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Item 2. Management’s Discussion and Analysis

2024-05-02 compared with 2023-11-02 · 128 added, 276 removed, 67 unchanged (86% of the section changed)

11 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.

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

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

industrial heat transfer equipment;

commercial whole-tree pulpwood chippers;

horizontal grinders;

blower trucks;

commercial and industrial burners;

and combustion control systems.

Our products are marketed both domestically and internationally primarily to asphalt producers;

highway and heavy equipment contractors;

utility contractors;

sand and gravel producers;

construction, demolition, recycle and crushing contractors;

mine and quarry operators;

port and inland terminal authorities;

power stations;

and domestic and foreign government agencies.

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

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

See Note 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, 2023 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, 2024 as compared to the same period of the prior year include the following:

• Net sales were $309.2 million, a decrease of 11.1%

• Gross profit was $69.6 million, an increase of 6.3%

• Income from operations decreased 373.7% to a loss of $5.2 million

• Net income attributable to Astec decreased $7.3 million to a loss of $6.6 million

• Diluted loss per share was $0.29, a decrease of $0.32

• Backlog of $614.7 million, a decrease of 36.6% as compared to September 30, 2022

Significant Items Impacting Operations in 2023

• Gross profit was $76.9 million, a decrease of 13.8%

• Income from operations decreased $11.3 million to $6.3 million

• Net income attributable to Astec decreased $8.7 million to $3.4 million

• Diluted earnings per share were $0.15, a decrease of 71.7%

• Backlog was $559.8 million, a decrease of 30.0%

Business Conditions and Trends

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 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.

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 largely completed by the end of 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.

Total costs of $7.8 million and $22.8 million were incurred related to these strategic transformation initiatives in the three and nine months ended September 30, 2023, respectively, of which $7.7 million and $22.6 million, respectively, are recorded in "Selling, general and administrative expenses" and $0.2 million included in "Cost of sales" in the Consolidated Statements of Operations.

Costs totaling $7.0 million and $18.7 million were incurred in the three and nine months ended September 30, 2022, respectively, and are recorded in "Selling, general and administrative expenses" in the Consolidated Statements of Operations.

Additionally, as of September 30, 2023, we have capitalized $28.1 million in deferred implementation costs associated with the ERP implementation that are being amortized ratably over the remaining contract term, of which $3.0 million and $25.1 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.

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

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

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.

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 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 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.

Total charges of $5.5 million for employee termination costs, including equity award modifications, were recorded in "Restructuring, impairment and other asset charges, net" in the Consolidated Statements of Operations, of which $5.2 million and $0.3 million were recorded in the first and second quarters of 2023, respectively.

The related recovery of $1.0 million of incurred share-based compensation expense was recorded in "Selling, general and administrative expenses" in the Consolidated Statements of Operations, of which $0.8 million and $0.2 million were recorded during the first and second quarters of 2023, respectively.

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.

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, a loss for this matter has been determined to be probable in a range between $6.4 million and $18.1 million, inclusive of attorneys' fees and prejudgment interest.

A loss contingency of $6.4 million was recorded 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 our best estimate of the loss.

See Note 8, Commitments and Contingencies of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion of this matter.

Industry and Business Condition

Our financial performance is affected by a number of factors, including the cyclical nature and varying conditions of the markets we serve.

Demand in these markets fluctuates in response to overall economic conditions and is particularly sensitive to the amount of public sector spending on infrastructure development, privately funded infrastructure development and changes in the prices of liquid asphalt, oil, natural gas and steel.

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.

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 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 $614.7 million backlog of orders as of September 30, 2023 continues to remain strong.

The backlog of orders decreased $354.3 million, or 36.6%, compared to $969.0 million as of September 30, 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 expect backlog levels to continue to normalize from the historically high levels we have experienced in recent years largely based on supply chain stabilization.

Macroeconomic factors such as higher inflation and increased interest rates, among other factors, may also influence future 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 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.

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) 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.

An increase or decrease in the price of oil impacts the cost of asphalt, which is likely to alter demand for asphalt and therefore affect demand for certain of our products.

While increasing oil prices may have a negative financial impact on many of our customers, our equipment can use a significant amount of reclaimed asphalt pavement, thereby partially mitigating the effect of increased oil prices on the final cost of asphalt for the customer.

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

While oil prices 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.

prices have routinely fluctuated in recent years and are expected to continue to fluctuate in the future.

Based on the current macroeconomic environment, including current international conflicts, we anticipate that oil prices will remain at relatively high levels throughout the remainder of 2023 and into 2024.

In addition to one manufacturing site and Corporate, which transitioned to the new ERP in 2023, we converted the operations of two additional manufacturing sites during April 2024.

We anticipate incurring total costs associated with the ERP implementation in the range of $125 million to $150 million, with an estimated $25 to $30 million incurred per year, which such incurrence of expenses began in 2022 and is expected to continue through 2025.

In addition, we largely completed a lean manufacturing initiative at one of our largest sites during 2023.

Certain capital investments related to this initiative are continuing in early 2024, which once completed, and along with the other elements of the initiative, are expected to drive improvement in gross margin at that site in the second half of 2024.

Total costs of $6.5 million were incurred related to these strategic transformation initiatives in the three months ended March 31, 2024, of which $6.4 million and $0.1 million are recorded in "Selling, general and administrative expenses" and "Cost of sales," respectively, in the Consolidated Statements of Operations.

