Astec Industries(ASTE) - 2021 Q3 - Quarterly Report

FORM 10-Q Filing Information Astec Industries, Inc. filed its Q3 2021 Form 10-Q as a large accelerated filer - Astec Industries, Inc. filed its Quarterly Report on Form 10-Q for the period ended September 30, 2021, as a large accelerated filer[1][2] Company and Filing Details | Detail | Value | | :--- | :--- | | Registrant Name | Astec Industries, Inc. | | State of Incorporation | Tennessee | | Commission File Number | 001-11595 | | Quarterly Period Ended | September 30, 2021 | | Common Stock Outstanding (as of Nov 1, 2021) | 22,764,671 shares | | Filer Status | Large Accelerated Filer | PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Astec Industries, Inc.'s unaudited consolidated financial statements for Q3 and YTD September 30, 2021, including balance sheets, income statements, cash flows, equity, and detailed notes Consolidated Balance Sheets Summarizes Astec's financial position with key asset, liability, and equity figures as of September 30, 2021, and December 31, 2020 Consolidated Balance Sheet Highlights (in millions) | Metric | Sep 30, 2021 | Dec 31, 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Assets | $910.7 | $848.2 | $62.5 | 7.4% | | Total Current Assets | $644.8 | $565.8 | $79.0 | 14.0% | | Inventories | $282.8 | $249.7 | $33.1 | 13.3% | | Trade Receivables & Contract Assets, net | $145.8 | $115.9 | $29.9 | 25.8% | | Total Liabilities | $247.6 | $205.2 | $42.4 | 20.7% | | Total Current Liabilities | $212.0 | $170.3 | $41.7 | 24.5% | | Total Equity | $663.1 | $643.0 | $20.1 | 3.1% | Consolidated Statements of Operations Details Astec's financial performance, including net sales, gross profit, operating income, and net income for the three and nine months ended September 30, 2021 and 2020 Consolidated Statements of Operations Highlights (in millions, except per share data) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $267.0 | $231.4 | $35.6 | 15.4% | | Gross Profit | $62.3 | $50.2 | $12.1 | 24.1% | | Income (loss) from operations | $6.7 | $(0.9) | $7.6 | -844.4% | | Net Income attributable to controlling interest | $9.3 | $1.6 | $7.7 | 481.3% | | Diluted EPS | $0.41 | $0.07 | $0.34 | 485.7% | | | | | | | | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $829.4 | $785.5 | $43.9 | 5.6% | | Gross Profit | $197.8 | $183.2 | $14.6 | 8.0% | | Income from operations | $27.7 | $25.1 | $2.6 | 10.4% | | Net Income attributable to controlling interest | $27.0 | $31.5 | $(4.5) | -14.3% | | Diluted EPS | $1.18 | $1.38 | $(0.20) | -14.5% | Consolidated Statements of Comprehensive Income (Loss) Presents Astec's comprehensive income, including net income and other comprehensive income (loss), for the three and nine months ended September 30, 2021 and 2020 Consolidated Statements of Comprehensive Income (Loss) Highlights (in millions) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $9.3 | $1.6 | $27.0 | $31.4 | | Other Comprehensive (Loss) Income | $(4.5) | $0.5 | $(1.2) | $(8.3) | | Comprehensive Income | $4.8 | $2.1 | $25.8 | $23.1 | | Comprehensive Income attributable to controlling interest | $4.9 | $2.1 | $25.9 | $23.3 | Consolidated Statements of Cash Flows Outlines Astec's cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2021 and 2020 Consolidated Statements of Cash Flows Highlights (Nine Months Ended Sep 30, in millions) | Cash Flow Activity | 2021 | 2020 | Change ($) | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $27.3 | $102.1 | $(74.8) | | Net cash used by investing activities | $(9.2) | $(31.8) | $22.6 | | Net cash used by financing activities | $(11.4) | $(8.3) | $(3.1) | | Increase in cash and cash equivalents | $6.0 | $59.6 | $(53.6) | | Cash and cash equivalents, end of period | $164.6 | $108.5 | $56.1 | Consolidated Statements of Equity Details changes in Astec's equity components, including common stock, additional paid-in capital, retained earnings, and accumulated other comprehensive loss, from December 31, 2020, to September 30, 2021 Consolidated Statements of Equity Highlights (in millions) | Metric | Balance, Dec 31, 2020 | Balance, Sep 30, 2021 | Change ($) | | :--- | :--- | :--- | :--- | | Common Stock Amount | $4.5 | $4.6 | $0.1 | | Additional Paid-in Capital | $127.8 | $129.2 | $1.4 | | Accumulated Other Comprehensive