughput disruptions.

Incorporated in these increased costs is a $3.5 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.

These increased costs were partially offset by the impact of favorable net volume, pricing and mix that generated $54.1 million higher gross profit and reduced expenses related to closed site locations of $1.5 million.

Segment Operating Adjusted EBITDA for the Infrastructure Solutions segment was $27.3 million for the first quarter of 2023 compared to $16.4 million for the same period in 2022, an increase of $10.9 million or 66.5%.

The increase in Segment Operating Adjusted EBITDA resulted primarily from the impact of favorable net volume, pricing and mix that generated $27.3 million higher gross profit.

These increases were partially offset by (i) the impact of higher inflation on materials, labor and overhead costs of $8.8 million, (ii) increased selling, general and administrative costs of $6.3 million, primarily due to $3.9 million higher personnel related costs, $1.5 million of increased exhibit and promotional costs related to the ConExpo industry trade show and $1.5 million increased consulting, prototype and project costs and (iii) manufacturing inefficiencies of $1.6 million, inclusive of the impact of an out-of-period benefit of $1.9 million associated with the correction of over-accruals of inventory-related expenses recorded in the first quarter of 2023.

Materials Solutions segment:

Segment Operating Adjusted EBITDA for the Materials Solutions segment was $34.8 million for the first nine months of 2022 compared to $36.3 million for the same period in 2021, a decrease of $1.5 million or 4.1%.

The decrease in Segment Operating Adjusted EBITDA resulted primarily from the impact of higher inflation on materials, labor and overhead costs of $33.7 million, increased general and administrative costs of $1.2 million and manufacturing inefficiencies of $3.8 million due to supply chain and logistics disruptions.

Incorporated in these increased costs is a $1.5 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.

These increased costs were partially offset by the impact of favorable net volume, pricing and mix that generated $37.3 million higher gross profit.

Segment Operating Adjusted EBITDA for the Materials Solutions segment was $15.3 million for the first quarter of 2023 compared to $12.2 million for the same period in 2022, an increase of $3.1 million or 25.4%.

The increase in Segment Operating Adjusted EBITDA between periods resulted primarily from the impact of favorable net volume, pricing and mix that generated $12.5 million higher gross profit.

These increases were partially offset by (i) the impact of higher inflation on materials, labor and overhead costs of $5.0 million, (ii) higher general, administrative and other costs of $2.6 million and (iii) manufacturing inefficiencies of $1.7 million.

The general, administrative and other cost increases are primarily driven by $1.4 million net foreign currency transaction gains in 2022 that did not recur in 2023 and $1.3 million of increased exhibit and promotional costs related to the ConExpo industry trade show, partially offset by $0.7 million lower personnel related costs.

Corporate and Other:

Corporate and Other operations had net expenses of $36.3 million for the first nine months of 2022 compared to $39.8 million for the first nine months of 2021, a decrease of $3.5 million or 8.8%.

The decrease in expenses was driven by:

(i) lower net annual incentive compensation of $3.5 million due to $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, (ii) reduced deferred compensation program cost driven by our stock price changes of $1.3 million and (iii) reduced consulting fees of $1.2 million.

These decreases were partially offset by increases in payroll and share-based compensation expenses of $2.3 million.

Corporate and Other operations had net expenses of $6.8 million for the first quarter of 2023 compared to $9.8 million for the first quarter of 2022, a decrease of $3.0 million, or 30.6%.

The decrease in net expenses was primarily driven by $1.5 million of profit contributed by MINDS and $1.5 million of lower general and administrative expenses, primarily associated with employee related costs including the recovery of share-based compensation expense related to awards forfeited or modified in conjunction with the termination of our previous CEO and the limited overhead restructuring action implemented in February 2023, which was partially offset by increased health insurance claims experience.

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.

At September 30, 2022, we had total cash, cash equivalents and restricted cash of $20.8 million.

