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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-02 · 163 added, 93 removed, 102 unchanged (72% of the section changed)

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Executive Summary

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:

Highlights of our financial results for the three months ended June 30, 2024 as compared to the same period of the prior year include the following:

• Net sales were $345.5 million, a decrease of 1.3%

• Gross profit was $81.3 million, a decrease of 1.9%

• 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%

• Results include a pre-tax non-cash goodwill impairment charge of $20.2 million

• Income from operations decreased $28.0 million to a loss of $10.7 million

• Net income attributable to Astec decreased $27.1 million to a loss of $14.0 million

• Diluted loss per share was $0.61, a decrease of 205.2%

• Backlog was $531.1 million, a decrease of 22.9%

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.

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.

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

To date, we have launched the human capital resources module in our locations in the United States and converted the operations of three manufacturing sites along with Corporate, two of which occurred during the second quarter of 2024.

We are changing the pace of deployment of future site conversions in order to improve efficiencies and reduce business disruptions at each manufacturing site, which will have the effect of reducing the scope to exclude sites outside North America.

With these modifications, we expect the project to conclude in 2027 with total approximate implementation costs anticipated to range from $180 to $200 million.

Through the second quarter of 2024, we have incurred total implementation costs of approximately $119 million.

Annual costs are expected to peak in 2024 to a range of $40 to $45 million and decrease annually each year through the final implementations in 2027.

In addition, a lean manufacturing initiative at one of our largest sites was largely completed during 2023 with certain capital investments finalized in early 2024.

These investments, 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.

See Note 11, Strategic Transformation, 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 additional discussion of the costs related to these strategic initiatives.

Goodwill Impairment – During the second quarter of 2024, we identified that indicators of goodwill impairment were present due to current macroeconomic conditions, including declines in our publicly quoted share price and increased interest rates, as well as lower than expected operating results.

These factors indicated that one or more of our reporting units may have fallen below their carrying amounts.

We performed a qualitative assessment on all reporting units concluded that a further quantitative analysis was required for the Materials Solutions reporting unit.

Based on the quantitative impairment test, we determined that the carrying value of the Materials Solutions reporting unit exceeded its fair value as of June 30, 2024.

As a result, we recognized a pre-tax non-cash goodwill impairment charge of $20.2 million in "Goodwill impairment" in the Consolidated Statements of Operations to fully impair the goodwill allocated to the Materials Solutions reporting unit.

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.

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Steel is a major component of our equipment.

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

We anticipate that steel prices will remain consistent, and that steel demand will remain relatively stable throughout the remainder of 2024.

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

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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.

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

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

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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.

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Results of Operations

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.

Net sales for the second quarter of 2024 were $345.5 million compared to $350.0 million for the second quarter of 2023, a decrease of $4.5 million, or 1.3%.

The decrease in net sales was primarily driven by net unfavorable volume and mix partially offset by favorable pricing that generated decreases in (i) service and equipment installation revenue of $12.6 million, (ii) parts and component sales of $3.4 million and (iii) used equipment sales of $2.2 million.

These decreases were partially offset by increases in equipment sales and other revenue of $13.2 million and $1.3 million, respectively.

Sales reported by our foreign subsidiaries in U.S.

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.

dollars for the second quarter of 2024 would have been $0.5 million higher had second quarter 2024 foreign exchange rates been the same as second quarter 2023 rates.

Net sales for the first six months of 2024 were $654.7 million compared to $697.9 million for the first six months of 2023, a decrease of $43.2 million, or 6.2%.

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 $26.8 million, (ii) service and equipment installation

revenue of $20.3 million, (iii) used equipment of $3.9 million and (iv) freight revenue of $2.6 million.

These decreases were partially offset by an increase in parts and component sales and other revenue of $7.3 million and $3.1 million, respectively.

Sales reported by our foreign subsidiaries in U.S.

dollars for the first six months of 2024 would have been $1.2 million higher had the first six months of 2024 foreign exchange rates been the same as the first six months of 2023 rates.