Loss | $(33.5) | $(34.6) | $(1.1) | | Company Shares Held by SERP | $(1.5) | $(1.2) | $0.3 | | Retained Earnings | $545.2 | $564.7 | $19.5 | | Total Equity | $643.0 | $663.1 | $20.1 | Notes To Unaudited Consolidated Financial Statements Provides detailed explanations and disclosures supporting the unaudited consolidated financial statements Note 1. Basis of Presentation and Significant Accounting Policies Describes Astec's business, financial statement preparation, key accounting policies, and reclassifications - Astec Industries, Inc. designs, engineers, manufactures, and markets equipment and components primarily for road building and related construction activities, operating in two reportable segments: Infrastructure Solutions and Materials Solutions[24][25] - The financial statements are prepared in accordance with U.S. GAAP, with certain information condensed or omitted per SEC rules for interim statements, and management's estimates are subject to COVID-19 uncertainties[27][28][29] - The company reclassified $0.2 million and $0.8 million net gain on sale of fixed assets from 'Cost of sales' to 'Restructuring, impairment and other asset charges, net' for the three and nine months ended September 30, 2020, respectively[30][31] - The adoption of ASU 2019-12, 'Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes,' effective January 1, 2021, had an immaterial impact on the Company's financial position, results of operations, or cash flows[32][33] Note 2. Acquisitions Details Astec's 2020 acquisitions of CON-E-CO and BMH Systems, including their purchase price allocations - Astec acquired CON-E-CO for $13.8 million and BMH Systems for $15.6 million in 2020, both strengthening the Infrastructure Solutions segment by broadening concrete batch plant manufacturing capabilities[34][36] CON-E-CO Acquisition Purchase Price Allocation (in millions) | Asset/Liability | Amount | | :--- | :--- | | Accounts receivable | $2.3 | | Inventories | $8.1 | | Other assets | $6.3 | | Intangible assets | $4.3 | | Total assets acquired | $21.0 | | Accounts payable and other | $(4.4) | | Advance customer deposits | $(2.8) | | Total liabilities assumed | $(7.2) | | Total Purchase Price | $13.8 | BMH Systems Acquisition Purchase Price Allocation (in millions) | Asset/Liability | Amount | | :--- | :--- | | Cash | $1.2 | | Accounts receivable and contract assets | $6.4 | | Inventories | $2.0 | | Goodwill | $6.3 | | Other assets | $3.8 | | Intangible assets | $5.7 | | Total assets acquired | $25.4 | | Total liabilities assumed | $(9.8) | | Total Purchase Price | $15.6 | Note 3. Inventories Explains inventory valuation methods and presents the composition of inventories at period-end - Inventories are valued at the lower of cost (first-in, first-out) or net realizable value, requiring management estimates and assumptions[39] Inventory Composition (in millions) | Category | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Raw materials and parts | $202.1 | $154.6 | | Work-in-process | $59.2 | $57.3 | | Finished goods | $17.8 | $34.0 | | Used equipment | $3.7 | $3.8 | | Total | $282.8 | $249.7 | Note 4. Fair Value Measurements Discusses the fair value measurement of financial instruments, categorizing them by hierarchy levels - The Company measures various financial instruments at fair value on a recurring basis, including marketable debt and equity securities and foreign currency exchange contracts, all categorized as Level 1 or Level 2[41][42][45] Fair Value of Financial Assets and Liabilities (Sep 30, 2021, in millions) | Category | Level 1 | Level 2 | Total | | :--- | :--- | :--- | :--- | | Financial Assets: | | | | | Trading equity securities | $8.2 | $0.0 | $8.2 | | Trading debt securities | $5.2 | $2.8 | $8.0 | | Derivative financial instruments | $0.0 | $0.3 | $0.3 | | Total Financial Assets | $16.9 | $3.1 | $20.0 | | Financial Liabilities: | | | | | Deferred compensation programs liabilities | $0.0 | $6.4 | $6.4 | | Total Financial Liabilities | $0.0 | $6.4 | $6.4 | Fair Value of Financial Assets and Liabilities (Dec 31, 2020, in millions) | Category | Level 1 | Level 2 | Total | | :--- | :--- | :--- | :--- | | Financial Assets: | | | | | Trading equity securities | $7.0 | $0.0 | $7.0 | | Trading debt securities | $7.0 | $4.0 | $11.0 | | Derivative