Astec Industries(ASTE) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents Astec Industries, Inc.'s unaudited consolidated financial information, including statements, notes, and management's analysis Item 1. Financial Statements (Unaudited) This section presents Astec Industries, Inc.'s unaudited consolidated financial statements for Q2 2025, including balance sheets, operations, cash flows, equity, and detailed notes Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific dates | ASSETS (in millions) | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Cash, cash equivalents and restricted cash | $88.7 | $90.8 | | Inventories | $448.8 | $422.7 | | Total current assets | $746.0 | $722.8 | | Total assets | $1,065.4 | $1,043.6 | | LIABILITIES AND EQUITY (in millions) | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Short-term debt | $11.8 | $13.3 | | Accounts payable | $89.1 | $79.2 | | Total current liabilities | $274.8 | $271.7 | | Long-term debt | $85.0 | $105.0 | | Total liabilities | $390.5 | $406.0 | | Total equity | $674.9 | $637.6 | Consolidated Statements of Operations This section outlines the company's financial performance over specific periods, including net sales, gross profit, and net income | (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $330.3 | $345.5 | $659.7 | $654.7 | | Gross profit | $88.3 | $81.3 | $180.7 | $158.2 | | Income (loss) from operations | $21.4 | $(10.7) | $41.9 | $(4.4) | | Net income (loss) attributable to controlling interest | $16.7 | $(14.0) | $31.0 | $(10.6) | | Earnings (loss) per common share - Basic | $0.73 | $(0.61) | $1.36 | $(0.47) | | Earnings (loss) per common share - Diluted | $0.72 | $(0.61) | $1.35 | $(0.47) | Consolidated Statements of Comprehensive Income (Loss) This section details the company's comprehensive income or loss, including net income and other comprehensive income items | (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net income (loss) | $16.8 | $(14.0) | $31.1 | $(10.7) | | Foreign currency translation adjustments | $6.4 | $(1.4) | $9.5 | $(5.8) | | Comprehensive income (loss) attributable to controlling interest | $23.1 | $(15.2) | $40.4 | $(16.2) | Consolidated Statements of Cash Flows This section presents the cash inflows and outflows from operating, investing, and financing activities for the period | (in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $33.4 | $(36.1) | | Net cash used in investing activities | $(7.7) | $(12.6) | | Net cash (used in) provided by financing activities | $(29.2) | $49.5 | | Decrease in cash, cash equivalents and restricted cash | $(2.1) | $— | | Cash, cash equivalents and restricted cash, end of period | $88.7 | $63.2 | Consolidated Statements of Equity This section details changes in the company's equity, including common stock, retained earnings, and accumulated other comprehensive loss | (in millions) | Balance, December 31, 2024 | Balance, June 30, 2025 | | :----------------------------------- | :------------------------- | :--------------------- | | Common Stock (shares) | 22,803,976 | 22,874,713 | | Common Stock (amount) | $4.6 | $4.6 | | Additional Paid-in Capital | $142.9 | $145.5 | | Accumulated Other Comprehensive Loss | $(51.1) | $(41.7) | | Retained Earnings | $541.7 | $566.7 | | Total Equity | $637.6 | $674.9 | - Total equity increased by $37.3 million from December 31, 2024, to June 30, 2025, primarily due to net income and other comprehensive income, partially offset by dividend payments[22] Notes to Unaudited Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the unaudited consolidated financial statements Note 1. Basis of Presentation and Significant Accounting Policies This note outlines the company's business, financial statement preparation, and key accounting policies - Astec Industries, Inc. designs, engineers, manufactures, markets, and services equipment and components for asphalt and concrete road building, mining, quarrying, construction, demolition, land clearing, recycling, and port/rail yard operations, operating in Infrastructure Solutions and Materials Solutions segments[25][26] - Financial statements adhere to U.S. GAAP, with management making estimates for inventory, warranty, goodwill, and income taxes[28][30] - The company adopted ASU 2023-07 and is evaluating ASU 2023-09 and ASU 2024-03, with no expected material impact on financial results[33][34][35] Note 2. Inventories This note details the composition and changes in the company's inventory balances | (in millions) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Raw materials and parts | $276.7 | $275.4 | | Work-in-process | $84.0 | $60.9 | | Finished