Domestic sales for the second quarter of 2024 were $272.1 million, or 78.8% of consolidated net sales, compared to $286.4 million, or 81.8% of consolidated net sales, for the second quarter of 2023, a decrease of $14.3 million, or 5.0%.

Domestic sales decreased primarily due to decreases in (i) service and equipment installation revenue of $12.8 million, (ii) parts and components sales of $5.0 million and (iii) used equipment sales of $1.6 million.

These decreases were partially offset by increases in equipment sales and other revenue of $4.5 million and $1.3 million, respectively.

Domestic sales for the first six months of 2024 were $515.3 million, or 78.7% of consolidated net sales, compared to $567.7 million, or 81.3% of consolidated net sales, for the first six months of 2023, a decrease of $52.4 million, or 9.2%.

Domestic sales decreased primarily due to decreases in (i) equipment sales of $34.4 million, (ii) service and equipment installation revenue of $21.2 million, (iii) used equipment sales of $2.5 million and (iv) freight revenue of $2.1 million.

These decreases were partially offset by increases in parts and component sales and other revenue of $4.6 million and $3.2 million, respectively.

International sales for the second quarter of 2024 were $73.4 million, or 21.2% of consolidated net sales, compared to $63.6 million, or 18.2% of consolidated net sales, for the second quarter of 2023, an increase of $9.8 million, or 15.4%.

International sales increased primarily due to increases in equipment sales and parts and component sales of $8.7 million and $1.6 million, respectively.

International sales for the first six months of 2024 were $139.4 million, or 21.3% of consolidated net sales, compared to $130.2 million, or 18.7% of consolidated net sales, for the first six months of 2023, an increase of $9.2 million, or 7.1%.

International sales increased primarily due to increases in equipment sales and parts and component sales of $7.6 million and $2.7 million, respectively.

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

Gross profit for the second quarter of 2024 was $81.3 million, or 23.5% of net sales, as compared to $82.9 million, or 23.7% of net sales, for the second quarter of 2023, a decrease of $1.6 million, or 1.9%.

The decrease was primarily driven by (i) manufacturing inefficiencies of $13.6 million, (ii) the impact of inflation on materials, labor and overhead of $3.7 million and (iii) increased net scrap expenses of $0.9 million.

These decreases were partially offset by (i) the sales impact of favorable pricing partially offset by net unfavorable volume and mix of $10.6 million, (ii) a net favorable impact of inventory adjustments of $3.7 million and (iii) reduced warranty program costs of $2.3 million.

Gross profit for the first six months of 2024 was $158.2 million, or 24.2% of net sales, as compared to $172.1 million, or 24.7% of net sales, for the first six months of 2023, a decrease of $13.9 million, or 8.1%.

The decrease was primarily driven by (i) manufacturing inefficiencies of $18.0 million, (ii) the impact of inflation on materials, labor and overhead of $5.5 million and (iii) increased net scrap expenses of $1.9 million.

The net favorable sales impact from pricing partially offset by unfavorable volume and mix of $9.9 million and reduced warranty program costs of $1.6 million offset a portion of the decreases.

Selling, General and Administrative Expenses

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,

Selling, general and administrative expenses increased $6.6 million, or 10.2%, to $71.1 million, or 20.6% of net sales, for the second quarter of 2024, compared to $64.5 million, or 18.4% of net sales, for the second quarter of 2023.

The increases in selling general and administrative expenses are primarily due to (i) higher costs related to our strategic transformation program of $3.3 million, (ii) higher technology support costs and certain professional services of $2.9 million, (iii) higher provision for credit losses of $1.8 million and (iv) higher exhibit and promotional costs of $0.9 million.

These increases were partially offset by lower customer concessions and dealer commissions of $1.6 million.

Decreased employee incentive compensation costs of $4.0 million were largely offset by general employee cost increases from higher headcount and wage inflation.

Selling, general and administrative expenses increased $10.1 million, or 7.6%, to $142.5 million, or 21.8% of net sales, for the first six months of 2024, compared to $132.4 million, or 19.0% of net sales, for the first six months of 2023.

The increases in selling, general and administrative expenses are primarily due to (i) increased personnel-related costs of $7.4 million, which includes 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 $2.6 million, (ii) higher technology support costs and certain professional services of $5.9 million, (iii) increased costs related to our strategic transformation program of $2.5 million and (iv) higher provision for credit losses of $1.6 million.

These increases were partially offset by $3.6 million of employee incentive compensation costs and lower exhibit and promotional costs of $1.2 million.

Goodwill Impairment

At the end of the second quarter, we determined that the carrying value of the Materials Solutions reporting unit exceeded its fair value as of June 30, 2024.

After this impairment charge, the Consolidated Balance Sheet as of June 30, 2024 reflects no goodwill related to Materials Solutions.

See Note 4, Goodwill 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 pre-tax non-cash goodwill impairment charge.

Restructuring, Impairment and Other Asset Gains and Charges, net

Restructuring, asset impairment charges and the net gain on sale of property and equipment for the three and six-month periods ended June 30, 2024 and 2023 are presented below:

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

(in millions) 2024 2023 2024 2023

Restructuring charges:

Workforce reductions $ 0.9 $ — $ 0.9 $ —

Costs associated with leadership change and overhead restructuring — 0.3 — 7.3

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Total restructuring related charges 0.9 0.4 1.0 7.5

Asset impairment charges:

Other impairment charges — 0.8 — 0.8

Total asset impairment charges — 0.8 — 0.8

Gain on sale of property and equipment, net:

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Total gain on sale of property and equipment, net (0.2) (0.1) (1.1) (3.5)

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.

Restructuring, other impairment and asset charges, net $ 0.7 $ 1.1 $ (0.1) $ 4.8

See Note 11, Strategic Transformation, 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.

Interest Expense

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%.

Interest expense of $3.1 million and $5.8 million was incurred in the three and six months ended June 30, 2024, respectively, as compared to $2.0 million and $4.0 million in the three and six months ended June 30, 2023, respectively, primarily related to higher average outstanding borrowings on the Credit Facility in 2024 as compared to the corresponding periods in 2023.

Our income tax provision for the second quarter of 2024 was $0.3 million compared to $2.7 million for the second quarter of 2023.

Our effective income tax rate was (2.2)% for the second quarter of 2024 compared to 17.0% for the second quarter of 2023.

The income tax expense for the three months ended June 30, 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, partially offset by a net nondeductible goodwill impairment.

Our income tax expense for the first six months of 2024 was $1.7 million compared to $7.1 million for the first six months of 2023.

Our effective tax rate was (18.9)% for the first six months of 2024 compared to 21.9% for the first six months of 2023.

The income tax expense for the six months ended June 30, 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, partially offset by a net nondeductible goodwill impairment.

The backlog of orders as of June 30, 2024 was $531.1 million compared to $688.8 million as of June 30, 2023, a decrease of $157.7 million, or 22.9%.

Domestic backlog decreased $171.0 million, or 29.1%, partially offset by an increase in international backlog of $13.3 million, or 13.2%.

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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

Segment Net Sales – Three Months Ended :

Three Months Ended June 30, $ Change % Change

(in millions, except percentage data) 2024 2023

Infrastructure Solutions $ 221.4 $ 199.4 $ 22.0 11.0 %

Materials Solutions 124.1 150.8 (26.7) (17.7) %

Corporate and Other — 0.2 (0.2) (100.0) %

Infrastructure Solutions

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.

Sales in this segment were $221.4 million for the second quarter of 2024 compared to $199.4 million for the same period in 2023, an increase of $22.0 million, or 11.0%.

The increase was primarily driven by net favorable volume and mix coupled with favorable pricing that generated higher equipment sales of $38.6 million partially offset by decreases in (i) service and equipment installation revenue of $12.9 million, (ii) parts and component sales of $2.5 million and (iii) used equipment sales of $1.6 million.

Domestic sales for the Infrastructure Solutions segment increased $18.0 million, or 9.5%, for the second quarter of 2024 compared to the same period in 2023 primarily due to increased equipment sales of $35.2 million partially offset by decreases in (i) service and equipment installation sales of $12.8 million, (ii) parts and component sales of $3.1 million and (iii) used equipment sales of $1.6 million.

International sales for the Infrastructure Solutions segment increased $4.0 million, or 39.2%, for the second quarter of 2024 compared to the same period in 2023 primarily due to increased equipment and parts and component sales of $3.4 million and $0.6 million, respectively.

Materials Solutions

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%.

Sales in this segment were $124.1 million for the second quarter of 2024 compared to $150.8 million for the same period in 2023, a decrease of $26.7 million, or 17.7%.

The decrease was primarily driven by net unfavorable volume and mix partially offset by favorable pricing that generated decreased (i) equipment sales of $25.4 million, (ii) parts and component sales of $0.9 million and (iii) freight revenue of $0.9 million.

These decreases were partially offset by increased other revenue of $0.8 million.

Domestic sales for the Materials Solutions segment decreased by $32.5 million, or 33.4%, for the second quarter of 2024 compared to the same period in 2023, primarily driven by decreased equipment sales and parts and component sales of $30.7 million and $1.9 million, respectively.

These decreases were partially offset by increased other revenue of $0.8 million.

International sales for the Materials Solutions segment increased $5.8 million, or 10.9%, for the second quarter of 2024 compared to the same period in 2023 primarily due to increased equipment and parts and component sales of $5.3 million and $1.0 million, respectively.

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

Segment Net Sales – Six Months Ended :

Six Months Ended June 30, $ Change % Change

(in millions, except percentage data) 2024 2023

Infrastructure Solutions $ 423.6 $ 414.9 $ 8.7 2.1 %

Materials Solutions 231.1 283.0 (51.9) (18.3) %

Infrastructure Solutions

Sales in this segment were $423.6 million for the first six months of 2024 compared to $414.9 million for the same period in 2023, an increase of $8.7 million, or 2.1%.

The increase was primarily driven by favorable pricing partially offset by net unfavorable volume and mix that generated increased equipment and parts and component sales of $23.8 million and $9.3 million, respectively.

These increases were partially offset by decreased service and equipment installation revenue and used equipment sales of $21.5 million and $2.5 million, respectively.

Domestic sales for the Infrastructure Solutions segment increased $11.9 million, or 3.1%, for the first six months of 2024 compared to the same period in 2023 primarily due to increased equipment and parts and component sales of $27.4 million and $8.3 million, respectively.

These increases were partially offset by decreased service and equipment installation revenue and used equipment sales of $21.1 million and $2.5 million, respectively.

International sales for the Infrastructure Solutions segment decreased $3.2 million, or 9.5%, for the first six months of 2024 compared to the same period in 2023 primarily due to decreased equipment sales of $3.6 million.

Materials Solutions

Sales in this segment were $231.1 million for the first six months of 2024 compared to $283.0 million for the same period in 2023, a decrease of $51.9 million, or 18.3%.

The decrease was primarily driven by net unfavorable volume and mix partially offset by favorable pricing that generated decreased (i) equipment sales of $50.6 million, (ii) parts and component sales of $2.0 million and (iii) used equipment sales of $1.4 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 $2.2 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.

Domestic sales for the Materials Solutions segment decreased by $64.3 million, or 34.5%, for the first six months of 2024 compared to the same period in 2023, driven by decreased equipment sales and parts and component sales of $61.8 million and $3.7 million, respectively.

This decrease was partially offset by increased other revenue of $2.2 million.

International sales for the Materials Solutions segment increased $12.4 million, or 12.8%, for the first six months of 2024 compared to the same period in 2023 primarily due to increased equipment and parts and component sales of $11.2 million and $1.7 million, respectively.

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

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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.

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

Segment Operating Adjusted EBITDA 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.

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 10, Segment Information, of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a reconciliation of Segment Operating Adjusted EBITDA to total consolidated net income attributable to controlling interest.

Three Months Ended March 31, $ Change % Change

(in millions) 2024 2023

Segment Operating Adjusted EBITDA – Three Months Ended:

Three Months Ended June 30, $ Change % Change

(in millions, except percentage data) 2024 2023

Infrastructure Solutions $ 27.2 $ 25.7 $ 1.5 5.8 %

Materials Solutions 10.2 18.3 (8.1) (44.3) %

Corporate and Other (12.0) (7.9) (4.1) (51.9) %

Infrastructure Solutions

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.

