ASTEC INDUSTRIES INC 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The financial condition, results of operations and cash flows discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations are those of Astec Industries, Inc. and its consolidated subsidiaries, collectively, the "Company," "Astec," "we," "our" or "us." The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2023. The financial position, results of operations, cash flows and other information included herein are not necessarily indicative of the financial position, results of operations and cash flows that may be expected in future periods. Forward-Looking Statements This Quarterly Report on Form 10-Q, particularly the following discussion and analysis of our results of operations, financial condition and liquidity in this "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains forward-looking statements within the meaning of the Securities Act of 1933, as amended, the Exchange Act, and the Private Securities Litigation Reform Act of 1995. Such statements relate to, among other things, income, earnings, cash flows, changes in operations, operating improvements, businesses in which we operate and the United States and global economies. Statements in this Quarterly Report on Form 10-Q that are not historical are hereby identified as "forward-looking statements" and may be indicated by words or phrases such as "anticipates," "supports," "plans," "projects," "expects," "believes," "should," "would," "could," "forecast," "management is of the opinion," or use of the future tense and similar words or phrases. These forward-looking statements are based largely on management's expectations, which are subject to a number of known and unknown risks, uncertainties and other factors described under the caption "Item 1A. Risk Factors" in Part II of this Report, elsewhere herein and in other documents filed by the Company with the Securities and Exchange Commission, including "Part I, Item 1A. Risk Factors" of the Company's Annual Report on Form 10-K for the year ended December 31, 2023, which may cause actual results, financial or otherwise, to be materially different from those anticipated, expressed or implied by the forward-looking statements. 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. Executive Summary Highlights of our financial results for the three months ended September 30, 2024 as compared to the same period of the prior year include the following: • Net sales were $291.4 million, a decrease of 3.9% • Gross profit was $66.8 million, a decrease of 4.0% • Loss from operations was $7.2 million, an increase of 38.5% • Net loss attributable to Astec was $6.2 million, a decrease of 6.1% • Diluted loss per share was $0.27, a decrease of 6.9% • Backlog was $475.9 million, a decrease of 22.6% Business Conditions and Trends Strategic Transformation – We are undergoing a multi-year phased implementation of a standardized ERP system, which is replacing much of our existing disparate core financial systems. During the second quarter of 2024, we modified 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. 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 expect the project to conclude in 2027 with total approximate implementation costs anticipated to range from $180 to $200 million. Through the third quarter of 2024, we have incurred total implementation costs of approximately $127 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 2025. 21 INDEX 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 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 and 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 pretax 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. VenVer Litigation – On October 8, 2024, we reached an agreement to resolve the action styled VenVer S.A. and Americas Coil Tubing LLP v. GEFCO, Inc. for $8.4 million. In connection with the settlement, we recorded a loss of $8.4 million in "Restructuring, impairment and other asset charges, net" in the Consolidated Statements of Operations and "Other current liabilities" in the Consolidated Balance Sheets during the third quarter of 2024. 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. 37 BP Litigation – In September 2024, we reached an agreement for $6.3 million, which we paid in September 2024, to resolve the matter styled 37 Building Products, Ltd. v. Telsmith, Inc., et al. originally filed on January 28, 2019. Upon settlement, the full loss contingency of $8.2 million, inclusive of post-judgment interest, that was recorded as of June 30, 2024 was released. The $1.9 million net impact of the loss contingency release and the final settlement amount was recorded in "Selling, general and administrative expenses" in the Consolidated Statements of Operations during the third quarter of 2024. 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. 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 and has moved to the Infrastructure Solutions segment. Prior periods have been revised to reflect the changes to 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. We anticipate that steel prices will remain consistent, and that steel demand will remain relatively stable throughout the remainder of 2024 and into 2025. 