financial instruments | $0.0 | $0.1 | $0.1 | | Total Financial Assets | $14.0 | $4.1 | $18.1 | | Financial Liabilities: | | | | | Derivative financial instruments | $0.0 | $0.5 | $0.5 | | Deferred compensation programs liabilities | $0.0 | $7.3 | $7.3 | | Total Financial Liabilities | $0.0 | $7.8 | $7.8 | Note 5. Product Warranty Reserves Outlines the company's product warranty policy and changes in warranty liabilities - The Company warrants its products against manufacturing defects, with warranty periods generally ranging from three months to two years, and records a liability at the time of sale based on historical claim rates and costs[49] Product Warranty Liability Changes (in millions) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Reserve balance, beginning of period | $10.5 | $10.7 | $10.3 | $10.3 | | Warranty liabilities accrued | $3.6 | $2.0 | $8.5 | $7.1 | | Warranty liabilities settled | $(3.6) | $(2.8) | $(8.3) | $(7.3) | | Other | $0.0 | $0.7 | $0.0 | $0.5 | | Reserve balance, end of period | $10.5 | $10.6 | $10.5 | $10.6 | Note 6. Accrued Loss Reserves Details the company's reserves for workers' compensation and general liability claims - The Company records actuarially determined reserves for workers' compensation and general liability claims, totaling $7.2 million at both September 30, 2021, and December 31, 2020[51] Note 7. Income Taxes Explains the income tax provision and effective tax rates for the periods, including discrete tax benefits and uncertain tax positions - For Q3 2021, the Company recorded an income tax benefit of $2.8 million (effective tax rate of -43.1%), primarily due to a $3.5 million discrete benefit from the release of a valuation allowance for its Brazilian subsidiary[52] - For the nine months ended September 30, 2021, the Company recorded an income tax provision of $0.4 million (effective tax rate of 1.5%), a significant change from the $4.5 million benefit in 2020 due to a prior year $9.5 million net discrete tax benefit from the CARES Act[53] - The liability for uncertain tax positions increased to $10.7 million as of September 30, 2021, from $9.7 million at December 31, 2020, driven by incremental reserves for the R&D credit[54] Note 8. Commitments and Contingencies Discloses contingent liabilities, letters of credit, and ongoing legal proceedings - The Company is contingently liable for $2.7 million in customer debt financed through third parties and has recorded a $1.1 million liability related to these guarantees[56] - Contingent liabilities under letters of credit totaled $5.3 million as of September 30, 2021, with a maximum potential liability of $30.0 million under its revolving credit facility[58] - The Company is involved in a pending shareholder class action lawsuit (City of Taylor General Employees Retirement System v. Astec Industries, Inc., et al.) which was appealed in June 2021, and a lawsuit against its GEFCO subsidiary alleging breaches of warranty and fraudulent transfer related to $8.5 million in equipment[59][60][61] Note 9. Share-Based Compensation Describes the 2021 Equity Incentive Plan and share-based compensation expenses - The 2021 Equity Incentive Plan, approved on April 27, 2021, reserved 1,280,000 shares for new awards, replacing the expired 2011 Incentive Plan, with awards entitled to dividend equivalents[64][65] Share-Based Compensation Expense (in millions) | Period | 2021 | 2020 | | :--- | :--- | :--- | | Three Months Ended Sep 30 | $1.7 | $1.8 | | Nine Months Ended Sep 30 | $4.6 | $4.8 | Note 10. Revenue Recognition Presents net sales broken down by major source and geographic region Net Sales by Major Source and Geography (Three Months Ended Sep 30, in millions) | Category | 2021 | 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Domestic Revenue | $201.8 | $181.1 | $20.7 | 11.4% | | Equipment sales (Domestic) | $132.0 | $106.2 | $25.8 | 24.3% | | Parts and component sales (Domestic) | $60.3 | $58.2 | $2.1 | 3.6% | | Total International Revenue | $65.2 | $50.3 | $14.9 | 29.6% | | Equipment sales (International) | $42.5 | $30.9 | $11.6 | 37.5% | | Parts and component sales (International) | $18.8 | $16.0 | $2.8 | 17.5% | | Total Net Sales | $267.0 | $231.4 | $35.6 | 15.4% | Net Sales by Major Source and Geography (Nine Months Ended Sep 30, in