Segment Operating Adjusted EBITDA for the Infrastructure Solutions segment was $27.2 million for the second quarter of 2024 compared to $25.7 million for the same period in 2023, an increase of $1.5 million, or 5.8%.

The increase in Segment Operating

Adjusted EBITDA was primarily driven by (i) the sales impact of favorable pricing coupled with favorable volume and mix that generated higher gross profit of $14.6 million, (ii) net favorable inventory adjustments of $4.4 million, (iii) lower annual incentive compensation of $1.5 million and (iv) lower customer concessions of $0.9 million.

These increases were partially offset by (i) manufacturing inefficiencies of $9.8 million, (ii) the impact of inflation on materials, labor and overhead of $2.9 million, (iii) higher technology support costs and certain professional services of $2.0 million, (iv) increased personnel-related costs of $2.8 million driven by general employee cost increases from higher headcount and wage inflation and (v) $0.8 million of increased net scrap expenses.

Materials Solutions

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

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.

Segment Operating Adjusted EBITDA for the Materials Solutions segment was $10.2 million for the second quarter of 2024 compared to $18.3 million for the same period in 2023, a decrease of $8.1 million, or 44.3%.

The decrease in Segment Operating Adjusted EBITDA was primarily driven by (i) manufacturing inefficiencies of $4.3 million, (ii) the sales impact of net unfavorable volume and mix partially offset by favorable pricing that decreased gross profit by $3.2 million, (iii) higher provision for credit losses of $1.2 million, (iv) the impact of inflation on materials, labor and overhead of $0.8 million and (v) net unfavorable inventory adjustments of $0.7 million.

These decreases were partially offset by reduced warranty program costs of $2.5 million and lower customer concessions of $0.7 million.

Segment Operating Adjusted EBITDA – Six Months Ended :

Six Months Ended June 30, $ Change % Change

(in millions, except percentage data) 2024 2023

Infrastructure Solutions $ 52.8 $ 54.2 $ (1.4) (2.6) %

Materials Solutions 15.5 32.9 (17.4) (52.9) %

Infrastructure Solutions

Segment Operating Adjusted EBITDA for the Infrastructure Solutions segment was $52.8 million for the first six months of 2024 compared to $54.2 million for the same period in 2023, a decrease of $1.4 million, or 2.6%.

The decrease in Segment Operating Adjusted EBITDA resulted primarily from (i) manufacturing inefficiencies of $13.1 million, (ii) the impact of inflation on materials, labor and overhead of $3.9 million, (iii) higher technology support costs and certain professional services of $3.4 million, (iv) increased personnel-related costs of $3.8 million driven by general employee cost increases from higher headcount and wage inflation and (v) $1.8 million of increased net scrap expenses.

These decreases were partially offset by the sales impact primarily related to (i) favorable pricing which impacted gross profit by $18.8 million, (ii) a net favorable impact of inventory adjustments of $2.5 million and (iii) $1.6 million of lower annual incentive compensation costs.

Materials Solutions

Segment Operating Adjusted EBITDA for the Materials Solutions segment was $15.5 million for the first six months of 2024 compared to $32.9 million for the same period in 2023, a decrease of $17.4 million, or 52.9%.

The decrease in Segment Operating Adjusted EBITDA resulted primarily from (i) the sales impact of net unfavorable volume and mix partially offset by favorable pricing that decreased gross profit by $7.1 million, (ii) manufacturing inefficiencies of $5.5 million, (iii) net unfavorable inventory adjustments of $2.9 million, (iv) inflation on materials, labor and overhead of $1.6 million and (v) increased personnel-related costs of $2.0 million driven by general employee cost increases from higher headcount and wage inflation.

These decreases were partially offset by reduced warranty program costs of $2.1 million and lower annual incentive compensation costs of $0.9 million.