Cash and cash equivalents available for operating purposes was $18.4 million, which was predominantly 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, our variable cash uses may include the payment of our quarterly cash dividend, financing other strategic initiatives of our business, including, but not limited to, the SFG transformation, strategic acquisitions and share repurchases under our share repurchase authorization.

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 our existing business for at least the next 12 months.

We had $1.2 million in outstanding borrowings on the Credit Facility at September 30, 2022 and no outstanding borrowings at December 31, 2021.

Our outstanding letters of credit totaling $2.5 million decreased borrowing availability to $146.3 million under the revolving credit facility as of September 30, 2022.

We anticipate continuing to utilize 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.

Our primary sources of liquidity and capital resources are cash and cash equivalents on hand, borrowing capacity under a $250.0 million revolving credit facility and cash flows from operations.

As of March 31, 2023, our total liquidity was $222.0 million, consisting of $39.6 million of cash and cash equivalents available for operating purposes and $182.4 million available for additional borrowings under our revolving credit facility, to the extent our compliance with financial covenants permits such borrowings.

Our foreign subsidiaries held $23.5 million of cash and cash equivalents available for operating purposes, which is considered to be indefinitely invested in those jurisdictions.

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

In addition, our variable cash uses may include the payment of our quarterly cash dividend, financing other strategic initiatives of our business, including, but not limited to, transformation initiatives, strategic acquisitions and share repurchases under our share repurchase authorization.

We believe that our current working capital, cash flows generated from future operations and available capacity under our revolving credit facility will be sufficient to meet working capital and capital expenditure requirements for our existing business for at least the next 12 months.

On December 19, 2022, we entered into a new credit agreement (the "Credit Agreement") with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto, which replaced the previously existing credit facility with a borrowing capacity of $150.0 million and a maturity date of December 29, 2023 (the "Previous Credit Facility").

The Credit Agreement provides for (i) a revolving credit facility (consisting of revolving credit loans and swingline loans) and a letter of credit facility, in an aggregate amount of up to $250.0 million, (ii) an incremental credit facility in an aggregate amount not to exceed $125.0 million (the "Credit Facilities") and (iii) a maturity date of December 19, 2027.

We had $65.0 million in outstanding borrowings under the Credit Facilities at March 31, 2023.

Our outstanding letters of credit totaling $2.6 million decreased borrowing availability to $182.4 million under the revolving credit facility as of March 31, 2023.

We anticipate continuing to utilize the Credit Facilities with more frequency in the near-term to support our domestic working capital needs.

The Credit Agreement contains certain financial covenants, including requirements related to our Consolidated Total Net Leverage Ratio and Consolidated Interest Coverage Ratio, each as defined in the agreement.

Failure to satisfy these covenants could result in the accelerated repayment of our indebtedness.

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

The Credit Facility expires on December 29, 2023.

We were in compliance with the financial covenants of the Credit Facilities at March 31, 2023.

Due to the increased borrowings under our Credit Facilities and higher interest rates, we expect our interest expense in 2023 to be significantly higher than in prior years.

Our Brazilian subsidiary maintains a separate term loan for working capital purposes with a bank in Brazil, which is secured by its manufacturing facility.

Certain of our international subsidiaries in South Africa, Australia, Brazil, Canada and the United Kingdom each have separate credit facilities with local financial institutions, primarily 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 on a periodic basis.

In addition, the Brazilian

subsidiary 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.

2 unchanged sentences

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

As of September 30, 2022, open purchase obligations totaled $326.7 million, of which $215.4 million are expected to be fulfilled within the remainder of 2022.