In the three months ended March 31, 2023, $7.2 million of costs

related to these initiatives were incurred and are recorded in "Selling, general and administrative expenses" in the Consolidated Statements of Operations.

Additionally, as of March 31, 2024, we have capitalized $34.5 million in deferred implementation costs associated with the ERP implementation that are being amortized ratably over the remaining contract term, of which $3.9 million and $30.6 million were included in "Prepaid expenses and other assets" and "Other long-term assets" in the Consolidated Balance Sheets, respectively.

Amortization of these capitalized implementation costs totaled $0.7 million and $0.1 million during the three months ended March 31, 2024 and 2023, respectively, which is included in "Selling, general and administrative expenses" in the Consolidated Statements of Operations.

Segment Changes – Our two reportable segments are comprised of sites based upon the nature of the products or services produced, the type of customer for the products, the similarity of economic characteristics, the manner in which management reviews results and the nature of the production process, among other considerations.

Based on a review of these factors, our Australia and LatAm sites and Astec Digital have changed reportable segments beginning January 1, 2024.

The Australia and LatAm sites were previously reported in the Infrastructure Solutions segment and have moved to the Materials Solutions segment.

Astec Digital was previously included in the Corporate and Other category has moved to the Infrastructure Solutions segment.

Prior periods have been revised to reflect the changes for the segment composition for comparability.

Economic Conditions – We monitor macroeconomic and other factors that may affect our business such as steel and oil prices, interest rates and geopolitical conflicts, among others.

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.

Steel prices have softened slightly in 2023 and are expected to be maintained at these regulated levels through the remainder of 2023 and into 2024.

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.

Lead times increased during the first quarter of 2023 driven by stronger demand, however, have moderated to a consistent rate as the prior year.

We anticipate that steel demand will remain relatively strong through the balance of 2023 and into 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.

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.

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.

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, 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.

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

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

Backlog fulfillment times from the initial order to completing the contracted sale vary and can extend past twelve months.

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

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

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

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

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

Liquid asphalt is a by-product of oil refining, and changes in the price of oil impact the cost of asphalt, which is in turn likely to alter demand for asphalt and therefore affect demand for certain of our products.

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

Elevated interest rates influence our customers' spending patterns, most notably impacting our dealer customers in the Materials Solutions segment.

Interest rates have, in part, driven the decrease in our order backlog.

Additionally, our revolving credit loans bear interest on a variable basis and are subject to market volatility.

We anticipate continuing to utilize the revolving credit loans with greater frequency in the near term to support our working capital needs.

As such, we expect our interest expense in the near term to remain at elevated levels.

In addition, other factors, including but not limited to industry and competitive environment conditions, overall financial performance, business specific events and market conditions, circumstances or events may affect the fair value of our goodwill reporting units.

If these or other factors result in changes that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value, we will test goodwill for impairment.

New or ongoing geopolitical conflicts may cause a downturn in the commercial and residential construction industries in which we operate, cause an increase in oil prices, damage a significant portion of our inventory or materially impair our ability to distribute our products to customers.

We monitor, adjust and potentially cease our operations in affected jurisdictions to ensure compliance with any governmental actions made in response to such conflicts.

Results of Operations

Net sales for the third quarter of 2023 were $303.1 million compared to $315.2 million for the third quarter of 2022, a decrease of $12.1 million, or 3.8%.

The decrease in net sales was primarily driven by net unfavorable changes in the volume, pricing and mix of sales that generated decreases in (i) equipment sales of $9.4 million, (ii) used equipment sales of $4.1 million and (iii) service and equipment installation revenue of $0.8 million.

These decreases were partially offset by an increase in parts and component sales of $2.1 million.

Sales reported by our foreign subsidiaries in U.S.

dollars for the third quarter of 2023 would have been $1.1 million higher had third quarter 2023 foreign exchange rates been the same as third quarter 2022 rates.

Net sales for the first nine months of 2023 were $1,001.0 million compared to $924.6 million for the first nine months of 2022, an increase of $76.4 million, or 8.3%.

The increase in net sales was primarily driven by net favorable changes in the volume, pricing and mix of sales that generated increases in (i) equipment sales of $46.6 million, (ii) service and equipment installation revenue of $22.9 million and (iii) parts and component sales of $12.6 million.

These increases were partially offset by a decrease in other revenue of $3.1 million, which was primarily driven by increased utilization of our interest subsidy programs offered to certain of our dealer customers and used equipment of $2.9 million.

Net sales for the first quarter of 2024 were $309.2 million compared to $347.9 million for the first quarter of 2023, a decrease of $38.7 million, or 11.1%.

The decrease in net sales was primarily driven by net unfavorable volume and mix partially offset by favorable pricing that generated decreases in (i) equipment sales of $40.0 million, (ii) service and equipment installation revenue of $7.7 million, (iii) freight revenue of $1.8 million and (iv) used equipment sales of $1.7 million.

These decreases were partially offset by increases in parts and component sales and other revenue of $10.7 million and $1.8 million, respectively.

Sales reported by our foreign subsidiaries in U.S.

dollars for the first nine months of 2023 would have been $7.9 million higher had the first nine months of 2023 foreign exchange rates been the same as the first nine months of 2022 rates.