millions) | Category | 2021 | 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Domestic Revenue | $628.8 | $636.6 | $(7.8) | -1.2% | | Equipment sales (Domestic) | $399.0 | $396.0 | $3.0 | 0.8% | | Parts and component sales (Domestic) | $191.8 | $182.9 | $8.9 | 4.9% | | Total International Revenue | $200.6 | $148.9 | $51.7 | 34.7% | | Equipment sales (International) | $133.2 | $92.8 | $40.4 | 43.5% | | Parts and component sales (International) | $56.5 | $46.3 | $10.2 | 22.0% | | Total Net Sales | $829.4 | $785.5 | $43.9 | 5.6% | Sales into Major Geographic Regions (in millions) | Region | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | United States | $201.8 | $181.1 | $628.8 | $636.6 | | Canada | $16.8 | $12.2 | $54.7 | $39.8 | | Australia | $10.7 | $6.8 | $31.9 | $18.1 | | Europe | $7.4 | $7.6 | $31.8 | $21.8 | | Africa | $9.9 | $7.1 | $26.0 | $17.9 | | Brazil | $8.0 | $4.3 | $17.1 | $15.2 | | Mexico | $1.3 | $0.2 | $11.7 | $1.6 | | South America | $2.5 | $7.2 | $11.5 | $16.3 | | Asia | $5.5 | $2.5 | $9.2 | $8.1 | | Other | $3.1 | $2.4 | $6.7 | $10.1 | | Total Foreign | $65.2 | $50.3 | $200.6 | $148.9 | | Total Net Sales | $267.0 | $231.4 | $829.4 | $785.5 | Note 11. Segment Information Provides financial data for Astec's Infrastructure Solutions and Materials Solutions segments - Astec operates in two reportable segments: Infrastructure Solutions (asphalt and concrete plants, heavy equipment) and Materials Solutions (heavy processing equipment for aggregate, mining, recycling), with Corporate including the parent company and a captive insurance company[73][74][75] Segment Revenues from External Customers (in millions) | Segment | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Infrastructure Solutions | $176.3 | $151.1 | $558.0 | $535.6 | | Materials Solutions | $90.7 | $80.3 | $271.4 | $249.9 | | Corporate | — | — | — | — | | Total | $267.0 | $231.4 | $829.4 | $785.5 | Segment Profit (Loss) (in millions) | Segment | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Infrastructure Solutions | $13.8 | $6.3 | $46.6 | $37.7 | | Materials Solutions | $8.0 | $7.2 | $27.3 | $21.7 | | Corporate | $(12.8) | $(11.7) | $(47.5) | $(28.2) | | Total Profit for Reportable Segments | $9.0 | $1.8 | $26.4 | $31.2 | Note 12. Strategic Transformation and Restructuring and Other Asset Charges Details costs and actions related to the company's "Simplify, Focus and Grow Strategic Transformation" initiative - The Company's 'Simplify, Focus and Grow Strategic Transformation' (SFG) initiative, ongoing since 2019, involves facility rationalization, asset impairment, workforce reduction, and organizational integration, incurring incremental SFG costs of $2.4 million (Q3 2021) and $7.7 million (YTD 2021) in SG&A[78] Restructuring, Impairment and Other Asset Charges, Net (in millions) | Category | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total restructuring related charges | $0.5 | $3.1 | $2.1 | $7.4 | | Total asset impairment charges | $0.0 | $(0.3) | $0.2 | $4.1 | | Total gain on sale of property and equipment, net | $(0.2) | $(0.6) | $(0.5) | $(1.2) | | Restructuring, impairment and other asset charges, net | $0.3 | $2.2 | $1.8 | $10.3 | - Key restructuring actions include the planned closure of the Tacoma facility by end of 2021 (incurring $1.1 million in charges YTD 2021), the closure of the Mequon site in 2020 (incurring $0.6 million YTD 2021), and costs associated with exiting the Enid oil and gas drilling product lines ($0.4 million Q3 2021)[86][87][89] Note 13. Earnings Per Common Share Explains the calculation of basic and diluted earnings per share - Basic EPS is calculated by dividing net income attributable to controlling interest by weighted average common shares outstanding, while diluted EPS includes the dilutive effect of common stock equivalents[90] Weighted Average Shares Outstanding for EPS Calculation | Denominator | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Basic | 22,761,203 | 22,615,492 | 22,712,894 | 22,592,779 | | Diluted | 22,913,563 | 22,945,893 | 22,922,930 | 22,837,725 | Note 14. Subsequent Event Discloses the termination of the defined benefit pension plan in October 2021 and its estimated financial impact - In October 2021, the Company completed the termination of its fully funded defined