What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-28 compared with 2023-03-01 · 175 added, 204 removed, 184 unchanged (67% of the section changed)

7 unchanged sentences

This section of this Annual Report on Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.

A similar discussion of 2020 items and year-to-year comparisons between 2021 and 2020 can be found

Table of Conten t s

in Part II, Item 7.

A similar discussion of 2021 items and year-to-year comparisons between 2022 and 2021 can be found in Part II, Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2022 .

2 unchanged sentences

Business Overview

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

Our products are used in each phase of road building, from quarrying and crushing the aggregate to application of the road surface for both asphalt and concrete.

We also manufacture certain equipment and components unrelated to road construction, including equipment for the mining, quarrying, construction and demolition industries and port and rail yard operators;

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

Our products are used in each phase of road building, from quarrying and crushing the aggregate to application of the road surface.

We also offer industrial automation controls and telematics platforms as well as manufacture certain equipment and components unrelated to road construction, including equipment for the mining, quarrying, construction, demolition, land clearing and recycling industries and port and rail yard operators;

industrial heat transfer equipment;

19 unchanged sentences

• Gross profit was $330.8 million, an increase of 25.3%

• Income from operations decreased $12.4 million to $7.5 million

• Net income attributable to Astec decreased to a loss of $0.1 million

• Diluted earnings per share were zero, a decrease of 100.0%

• Backlog of $912.7 million, an increase of 19.7%

• Income from operations increased $41.1 million to $48.6 million

• Net income attributable to Astec increased $33.6 million to $33.5 million

• Diluted earnings per share were $1.47, an increase of 100.0%

• Backlog of $569.8 million, a decrease of 37.6%

Significant Items Impacting Financial Results in 2023

Simplify, Focus and Grow Strategic Transformation ("SFG")

Our ongoing strategic transformation initiative focused on implementing new business strategies and 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 Program

We are undergoing a multi-year phased implementation of a standardized enterprise resource planning ("ERP") system across our global organization, which will replace much of our existing disparate core financial systems.

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

This new ERP system will provide for standardized processes and integrated technology solutions that enable us to better leverage automation and process efficiency, transforming how we connect people, products and processes to operate as OneASTEC.

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 have materially completed the ERP global design in 2022, launched the human capital resources module throughout our domestic sites 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.

Table of Conten t s

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 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 converted the operations of one manufacturing site along with Corporate during the second quarter of 2023 to set the foundation before accelerating the implementation at additional sites in 2024 and 2025.

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 which began in 2022.

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.

1 unchanged sentence

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 with the project completion in early to mid-2024.

We have continued these capital investments during 2023, which are largely completed as of December 31, 2023.

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 year ended December 31, 2022 were $25.5 million, 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.

Additionally, at December 31, 2022, we have capitalized $17.8 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, of which $1.2 million and $16.6 million were included in "Prepaid expenses and other assets" and "Other long-term assets" in the Consolidated Balance Sheets, respectively.

MINDS Acquisition

We entered into a Share Purchase Agreement, dated as of March 22, 2022, with MINDS Automation Group, Inc.

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

The acquisition was completed on April 1, 2022 at a purchase price of $19.3 million, which 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 2022 , acquiring 251,087 shares at an aggregate repurchase price of approximately $10.1 million.

As of December 31, 2022, $115.7 million remains available for repurchase under the approved share repurchase program.

Closure of Tacoma Facility

Total costs of $29.7 million were incurred related to these strategic transformation initiatives in 2023, of which $29.4 million and $0.3 million are recorded in "Selling, general and administrative expenses" and "Cost of sales", respectively, in the Consolidated Statements of Operations.

Costs totaling of $25.5 million and $13.4 million were incurred in 2022 and 2021, respectively, and are recorded in "Selling, general and administrative expenses" in the Consolidated Statements of Operations.

implementation costs associated with the ERP implementation totaled $30.6 million, of which $3.3 million and $27.3 million were included in "Prepaid expenses and other assets" and "Other long-term assets", respectively, in the Consolidated Balance Sheets as of December 31, 2023.

Capitalized implementation costs totaled $17.8 million, of which $1.2 million and $16.6 million were included in "Prepaid expenses and other assets" and "Other long-term assets", respectively, in the Consolidated Balance Sheets as of December 31, 2022.

Amortization of these capitalized implementation costs totaled $1.9 million during 2023, which is included in "Selling, general and administrative expenses" in the Consolidated Statements of Operations.

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 December 31, 2022.

Leadership Change

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 as of 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, impairment and other asset charges, net" in the Consolidated Statements of Operations.

Leadership Change and Overhead Restructuring

As previously announced on January 6, 2023, Mr.

2 unchanged sentences

In accordance with the terms of Mr.

Ruffalo's separation agreement, we recorded $4.4 million of restructuring related costs in the fourth quarter of 2022.

Additional costs are anticipated to be incurred in the first quarter of 2023 for this separation.

Ruffalo's separation agreement, we recorded $1.8 million of restructuring costs during the first quarter of 2023 related to the modification of Mr.

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

The related recovery of $1.6 million of previously 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 our overhead departments.

We anticipate charges of $3.0 million to $4.0 million for employee termination costs, excluding equity award modifications, to be incurred primarily in the first quarter of 2023.

No further actions are currently planned.

However, additional actions may be taken as a result of management’s ongoing business reviews.

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.

Total charges of $5.5 million for employee termination costs, including equity award modifications, were recorded in "Restructuring, impairment and other asset charges, net" and the related recovery of $1.0 million of previously incurred share-based compensation expense was recorded in "Selling, general and administrative expenses" in the Consolidated Statements of Operations during the year ended December 31, 2023.