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 the remainder of 2024 and into 2025. 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. While interest rates in the United States have fallen slightly in the third quarter of 2024, they remain at historically elevated levels. Additionally, our revolving credit loans bear interest on a variable basis and are subject to market volatility. 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. 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. Whenever possible, we attempt to cover increased costs of production by adjusting the prices of our products. The markets we serve are competitive in nature, and competition limits our ability to pass through cost increases in many cases. 22 INDEX Results of Operations Net Sales Net sales for the third quarter of 2024 were $291.4 million compared to $303.1 million for the third quarter of 2023, a decrease of $11.7 million, or 3.9%. The decrease in net sales was primarily driven by net unfavorable volume and mix partially offset by favorable pricing that generated decreases in equipment and parts and component sales of $7.8 million and $4.3 million, respectively. These decreases were partially offset by an increase in equipment installation revenue of $1.1 million. Sales reported by our foreign subsidiaries in U.S. dollars for the third quarter of 2024 would have been $0.3 million lower had third quarter 2024 foreign exchange rates been the same as third quarter 2023 rates. Net sales for the first nine months of 2024 were $946.1 million compared to $1,001.0 million for the first nine months of 2023, a decrease of $54.9 million, or 5.5%. 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 $34.6 million, (ii) service and equipment installation revenue of $19.2 million, (iii) used equipment of $4.3 million and (iv) freight revenue of $3.1 million. These decreases were partially offset by an increase in other revenue and parts and component sales of $3.3 million and $3.0 million, respectively. Sales reported by our foreign subsidiaries in U.S. dollars for the first nine months of 2024 would have been $0.9 million higher had the first nine months of 2024 foreign exchange rates been the same as the first nine months of 2023 rates. Domestic sales for the third quarter of 2024 were $211.2 million, or 72.5% of consolidated net sales, compared to $229.6 million, or 75.8% of consolidated net sales, for the third quarter of 2023, a decrease of $18.4 million, or 8.0%. Domestic sales decreased primarily due to decreases in equipment and parts and components sales of $13.1 million and $6.8 million, respectively. These decreases were partially offset by increased service and equipment installation revenue of $1.1 million. Domestic sales for the first nine months of 2024 were $726.5 million, or 76.8% of consolidated net sales, compared to $797.3 million, or 79.7% of consolidated net sales, for the first nine months of 2023, a decrease of $70.8 million, or 8.9%. Domestic sales decreased primarily due to decreases in (i) equipment sales of $47.5 million, (ii) service and equipment installation revenue of $20.1 million, (iii) used equipment sales of $2.5 million, (iv) freight revenue of $2.4 million and (v) parts and component sales of $2.2 million. These decreases were partially offset by increased other revenue of $3.9 million. International sales for the third quarter of 2024 were $80.2 million, or 27.5% of consolidated net sales, compared to $73.5 million, or 24.2% of consolidated net sales, for the third quarter of 2023, an increase of $6.7 million, or 9.1%. International sales increased primarily due to increases in equipment sales and parts and component sales of $5.3 million and $2.5 million, respectively. International sales for the first nine months of 2024 were $219.6 million, or 23.2% of consolidated net sales, compared to $203.7 million, or 20.3% of consolidated net sales, for the first nine months of 2023, an increase of $15.9 million, or 7.8%. International sales increased primarily due to increases in equipment sales and parts and component sales of $12.9 million and $5.2 million, respectively. These increases were partially offset by decreased used equipment sales of $1.8 million. Gross Profit Gross profit for the third quarter of 2024 was $66.8 million, or 22.9% of net sales, as compared to $69.6 million, or 23.0% of net sales, for the third quarter of 2023, a decrease of $2.8 million, or 4.0%. The decrease was primarily driven by manufacturing inefficiencies of $5.9 million and the impact of inflation on materials, labor and overhead of $3.2 million. These decreases were partially offset by the sales impact of favorable pricing partially offset by net unfavorable volume and mix of $5.4 million and $1.0 million of favorable inventory period costs. Gross profit for the first nine months of 2024 was $225.0 million, or 23.8% of net sales, as compared to $241.7 million, or 24.1% of net sales, for the first nine months of 2023, a decrease of $16.7 million, or 6.9%. The decrease was primarily driven by manufacturing inefficiencies of $24.2 million and the impact of inflation on materials, labor and overhead of $8.7 million. These decreases were partially offset by