benefit pension plan, settling obligations through $5.5 million in lump sum payments and $12.2 million in annuity purchases, estimated to result in a non-cash pre-tax charge of $4.5 million to $5.5 million in Q4 2021[91] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of Astec's financial performance, condition, and cash flows, including an executive summary, industry conditions, and segment results Forward-Looking Statements Cautions readers about forward-looking statements in the report, which are subject to risks - This report contains forward-looking statements regarding income, earnings, cash flows, and operations, based on management's expectations and subject to known and unknown risks outlined in Item 1A. Risk Factors[93][94] Overview Describes Astec's core business of manufacturing equipment for road building, construction, mining, and quarrying - Astec designs, engineers, manufactures, and markets equipment and components primarily for road building and related construction activities, including asphalt and concrete production, and other equipment for mining, quarrying, and demolition industries, also selling replacement parts[96][97] Executive Summary Highlights key financial performance metrics for Q3 2021 compared to Q3 2020 Q3 2021 Financial Highlights (vs. Q3 2020, in millions, except per share data) | Metric | Q3 2021 | Q3 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $267.0 | $231.4 | $35.6 | 15.4% | | Gross Profit | $62.3 | $50.2 | $12.1 | 24.1% | | Income (loss) from operations | $6.7 | $(0.9) | $7.6 | -844.4% | | Net Income attributable to Astec | $9.3 | $1.6 | $7.7 | 481.3% | | Diluted Earnings Per Share | $0.41 | $0.07 | $0.34 | 485.7% | Significant Items Impacting Operations in 2021 Discusses the ongoing impacts of COVID-19, facility consolidation, and the strategic transformation initiative - The COVID-19 pandemic continues to impact operations through material price increases, extended lead times, and labor shortages, though manufacturing and business operations remained fully operational[99][100] - The Tacoma facility is expected to cease operations by the end of 2021, with product lines transferring to other Infrastructure Solutions segment facilities by early 2022, as part of the company's consolidation efforts[100] - The 'Simplify, Focus and Grow Strategic Transformation' (SFG) initiative aims to optimize manufacturing, centralize business operations, reduce complexity and cost, and improve productivity, incurring $2.4 million (Q3 2021) and $7.7 million (YTD 2021) in non-capitalized costs[101][102][103] Industry and Business Condition Analyzes factors influencing demand, including infrastructure spending, commodity prices, and supply chain challenges - Demand is influenced by economic conditions, public and private infrastructure spending, and prices of liquid asphalt, oil, natural gas, and steel, with federal highway funding being crucial for customer capital equipment purchases[104][106][107] - The backlog of orders significantly increased by 184.0% to $620.5 million as of September 30, 2021, driven by pent-up demand, inventory replenishment, and anticipation of future infrastructure investment, alongside slower production cycles due to labor shortages and supply chain constraints[105][127][128] - Rising oil prices (impacting asphalt costs) and steel prices (a major component) have increased production costs throughout 2021, managed through forward-looking contracts and advanced purchases, though competitive markets limit short-term price pass-through[108][109][112] - Supply chain challenges, including labor shortages at vendors, logistics issues, and container availability, have led to increased lead times for manufacturing components, while internal operations face personnel shortages and rising labor costs[110][111] Results of Operations Provides a detailed analysis of the company's revenue, profit, and expense trends Net Sales Analyzes changes in net sales by source and geography for the three and nine months ended September 30 - Net sales for Q3 2021 increased by 15.4% to $267.0 million, driven by higher equipment sales ($37.6 million), parts and component sales ($6.0 million), and incremental sales from acquired businesses ($3.3 million), partially offset by reduced sales from exited