Domestic sales for the third quarter of 2023 were $229.6 million, or 75.8% of consolidated net sales, compared to $249.4 million, or 79.1% of consolidated net sales, for the third quarter of 2022, a decrease of $19.8 million, or 7.9%.

Domestic sales decreased primarily due to (i) $17.7 million lower equipment sales, (ii) $3.2 million lower used equipment sales and (iii) $1.7 million lower service and equipment installation revenue.

These decreases were partially offset by an increase in parts and components sales of $2.7 million.

Domestic sales for the first nine months of 2023 were $797.3 million, or 79.7% of consolidated net sales, compared to $732.3 million, or 79.2% of consolidated net sales, for the first nine months of 2022, an increase of $65.0 million, or 8.9%.

Domestic sales increased primarily due to (i) $36.5 million higher equipment sales, (ii) $20.3 million higher service and equipment

installation revenue and (iii) $14.0 million higher parts and component sales.

These increases were partially offset by a decrease in other revenue of $3.0 million, which was primarily driven by higher utilization of our interest subsidy programs offered to certain of our dealer customers, and lower used equipment sales of $2.6 million.

International sales for the third quarter of 2023 were $73.5 million, or 24.2% of consolidated net sales, compared to $65.8 million, or 20.9% of consolidated net sales, for the third quarter of 2022, an increase of $7.7 million, or 11.7%.

International sales increased primarily due to higher equipment sales of $8.3 million and service and equipment installation revenue of $0.9 million partially offset by lower used equipment sales of $0.9 million.

International sales for the first nine months of 2023 were $203.7 million, or 20.3% of consolidated net sales, compared to $192.3 million, or 20.8% of consolidated net sales, for the first nine months of 2022, an increase of $11.4 million, or 5.9%.

International sales increased primarily due to higher (i) equipment sales of $10.1 million and (ii) service and equipment installation sales of $2.6 million.

Gross profit for the third quarter of 2023 was $69.6 million, or 23.0% of net sales, as compared to $65.5 million, or 20.8% of net sales, for the third quarter of 2022, an increase of $4.1 million, or 6.3%.

The increase was primarily driven by favorable pricing partially offset by net unfavorable volume and mix that generated $17.2 million higher gross profit.

These increases were also partially offset by the impact of inflation on materials, labor and overhead of $10.5 million and manufacturing inefficiencies of $2.6 million due in part to increased warranty program costs.

Gross profit for the first nine months of 2023 was $241.7 million, or 24.1% of net sales, as compared to $193.1 million, or 20.9% of net sales, for the first nine months of 2022, an increase of $48.6 million, or 25.2%.

The increase was primarily driven by the net favorable volume, pricing and mix of $90.1 million 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 $35.0 million and manufacturing inefficiencies of $8.8 million due in part to the effects of lower tenured production staff associated with the turnover experienced in the prior year and increased warranty program costs partially offset by 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.

dollars for the first quarter of 2024 would have been $0.7 million higher had foreign exchange rates been the same as 2023 rates.

Domestic sales for the first quarter of 2024 were $243.2 million, or 78.7% of consolidated net sales, compared to $281.3 million, or 80.9% of consolidated net sales, for the first quarter of 2023, a decrease of $38.1 million, or 13.5%.

Domestic sales decreased primarily due to decreases in (i) equipment sales of $38.9 million, (ii) service and equipment installation revenue of $8.4 million, (iii) freight revenue of $1.4 million and (iv) used equipment sales $0.9 million.

These decreases were partially offset by increased parts and component sales and other revenue of $9.6 million and $1.9 million, respectively.

International sales for the first quarter of 2024 were $66.0 million, or 21.3% of consolidated net sales, compared to $66.6 million, or 19.1% of consolidated net sales, for the first quarter of 2023, a decrease of $0.6 million, or 0.9%.

International sales decreased primarily due to decreases in new and used equipment sales of $1.1 million and $0.8 million, respectively.

These decreases were partially offset by increases in parts and component sale and service and equipment installation revenue of $1.1 million and $0.7 million, respectively.

Gross profit for the first quarter of 2024 was $76.9 million, or 24.9% of net sales, as compared to $89.2 million, or 25.6% of net sales, for the first quarter of 2023, a decrease of $12.3 million or 13.8%.

The impact of net unfavorable volume and mix was offset by favorable pricing with the decrease in gross profit primarily driven by (i) manufacturing inefficiencies of $5.2 million, (ii) $4.1 million of higher unfavorable 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 that did not recur, (iii) higher inflation on materials, labor and overhead of $1.8 million and (iv) $1.0 million of increased net scrap expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $10.8 million, or 17.0%, to $74.3 million, or 24.5% of net sales, for the third quarter of 2023, compared to $63.5 million, or 20.1% of net sales, for the third quarter of 2022 primarily due to (i) a $6.4 million loss contingency recorded related to the 37 BP litigation, (ii) increased net payroll and employee benefit costs of $4.1 million, which was largely driven by general employee cost increases and higher annual incentive compensation costs of $1.7 million, partially offset by reduced health insurance costs of $1.8 million, (iii) $1.3 million increased consulting and project costs and (iv) $0.7 million increased costs related to our strategic transformation program.

These increases were partially offset by lower amortization and research and development expenses of $0.9 million, respectively.