goods | $81.1 | $83.5 | | Used equipment | $7.0 | $2.9 | | Total | $448.8 | $422.7 | - Total inventories increased by $26.1 million from December 31, 2024, to June 30, 2025, primarily due to increases in work-in-process and used equipment[38] Note 3. Fair Value Measurements This note describes the fair value measurement of financial instruments, categorized by hierarchy levels - The company measures marketable debt and equity securities at fair value, categorizing all financial assets and liabilities as Level 1 or Level 2[39][41] | Financial assets (in millions) | June 30, 2025 | December 31, 2024 | | :----------------------------- | :------------ | :---------------- | | Total financial assets | $23.3 | $21.9 | | Total financial liabilities | $6.5 | $6.1 | Note 4. Goodwill This note explains the goodwill impairment charge recognized during the period - A $20.2 million pre-tax non-cash goodwill impairment charge was recognized in Q2 2024 for the Materials Solutions reporting unit due to macroeconomic conditions and lower operating results[44][46] Note 5. Product Warranty Reserves This note details the changes in the company's product warranty reserve balances | (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Reserve balance, beginning of the period | $17.8 | $16.2 | $16.1 | $16.5 | | Warranty liabilities accrued | $6.1 | $4.5 | $12.3 | $8.7 | | Warranty liabilities settled | $(5.1) | $(5.2) | $(9.7) | $(9.7) | | Reserve balance, end of the period | $18.9 | $15.4 | $18.9 | $15.4 | - The product warranty reserve increased from $16.1 million to $18.9 million for the six months ended June 30, 2025, as accrued liabilities exceeded settled liabilities[49] Note 6. Accrued Loss Reserves This note provides information on the company's accrued loss reserves for workers' compensation and general liability claims - Total accrued loss reserves for workers' compensation and general liability claims were $6.4 million as of June 30, 2025, a slight increase from $6.3 million at December 31, 2024[50] Note 7. Income Taxes This note explains the company's income tax expense, effective tax rate, and uncertain tax positions | Income Tax (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax expense | $5.8 | $0.3 | $11.2 | $1.7 | | Effective tax rate | 25.7% | (2.2)% | 26.5% | (18.9)% | - Income tax expense and the effective tax rate increased for both periods ended June 30, 2025, due to higher pretax book income and jurisdictional income/loss weighting changes[51][52] - The liability for uncertain tax positions increased to $17.3 million as of June 30, 2025, due to incremental reserves for a research and development credit[53] - The One Big Beautiful Bill Act (OBBBA) was enacted on July 4, 2025, but had no financial statement impact as of June 30, 2025[55] Note 8. Commitments and Contingencies This note discloses the company's contingent liabilities, letters of credit, and property purchase commitments - Astec is contingently liable for $1.3 million in customer debt guarantees, with a recorded liability of $0.2 million as of June 30, 2025[56] - Outstanding letters of credit totaled $5.2 million under the $250.0 million revolving credit facility, with $24.8 million unused, plus $5.3 million in foreign performance guarantees[58] - The company has a commitment to purchase a property for $2.8 million in Q1 2026[59] - Management believes current claims and legal proceedings will not materially adversely affect the company's financial position, cash flows, or results of operations[61] Note 9. Revenue Recognition This note provides a breakdown of net sales by geographic area and industry segment | (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total net sales | $330.3 | $345.5 | $659.7 | $654.7 | | Domestic revenue | $262.0 | $272.1 | $535.8 | $515.3 | | International revenue | $68.3 | $73.4 | $123.9 | $139.4 | | Infrastructure Solutions (3 months) | $204.6 | $221.4 | | | | Materials Solutions (3 months) | $125.7 | $124.1 | | | | Infrastructure Solutions (6 months) | | | $440.6 | $423.6 | | Materials Solutions (6 months) | | | $219.1 | $231.1 | - For Q2 2025, total net sales decreased by 4.4% YoY due to lower domestic equipment sales, while for the six months, sales increased by 0.8% YoY due to favorable pricing and increased used equipment, service, and freight revenue[65][66] Note 10. Operations by Industry Segment and Geographic Area This note details financial performance by the Infrastructure Solutions and Materials Solutions segments and geographic regions - Astec operates in Infrastructure Solutions and Materials Solutions segments, with the CEO using Segment Operating Adjusted