Corporate and Other Operations

Corporate and Other operations had net expenses of $ 9.8 million for the second quarter of 2024 compared to $ 11.8 million for the same period in 2023, a decrease of $2.0 million, or 16.9%.

The decrease in expenses was primarily driven by lower annual incentive compensation costs of $1.8 million.

Corporate and Other operations had net expenses of $ 21.8 million for the first six months of 2024 compared to $ 19.7 million for the first six months of 2023, an increase of $2.1 million, or 10.7%.

The increase in expenses was driven by higher general and administrative expenses, primarily due to $2.3 million of higher technology support costs and certain professional services.

Personnel related costs were materially consistent driven by $2.6 million in the prior year 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 that did not recur which was partially offset by decreases in annual incentive compensation costs of $1.1 million and general employee cost decreases.

Liquidity and Capital Resources

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.

As of June 30, 2024, our total liquidity was $175.8 million, consisting of $60.6 million of cash and cash equivalents available for operating purposes and $115.2 million available for additional borrowings under the Credit Facility, subject to our continued compliance with financial covenants under the Credit Agreement.

Our foreign subsidiaries held $33.6 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 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.

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.

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

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 were in compliance with all covenants of the Credit Facilities as of June 30, 2024.

We had $125.0 million in outstanding borrowings under the Credit Facilities as of June 30, 2024.

Our outstanding letters of credit totaling $9.8 million decreased borrowing availability to $115.2 million under the revolving credit facility as of June 30, 2024.

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

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

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.

As of June 30, 2024, open purchase obligations totaled $120.3 million, of which $108.0 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,

The following table summarizes cash flows during the six months ended June 30, 2024 and 2023, respectively:

Six Months Ended June 30,

(in millions) 2024 2023

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Effect of exchange rates on cash (0.8) 0.4

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

(Decrease) increase in cash, cash equivalents and restricted cash — (21.5)

Cash, cash equivalents and restricted cash, end of period $ 63.2 $ 44.5

Net cash used in operating activities

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 operating activities increased by $33.6 million during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, primarily due to higher net cash usages for our operating assets and liabilities of $18.9 million and lower net income reduced by non-cash charges of $14.6 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 $78.3 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) the timing of payments on trade accounts payables of $14.1 million and (iii) higher employee-related payments of $13.6 million.

The net cash usage was partially offset by (i) the timing of inventory purchases of $35.5 million, (ii) the increase in customer deposits of $30.4 million and (iii) the timing impacts for accrued liabilities of $27.8 million, which includes $13.7 million related to a pending litigation settlement corresponding to the related receivable from our insurance carriers, 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.

Our investing activities used net cash of $12.6 million during the six months ended June 30, 2024 as compared to providing net cash of $2.6 million during the six months ended June 30, 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 $3.7 million during the six months ended June 30, 2024 as compared to the same period of 2023.

Net cash provided by (used in) financing activities

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.

Our financing activities provided net cash of $49.5 million during the six months ended June 30, 2024 as compared to a net cash use of $22.0 million during the six months ended June 30, 2023, primarily due to increased borrowings, net of repayments, of $70.3 million.

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

Share Repurchases

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;

As of June 30, 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 June 30, 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 $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.

Our total current assets increased to $778.8 million as of June 30, 2024 from $719.5 million as of December 31, 2023, an increase of $59.3 million, or 8.2%, due primarily to increases of $65.5 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, partially offset by decreases of $3.3 million in prepaid expenses and other assets and $2.1 million in prepaid and refundable income taxes.

Our total current liabilities increased to $311.2 million as of June 30, 2024 from $299.0 million as of December 31, 2023, an increase of $12.2 million, or 4.1%, due primarily to net increases of $19.5 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, $18.9 million

in customer deposits and $2.2 million in short-term debt, partially offset by decreases of $14.3 million in accounts payable and $12.2 million in accrued employee related liabilities.

Critical Accounting Estimates

Our critical accounting estimates are described "Part II, Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2023.

With the exception of the estimates utilized in the quantitative assessment for goodwill related to our Materials Solutions reporting unit, there have been no significant changes to our critical accounting estimates since our Annual Report on Form 10-K for the year ended December 31, 2023 was filed.

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