product lines ($9.3 million)[113] - YTD 2021 net sales increased by 5.6% to $829.4 million, primarily due to incremental sales from acquired businesses ($33.1 million), higher equipment sales ($29.4 million), and parts and component sales ($17.7 million), partially offset by reduced sales from exited product lines ($24.2 million)[114] - Domestic sales for Q3 2021 increased by 11.4% to $201.8 million, while international sales increased by 29.6% to $65.2 million, with foreign exchange rates having a negative $3.8 million impact on Q3 2021 international sales[115][117] - YTD 2021 domestic sales decreased by 1.2% to $628.8 million, mainly due to the exited Enid business and lower production throughput, while international sales significantly increased by 34.7% to $200.6 million, despite a negative $12.5 million foreign exchange impact[116][118] Gross Profit Discusses the drivers behind changes in consolidated gross profit and gross profit margin - Consolidated gross profit for Q3 2021 increased by 24.1% to $62.3 million, with gross profit as a percentage of sales rising 160 basis points to 23.3%, driven by pricing realization, improved sales volumes/mix, and manufacturing efficiencies, partially offset by inflation[119] - YTD 2021 consolidated gross profit increased by 8.0% to $197.8 million, with gross profit as a percentage of sales increasing 50 basis points to 23.8%, primarily due to increased pricing realized in Q3 2021, partially offset by inflation[119] Selling, General and Administrative Expenses Explains the changes in SG&A expenses and their impact on net sales - SG&A expenses for Q3 2021 increased by 12.5% to $48.6 million (18.2% of net sales), mainly due to increased costs for transformation initiatives, higher technology and software licensing costs ($0.8 million), incremental expenses for acquired businesses ($0.8 million), and increased travel expenses ($0.6 million)[120] - YTD 2021 SG&A expenses increased by 13.9% to $148.3 million (17.9% of net sales), driven by increased costs for transformation initiatives, higher technology and software licensing costs ($7.2 million), and incremental expenses for acquired businesses ($5.4 million), partially offset by reduced expenses from closed locations ($6.1 million)[121] Restructuring, Impairment and Other Asset Charges, Net Details the net charges related to restructuring, asset impairment, and property sales Restructuring, Impairment and Other Asset Charges, Net (in millions) | Category | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total restructuring related charges | $0.5 | $3.1 | $2.1 | $7.4 | | Total asset impairment charges | $0.0 | $(0.3) | $0.2 | $4.1 | | Total gain on sale of property and equipment, net | $(0.2) | $(0.6) | $(0.5) | $(1.2) | | Restructuring, impairment and other asset charges, net | $0.3 | $2.2 | $1.8 | $10.3 | Income Tax Provision Explains the income tax provision and effective tax rates for the periods - For Q3 2021, the Company recorded an income tax benefit of $2.8 million, reflecting a (43.1)% effective tax rate, compared to a $1.2 million benefit (300.0% effective tax rate) in Q3 2020, primarily due to a $3.5 million discrete benefit from the release of a valuation allowance for its Brazilian subsidiary[125] - For YTD 2021, the Company recorded an income tax provision of $0.4 million, reflecting a 1.5% effective tax rate, compared to a $4.5 million benefit (16.7% effective tax rate) in YTD 2020, mainly due to a $9.5 million net discrete tax benefit in the prior year from the CARES Act's NOL carryback provisions[126] Backlog Analyzes the significant increase in order backlog and its contributing factors - The backlog of orders as of September 30, 2021, was $620.5 million, an increase of $402.0 million or 184.0% compared to $218.5 million as of September 30, 2020, with domestic backlog increasing by 236.2% and international backlog by 66.5%[127] - The backlog increase was driven by pent-up demand, customer retail and dealer inventory replenishment, anticipation of future infrastructure investment, and slower production cycles due to manufacturing labor shortages and increased lead times for materials[127][128] Backlog by Segment (in millions) | Segment | Sep 30, 2021 | Sep 30, 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Infrastructure