EBITDA to evaluate performance and allocate resources[67][68][69][71] | Segment Operating Adjusted EBITDA (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Infrastructure Solutions | $32.2 | $27.2 | $75.1 | $52.8 | | Materials Solutions | $14.2 | $10.2 | $19.4 | $15.5 | | Total Reportable Segments | $46.4 | $37.4 | $94.5 | $68.3 | - Infrastructure Solutions segment revenues decreased by 7.6% for the three months ended June 30, 2025, but increased by 4.0% for the six months ended June 30, 2025, compared to the prior year periods[73][74] - Materials Solutions segment revenues increased by 1.3% for the three months ended June 30, 2025, but decreased by 5.2% for the six months ended June 30, 2025, compared to the prior year periods[73][74] | Net Sales by Geographic Region (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | United States | $262.0 | $272.1 | $535.8 | $515.3 | | Total foreign | $68.3 | $73.4 | $123.9 | $139.4 | | Total net sales | $330.3 | $345.5 | $659.7 | $654.7 | Note 11. Strategic Transformation, Restructuring and Other Asset Gains, net This note outlines costs related to the ERP system implementation and restructuring charges - Astec's multi-year ERP system implementation has incurred approximately $143 million through Q2 2025, out of an estimated $180 million to $200 million total cost, expected to conclude in 2028 or 2029[97] | Strategic Transformation Costs (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total costs related to strategic transformation initiatives | $3.4 | $11.2 | $10.4 | $17.7 | | Amortization of capitalized implementation costs | $1.0 | $1.0 | $1.9 | $1.7 | | Restructuring and Other Asset Gains, net (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total restructuring related charges | $— | $0.9 | $— | $1.0 | | Total gain on sale of property and equipment, net | $(0.1) | $(0.2) | $(0.1) | $(1.1) | | Restructuring and other asset gains, net | $(0.1) | $0.7 | $(0.1) | $(0.1) | - Workforce reductions in Q2 2024 resulted in $0.9 million in charges, with no restructuring charges incurred in Q2 or the six months ended June 30, 2025[80][79] Note 12. Earnings (Loss) Per Common Share This note provides the basic and diluted earnings per common share calculations | Shares Outstanding | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Denominator for basic EPS | 22,877,075 | 22,796,729 | 22,855,304 | 22,779,414 | | Denominator for diluted EPS | 23,074,780 | 22,796,729 | 23,025,924 | 22,779,414 | - Diluted EPS for Q2 2025 was $0.72, a significant increase from $(0.61) in Q2 2024, and $1.35 for the six months, up from $(0.47) in the prior year[11] Note 13. Subsequent Events This note discloses significant events occurring after the reporting period, including an acquisition and new credit agreement - On July 1, 2025, Astec acquired TerraSource Holdings, LLC for $245.0 million cash, expanding into adjacent material processing equipment markets[84] - A new $600.0 million credit agreement was entered into, with proceeds used to finance the TerraSource acquisition and repay existing debt[85] - The new credit agreement includes financial covenants and restrictions, with the acquisition and financing expected to materially impact future financial results[90][92] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Astec's financial condition, operations, and cash flows for Q2 2025, covering performance, business conditions, and liquidity Executive Summary This section provides a high-level overview of the company's strategic initiatives and key financial performance highlights - Astec's multi-year ERP implementation has incurred approximately $143 million through Q2 2025, out of an estimated $180-$200 million total cost, expected to conclude in 2028 or 2029[97] | Financial Highlights (Three Months Ended June 30) | 2025 | 2024 | Change (%) | | :------------------------------------------------ | :----------- | :----------- | :--------- | | Net sales | $330.3 million | $345.5 million | -4.4% | | Gross profit | $88.3 million | $81.3 million | +8.6% | | Income from operations | $21.4 million | $(10.7) million | +300.0% | | Net income attributable to Astec | $16.7 million | $(14.0) million | +219.3% | | Diluted earnings per share | $0.72 | $(0.61) | +218.0% | | Backlog | $380.9 million | $531.1 million | -28.3% | Business Conditions and Trends This section discusses external factors influencing the company's operations, including commodity prices and geopolitical risks - Steel prices remained elevated in Q2 2025 due to tariffs, stagnant demand, domestic reshoring, and global construction focus, while oil prices are expected to fluctuate