37 BP Litigation

On October 5, 2023, a jury rendered a verdict against our Telsmith, Inc.

subsidiary in the matter styled 37 Building Products, Ltd.

Telsmith, Inc.

("Telsmith"), et al.

originally filed on January 28, 2019.

On December 19, 2023, a judgment was issued in the amount of $7.9 million (the “Judgment”) which takes into account credit for settlement amounts of all other defendants in this case.

37 BP alleged breaches of warranty and negligent misrepresentation regarding equipment manufactured by Telsmith and purchased by 37 BP in 2017 through one of our dealers.

Based on the jury verdict, we recorded a loss contingency of $6.4 million in "Selling, general and administrative expenses" in the Consolidated Statements of Operations and "Other current liabilities" in the Consolidated Balance Sheets during the third quarter of 2023 representing management's best estimate of the loss at that time.

During the fourth quarter of 2023, the loss contingency was increased $1.5 million based on the Judgment to a total of $7.9 million for the year ended December 31, 2023.

See Note 16, Commitments and Contingencies of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion of this matter.

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 ended 2021 with a strong backlog of orders, which continued to grow during 2022, but at a slower pace than we experienced during the prior year.

The backlog of orders as of December 31, 2022 was $912.7 million compared to $762.6 million as of December 31, 2021, an increase of $150.1 million or 19.7%.

Increased orders were driven by higher demand from the continuation of dealer inventory replenishment and the infrastructure investment by the United States' government under the Infrastructure Investment and Jobs Act ("IIJA") enacted in November 2021.

The higher demand has contributed to longer lead times.

In addition, we are continuing to experience constrained production cycles due to increased lead times for certain

Table of Conten t s

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 firm orders for equipment, parts and related installation which are expected to be recognized in net sales in the future.

Firm orders are signed commitments from customers to complete a purchase for machinery, equipment or parts that is expected to be noncancellable and 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 accounting principles generally accepted in the United States of America ("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 and there is no guarantee that our backlog will be converted to net sales.

Backlog levels provide management and investors additional details 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 $569.8 million backlog of orders as of December 31, 2023 continues to remain strong.

The backlog of orders decreased $342.9 million, or 37.6%, compared to $912.7 million as of December 31, 2022.

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

We have experienced a reduction in new order intake and expect backlog to continue to decline primarily from our dealer customers as macroeconomic factors such as inflation and increased interest rates, among other factors, influence spending patterns.

In addition, our shorter production lead times allow for customers to place orders closer to when the equipment delivery is desired.

We are also focused on prudent expansion of our production capacity that we anticipate will allow us to more effectively convert backlog to sales in the future with greater efficiency and shorter lead times.

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.

As federal highway funding programs have consistently been in place for several decades, we believe that these funding programs provide stability in the purchasing decisions of our customers by allowing them to plan and execute longer-term projects with federal legislation in place over a multi-year period.

government enacted the Infrastructure Investment and Jobs Act ("IIJA") in November 2021 as a replacement for the prior program.

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

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

Significant portions of our revenues from the Infrastructure Solutions segment relate to the sale of equipment involved in the production, handling, recycling or application of asphalt mix.

We believe that multi-year highway programs (such as the IIJA) have a positive impact on the domestic road construction industry.

Significant portions of our revenues from the Infrastructure Solutions segment relate to the sale of equipment involved in the production, handling, recycling or application of asphalt mix and, to a lesser extent, concrete as surface choices for roads and highways.

Liquid asphalt is a by-product of oil refining.

2 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 2021 and 2022, reaching a peak in the third quarter and subsequently stabilizing during the fourth quarter of 2022.

Entering 2023, 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.

While oil prices had declined from the peak prices in 2022, throughout 2023 they have remained at relatively high levels.

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 in 2023.

Based on the current macroeconomic environment, including ongoing international conflicts, we anticipate that oil prices will remain at relatively high levels throughout 2024.

Steel is a major component of our equipment.

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 2023.

During 2022, we have observed a slowing in market demand and reduced lead times as buyers are responding to recessionary pressures and continue to restrict purchases to immediate or near-term needs.

However, we anticipate that steel demand will remain relatively strong in 2023, driven by the IIJA domestically and impacted by international production capacity being restricted by the conflict in Ukraine.

Steel prices stabilized at historically high levels at the end of 2022 and have held relatively steady at these levels throughout 2023, with increases in the first half of the year offset by price declines in the second half.

We anticipate that steel prices will remain at relatively high levels throughout 2024.

Lead times increased during the first quarter of 2023 driven by stronger demand, followed by a normalization in the second half of the year before falling late in the year due to price increases announced by both domestic and international mills.

We anticipate that steel demand will remain relatively stable in 2024, driven by the IIJA domestically and impacted by international production capacity.

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

2 unchanged sentences

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

Supply chain constraints have eased recently, however we do see challenges related to vendor capacity continue to occur, albeit at a decreasing number of suppliers.

As a result, we have experienced 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.

Supply chain constraints experienced in prior periods have eased recently, however, lead times for certain key supplies remain elongated.

We continue to focus on identifying and qualifying alternative suppliers wherever possible, to help alleviate any lagging or potential future 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.

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.

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.

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.

Higher labor costs to attract staff in our manufacturing operations are continuing to be at elevated levels, and increases are expected to continue into 2024.

We continue to adjust our production schedules and manufacturing workload distribution, provide comprehensive training, outsource components, implement efficiency improvements and actively modify our recruitment process and compensation and benefits to attract and retain production personnel in our manufacturing facilities.

Whenever possible, we attempt to cover increased costs of production by adjusting the prices of our products.