Selling, general and administrative expenses increased $22.3 million, or 12.1%, to $206.7 million, or 20.6% of net sales, for the first nine months of 2023, compared to $184.4 million, or 19.9% of net sales, for the first nine months of 2022 primarily due to (i) increased net payroll and employee benefit costs of $8.4 million, which was largely driven by general employee cost increases and higher annual incentive compensation costs of $2.9 million, partially offset by lower share-based compensation expense of $3.4 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 CEO and the limited overhead restructuring action implemented in February 2023 and reduced health insurance costs of $2.1 million, (ii) a $6.4 million loss contingency recorded related to the 37 BP litigation, (iii) $3.9 million of increased costs related to our strategic transformation program, (iv) $2.9 million of higher exhibit and promotional costs primarily due to the ConExpo industry trade show held once every three years, (v) $2.8 million increased consulting, prototype and project costs and (vi) incremental expenses associated with the acquisition of MINDS of $1.1 million.

These increases were partially offset by lower amortization expense of $2.9 million and reduced acquisition and integration related costs of $1.9 million primarily associated with the acquisition of MINDS.

Restructuring, Impairment and Other Asset Charges, net

Restructuring, asset impairment charges and the net losses and gains on sale of property and equipment for the three and nine month periods ended September 30, 2023 and 2022 are presented below:

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

Selling, general and administrative expenses increased $3.5 million, or 5.2%, to $71.4 million, or 23.1% of net sales, for the first quarter of 2024, compared to $67.9 million, or 19.5% of net sales, for the first quarter of 2023.

The increases in selling general and administrative expenses are primarily due to increased personnel-related costs of $4.1 million, which was largely driven by the recovery of share-based compensation expense in the prior year that did not recur 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 of $2.4 million, and $3.0 million higher consulting and technology support costs.

These increases were partially offset by lower exhibit and promotional costs of $2.1 million, primarily due to the triennial ConExpo industry trade show held in 2023 and reduced costs related to our strategic transformation program of $0.8 million.

Restructuring and Other Asset Gains and Charges, net

Restructuring and the net gain on sale of property and equipment for the three-month periods ended March 31, 2024 and 2023 are presented below:

Three Months Ended March 31,

(in millions) 2024 2023

2 unchanged sentences

Costs associated with exited operations - Enid 0.1 0.1

Costs associated with closing Tacoma — — — 0.8

Total restructuring related charges 0.1 7.1

Asset impairment charges:

Other impairment charges — 0.4 0.8 3.4

Total asset impairment charges — 0.4 0.8 3.4

Loss (gain) on sale of property and equipment, net

Loss (gain) on sale of property and equipment, net 0.4 (0.4) (3.1) (0.4)

Total loss (gain) on sale of property and equipment, net 0.4 (0.4) (3.1) (0.4)

Restructuring, impairment and other asset charges, net $ 0.5 $ 0.1 $ 5.3 $ 4.5

See Note 11, Strategic Transformation and Restructuring, Impairment and Other Asset Charges, net 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.

Gain on sale of property and equipment, net:

Gain on sale of property and equipment, net (0.9) (3.4)

Total gain on sale of property and equipment, net (0.9) (3.4)

Restructuring and other asset (gains) charges, net $ (0.8) $ 3.7

See Note 10, Strategic Transformation, Restructuring and Other Asset Gains and 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 of $2.4 million and $6.4 million was incurred in the three and nine months ended September 30, 2023, respectively, as compared to $0.6 million and $1.6 million in the three and nine months ended September 30, 2022, respectively, primarily related to higher outstanding borrowings on our revolving credit facility.

Other (Expenses) Income, net

Other (expenses) income, net was $0.5 million for the first nine months of 2023 compared to an expense of $1.8 million for the first nine months of 2022, an increase of $2.3 million primarily due to the change in net foreign currency transaction gains and losses.

Our income tax benefit for the third quarter of 2023 was $0.6 million compared to an income tax expense of $0.7 million for the third quarter of 2022.

Our effective income tax rate was 8.5% for the third quarter of 2023 compared to 58.3% for the third quarter of 2022.

The income tax benefit for the three months ended September 30, 2023 as compared to expense in the same period in 2022 was primarily due to lower pretax book income and changes in the relative weighting of jurisdictional income and loss.

Our income tax expense for the first nine months of 2023 was $6.5 million, reflecting a 25.7% effective tax rate, compared to $0.8 million expense, reflecting a 53.3% effective tax rate, for the first nine months of 2022.

The income tax expense for the nine months ended September 30, 2023 was higher compared to the same period in 2022 primarily due to higher pretax book income and changes in the relative weighting of jurisdictional income and loss, partially offset by a net discrete tax benefit related to a research and development credit.

The backlog of orders as of September 30, 2023 was $614.7 million compared to $969.0 million as of September 30, 2022, a decrease of $354.3 million, or 36.6%.

Domestic backlog decreased $302.1 million, or 37.2%, and international backlog

decreased $52.2 million, or 33.4%, respectively.

Interest expense of $2.7 million was incurred in the three months ended March 31, 2024, as compared to $2.0 million in the three months ended March 31, 2023, primarily related to higher average outstanding borrowings on the Credit Facility in the first quarter of 2024 as compared to the same period in 2023 combined with higher interest rates.

Our income tax expense for the first quarter of 2024 was $1.4 million compared to $4.4 million for the first quarter of 2023.

Our effective income tax rate was 29.8% for the first quarter of 2024 compared to 26.7% for the first quarter of 2023.