moderately[100][101] - Geopolitical conflicts are monitored for potential downturns, oil price increases, or distribution disruptions, with the company attempting to offset production costs through price adjustments[102][103] Results of Operations This section analyzes the company's financial performance, including sales, profit, expenses, and segment results | Metric (in millions) | Q2 2025 | Q2 2024 | Change ($) | Change (%) | | :------------------- | :----------- | :----------- | :--------- | :--------- | | Net Sales | $330.3 | $345.5 | $(15.2) | -4.4% | | Gross Profit | $88.3 | $81.3 | $7.0 | +8.6% | | SG&A Expenses | $67.0 | $71.1 | $(4.1) | -5.8% | | Interest Expense | $2.1 | $3.1 | $(1.0) | -32.3% | | Income Tax Expense | $5.8 | $0.3 | $5.5 | +1833.3% | - Net sales decreased in Q2 2025 primarily due to unfavorable volume and mix, partially offset by favorable pricing. Gross profit increased due to favorable pricing, manufacturing input cost changes, and inventory adjustments, despite manufacturing inefficiencies and higher warranty costs[104][110][111] - SG&A expenses decreased due to lower strategic transformation costs, professional services, technology support, bad debt, and depreciation, but were partially offset by higher personnel-related costs and TerraSource acquisition transaction costs[113] - Interest expense decreased due to lower average outstanding borrowings and interest rates. Income tax expense increased significantly due to higher pretax book income and changes in jurisdictional income/loss weighting[116][117] | Backlog (in millions) | June 30, 2025 | June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :------------ | :------------ | :--------- | :--------- | | Total Backlog | $380.8 | $531.1 | $(150.3) | -28.3% | | Domestic Backlog | $308.1 | $417.2 | $(109.1) | -26.2% | | International Backlog | $72.7 | $113.9 | $(41.2) | -36.2% | - The decrease in backlog is attributed to shorter production lead times, improved parts fill rates allowing customers to order closer to delivery, and variability in customer ordering patterns due to macroeconomic factors[121] | Segment Net Sales (Q2, in millions) | 2025 | 2024 | Change ($) | Change (%) | | :---------------------------------- | :------ | :------ | :--------- | :--------- | | Infrastructure Solutions | $204.6 | $221.4 | $(16.8) | -7.6% | | Materials Solutions | $125.7 | $124.1 | $1.6 | +1.3% | | Segment Net Sales (6 Months, in millions) | 2025 | 2024 | Change ($) | Change (%) | | :---------------------------------------- | :------ | :------ | :--------- | :--------- | | Infrastructure Solutions | $440.6 | $423.6 | $17.0 | +4.0% |\ | Materials Solutions | $219.1 | $231.1 | $(12.0) | -5.2% | | Segment Operating Adjusted EBITDA (Q2, in millions) | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------------------------------- | :------ | :------ | :--------- | :--------- | | Infrastructure Solutions | $32.2 | $27.2 | $5.0 | +18.4% | | Materials Solutions | $14.2 | $10.2 | $4.0 | +39.2% | | Segment Operating Adjusted EBITDA (6 Months, in millions) | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------------------------------------- | :------ | :------ | :--------- | :--------- | | Infrastructure Solutions | $75.1 | $52.8 | $22.3 | +42.2% | | Materials Solutions | $19.4 | $15.5 | $3.9 | +25.2% | - Corporate and Other operations experienced increased net expenses for both the three and six months ended June 30, 2025, primarily due to higher personnel-related costs and transaction costs related to the TerraSource acquisition[143][144] Liquidity and Capital Resources This section assesses the company's ability to meet financial obligations and fund operations, detailing cash, credit facilities, and future requirements - As of June 30, 2025, total liquidity was $247.6 million, comprising $87.8 million in cash and $159.8 million available under the 2022 Credit Facility, with $29.2 million cash held by foreign subsidiaries[145][146] - On July 1, 2025, Astec entered a new $600.0 million 2025 Credit Agreement, borrowing $350.0 million for the TerraSource acquisition and debt repayment, leaving $244.8 million available[150] - Future cash requirements include working capital, debt service, capital expenditures, software implementation, and operating lease payments, with variable uses for transformation, acquisitions, dividends, and share repurchases[147] - Capital expenditures are estimated to be between $25.0 million and $35.0 million for the year ending December 31, 2025[153] | Cash Flows (in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $33.4 | $(36.1) | | Net cash used in investing activities | $(7.7) | $(12.6) | | Net cash (used in) provided by financing activities | $(29.2) | $49.5 | - Operating activities provided $33.4 million in cash for the six months ended June 30, 2025, a significant improvement from a $36.1 million use in the prior year, driven by lower net cash usages for operating assets and liabilities and increased cash inflows from net income[156] - Investing activities used less cash ($7.7 million vs. $12.6 million) due to decreased capital expenditures, while financing activities used $29.2 million (vs. providing $49.5 million) due to net debt repayments in 2025 versus net borrowings in 2024[157][158] - Total current assets increased by $23.2 million to $746.0 million, mainly due to higher inventories and prepaid income taxes, partially offset by decreases in receivables and cash. Total current liabilities increased by $3.1 million to $274.8 million, driven by higher accounts payable and accrued product warranty, offset by lower customer deposits and short-term debt[160][161] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section incorporates market risk disclosures by reference from the 2024 10-K, noting no material changes to these exposures - The Company's market risk exposures have not materially changed since the Annual Report on Form 10-K for the year ended December 31, 2024, was filed[164] Item 4. Controls and Procedures This section details the effectiveness of Astec's disclosure controls and internal control over financial reporting, anticipating future changes from ERP implementation - As of June 30, 2025, the Company's CEO and CFO concluded that disclosure controls and procedures were effective[165] - No material changes occurred in internal control over financial reporting during the three months ended June 30, 2025. However, a significant multi-year ERP implementation is underway, which is expected to result in changes to processes and internal controls, aiming to strengthen them through automation and standardization[166][167][168] PART II - OTHER INFORMATION This section provides additional information not covered in financial statements, including legal, risk factors, and other disclosures Item 1. Legal Proceedings This section confirms Astec's involvement in ordinary legal actions, with management believing no pending litigation will materially affect financial results - Management believes that current legal proceedings will not have a material adverse effect on the Company's financial position, cash flows, or results of operations[170] Item 1A. Risk Factors This section updates risk factors, focusing on challenges and impacts from the TerraSource acquisition and increased indebtedness - The success of the TerraSource acquisition, completed July 1, 2025, depends on successful integration, which is complex, costly, and time-consuming. Challenges include retaining customers/personnel, integrating systems, achieving synergies, and managing expanded operations, any of which could adversely affect financial results[173][174][175] - The Company's new $350.0 million outstanding principal indebtedness under the 2025 Credit Facilities could adversely affect financial health by requiring a substantial portion of cash flow for debt service, limiting additional financing, increasing vulnerability to economic conditions, and potentially placing the company at a competitive disadvantage[179][180] - Failure to comply with financial covenants in debt instruments could lead to an event of default or acceleration of debt[182] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item reports no unregistered sales of equity securities or use of proceeds during the period - No unregistered sales of equity securities or use of proceeds occurred during the period[183] Item 3. Defaults Upon Senior Securities This item reports no defaults upon senior securities during the period - No defaults upon senior securities occurred during the period[184] Item 4. Mine Safety Disclosures This item reports no mine safety disclosures - No mine safety disclosures are reported[185] Item 5. Other Information This item states no officers or directors adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - No officers or directors adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025[186] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including the TerraSource acquisition agreement, new Credit Agreement, and certifications - Key exhibits include the Membership Interest Purchase Agreement for TerraSource Holdings, LLC (dated April 28, 2025), the Credit Agreement for the 2025 Credit Facilities (dated July 1, 2025), and certifications from the CEO and CFO[188]