We estimate that our capital expenditures will be between $35 and $45 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

(in millions) 2022 2021

Net income $ 0.7 $ 25.8 $ (25.1)

Deferred tax (benefit) provision (12.6) 0.3 (12.9)

Asset impairment charges, net 3.4 0.2 3.2

Receivables and other contract assets (25.0) (30.2) 5.2

Increase in inventories (98.9) (32.3) (66.6)

Increase in other assets (10.3) (3.0) (7.3)

Increase in accounts payable 25.3 26.6 (1.3)

Increase in other accrued liabilities 0.5 9.7 (9.2)

Increase in accrued payroll and related expenses 11.2 9.3 1.9

Increase in customer deposits 21.1 4.0 17.1

Income taxes payable/prepaid 1.8 (6.1) 7.9

Other, net 26.0 23.0 3.0

Net cash (used in) provided by operating activities $ (56.8) $ 27.3 $ (84.1)

During the nine months ended September 30, 2022, we used $56.8 million of cash in our operating activities as compared to generating $27.3 million of cash from operating activities in the corresponding prior period representing a change of $84.1

Changes in the cash from operations was primarily driven by the following net usages:

(i) the increase of inventories on hand of $66.6 million due to higher backlog and supply chain disruptions, (ii) lower net income of $25.1 million, (iii) changes in the deferred tax position of $12.9 million, (iv) the timing of payments on accounts payable and accrued liabilities of $10.5 million and (v) increases in other assets of $7.3 million.

These net cash usages were partially offset by changes in cash generated by:

(i) increased customer deposits of $17.1 million associated with increased backlog, (ii) the timing of income tax payments of $7.9 million and (iii) the timing of receivables and other contract assets of $5.2 million.

Cash Flows from Investing Activities:

Nine Months Ended September 30, Increase / Decrease

(in millions) 2022 2021

Acquisitions, net of cash acquired $ (17.8) $ 0.1 $ (17.9)

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

Expenditures for property and equipment (27.6) (10.9) (16.7)

Proceeds from sale of property and equipment 0.7 1.7 (1.0)

Purchase of investments (0.8) (0.8) —

Sale of investments 0.5 1.8 (1.3)

Net cash used in investing activities $ (45.0) $ (9.2) $ (35.8)

Net cash used in investing activities increased by $35.8 million for the first nine 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:

Nine Months Ended September 30, Increase / Decrease

As of March 31, 2023, open purchase obligations totaled $298.4 million, of which $286.7 million are expected to be fulfilled within one year.

We estimate that our capital expenditures will be between $25 million and $35 million for the year ending December 31, 2023, which may be impacted by general economic, financial or operational changes and competitive, legislative and regulatory factors, among other considerations.

The following table summarizes cash flows during the three months ended March 31, 2023 and 2022, respectively:

Three Months Ended March 31,

(in millions) 2023 2022

Payment of dividends $ (8.3) $ (7.5) $ (0.8)

Proceeds from (repayments of) borrowings, net on credit facility and bank loans 7.6 (1.1) 8.7

Withholding tax paid upon vesting of share-based compensation awards (1.8) (3.4) 1.6

Repurchase of Company stock (6.1) — (6.1)

Other, net 0.2 0.6 (0.4)

Net cash used in operating activities $ (19.2) $ (9.6)

Net cash provided by (used in) investing activities 11.8 (11.7)

Net cash used in financing activities (16.2) (2.3)

Net cash used in financing activities decreased by $3.0 million for the first nine months of 2022 compared to the same period in 2021 primarily due to increased net proceeds from borrowings and lower withholding tax payments on the vesting of share-based compensation awards partially offset by repurchases of stock under our share repurchase program.

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

Effect of exchange rates on cash 0.1 0.9

Decrease in cash, cash equivalents and restricted cash (23.5) (22.7)

Cash, cash equivalents and restricted cash, end of period $ 42.5 $ 111.7

Net cash used in operating activities

Net cash used in operating activities increased by $9.6 million during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to higher net cash usages in our operating assets and liabilities of $15.4 million mainly driven by the increase of inventories on hand of $26.5 million due to higher backlog and supply chain disruptions experienced in 2022 partially offset by higher net income adjusted for non-cash items of $5.7 million.

Net cash provided by (used in) investing activities

Our investing activities provided net cash of $11.8 million during the three months ended March 31, 2023 as opposed to a net cash use of $11.7 million during the three months ended March 31, 2022 primarily due to the sale of the Tacoma facility's land, building and certain equipment assets for $19.9 million and $3.6 million less purchases of purchase of property and equipment.