Solutions | $341.4 | $148.8 | $192.6 | 129.4% | | Materials Solutions | $279.1 | $69.7 | $209.4 | 300.4% | | Total Backlog | $620.5 | $218.5 | $402.0 | 184.0% | Segment Net Sales (Three Months Ended) Presents net sales performance for Infrastructure Solutions and Materials Solutions segments for Q3 Segment Net Sales (Three Months Ended Sep 30, in millions) | Segment | 2021 | 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Infrastructure Solutions | $176.3 | $151.1 | $25.2 | 16.7% | | Materials Solutions | $90.7 | $80.3 | $10.4 | 13.0% | - Infrastructure Solutions' domestic sales increased by $14.9 million (11.6%), driven by equipment sales and acquisitions, partially offset by the exited Enid business, while international sales increased by $10.3 million (45.2%) due to recovery from COVID-19 disruptions[129] - Materials Solutions' domestic sales increased by $5.8 million (11.0%) from higher equipment and parts sales, and international sales increased by $4.6 million (16.7%) due to higher equipment, parts, and service sales, reflecting recovery from prior year COVID-19 temporary site closures[130] Segment Net Sales (Nine Months Ended) Presents net sales performance for Infrastructure Solutions and Materials Solutions segments for YTD September 30 Segment Net Sales (Nine Months Ended Sep 30, in millions) | Segment | 2021 | 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Infrastructure Solutions | $558.0 | $535.6 | $22.4 | 4.2% | | Materials Solutions | $271.4 | $249.9 | $21.5 | 8.6% | - Infrastructure Solutions' domestic sales decreased by $17.2 million (3.7%) due to the exited Enid business, lower equipment sales from labor shortages, and reduced used equipment sales, while international sales increased by $39.6 million (52.2%) due to recovery from COVID-19 disruptions and acquisitions[131] - Materials Solutions' domestic sales increased by $9.4 million (5.3%) from higher equipment and parts sales, and international sales increased by $12.1 million (16.6%) primarily due to increased equipment sales, partly related to recovery from COVID-19 temporary site closures[132] Segment Profit (Loss) (Three Months Ended) Details the profit (loss) performance for each segment and Corporate operations for Q3 Segment Profit (Loss) (Three Months Ended Sep 30, in millions) | Segment | 2021 | 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Infrastructure Solutions | $13.8 | $6.3 | $7.5 | 119.0% | | Materials Solutions | $8.0 | $7.2 | $0.8 | 11.1% | | Corporate | $(12.8) | $(11.7) | $(1.1) | (9.4)% | - Infrastructure Solutions' segment profit increased by $7.5 million (119.0%), driven by a $10.4 million increase in gross profit (310 basis point margin increase) and lower restructuring costs, partially offset by increased general and administrative expenses and inflation[135] - Materials Solutions' segment profit increased by $0.8 million (11.1%), resulting from a $1.8 million increase in gross profit, partially offset by decreased restructuring costs and inflation[135] - Corporate operations' loss increased by $1.1 million (9.4%) to $12.8 million, primarily due to increased costs for centralization and infrastructure efforts related to transformation initiatives[136] Segment Profit (Loss) (Nine Months Ended) Details the profit (loss) performance for each segment and Corporate operations for YTD September 30 Segment Profit (Loss) (Nine Months Ended Sep 30, in millions) | Segment | 2021 | 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Infrastructure Solutions | $46.6 | $37.7 | $8.9 | 23.6% | | Materials Solutions | $27.3 | $21.7 | $5.6 | 25.8% | | Corporate | $(47.5) | $(28.2) | $(19.3) | (68.4)% | - Infrastructure Solutions' segment profit increased by $8.9 million (23.6%), driven by a $7.9 million increase in gross profit (50 basis point margin increase) and a $4.3 million decrease in restructuring and impairment charges, partially offset by increased general and administrative expenses and inflation[137] - Materials Solutions' segment profit increased by $5.6 million (25.8%), primarily due to a $7.0 million increase in gross profit (60 basis point margin increase), inclusive of government subsidies, partially offset by increased general and administrative and R&D expenses and inflation[138] - Corporate operations' loss increased