the sales impact of favorable pricing partially offset by net unfavorable volume and mix of $15.4 million. Selling, General and Administrative Expenses Selling, general and administrative expenses decreased $8.7 million, or 11.7%, to $65.6 million, or 22.5% of net sales, for the third quarter of 2024, compared to $74.3 million, or 24.5% of net sales, for the third quarter of 2023. The decreases in selling general and administrative expenses are primarily due to (i) the loss contingency related to the 37 BP litigation, of which $6.4 million was recorded in the third quarter of 2023 as compared to the $1.9 million benefit from the loss contingency release offset by the final settlement amount recorded during the third quarter of 2024, (ii) decreased employee incentive compensation costs of $1.5 million and (iii) lower bad debt expense of $1.2 million. These decreases were partially offset by higher technology support costs and certain professional services of $1.4 million and higher costs related to our strategic transformation program of $0.9 million. 23 INDEX Selling, general and administrative expenses increased $1.4 million, or 0.7%, to $208.1 million, or 22.0% of net sales, for the first nine months of 2024, compared to $206.7 million, or 20.6% of net sales, for the first nine months of 2023. The increases in selling, general and administrative expenses are primarily due to (i) increased personnel-related costs of $8.1 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 $6.9 million and (iii) higher costs related to our strategic transformation program of $3.4 million. These increases were partially offset by (i) the loss contingency related to the 37 BP litigation, of which $6.4 million was recorded in the third quarter of 2023 as compared to the $1.9 million benefit from the loss contingency release offset by the final settlement amount recorded during the third quarter of 2024, (ii) decreased employee incentive costs of $5.1 million and (iii) decreased exhibit and promotional costs of $1.3 million. Goodwill Impairment 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 pretax 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 during the second quarter of 2024. After this impairment charge, no net goodwill related to Materials Solutions is reflected in Consolidated Balance Sheet as of June 30, 2024. 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 pretax non-cash goodwill impairment charge. Restructuring, Impairment and Other Asset Charges and Gains, net Restructuring, asset impairment charges and the loss (gain) on sale of property and equipment, net for the three and nine-month periods ended September 30, 2024 and 2023 are presented below: Three Months Ended September 30, Nine Months Ended September 30, (in millions) 2024 2023 2024 2023 Restructuring charges: Costs associated with exited operations – Enid $ 8.4 $ 0.1 $ 8.5 $ 0.3 Workforce reductions — — 0.9 — Costs associated with leadership change and overhead restructuring — — — 7.3 Total restructuring related charges 8.4 0.1 9.4 7.6 Asset impairment charges: Other impairment charges — — — 0.8 Total asset impairment charges — — — 0.8 Loss (gain) on sale of property and equipment, net: Loss (gain) on sale of property and equipment, net — 0.4 (1.1) (3.1) Total loss (gain) on sale of property and equipment, net — 0.4 (1.1) (3.1) Restructuring, other impairment and asset charges, net $ 8.4 $ 0.5 $ 8.3 $ 5.3 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 $2.6 million and $8.4 million was incurred in the three and nine months ended September 30, 2024, respectively, as compared to $2.4 million and $6.4 million in the three and nine months ended September 30, 2023, respectively, primarily related to higher average outstanding borrowings on the Credit Facility in 2024 as compared to the corresponding periods in 2023. 24 INDEX Income Tax Our income tax benefit for the third quarter of 2024 was $2.3 million compared to $0.6 million for the third quarter of 2023. Our effective income tax rate was 27.1% for the third quarter of 2024 compared to 8.5% for the third quarter of 2023. The income tax benefit for the three months ended September 30, 2024 was higher compared to the same period in 2023 primarily due to higher pretax book loss and changes in the relative weighting of jurisdictional income and loss. Our income tax benefit for the first nine months of 2024 was $0.6 million compared to a provision of $6.5 million for the first nine months of 2023. Our effective tax rate was 3.4% for the first nine months of 2024 compared to 25.7% for the first nine months of 2023. The income tax benefit for the nine months ended September 30, 2024 as compared to an expense in the same period in 2023, was 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. Backlog The backlog of orders as of September 30, 2024 was $475.8 million compared to $614.7 million as of September 30, 2023, a decrease of $138.9 million, or 22.6%. Domestic backlog decreased $133.0 million, or 26.0%, and international backlog decreased $5.9 million, or 5.7%. The backlog decreased $43.6 million to $351.1 million in the Infrastructure Solutions segment and decreased $95.3 million to $124.7 million in the Materials Solutions segment. 