The income tax

expense for three months ended March 31, 2024 was lower compared to the same period in 2023, primarily due to lower pretax book income and changes in the relative weighting of jurisdictional income and loss.

The backlog of orders as of March 31, 2024 was $559.8 million compared to $800.2 million as of March 31, 2023, a decrease of $240.4 million, or 30.0%.

Domestic backlog decreased $247.9 million, or 36.2%, partially offset by an increase in international backlog of $7.5 million, or 6.6%.

The backlog decreased $99.8 million to $372.7 million in the Infrastructure Solutions segment and decreased $140.6 million to $187.1 million in the Materials Solutions segment.

The Corporate and Other backlog represents our controls and automation business and increased $0.1 million to $2.6 million.

We expect backlog levels to continue to normalize from the historically high levels we have experienced in recent years largely based on supply chain stabilization.

Macroeconomic factors such as higher inflation and increased interest rates, among other factors, may also influence future customer spending.

Furthermore, as a result of such macroeconomic factors, we are actively monitoring orders from our high-volume dealers for potential modifications, push-outs or cancellations.

Segment Net Sales - Three Months Ended :

Three Months Ended September 30, $ Change % Change

(in millions, except percentage data) 2023 2022

Strong customer demand and logistics and manufacturing throughput disruptions in 2021 and 2022 resulted in a build of backlog, which peaked in late 2022.

The order backlog began to decrease throughout 2023 driven by sales delivery outpacing new orders and is approaching a historical range.

Macroeconomic factors such as higher inflation and increased interest rates, among other factors, have influenced customer ordering patterns and are expected to continue.

We have experienced variability in the ordering patterns from our dealer customers, most notably in the Materials Solutions segment, as a result of these factors.

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

In order to support sales delivery and maintain optimal backlog levels, we have completed prudent expansions of our production capacity at certain manufacturing sites 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

Three Months Ended March 31,

(in millions) 2024 2023 $ Change % Change

Infrastructure Solutions $ 202.2 $ 215.5 $ (13.3) (6.2) %

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Infrastructure Solutions

Sales in this segment were $190.8 million for the third quarter of 2023 compared to $201.9 million for the same period in 2022, a decrease of $11.1 million, or 5.5%.

The decrease was primarily driven by net unfavorable changes in the volume, pricing and mix of sales that generated decreased (i) equipment sales of $9.0 million, (ii) used equipment sales of $3.5 million and (iii) service and equipment installation revenue of $1.6 million.

These decreases were offset by higher parts and component sales of $3.1 million.

Domestic sales for the Infrastructure Solutions segment decreased $12.3 million, or 7.4%, for the third quarter of 2023 compared to the same period in 2022 primarily due to decreased (i) equipment sales of $11.5 million, (ii) used equipment sales of $3.2 million and (iii) service and equipment installation sales of $1.6 million.

These decreases were partially offset by an increase in parts and component sales of $4.0 million.

International sales for the Infrastructure Solutions segment increased $1.2 million, or 3.4%, for the third quarter of 2023 compared to the same period in 2022 primarily due to increased equipment sales of $2.5 million partially offset by decreased parts and component sales of $0.9 million.

Materials Solutions

Sales in this segment were $110.5 million for the third quarter of 2023 compared to $111.8 million for the same period in 2022, a decrease of $1.3 million, or 1.2%.

The decrease was primarily driven by net unfavorable changes in the volume, pricing and mix of sales that generated decreased parts and component sales and used equipment sales of $1.0 million and $0.6 million, respectively.

These decreases were partially offset by an increase in service and equipment installation revenue of $0.8 million.

Domestic sales for the Materials Solutions segment decreased by $7.4 million, or 9.0%, for the third quarter of 2023 compared to the same period in 2022, primarily driven by decreased equipment sales and parts and component sales of $5.9 million and $1.3 million, respectively.

International sales for the Materials Solutions segment increased $6.1 million, or 20.7%, for the third quarter of 2023 compared to the same period in 2022 primarily due to increased equipment sales and service and equipment installation sales of $5.4 million and $0.9 million, respectively.

Segment Net Sales - Nine Months Ended :

Nine Months Ended September 30, $ Change % Change

(in millions, except percentage data) 2023 2022

Infrastructure Solutions $ 638.8 $ 609.0 $ 29.8 4.9 %

Sales in this segment were $202.2 million for the first quarter of 2024 compared to $215.5 million for the same period in 2023, a decrease of $13.3 million, or 6.2%.

The decrease was primarily driven by net unfavorable volume and mix, partially offset by favorable pricing that generated decreased (i) equipment sales of $14.8 million, (ii) service and equipment installation revenue of $8.6 million, (iii) freight revenue of $1.4 million and (iv) used equipment sales of $0.9 million.

These decreases were partially offset by higher parts and component sales of $11.8 million.

Domestic sales for the Infrastructure Solutions segment decreased $6.1 million, or 3.2%, for the first quarter of 2024 compared to the same period in 2023, primarily due to decreases in (i) service and equipment installation revenue of $8.3 million, (ii) equipment sales of $7.8 million, (iii) freight revenue of $1.2 million and (iv) used equipment sales of $0.9 million.

These decreases were partially offset by higher parts and component sales of $11.4 million.

International sales for the Infrastructure Solutions segment decreased $7.2 million, or 30.6%, for the first quarter of 2024 compared to the same period in 2023, primarily due to decreased equipment sales of $7.0 million.

Materials Solutions

Corporate and Other 7.6 2.7 4.9 181.5 %

Infrastructure Solutions

Sales in this segment were $638.8 million for the first nine months of 2023 compared to $609.0 million for the same period in 2022, an increase of $29.8 million or 4.9%.

The increase was primarily driven by net favorable changes in the volume, pricing and mix of sales that generated increased service and equipment installation revenue of $20.7 million and parts and component sales of $11.5 million.

Sales in this segment were $107.0 million for the first quarter of 2024 compared to $132.2 million for the same period in 2023, a decrease of $25.2 million, or 19.1%.

The decrease was primarily driven by net unfavorable volume and mix, partially offset by favorable pricing that generated decreased (i) equipment sales of $25.2 million, (ii) parts and component sales of $1.1 million and (iii) used equipment sales of $0.8 million.

These decreases were partially offset by increased other revenue and service and equipment installation revenue of $1.4 million and $0.9 million, respectively.

Domestic sales for the Materials Solutions segment decreased by $31.8 million, or 35.7%, for the first quarter of 2024 compared to the same period in 2023, primarily driven by decreased equipment sales and parts and component sales of $31.1 million and $1.8 million, respectively.

These decreases were partially offset by increased other revenue of $1.4 million.

International sales for the Materials Solutions segment increased $6.6 million, or 15.3%, for the first quarter of 2024 compared to the same period in 2023, primarily due to increases in (i) new equipment sales of $5.9 million, (ii) service and equipment installation revenue of $1.0 million and (iii) parts and component sales of $0.7 million.

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

Domestic sales for the Infrastructure Solutions segment increased $29.8 million or 5.9% for the first nine months of 2023 compared to the same period in 2022 primarily due to increased service and equipment installation sales of $20.2 million and increased parts and component sales of $13.5 million.

These increases were partially offset by a decrease in used equipment sales of $2.6 million.

International sales for the Infrastructure Solutions segment were consistent for the first nine months of 2023 compared to the same period in 2022.

Materials Solutions

Sales in this segment were $354.6 million for the first nine months of 2023 compared to $312.9 million for the same period in 2022, an increase of $41.7 million, or 13.3%.

The increase was primarily driven by net favorable changes in the volume, pricing and mix of sales that generated increased new equipment sales and service and equipment installation revenue of $42.2 million and $2.0 million, respectively.

These increases were partially offset by decreased other revenue of $3.6 million, which was 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 $33.3 million, or 14.6%, for the first nine months of 2023 compared to the same period in 2022, driven by increased new equipment sales of $35.8 million.

This increase was partially offset by decreased other revenue of $3.4 million, which was 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 $8.4 million, or 9.9%, for the first nine months of 2023 compared to the same period in 2022 primarily due to increased new equipment sales of $6.4 million and service and equipment installation revenue of $2.0 million.

Corporate and Other

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

Sales were $7.6 million for the first nine months of 2023 compared to $2.7 million for the same period in 2022, an increase of $4.9 million, or 181.5%.

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

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 CEO, who is considered 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.

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See Note 9, 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, except percentage data) 2023 2022

Infrastructure Solutions $ 16.5 $ 17.6 $ (1.1) (6.3) %

Materials Solutions 8.3 13.1 (4.8) (36.6) %

Corporate and Other (14.4) (14.2) (0.2) (1.4) %

Infrastructure Solutions

Segment Operating Adjusted EBITDA for the Infrastructure Solutions segment was $16.5 million for the third quarter of 2023 compared to $17.6 million for the same period in 2022, a decrease of $1.1 million, or 6.3%.

The decrease in Segment Operating Adjusted EBITDA resulted primarily from the impact of higher inflation on materials, labor and overhead costs of $6.8 million and increased selling, general, administrative and other net costs of $4.8 million, primarily due to higher personnel related costs.

These decreases were partially offset by the impact of favorable pricing net of unfavorable volume/mix that generated $10.5 million higher gross profit.

Materials Solutions

Segment Operating Adjusted EBITDA for the Materials Solutions segment was $8.3 million for the third quarter of 2023 compared to $13.1 million for the same period in 2022, a decrease of $4.8 million, or 36.6%.

The decrease in Segment Operating Adjusted EBITDA between periods resulted primarily from increased selling, general, administrative and other net costs of $7.8 million, primarily driven by a $6.4 million loss contingency recorded related to the 37 BP litigation and higher personnel related costs, and the impact of higher inflation on materials, labor and overhead costs of $3.7 million.

These decreases were partially offset by the impact of favorable pricing net of unfavorable volume/mix that generated $7.2 million higher gross profit.

Segment Operating Adjusted EBITDA - Nine Months Ended :

Nine Months Ended September 30, $ Change % Change

(in millions, except percentage data) 2023 2022

Three Months Ended March 31, $ Change % Change

(in millions) 2024 2023

Infrastructure Solutions $ 25.6 $ 28.5 $ (2.9) (10.2) %

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Infrastructure Solutions

Segment Operating Adjusted EBITDA for the Infrastructure Solutions segment was $70.5 million for the first nine months of 2023 compared to $49.9 million for the same period in 2022, an increase of $20.6 million, or 41.3%.

The increase in Segment Operating Adjusted EBITDA resulted primarily from the impact of favorable net volume, pricing and mix that generated $59.1 million higher gross profit.