by $19.3 million (68.4%) to $47.5 million, mainly due to increased costs for transformation initiatives, including a $1.5 million out-of-period expense for software licensing fees, and $6.8 million of increased income tax expense[139] Liquidity and Capital Resources Discusses the company's cash flow activities, financial condition, and capital management Cash Flows from Operating Activities Analyzes the changes in cash provided by operating activities - Net cash provided by operating activities decreased by $74.8 million for YTD 2021 compared to YTD 2020, primarily driven by changes in inventories ($76.6 million decrease), receivables and other contract assets ($29.3 million decrease), and payable/prepaid income taxes ($14.3 million decrease), partially offset by timing of accounts payable payments ($34.6 million increase) and customer deposits ($22.0 million increase)[144] Cash Flows from Investing Activities Analyzes the changes in cash used by investing activities - Net cash used by investing activities decreased by $22.6 million for YTD 2021 compared to YTD 2020, primarily due to the acquisitions of CON-E-CO and BMH Systems in Q3 2020 and lower proceeds from sales of property and equipment[145] Cash Flows from Financing Activities Analyzes the changes in cash used by financing activities - Net cash used by financing activities increased by $3.1 million for YTD 2021 compared to YTD 2020, primarily due to higher withholding tax payments on the vesting of share-based compensation awards[146] Dividends Reports on dividend payments and recent increases - The Company paid quarterly dividends of $0.11 per common share in Q1, Q2, and Q3 2021 and 2020, with the Board of Directors approving an increase to $0.12 per common share, effective for the Q4 2021 dividend payment[147] Financial Condition Summarizes changes in current assets and liabilities - Total current assets increased by $79.0 million (14.0%) to $644.8 million as of September 30, 2021, from $565.8 million at December 31, 2020, primarily due to increases in inventories ($33.1 million) and net trade receivables and contract assets ($29.9 million)[148] - Total current liabilities increased by $41.7 million (24.5%) to $212.0 million as of September 30, 2021, from $170.3 million at December 31, 2020, mainly driven by increased accounts payable ($25.2 million) and accrued payroll and related liabilities ($9.1 million)[148] Contingencies States management's belief regarding the immateriality of legal proceedings' financial impact - Management believes the ultimate outcome of current claims and legal proceedings will not have a material adverse effect on the Company's financial position, cash flows, or results of operations, but acknowledges inherent uncertainties[149] Off-balance Sheet Arrangements Refers to disclosures on contingent liabilities and guarantees - Information on contingent liabilities for customer purchases and various guarantees, including letters of credit, advance customer payments, and retention guarantees, is discussed in Note 8. Commitments and Contingencies[150] Contractual Obligations Details significant contractual obligations, including software arrangements - The Company entered into vendor hosted software arrangements for its transformation initiatives, with payments totaling $46.4 million through September 2027, and reported no other material changes to contractual liabilities since the 2020 Annual Report on Form 10-K[151] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section incorporates by reference the market risk disclosures from the Company's Annual Report on Form 10-K for the year ended December 31, 2020, stating that market risk exposures have not materially changed - The Company's quantitative and qualitative disclosures about market risk are incorporated by reference from its Annual Report on Form 10-K for the year ended December 31, 2020, with no material changes to market risk exposures since that filing[152] Item 4. Controls and Procedures This section details the Company's disclosure controls and procedures and internal control over financial reporting, confirming their effectiveness and the absence of material changes Disclosure Controls and Procedures Confirms the effectiveness of the company's disclosure controls and procedures - