Astec Industries(ASTE) - 2019 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements Presents unaudited condensed consolidated financial statements, showing a shift from net loss to net income in 2019 Condensed Consolidated Balance Sheets Total assets slightly decreased to $848.6 million, while liabilities fell, increasing equity to $620.6 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $557,535 | $560,991 | | Total Assets | $848,555 | $855,457 | | Total Current Liabilities | $173,936 | $189,231 | | Long-term Debt | $28,891 | $59,709 | | Total Liabilities | $227,947 | $270,167 | | Total Equity | $620,608 | $585,290 | Condensed Consolidated Statements of Operations Net income reached $37.6 million for H1 2019, a turnaround from a $20.6 million net loss in H1 2018 Key Performance Indicators (in thousands, except per share data) | Metric | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net Sales | $630,582 | $597,981 | | Gross Profit | $159,976 | $79,113 | | Income (Loss) from Operations | $48,660 | $(24,228) | | Net Income (Loss) | $37,579 | $(20,552) | | Diluted EPS | $1.66 | $(0.89) | Condensed Consolidated Statements of Cash Flows Net cash from operations significantly improved to $42.9 million for H1 2019, driven by higher net income Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $42,871 | $18,421 | | Net cash used by investing activities | $(8,088) | $(8,381) | | Net cash used by financing activities | $(35,908) | $(5,903) | | Net change in cash and cash equivalents | $(916) | $2,926 | Notes to Unaudited Condensed Consolidated Financial Statements Details accounting policies, segment performance, debt, and contingent matters, including a shareholder lawsuit - Adopted new lease accounting standard ASU 2016-02 on January 1, 2019, recognizing $4.99 million in right-of-use (ROU) assets, with no material financial impact[22][54] - A shareholder class action lawsuit was filed against the Company and certain officers, with the Company disputing allegations and unable to estimate a possible loss[91] - The sale of the Georgia pellet plant was recognized in Q2 2019 for a discounted price of $20.0 million, after its value was written down to zero in 2018[90] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial turnaround from net loss to net income, driven by non-recurring pellet plant contracts Results of Operations Net sales increased, leading to a $23.4 million net income in Q2 2019, a turnaround from a $40.7 million net loss in Q2 2018 Q2 Financial Comparison (in thousands, except per share data) | Metric | Q2 2019 | Q2 2018 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $304,802 | $272,528 | $32,274 | 11.8% | | Gross Profit | $83,450 | $1,108 | $82,342 | N/A | | Net Income (Loss) | $23,377 | $(40,674) | $64,051 | N/A | | Diluted EPS | $1.03 | $(1.76) | $2.79 | N/A | - Q2 2019 results include a $20.0 million sale from the Georgia Pellet Plant, significantly contributing to gross margin after its inventory value was written off in 2018[130][142] - Q2 2018 results included a $75.3 million charge against sales and a $71.0 million reduction in gross margin related to the Arkansas Pellet Plant agreement[131][142] - The company's order backlog decreased 18.8% to $246.1 million as of June 30, 2019, from $302.9 million a year prior, with declines across all segments[154] Segment Analysis Infrastructure Group sales rose 60.1% due to pellet plant events, while other segments faced declines and profit pressure Q2 2019 Segment Sales vs. Q2 2018 (in thousands) | Segment | Q2 2019 Sales | Q2 2018 Sales | % Change | | :--- | :--- | :--- | :--- | | Infrastructure Group | $133,235 | $83,202 | 60.1% | | Aggregate and Mining Group | $106,837 | $116,297 | (8.1)% | | Energy Group | $64,730 | $73,029 | (11.4)% | - Excluding pellet plant impacts, the Infrastructure Group's domestic sales declined by $40.4 million in Q2 2019 due to reduced asphalt plant and mobile equipment sales[157] - Aggregate and Mining Group sales were hurt by decreased rental activity from distributors and weather-related construction delays[158] - Energy Group sales declined due to a slowdown in asphalt and oil & gas industries, impacting industrial boiler sales, and lower wood chipper sales[159] Liquidity and Capital Resources Primary liquidity sources include $24.9 million cash and a $150 million credit facility, with net cash from operations improving to $42.9 million - As of June 30, 2019, the company had $24.9 million in cash, with $21.4 million held by foreign subsidiaries[176] - Borrowings under the main revolving credit facility were reduced to $28.1 million at June 30, 2019, from $58.8 million at year-end 2018[176] - Forecasted capital expenditures for the full year 2019 are approximately $25.0 million[182] Quantitative and Qualitative Disclosures about Market Risk No material changes to market risk disclosures from the 2018 Annual Report on Form 10-K - No material changes to market risk disclosures from the 2018 Form 10-K[190] Controls and Procedures Management concluded that disclosure controls and procedures were not effective due to material weaknesses in internal control - The Principal Executive Officer and Principal Financial Officer concluded that disclosure controls and procedures were not effective as of the end of the reporting period[192] - The ineffectiveness is due to material weaknesses in internal control over financial reporting previously disclosed in the 2018 Form 10-K[192] - A remediation plan is being implemented to address the material weaknesses, but they will not be considered remediated until controls operate effectively for a sufficient period[195] PART II – OTHER INFORMATION Legal Proceedings The company is involved in various legal actions, including a shareholder class action lawsuit, with no expected material adverse effect - The company is subject to legal actions from the ordinary course of business[196] - Referenced Note 14 for details on a shareholder class action lawsuit[196] Risk Factors No material changes to the company's risk factors from the 2018 Annual Report on Form 10-K - No material changes to risk factors from the 2018 Form 10-K[197] Unregistered Sales of Equity Securities and Use of Proceeds The company has a $150 million share repurchase program, but no shares were repurchased during the first six months of 2019 - A share repurchase program for up to $150 million was approved on July 29, 2018[198] - No shares were repurchased during the six months ended June 30, 2019[198] Exhibits Lists exhibits filed with Form 10-Q, including amended bylaws, CEO/CFO certifications, and XBRL data files - Filed exhibits include CEO and CFO certifications (Sections 302 and 906 of Sarbanes-Oxley Act) and XBRL documents[200]