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. Segment Net Sales – Three Months Ended : Three Months Ended September 30, $ Change % Change (in millions, except percentage data) 2024 2023 Infrastructure Solutions $ 165.0 $ 163.2 $ 1.8 1.1 % Materials Solutions 126.4 139.9 (13.5) (9.6) % Infrastructure Solutions Sales in this segment were $165.0 million for the third quarter of 2024 compared to $163.2 million for the same period in 2023, an increase of $1.8 million, or 1.1%. The increase was primarily driven by favorable pricing partially offset by net unfavorable volume and mix that generated higher equipment sales and service and equipment installation revenue of $8.4 million and $1.2 million, respectively, partially offset by decreased parts and component sales of $7.7 million. Domestic sales for the Infrastructure Solutions segment increased $1.9 million, or 1.2%, for the third quarter of 2024 compared to the same period in 2023 primarily due to increased equipment sales and service and equipment installation revenue of $8.3 million and $1.1 million, respectively, partially offset by decreased parts and component sales of $7.5 million. International sales for the Infrastructure Solutions segment decreased $0.1 million, or 1.2%, for the third quarter of 2024 compared to the same period in 2023. Materials Solutions Sales in this segment were $126.4 million for the third quarter of 2024 compared to $139.9 million for the same period in 2023, a decrease of $13.5 million, or 9.6%. The decrease was primarily driven by net unfavorable volume and mix partially offset by favorable pricing that generated decreased equipment sales of $16.2 million partially offset by increased parts and component sales of $3.4 million. Domestic sales for the Materials Solutions segment decreased by $20.3 million, or 27.1%, for the third quarter of 2024 compared to the same period in 2023, primarily driven by decreased equipment sales of $21.4 million. This decrease was partially offset by increases in other revenue and parts and component sales of $0.8 million and $0.7 million, respectively. 25 INDEX International sales for the Materials Solutions segment increased $6.8 million, or 10.5%, for the third quarter of 2024 compared to the same period in 2023 primarily due to increased equipment and parts and component sales of $5.2 million and $2.7 million, respectively. Segment Net Sales – Nine Months Ended : Nine Months Ended September 30, $ Change % Change (in millions, except percentage data) 2024 2023 Infrastructure Solutions $ 588.6 $ 578.1 $ 10.5 1.8 % Materials Solutions 357.5 422.9 (65.4) (15.5) % Infrastructure Solutions Sales in this segment were $588.6 million for the first nine months of 2024 compared to $578.1 million for the same period in 2023, an increase of $10.5 million, or 1.8%. The increase was primarily driven by favorable pricing partially offset by net unfavorable volume and mix that generated increased equipment sales of $32.2 million. These increases were partially offset by decreased service and equipment installation revenue and used equipment sales of $20.3 million and $2.5 million, respectively. Domestic sales for the Infrastructure Solutions segment increased $13.8 million, or 2.6%, for the first nine months of 2024 compared to the same period in 2023 primarily due to increased equipment sales of $35.7 million partially offset by decreased service and equipment installation revenue and used equipment sales of $20.0 million and $2.5 million, respectively. International sales for the Infrastructure Solutions segment decreased $3.3 million, or 7.8%, for the first nine months of 2024 compared to the same period in 2023 primarily due to decreased equipment sales of $3.5 million. Materials Solutions Sales in this segment were $357.5 million for the first nine months of 2024 compared to $422.9 million for the same period in 2023, a decrease of $65.4 million, or 15.5%. The decrease was primarily driven by net unfavorable volume and mix partially offset by favorable pricing that generated decreased equipment sales of $66.8 million partially offset by increased other revenue of $2.6 million. Domestic sales for the Materials Solutions segment decreased by $84.6 million, or 32.4%, for the first nine months of 2024 compared to the same period in 2023, driven by decreased equipment sales and parts and component sales of $83.2 million and $3.0 million, respectively. These decreases were partially offset by increased other revenue of $3.0 million. International sales for the Materials Solutions segment increased $19.2 million, or 11.9%, for the first nine months of 2024 compared to the same period in 2023 primarily due to increased equipment and parts and component sales of $16.4 million and $4.4 million, respectively. Segment Operating Adjusted EBITDA 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 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. Segment Operating Adjusted EBITDA – Three Months Ended: Three Months Ended September 30, $ Change % Change (in millions, except percentage data) 2024 2023 Infrastructure Solutions $ 15.6 $ 13.3 $ 2.3 17.3 % Materials Solutions 14.5 9.5 5.0 52.6 % 26 INDEX Infrastructure Solutions Segment Operating Adjusted EBITDA for the Infrastructure Solutions segment was $15.6 million for the third quarter of 2024 compared to $13.3 million for the same period in 2023, an increase of $2.3 million, or 17.3%. The increase in Segment Operating Adjusted EBITDA was primarily driven by (i) the sales impact of favorable pricing partially offset by unfavorable volume and mix that generated higher gross profit of $5.5 million, (ii) lower bad debt expense of $0.7 million and (iii) decreased selling, general and administrative personnel-related costs of $0.7 million. These increases were partially offset by (i) manufacturing inefficiencies of $3.2 million (ii) the impact of inflation on materials, labor and overhead of $2.3 million and (iii) increased customer concessions of $0.8 million. Materials Solutions Segment Operating Adjusted EBITDA for the Materials Solutions segment was $14.5 million for the third quarter of 2024 compared to $9.5 million for the same period in 2023, an increase of $5.0 million, or 52.6%. The increase in Segment Operating Adjusted EBITDA was primarily driven by the loss contingency related to the 37 BP litigation, of which $6.4 million was recorded in the third quarter of 2023 as compared to the $1.9 million benefit from the loss contingency release offset by the final settlement amount recorded during the third quarter of 2024 and net favorable inventory adjustments of $1.3 million. These increases were partially offset by manufacturing inefficiencies of $3.8 million and the impact of inflation on materials, labor and overhead of $1.0 million. Segment Operating Adjusted EBITDA – Nine Months Ended : Nine Months Ended September 30, $ Change % Change (in millions, except percentage data) 2024 2023 Infrastructure Solutions $ 68.4 $ 67.5 $ 0.9 1.3 % Materials Solutions 30.0 42.4 (12.4) (29.2) % Infrastructure Solutions Segment Operating Adjusted EBITDA for the Infrastructure Solutions segment was $68.4 million for the first nine months of 2024 compared to $67.5 million for the same period in 2023, an increase of $0.9 million, or 1.3%. The increase in Segment Operating Adjusted EBITDA resulted primarily from (i) the sales impact of favorable pricing coupled with net favorable volume and mix that generated higher gross profit of $24.3 million (ii) decreases in annual incentive compensation costs of $1.5 million, (iii) decreases in new product development costs of $0.7 million and (iv) decreases in property maintenance costs of $0.6 million. The increase was partially offset by (i) manufacturing inefficiencies of $16.2 million, (ii) the impact of inflation on materials, labor and overhead of $6.1 million, (iii) higher IT support and professional services costs of $4.1 million and (iv) increased selling, general and administrative personnel-related costs of $3.1 million. Materials Solutions Segment Operating Adjusted EBITDA for the Materials Solutions segment was $30.0 million for the first nine months of 2024 compared to $42.4 million for the same period in 2023, a decrease of $12.4 million, or 29.2%. The decrease in Segment Operating Adjusted EBITDA resulted primarily from (i) manufacturing inefficiencies of $9.2 million, (ii) the sales impact of net unfavorable volume and mix partially offset by favorable pricing that decreased gross profit by $7.4 million and (iii) the impact of inflation on materials, labor and overhead of $2.6 million. These decreases were partially offset by the loss contingency related to the 37 BP litigation, of which $6.4 million was recorded in the third quarter of 2023 as compared to the $1.9 million benefit from the loss contingency release offset by the final settlement amount recorded during the third quarter of 2024. Corporate and Other Operations Corporate and Other operations had net expenses of $12.7 million for the third quarter of 2024 compared to $12.8 million for the same period in 2023, a decrease of $0.1 million, or 0.8%. Personnel related costs were materially consistent driven by $1.5 million general employee cost increases partially offset by decreases in annual incentive compensation costs of $1.0 million. Corporate and Other operations had net expenses of $34.5 million for the first nine months of 2024 compared to $32.5 million for the first nine months of 2023, an increase of $2.0 million, or 6.2%. The increase in expenses were primarily due to $2.5 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 $2.1 million and general employee cost decreases. 27 INDEX 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 September 30, 2024, our total liquidity was $195.1 million, consisting of $52.7 million of cash and cash equivalents available for operating purposes and $142.4 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 $34.3 million of cash and cash equivalents available for operating purposes, which is considered to be indefinitely invested in those jurisdictions. Our future cash requirements primarily include working capital needs, debt service obligations, capital expenditures, vendor-hosted software arrangements including the related implementation costs, unrecognized tax benefits and operating lease payments. In addition, our variable cash uses may include the payment of our quarterly cash dividend, financing other strategic initiatives of our business, including, but not limited to, transformation initiatives, strategic acquisitions and share repurchases under our share repurchase authorization. We believe that our current working capital, cash flows generated from future operations and available capacity under 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. 