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

For this reason, we have limitations on our ability to pass on cost increases to our customers on a short-term basis.

In addition, the markets we serve are competitive in nature, and competition limits our ability to pass through cost increases in many cases.

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

Our business was 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 throughout 2020 and 2021, with the impacts lessening throughout 2022.

The future impact of COVID-19 or other health related emergencies on our operations and the markets we serve remains uncertain and cannot be accurately predicted.

See Part I, Item 1A.

Risk Factors in this Annual Report on Form 10-K for a discussion of the risks associated with the COVID-19 or future pandemics.

Table of Conten t s

The markets we serve are competitive in nature, and competition limits our ability to pass through cost increases in many cases.

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 $63.7 million, or 5.0%, to $1,338.2 million in 2023 from $1,274.5 million in 2022.

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 $141.1 million, (ii) parts and component sales of $34.6 million, (iii) service and equipment installation revenue of $7.1 million and (iv) freight revenue of $4.2 million partially offset by decreased used equipment sales of $4.2 million and other revenue of $3.8 million primarily driven by higher utilization of our interest subsidy programs offered to certain of our dealer customers.

Included in these net increases is $4.4 million of incremental net sales from an acquired business.

The increase in net sales was primarily driven by favorable pricing partially offset by net unfavorable volume and mix that generated increases in (i) equipment sales of $29.9 million, (ii) service and equipment installation revenue of $27.9 million and (iii) parts and component sales of $14.5 million.

These increases were partially offset by decreased used equipment sales of $5.6 million.

Sales reported by our foreign subsidiaries in U.S.

1 unchanged sentence

Domestic sales for 2023 were $1,083.4 million, or 81.0% of net sales, compared to $1,014.3 million, or 79.6% of net sales, for 2022, an increase of $69.1 million, or 6.8%.

Domestic sales increased primarily due to:

(i) $144.3 million higher equipment sales (ii) $25.6 million higher parts and component sales, (iii) $4.7 million higher service and equipment installation revenue and (iv) $4.7 million higher freight revenue.

These increases were partially offset by decreased other revenue of $3.6 million primarily driven by higher utilization of our interest subsidy programs offered to certain of our dealer customers and lower used equipment sales of $3.5 million.

Included in these net increases is $2.3 million of incremental net sales from an acquired business.

International sales for 2022 were $260.2 million or 20.4% of net sales compared to $253.4 million or 23.1% of net sales for 2021, an increase of $6.8 million or 2.7%.

International sales increased primarily due to higher parts and component sales and service revenue of $9.0 million and $2.4 million, respectively.

These increases were partially offset by $3.2 million lower equipment sales.

Included in these net increases is $2.1 million of incremental net sales from an acquired business.

Domestic sales increased primarily due to increases in (i) equipment sales of $37.0 million, (ii) service and equipment installation revenue of $22.1 million and (iii) parts and components sales of $16.1 million.

These increases were partially offset by decreased used equipment sales of $3.1 million.

International sales for 2023 were $254.8 million, or 19.0% of net sales, compared to $260.2 million, or 20.4% of net sales, for 2022, a decrease of $5.4 million, or 2.1%.

International sales decreased primarily due to lower equipment sales of $7.1 million partially offset by higher service and equipment installation revenue of $5.8 million.

Consolidated gross profit for 2023 was $330.8 million, or 24.7% of net sales, as compared to $264.1 million, or 20.7% of net sales, in 2022, an increase of $66.7 million, or 25.3%.

The increase was primarily driven by the impact of net favorable volume, pricing and mix that generated $131.8 million higher gross profit.

These increases were partially offset by the impact of inflation on materials, labor and overhead of $104.0 million and manufacturing inefficiencies of $14.9 million largely due to logistics and manufacturing throughput disruptions.

The increase was primarily driven by favorable pricing partially offset by net unfavorable volume and mix that generated $104.8 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 $40.8 million.

While manufacturing efficiencies were generated in 2023 primarily due to the impact of cost savings initiatives and favorable inventory adjustments inclusive 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, such efficiencies were offset by increased warranty costs resulting in relatively consistent manufacturing efficiencies year-over-year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for 2022 were $216.1 million or 17.0% of net sales compared to $200.6 million or 18.3% of net sales for 2021, an increase of $15.5 million or 7.7%, primarily due to:

(i) $12.1 million increased costs related to our SFG transformation program, (ii) $3.2 million of exhibit, promotional and travel costs due to the return of in-person industry conferences and business activities, (iii) $2.8 million incremental expenses associated with MINDS, (iv) $2.0 million of acquisition and integration related costs mainly associated with the acquisition of MINDS and (v) increased net payroll and employee benefit costs due to increased headcount throughout our organization partially offset by lower health insurance claims experience and reduced deferred compensation program costs associated with our stock price changes.

These increases were partially offset by lower depreciation and amortization expense of $3.7 million and reduced expenses related to closing a site location of $2.1 million.

Research and Development Expenses

Research and development expenses increased $5.0 million or 18.9% to $31.5 million in 2022 from $26.5 million in 2021.

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

Table of Conten t s

Selling, general and administrative expenses for 2023 were $276.4 million, or 20.7% of net sales, compared to $247.6 million, or 19.4% of net sales, for 2022, an increase of $28.8 million, or 11.6%, primarily due to (i) increased net payroll and employee benefit costs of $13.6 million, which was largely driven by general employee cost increases and higher annual incentive compensation costs of $5.5 million, partially offset by lower share-based compensation expense of $3.8 million mainly related to the recovery of share-based compensation expense for awards that were forfeited or modified in conjunction with the termination of our previous Chief Executive Officer ("CEO") and the limited overhead restructuring action implemented in February 2023 and lower health insurance costs of $2.0 million, (ii) a $7.9 million loss contingency recorded related to the 37 BP litigation, (iii) $4.3 million increased consulting, prototype and project costs, (iv) $3.9 million of increased costs related to our strategic transformation program, (v) $2.8 million of higher exhibit and promotional costs primarily due to the ConExpo industry trade show held once every three years and (vi) incremental expenses associated with the acquisition of MINDS Automation Group, Inc.