Net cash used in financing activities

Net cash used in financing activities increased by $13.9 million during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, primarily due to increased repayments net of borrowings of $13.7 million.

We paid quarterly dividends of $0.13 and $0.12 per common share to shareholders in the first quarter of 2023 and 2022, 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.

During the three months ended September 30, 2022, 160,445 shares were repurchased under the plan, totaling approximately $6.1 million.

As of September 30, 2022, $119.7 million remains available for repurchase under the approved share repurchase program.

We may continue to conduct opportunistic share repurchases under this authorization in future periods, subject to market conditions, utilizing cash on hand or borrowings under our Credit Facility.

The timing, manner and number of shares repurchased will depend on a variety of factors, including, but not limited to, the level of cash balances, credit availability, financial performance, general business conditions, regulatory requirements, the market price of the Company’s stock and the availability of alternative investment opportunities.

As of March 31, 2023, $115.7 million remains available for repurchase under the approved share repurchase program.

No shares were repurchased under the plan during the three months ended March 31, 2023, however, we may conduct opportunistic share repurchases under this authorization in future periods utilizing cash on hand or borrowings under our Credit Facilities.

The timing, manner and number of shares repurchased will depend on a variety of factors, including, but not limited to, the level of cash balances, credit availability, financial performance, general business conditions, regulatory requirements, the market price of our stock and the availability of alternative investment opportunities.

Financial Condition

Our total current assets increased to $649.6 million as of September 30, 2022 from $636.0 million as of December 31, 2021, an increase of $13.6 million or 2.1%, due primarily to an increase in inventories of $97.7 million, an increase in trade receivables and contract assets of $18.9 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 $113.6 million during the first nine months of 2022.

Our total current liabilities increased to $283.9 million as of September 30, 2022 from $223.3 million as of December 31, 2021, an increase of $60.6 million, or 27.1%, due primarily to increased accounts payable, customer deposits and accrued payroll and related liabilities of $23.1 million, $19.1 million and $11.3 million, respectively, during the first nine months of 2022.

Current liabilities also increased due to additional net borrowings of $6.2 million on short-term debt facilities in order to meet working capital needs at certain of our international sites.

Contingencies

We have reviewed all claims and lawsuits and have made adequate provision for any losses that are probable and can be reasonably estimated.

Based upon currently available information and with the advice of counsel, we believe that the ultimate outcome of our current claims and legal proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position, cash flows or results of operations.

However, claims and legal proceedings are subject to inherent uncertainties and rulings unfavorable to us could occur.

If an unfavorable ruling were to occur, there exists the possibility of a material adverse effect on our financial position, cash flows or results of operations.

Commitments and Contingencies of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for discussion of contingent liabilities for customer purchases, various guarantees including letters of credit, advance payments and retention guarantees as well as contingencies related to legal proceedings in which we are involved.

Off-balance Sheet Arrangements

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.

Our total current assets decreased to $680.4 million as of March 31, 2023 from $696.4 million as of December 31, 2022, a decrease of $16.0 million or 2.3%, due primarily to a decrease in cash, cash equivalents and restricted cash of $23.5 million, the

sale of our Tacoma site previously recorded as "Assets held for sale" for $15.4 million and a decrease in prepaid assets of $7.9 million partially offset by an increase in inventory of $26.7 million, to address the continued elevated backlog and a $5.1 million increase in trade receivables and contract assets, net during the first three months of 2023.

Our total current liabilities decreased to $272.0 million as of March 31, 2023 from $274.0 million as of December 31, 2022, a decrease of $2.0 million, or 0.7%, due primarily to a $6.4 million decrease in other current liabilities and a $2.0 million decrease in customer deposits, partially offset by increases of $4.8 million in accounts payable and $1.4 million of short-term debt during the first three months of 2023.

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