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 all covenants of the Credit Facilities as of September 30, 2024. We had $99.0 million in outstanding borrowings under the Credit Facilities as of September 30, 2024. Our outstanding letters of credit totaling $8.6 million decreased borrowing availability to $142.4 million under the revolving credit facility as of September 30, 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. Both the outstanding borrowings under the credit facilities of the international subsidiaries and the order anticipation agreements are recorded in "Short-term debt" in our Consolidated Balance Sheets. Each of the credit facilities are generally guaranteed by Astec Industries, Inc. and/or secured with certain assets of the local subsidiary. We regularly enter into agreements, primarily to purchase inventory, in the ordinary course of business. As of September 30, 2024, open purchase obligations totaled $121.9 million, of which $95.7 million are expected to be fulfilled within the remainder of 2024. We estimate that our capital expenditures will be between $20.0 million and $25.0 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. 28 INDEX Cash Flows The following table summarizes cash flows during the nine months ended September 30, 2024 and 2023, respectively: Nine Months Ended September 30, (in millions) 2024 2023 Net cash used in operating activities $ (13.6) $ (18.8) Net cash used in investing activities (14.0) (3.9) Net cash provided by financing activities 19.5 30.8 Effect of exchange rates on cash 0.2 (0.3) (Decrease) increase in cash, cash equivalents and restricted cash (7.9) 7.8 Cash, cash equivalents and restricted cash, end of period $ 55.3 $ 73.8 Net cash used in operating activities Net cash used in operating activities decreased by $5.2 million during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to lower net cash usages for our operating assets and liabilities of $24.2 million partially offset by reduced cash inflows from net income reduced by non-cash charges of $19.7 million. The decreased net cash usage for our operating assets and liabilities were mainly driven by the timing of inventory purchases of $49.8 million and increases in customer deposits of $21.7 million. The decreased net cash usage was partially offset by the timing of payments on trade accounts payables of $35.6 million and higher employee-related payments of $14.0 million. Net cash used in investing activities Net cash used in investing activities was $14.0 million during the nine months ended September 30, 2024 as compared to $3.9 million during the nine months ended September 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 that did not recur. This was partially offset by decreased capital expenditures of $9.0 million during the nine months ended September 30, 2024 as compared to the same period of 2023. Net cash provided by financing activities Our financing activities provided net cash of $19.5 million during the nine months ended September 30, 2024 as compared to providing net cash of $30.8 million during the nine months ended September 30, 2023, primarily due to decreased borrowings, net of repayments, of $12.5 million. Dividends We paid quarterly dividends of $0.13 per common share to shareholders in the third 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 September 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 September 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. The timing, manner and number of shares repurchased will depend on a variety of factors, including, but not limited to, the level of cash balances, credit availability, financial performance, general business conditions, regulatory requirements, the market price of our stock and the availability of alternative investment opportunities. Financial Condition Our total current assets increased to $740.1 million as of September 30, 2024 from $719.5 million as of December 31, 2023, an increase of $20.6 million, or 2.9%, due primarily to (i) increases of $22.5 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 and (ii) increased inventory of $10.8 million. These increases were partially offset by decreases in cash, cash equivalents and restricted cash of $7.9 million. Our total current liabilities increased to $299.2 million as of September 30, 2024 from $299.0 million as of December 31, 2023. Increases of $20.9 million and $13.8 million in other current liabilities and customer deposits, respectively, were partially offset by 29 INDEX decreases in accounts payables of $29.1 million. The increase in other current liabilities includes $13.7 million related to a pending litigation settlement corresponding to the related receivable from our insurance carriers. Critical Accounting Estimates Our critical accounting estimates are described "Part II, Item 7. 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.