("MINDS"), of $1.1 million.

These increases were partially offset by lower amortization expense of $3.3 million and reduced acquisition and integration related costs of $2.1 million primarily associated with the acquisition of MINDS.

Restructuring, Impairment and Other Asset Charges, Net

Restructuring, asset impairment charges and the net gain on the sale of property and equipment for the years ended December 31, 2022 and 2021 are presented below and relate primarily to our SFG initiatives and recent leadership change:

Restructuring, asset impairment charges and the net gains on the sale of property and equipment for the years ended December 31, 2023 and 2022 are presented below:

Years Ended December 31,

1 unchanged sentence

Restructuring charges:

Costs associated with leadership change $ 4.4 $ —

Costs associated with closing Enid 1.0 0.7

Costs associated with leadership change and overhead restructuring $ 7.3 $ 4.4

Costs associated with exited operations - Enid 0.4 1.0

Costs associated with closing Tacoma — 0.8

Costs associated with closing Mequon — 0.6

Total restructuring related charges 7.7 6.2

7 unchanged sentences

See Note 21, Strategic Transformation and Restructuring, Impairment and Other Asset Charges, of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for discussion of the individual restructuring actions taken and the impairment charges recorded.

Interest Expense

Interest expense of $8.9 million was incurred for the year ended December 31, 2023 as compared to $2.5 million for the year ended December 31, 2022, an increase of $6.4 million, primarily related to higher outstanding borrowings on our revolving credit facility.

Income Tax Provision

Income tax expense for the year ended December 31, 2022 was $5.0 million, reflecting a 113.6% effective tax rate compared to an income tax benefit of $2.1 million for the year ended December 31, 2021, reflecting a (15.2)% effective tax rate.

Income tax expense for the year ended December 31, 2023 was $9.1 million, reflecting a 21.3% effective tax rate, compared to $5.0 million for the year ended December 31, 2022, reflecting a 113.6% effective tax rate.

Our effective tax rates are affected by recurring items which are generally consistent from period to period, as well as discrete items that may occur but are not consistent from period to period.

The item having the most significant impact on the effective tax rate for 2023 is a net benefit of $1.8 million for research and development tax credits.

The items having the most significant impact on the effective tax rate for 2022 include discrete tax expense for a foreign valuation allowance of $5.5 million for net operating losses ("NOLs") at our Brazilian subsidiary partially offset by the net benefits of $2.1 million for research and development tax credits and $ 0.9 million from the foreign derived intangible income deduction.

The items having the most significant impact on the effective tax rate for 2021 include a benefit from net releases of valuation allowances of $8.1 million primarily related to NOLs at our Brazilian and German subsidiaries and a net benefit of $2.3 million for research and development tax credits partially offset by a $4.4 million provision from the dissolution of our Germany subsidiary.

Future utilization of our NOLs and state tax credit carryforwards is evaluated on a periodic basis, and the valuation allowance is adjusted accordingly.

There is no guarantee that we will not incur additional valuation allowances to our NOLs.

The backlog of orders at December 31, 2022 was $912.7 million compared to $762.6 million at December 31, 2021, an increase of $150.1 million or 19.7%.

Domestic and international backlogs increased $146.3 million or 23.3% and $3.8 million or 2.8%, respectively.

The backlog increased $117.8 million to $567.1 million in the Infrastructure Solutions segment and increased $27.9 million to $341.2 million in the Materials Solutions segment.

The Corporate and Other backlog represents our controls and automation business and totaled $4.4 million as of December 31, 2022.

The higher demand has contributed to longer lead times.

Table of Conten t s

The backlog of orders at December 31, 2023 was $569.8 million compared to $912.7 million at December 31, 2022, a decrease of $342.9 million, or 37.6%.

Domestic and international backlogs decreased $323.2 million, or 41.8%, and $19.7 million, or 14.1%, respectively.

The backlog decreased $162.5 million to $404.6 million in the Infrastructure Solutions segment and decreased $178.5 million to $162.7 million in the Materials Solutions segment.

The Corporate and Other backlog represents our controls and automation business and totaled $2.5 million as of December 31, 2023, a decrease of $1.9 million.

In addition, our shorter production lead times allow for customers to place orders closer to when the equipment delivery is desired.

We are also focused

on prudent expansion of our production capacity that we anticipate will allow us to more effectively convert backlog to sales in the future with greater efficiency and shorter lead times.

Net Sales by Segment

6 unchanged sentences

Sales in this segment were $878.8 million for 2023 compared to $847.4 million for 2022, an increase of $31.4 million, or 3.7%.

The increase was primarily driven by favorable net volume, pricing and the mix of sales that generated increased (i) new equipment sales of $78.4 million, (ii) parts and component sales of $20.3 million, (iii) service and equipment installation revenue of $5.3 million and (iv) freight revenue of $2.6 million.

These increases were partially offset by lower used equipment sales of $3.1 million.

Domestic sales for the Infrastructure Solutions segment increased by $103.4 million, or 17.2%, for 2022 compared to 2021 primarily due to:

(i) increased new equipment sales of $80.1 million, (ii) increased parts and component sales of $18.1 million, (iii) increased service and equipment installation sales of $4.5 million and (iv) increased freight revenue of $2.6 million.

The increase was primarily driven by favorable pricing partially offset by net unfavorable volume and mix that generated increased service and equipment installation revenue and parts and component sales of $23.0 million and $15.9 million, respectively.

These increases were partially offset by lower new and used equipment sales of $4.4 million and $3.4 million, respectively.

Domestic sales for the Infrastructure Solutions segment increased by $40.0 million, or 5.7%, for 2023 compared to 2022 primarily due to increases in (i) service and equipment installation revenue of $21.9 million, (ii) parts and component sales of $17.4 million and (iii) equipment sales of $3.6 million.

These increases were partially offset by lower used equipment sales of $3.1 million.

International sales for the Infrastructure Solutions segment increased $0.6 million, or 0.4%, for 2022 compared to 2021 primarily due to increased parts and component sales of $2.2 million partially offset by lower equipment sales of $1.7 million.

International sales for the Infrastructure Solutions segment decreased $8.6 million, or 6.0%, for 2023 compared to 2022 primarily due to decreased equipment sales of $8.0 million.

Materials Solutions

Sales in this segment were $450.0 million for 2023 compared to $422.7 million for 2022, an increase of $27.3 million, or 6.5%.

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 $59.1 million and $14.1 million, respectively.

The increase was primarily driven by favorable pricing partially offset by net unfavorable volume and mix that generated increased equipment sales and service and equipment installation revenue of $30.2 million and $4.7 million, respectively.

These increases were partially offset by decreased other revenue of $3.9 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 $66.5 million or 27.7% for 2022 compared to 2021 driven by:

(i) increased new equipment of $62.1 million (ii) increased parts and component sales of $7.4 million and (iii) increased freight revenue of $2.1 million.

These increases were partially offset by decreased other revenue of $4.5 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 increased $4.1 million or 3.7% for 2022 compared to 2021 primarily due to increased parts and component sales of $6.7 million partially offset by lower new equipment sales of $3.0 million.

Domestic sales for the Materials Solutions segment increased $27.8 million, or 9.1%, for 2023 compared to 2022 primarily due to increased equipment sales of $32.8 million partially offset by decreased other revenue of $3.7 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 $0.5 million, or 0.4%, for 2023 compared to 2022 primarily due to decreased new and used equipment sales of $2.6 million and $2.2 million, respectively, partially offset by higher service and equipment installation revenue of $4.6 million.

Corporate and Other

Sales in this segment represent our controls and automation business acquired in April 2022.

Corporate and Other sales are generated from our controls and automation business.

Sales were $ 9.4 million for the year ended December 31, 2023 compared to $ 4.4 million for the same period in 2022, an increase of $5.0 million, or 113.6%.

The increase was primarily related to net incremental sales from MINDS during the first quarter of 2023.

The MINDS acquisition was completed on April 1, 2022 and results of operations have been consolidated from that date.

Segment Operating Adjusted EBITDA

3 unchanged sentences

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.

See Note 19, Operations by Industry Segment and Geographic Area, of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for a reconciliation of Segment Operating Adjusted EBITDA to total consolidated net income attributable to controlling interest.

Table of Conten t s

See Note 19, Operations by Industry Segment and Geographic

Area, of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for a reconciliation of Segment Operating Adjusted EBITDA to total consolidated net income attributable to controlling interest.

Years Ended December 31,

4 unchanged sentences

Infrastructure Solutions

Segment Operating Adjusted EBITDA for the Infrastructure Solutions segment was $73.0 million for 2022 compared to $73.9 million for 2021, a decrease of $0.9 million or 1.2%.

The decrease in Segment Operating Adjusted EBITDA resulted primarily from:

(i) the impact of higher inflation on materials, labor and overhead costs of $66.7 million, (ii) increased general and administrative costs of $8.3 million, (iii) manufacturing inefficiencies of $5.3 million largely due to logistics and manufacturing throughput disruptions and (iv) increased research and development costs of $4.2 million.

Incorporated in these increased costs is a $4.6 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 $80.5 million higher gross profit and reduced expenses related to closed site locations of $2.0 million.

Segment Operating Adjusted EBITDA for the Infrastructure Solutions segment was $105.8 million for 2023 compared to $73.0 million for 2022, an increase of $32.8 million, or 44.9%.

The increase in Segment Operating Adjusted EBITDA resulted primarily from the impact of favorable pricing partially offset by net unfavorable volume and mix that generated $73.8 million higher gross profit and manufacturing efficiencies of $2.8 million.

Manufacturing efficiencies were primarily due to the impact of cost savings initiatives and favorable inventory adjustments 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, which were partially offset by operating inefficiencies.

These increases to Segment Operating Adjusted EBITDA were partially offset by the impact of higher inflation on materials, labor and overhead costs of $25.5 million and increased selling, general and administrative costs of $18.5 million, primarily due to $15.1 million higher personnel related costs largely driven by general employee cost increases and higher annual incentive compensation costs.

Materials Solutions

Segment Operating Adjusted EBITDA for the Materials Solutions segment was $50.8 million for 2023 compared to $44.5 million for 2022, an increase of $6.3 million, or 14.2%.

The increase in Segment Operating Adjusted EBITDA resulted primarily from the impact of favorable volume, pricing and mix that generated $51.3 million higher gross profit partially offset by the impact of higher inflation on materials, labor and overhead costs of $37.2 million and manufacturing inefficiencies $7.9 million due to supply chain and logistics disruptions.

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 Materials Solutions segment in the current year.

The increase in Segment Operating Adjusted EBITDA resulted primarily from the impact of favorable pricing that generated $31.7 million higher gross profit.

While manufacturing efficiencies were generated in 2023 primarily due to the benefit of cost savings initiatives, such efficiencies were offset by increased warranty program costs and operating inefficiencies resulting in relatively consistent manufacturing efficiencies year-over-year.

These Segment Operating Adjusted EBITDA increases were partially offset by the impact of higher inflation on materials, labor and overhead costs of $15.3 million and increased selling, general and administrative costs of $10.9 million, primarily due to a $7.9 million loss contingency recorded related to the 37 BP litigation and $3.0 million of higher personnel related costs.

Corporate and Other

Corporate and Other operations had net expenses of $44.9 million for 2023 compared to $46.5 million for 2022, a decrease of $1.6 million or 3.4%.

The decrease in expenses was primarily driven by:

(i) lower net annual incentive compensation of $2.0 million due to $6.4 million that was recorded within Infrastructure Solutions and Materials Solutions in the current year as compared to within Corporate in the prior year period, (ii) reduced consulting fees of $1.7 million and (iii) reduced deferred compensation program cost driven by our stock price changes of $1.5 million.

These decreases were partially offset by increases in internal headcount and share-based compensation expenses of $2.8 million.

The decrease in expenses was primarily driven by $2.2 million of lower general and administrative expenses, primarily associated with personnel 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 partially offset by increased technology support costs.

Additionally, an incremental $1.5 million of profit was contributed by MINDS during the first quarter of 2023.

The MINDS acquisition was completed on April 1, 2022 and results of operations have been consolidated from that date.

Liquidity and Capital Resources

1 unchanged sentence

As of December 31, 2023, our total liquidity was $234.5 million, consisting of $59.8 million of cash and cash equivalents available for operating purposes and $174.7 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 $27.0 million of cash and cash equivalents available for operating purposes 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 foreign subsidiaries held $25.1 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, the SFG transformation, strategic acquisitions and share repurchases under our share repurchase authorization.

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, our strategic transformation initiatives and 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.

Table of Conten t s

We had $78.0 million in outstanding borrowings under the Credit Facilities at December 31, 2022 and no outstanding borrowings on the Previous Credit Facility at December 31, 2021.

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 $72.0 million and $78.0 million in outstanding borrowings under the Credit Facilities at December 31, 2023 and 2022, respectively.

Our outstanding letters of credit totaling $3.3 million decreased borrowing availability to $174.7 million under the revolving credit facility as of December 31, 2023.

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

We anticipate continuing to utilize the Credit Facilities with more frequency in the near-term to support our 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 Facilities at December 31, 2022.

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.

We were in compliance with all covenants of the Credit Facilities at December 31, 2023.

Due to the increased borrowings under our Credit Facilities and higher interest rates, we expect our interest expense in the near-term to remain at elevated levels.

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.

Certain of our international subsidiaries in Australia, Brazil, Canada, South Africa 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.

8 unchanged sentences

(in millions) 2023 2022

Net cash (used in) provided by operating activities $ (73.9) $ 7.4

Net cash provided by (used in) operating activities $ 27.8 $ (73.9)

Net cash used in investing activities (12.9) (53.2)

Net cash provided by (used in) financing activities 60.1 (12.1)

Net cash (used in) provided by financing activities (18.3) 60.1

Effect of exchange rates on cash 0.6 (1.4)

Decrease in cash and cash equivalents and restricted cash (68.4) (24.2)

Decrease in cash, cash equivalents and restricted cash (2.8) (68.4)

Cash, cash equivalents and restricted cash, end of period $ 63.2 $ 66.0

Net cash (used in) provided by operating activities

Our operating activities were a $73.9 million net use of cash during 2022 as compared to providing net cash of $7.4 million during 2021.

This decrease is primarily due to:

(i) higher net cash usages in our operating assets and liabilities of $49.1 million mainly driven by the increase of inventories on hand of $44.9 million due to higher backlog and supply chain disruptions and (ii) lower net income adjusted for non-cash items of $33.7 million.

Net cash provided by (used in) operating activities

Our operating activities provided net cash of $27.8 million during 2023 as compared to a net use of $73.9 million in cash during 2022.

This increase is primarily due to reduced net cash usages from our operating assets and liabilities of $60.7 million and higher net income reduced by non-cash charges of $41.8 million.

The reduced net cash usages for our operating assets and liabilities were mainly driven by the timing of collections on trade accounts receivables $48.5 million and decreased inventory purchases in 2023 of $33.4 million partially offset by the timing of payments on trade accounts payables of $17.8 million and decreased customer deposits of $8.9 million associated with lower backlog.

Net cash used in investing activities

Net cash used in investing activities increased by $34.8 million during 2022 as compared to 2021 primarily due to increased purchases of property and equipment of $20.6 million in part due to our manufacturing facility transformation initiative and the acquisition of MINDS in the second quarter of 2022 at a purchase price of $17.8 million, net of cash acquired.

These cash outflows were partially offset by increased cash inflows of $3.8 million from disposals of property and equipment.

Net cash provided by (used in) financing activities

Our financing activities provided net cash of $60.1 million during 2022 as opposed to a net use of $12.1 million in cash during 2021 primarily due to increased net proceeds from borrowings of $83.5 million partially offset by repurchases of stock under our share repurchase program of $10.1 million in 2022.

Table of Conten t s

Net cash used in investing activities decreased by $40.3 million during 2023 as compared to 2022 primarily due to the cash inflows from the sale of the Tacoma facility's land, building and certain equipment assets for $19.9 million in the first quarter of 2023 and the net cash used to acquire MINDS in the second quarter of 2022 for $17.8 million.