These increases were partially offset by (i) the impact of higher inflation on materials, labor and overhead costs of $22.2 million, (ii) increased selling, general and administrative costs of $13.5 million, primarily due to $10.3 million higher personnel related costs, $2.6 million increased consulting, prototype and project costs and $1.1 million of increased exhibit and promotional costs related to the ConExpo industry trade show and (iii) manufacturing inefficiencies of $3.1 million, partially offset by 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.

Segment Operating Adjusted EBITDA for the Infrastructure Solutions segment was $25.6 million for the first quarter of 2024 compared to $28.5 million for the same period in 2023, a decrease of $2.9 million or 10.2%.

The decrease in Segment Operating Adjusted EBITDA was primarily driven by (i) manufacturing inefficiencies of $3.8 million, (ii) 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 that did not recur, (iii) higher consulting and technology support costs of $1.4 million (iv) higher inflation on materials, labor and overhead of $1.0 million and (v) $1.0 million of increased net scrap expenses.

These decreases were offset in part by higher gross profit of $4.8 million generated from favorable pricing partially offset by net unfavorable volume and mix and $1.5 million of lower exhibit and promotional costs primarily due to the triennial ConExpo industry trade show held in 2023.

Materials Solutions

Segment Operating Adjusted EBITDA for the Materials Solutions segment was $41.9 million for the first nine months of 2023 compared to $34.8 million for the same period in 2022, an increase of $7.1 million, or 20.4%.

The increase in Segment Operating Adjusted EBITDA resulted primarily from the impact of favorable net volume, pricing and mix that generated $32.5 million higher gross profit.

These increases were partially offset by (i) the impact of higher inflation on materials, labor and overhead costs of $12.8 million, (ii) increased general and administrative costs of $8.9 million, primarily due to a $6.4 million loss contingency recorded related to the 37 BP litigation and $1.2 million higher personnel related costs and (iii) manufacturing inefficiencies of $3.7 million due in part to increased warranty program costs.

Segment Operating Adjusted EBITDA for the Materials Solutions segment was $5.3 million for the first quarter of 2024 compared to $14.6 million for the same period in 2023, a decrease of $9.3 million, or 63.7%.

The decrease in Segment Operating Adjusted EBITDA was primarily driven by (i) the impact of net unfavorable volume and mix, partially offset by favorable pricing that resulted in $3.6 million lower gross profit, (ii) higher unfavorable inventory adjustments of $2.2 million, (iii) manufacturing inefficiencies of $1.5 million, (iv) increased selling, general and administrative costs of $1.3 million and (v) the impact of higher inflation on materials, labor and overhead costs of $0.8 million.

Corporate and Other

C orporate and Other operations had net expenses of $33.5 million for the first nine months of 2023 compared to $36.3 million for the first nine months of 2022, a decrease of $2.8 million, or 7.7%.

The decrease in expenses was primarily driven by an

incremental $1.5 million of profit contributed by MINDS during the first quarter of 2023 and $2.4 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 partially offset by increased health insurance costs.

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

Corporate and Other operations had net expenses of $12.0 million for the first quarter of 2024 compared to $7.9 million for the first quarter of 2023, an increase of $4.1 million, or 51.9%.

The increase in net expenses was primarily driven by $3.6 million of higher general and administrative expenses, primarily due to the prior year recovery of share-based compensation expense that did not recur 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 of $2.4 million as well as $1.4 million of higher consulting and technology support costs.

Liquidity and Capital Resources

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 September 30, 2023, our total liquidity was $196.9 million, consisting of $71.3 million of cash and cash equivalents available for operating purposes and $125.6 million available for additional borrowings under our revolving credit facility, to the extent our compliance with financial covenants permits such borrowings.

Our primary sources of liquidity and capital resources are cash and cash equivalents on hand, borrowing capacity under the Credit Facility and cash flows from operations.

As of March 31, 2024, our total liquidity was $170.5 million, consisting of $55.3 million of cash and cash equivalents available for operating purposes and $115.2 million available for additional borrowings under the Credit Facility, to the extent our compliance with financial covenants permits such borrowings.

Our foreign subsidiaries held $27.9 million of cash and cash equivalents available for operating purposes, which is considered to be indefinitely invested in those jurisdictions.

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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").

We believe that our current working capital, cash flows generated from future

operations and available capacity under the 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 credit agreement (the "Credit Agreement") with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto.

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 $122.0 million in outstanding borrowings under the Credit Facilities as of September 30, 2023.

Our outstanding letters of credit totaling $2.4 million decreased borrowing availability to $125.6 million under the revolving credit facility as of September 30, 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 Facilities as of September 30, 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.

We were in compliance with all covenants of the Credit Facilities as of March 31, 2024.

We had $125.0 million in outstanding borrowings under the Credit Facilities as of March 31, 2024.

Our outstanding letters of credit totaling $9.8 million decreased borrowing availability to $115.2 million under the revolving credit facility as of March 31, 2024.

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

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.

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 and 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.

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

As of September 30, 2023, open purchase obligations totaled $222.5 million, of which $145.5 million are expected to be fulfilled within the remainder of 2023.

We estimate that our capital expenditures will not exceed $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 nine months ended September 30, 2023 and 2022, respectively:

Nine Months Ended September 30,

As of March 31, 2024, open purchase obligations totaled $147.6 million, of which $142.8 million are expected to be fulfilled within the remainder of 2024.