Net cash (used in) provided by financing activities

Our financing activities used net cash of $18.3 million during 2023 as opposed to providing net cash of $60.1 million during 2022 primarily due to increased net repayments on borrowings of $89.7 million partially offset by repurchases of stock under our share repurchase program of $10.1 million in 2022 that did not recur.

Financial Condition

Our current assets increased to $696.4 million at December 31, 2022 from $636.0 million at December 31, 2021, an increase of $60.4 million or 9.5%.

The increase is due primarily to increased inventories of $94.7 million driven by supply chain disruptions resulting in maintaining elevated inventory levels, increased trade and other net receivables and contract assets of $28.4 million, the recording of $15.4 million of assets at our closed Tacoma site as held for sale and increased prepaid expenses and other assets of $4.7 million.

These increases were partially offset by decreased cash, cash equivalents and restricted cash of $68.4 million, the net sale of short-term trading securities of $4.7 million and decreased prepaid and refundable income taxes of $4.6 million.

Our current assets increased to $719.5 million at December 31, 2023 from $696.4 million at December 31, 2022, an increase of $23.1 million, or 3.3%, due primarily to increased inventories of $62.2 million.

This increase was partially offset by decreased trade and other net receivables and contract assets of $20.9 million, the sale of our Tacoma site previously recorded as "Assets held for sale" for $15.4 million and decreased cash, cash equivalents and restricted cash of $2.8 million.

Accounts receivable days outstanding decreased from 44.5 in 2022 to 40.7 in 2023.

Our current liabilities increased to $274.0 million at December 31, 2022 from $223.3 million at December 31, 2021, an increase of $50.7 million or 22.7%.

The increase is primarily due to increased accounts payable of $25.0 million, increased customer deposits of $9.3 million, additional net borrowings of $6.8 million on short-term debt facilities in order to meet working capital needs at certain of our international sites, increased accrued employee related liabilities of $4.7 million and increased other current liabilities of $3.4 million.

Critical Accounting Policies and Estimates

Our current liabilities increased to $299.0 million at December 31, 2023 from $274.0 million at December 31, 2022, an increase of $25.0 million, or 9.1%, primarily due to increases of $9.7 million in accounts payable, $8.8 million in accrued employee related liabilities and $4.6 million in accrued product warranty.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with U.S.

generally accepted accounting principles.

Application of these principles requires us to make estimates and judgments that affect the amounts as reported in the consolidated financial statements.

Accounting policies that are critical to aid in understanding and evaluating the results of operations and financial position include the following:

Accounting policies involving estimates that are critical to our financial statements are described below.

These and other accounting policies are more fully described in Note 2, Basis of Presentation and Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

Inventory Valuation:

1 unchanged sentence

The most significant component of our inventories is steel.

Open market prices and tariffs are subject to volatility and determine our cost of steel.

Open market prices are subject to volatility and determine our cost of steel.

During periods when open market prices decline, we may need to reduce the carrying value of the inventory.

1 unchanged sentence

These reductions are determined by management based on estimates, assumptions and judgments made from the information available at that time.

See Note 2, Basis of Presentation and Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K, for a description of our process used to value inventories at the lower of first-in first-out cost or net realizable value.

We do not believe it is reasonably likely that the inventory values will materially change in the near future.

Revenue Recognition:

Revenue is generally recognized when we satisfy a performance obligation by transferring control of goods or providing services.

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services.

We generally obtain purchase authorizations from our customers for a specified amount of product at a specified price with specified delivery terms.

A significant portion of our equipment sales represents equipment produced in our plants under short-term contracts for a specific customer project or equipment designed to meet a customer's specific requirements.

Most of the equipment sold by us is based on standard configurations, some of which are modified to meet customer needs or specifications.

We provide customers with technical design and performance specifications and perform pre-shipment testing to ensure the equipment performs according to design specifications, regardless of whether we provide installation services in addition to selling the equipment.

Significant down payments are required on many equipment orders with other terms allowing for payment shortly after shipment, typically 30 days.

Taxes assessed by a governmental authority that are directly imposed on revenue-producing transactions between us and our customers, such as sales, use, value-added and some excise taxes, are excluded from revenue.

Costs of obtaining sales contracts with an expected duration of one year or less are expensed as incurred.

As contracts are typically paid within one year from the date of the contract fulfillment, revenue adjustments for a potential financing component or the costs to obtain the contract are not made.

Depending on the terms of the arrangement with the customer, recognition of a portion of the consideration received may be deferred and recorded as a contract liability if we have to satisfy a future obligation, such as to provide installation assistance, service work to be performed in the future without charge, floor plan interest to be reimbursed to our dealer customers, payments for extended warranties, for annual rebates given to certain high volume customers or for obligations for future estimated returns to be allowed based upon historical trends.

Other contract assets and liabilities are typically not material as a percentage of total assets or total liabilities, respectively.

Certain contracts include terms and conditions through which we recognize revenues upon completion of equipment production, which is subsequently stored at one of our plants at the customer's request.

Revenue is recorded on such contracts upon the customer's assumption of title and transfer of control and when collectibility is probable.

In addition, there must be a fixed schedule of delivery of the goods consistent with the customer's business practices, we must not have retained any specific performance obligations such that the earnings process is not complete, and the goods must have been segregated from our inventory prior to revenue recognition.

We have certain sales containing multiple performance obligations, whereby revenue attributable to the sale of a product is recognized when the product is shipped, and the revenue attributable to services provided with respect to the product (such as installation services) is recognized when the service is performed.

Consideration is allocated to deliverables using observable

Table of Conten t s

market prices from stand-alone performance obligations or a cost plus margin approach when one is not available.