We estimate that our capital expenditures will be between $25.0 million and $35.0 million for the year ending December 31, 2024, 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, 2024 and 2023, respectively:

Three Months Ended March 31,

(in millions) 2024 2023

Net cash used in operating activities $ (47.0) $ (19.2)

Net cash used in investing activities (3.9) (45.0)

Net cash (used in) provided by investing activities (5.9) 11.8

Net cash provided by (used in) financing activities 48.4 (16.2)

Effect of exchange rates on cash (0.6) 0.1

Increase (decrease) in cash, cash equivalents and restricted cash 7.8 (113.6)

Decrease in cash, cash equivalents and restricted cash (5.1) (23.5)

Cash, cash equivalents and restricted cash, end of period $ 58.1 $ 42.5

Net cash used in operating activities

Net cash used in operating activities decreased by $38.0 million during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 primarily due to higher net income of $18.1 million and reduced net cash usages for our operating assets and liabilities of $12.2 million.

The net cash usages for our operating assets and liabilities were mainly driven by decreased inventory purchases in 2023 of $39.2 million and the timing of payments on trade accounts payables of $18.2 million, partially offset by decreased customer deposits of $29.3 million associated with lower backlog and the timing of collections on trade accounts receivables $19.2 million.

Net cash used in investing activities

Net cash used in investing activities decreased by $41.1 million during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 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 operating activities increased by $27.8 million during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, primarily due to higher net cash usages for our operating assets and liabilities of $23.1 million and lower net income reduced by non-cash charges of $4.8 million.

The increased net cash usage for our operating assets and liabilities were mainly driven by (i) the timing of collections on trade and other receivables of $34.6 million, which includes a $13.7 million receivable from our insurance carriers recorded in the first quarter of 2024 related to a pending litigation settlement, (ii) decreased employee-related liabilities of $7.0 million, (iii) decreased income tax liabilities of $3.5 million and (iv) the timing of inventory purchases of $3.4 million.

The net usage was partially offset by timing impacts for accrued liabilities of $18.1 million, which includes $13.7 million related to a pending litigation settlement corresponding to the related receivable from our insurance carriers and customer deposits of $12.0 million, resulting in cash inflows.

Net cash (used in) provided by investing activities

Our investing activities used net cash of $5.9 million during the three months ended March 31, 2024 as compared to providing net cash of $11.8 million during the three months ended March 31, 2023, 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.

Additionally, capital expenditures decreased $2.2 million during the three months ended March 31, 2024 as compared to the same period of 2023.

Net cash provided by (used in) financing activities

Our financing activities provided net cash of $30.8 million during the nine months ended September 30, 2023 as opposed to a net cash use of $8.4 million during the nine months ended September 30, 2022, primarily due to increased borrowings net of repayments of $33.6 million and share repurchases of $6.1 million in the third quarter of 2022.

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

Our financing activities provided net cash of $48.4 million during the three months ended March 31, 2024 as compared to a net cash use of $16.2 million during the three months ended March 31, 2023, primarily due to increased borrowings, net of repayments, of $63.6 million.

We paid quarterly dividends of $0.13 per common share to shareholders in the first quarter of both 2024 and 2023.

Share Repurchases

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

As of September 30, 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 September 30, 2023;

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

As of March 31, 2024, $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, 2024;

however, we may conduct opportunistic share repurchases under this authorization in future periods utilizing cash on hand or borrowings under our Credit Facilities.

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Financial Condition

Our total current assets increased to $746.3 million as of September 30, 2023 from $696.4 million as of December 31, 2022, an increase of $49.9 million, or 7.2%, due primarily to increases of $56.7 million in inventory, $7.8 million in cash, cash equivalents and restricted cash and $7.6 million in trade receivables and contract assets.

These increases were partially offset by the sale of our Tacoma site previously recorded as "Assets held for sale" for $15.4 million and a decrease in prepaid assets of $5.5 million.

Our total current liabilities increased to $282.2 million as of September 30, 2023 from $274.0 million as of December 31, 2022, an increase of $8.2 million, or 3.0%, due primarily to increases of $9.1 million in accrued employee related liabilities, $7.1 million in accounts payable and $4.8 million in accrued product warranty.

These increases were partially offset by an $8.9 million decrease in customer deposits, a $2.5 million decrease in short-term debt and a $2.3 million decrease in other current liabilities.

Our total current assets increased to $778.8 million as of March 31, 2024 from $719.5 million as of December 31, 2023, an increase of $59.3 million, or 8.2%, due primarily to increases of $39.3 million in trade and other receivables, which includes a $13.7 million receivable from our insurance carriers recorded in the first quarter of 2024 related to a pending litigation settlement, and $28.4 million in inventory, partially offset by decreases of $5.1 million in cash, cash equivalents and restricted cash and $3.1 million in prepaid and refundable income taxes.

Our total current liabilities increased to $310.4 million as of March 31, 2024 from $299.0 million as of December 31, 2023, an increase of $11.4 million, or 3.8%, due primarily to net increases of $11.3 million in other current liabilities, which includes $13.7 million related to a pending litigation settlement corresponding to the related receivable from our insurance carriers, and $9.8 million in customer deposits, partially offset by decreases of $8.0 million in accrued employee related liabilities and $1.4 million in short-term debt.

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