Otherwise, we use third-party evidence of selling price or our best estimate of the selling price for the deliverables.

We evaluate sales with multiple performance obligations to determine whether revenue related to individual elements should be recognized separately or as a combined unit.

In addition to the previously mentioned general revenue recognition criteria, we only recognize revenue on individual delivered elements when there is objective and reliable evidence that the delivered element has a determinable value to the customer on a standalone basis and there is no right of return.

We have certain sales orders on which we record revenue over time based upon the ratio of costs incurred to estimated total costs.

Goodwill and Other Intangible Assets:

Product Warranty Reserves:

We accrue for the estimated cost of product warranties at the time revenue is recognized.

Warranty obligations by product line or model are evaluated based on historical warranty claims experience.

Estimated warranty obligations are based upon warranty terms, product failure rates, repair costs and current period machine shipments.

If actual product failure rates, repair costs, service delivery costs or post-sales support costs differ from our estimates, revisions to the estimated warranty liability may be required.

Self-Insurance Reserves:

We retain the risk for a portion of our workers' compensation claims and general liability claims by way of a captive insurance company, Astec Insurance.

Undiscounted reserves for claims and potential claims related to general liability and workers' compensation are actuarially determined to cover the ultimate cost of each claim based on our evaluation of the type and severity of individual claims and historical information, primarily our own claims experience, along with assumptions about future events.

Changes in assumptions, as well as changes in actual experience, could cause these estimates to change in the future.

However, we do not believe it is reasonably likely that the reserve level will materially change in the foreseeable future.

We are also self-insured for health and prescription claims under our Group Health Insurance Plan for all of our domestic employees.

We maintain a reserve for the self-insured health plan that includes both unpaid claims and an estimate of claims incurred but not reported, based on historical claims and payment experience.

Historically, the reserves have been sufficient to provide for claims payments.

Changes in actual claims experience or payment patterns could cause the reserve to change, but we do not believe it is reasonably likely that the reserve level will materially change in the near future.

Capitalization of Internal Use Software:

We capitalize certain software development costs during the application development stage, including those associated with our multi-year phased ERP implementation.

These costs include personnel expenses for employees and costs for third-party consulting services which are directly associated with the implementation.

Capitalization for each phase ends once the implementation for that phase is substantially complete, at which point the capitalized costs are amortized ratably over the remaining contract term plus any reasonably certain renewal periods.

There is judgment involved in estimating the stage of development and the internal costs allocated to the implementation.

A change in these estimates could materially impact the amount capitalized, the associated amortization expense in subsequent periods and the amount of expenses recognized in current periods that do not qualify for capitalization.

Goodwill and Other Intangible Assets Impairment:

Goodwill is tested for impairment annually on October 1, or more frequently, if events or circumstances indicate that the carrying amount of the asset may not be recoverable.

Goodwill is allocated to, and evaluated for impairment at, four identified reporting units.

A reporting unit is an operating segment or, under certain circumstances, a component of an operating segment that constitutes a business, has available discrete financial information, and whose operating results are regularly reviewed by management.

We combine and aggregate components of an operating segment as a single reporting unit if the components have similar economic characteristics.

Goodwill is tested for impairment by either performing a qualitative evaluation or a quantitative test.

6 unchanged sentences

Additionally, the discount rate and the terminal growth rate are based on our judgment of the rates that would be utilized by a hypothetical market participant.

We performed a quantitative analysis during 2022 on our four reporting units whereby the fair values of each reporting unit exceeded its carrying value and therefore no indicators of impairment existed.

However, the fair values of the Materials Solutions and Astec Digital reporting units exceeded their carrying values by 3.2% and 5.0%, respectively.

Since the Materials Solutions and Astec Digital reporting units' fair values did not substantially exceed the carrying values, we may be at risk for an impairment loss in the future if forecasted trends assumed in the fair value calculation are not realized.

As of December 31, 2022, there was $ 19.4 million and $ 8.7 million of goodwill recorded related to the Materials Solutions and Astec Digital reporting units, respectively.

We performed a qualitative analysis during 2023 on our four reporting units whereby the fair values of each reporting unit exceeded its carrying value and therefore no indicators of impairment existed.

As of December 31, 2023 and 2022 the net carrying amount of goodwill was $ 46.3 million and $ 45.2 million, respectively.

No goodwill impairment charges were recognized in 2023, 2022 or 2021.

Goodwill impairment charges of $ 1.6 million were recognized in 2020.

See Note 2, Basis of Presentation and Significant Accounting Policies, and Note 7, Goodwill, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, for a detail of the testing management performed for goodwill impairment, goodwill reported by segment and impairment charges recorded.

Intangible assets with definite lives are tested for impairment if conditions exist that indicate the carrying value may not be recoverable.

2 unchanged sentences

Risk Factors section of this Annual Report on Form 10-K.

An impairment charge is recorded when the carrying value of the definite lived intangible asset is not recoverable by the cash flows generated from the use of the asset.

Some of the inputs used in the impairment testing are highly subjective and are affected by changes in business factors and other conditions.

Changes in any of the inputs could have an effect on future tests and result in impairment charges.

The useful lives of identifiable intangible assets are determined after considering the specific facts and circumstances related to each intangible asset.

Factors considered when determining useful lives include the contractual term of any agreement, the history of the asset, our long-term strategy for the use of the asset, any laws or other local regulations which could impact the useful life of the asset, and other economic factors, including competition and specific market conditions.

Intangible assets that are deemed to have definite lives are amortized, generally on a straight-line basis, over their useful lives, ranging from 3 to 19 years.

Income Taxes:

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss

Table of Conten t s

and tax credit carryforwards.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

11 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis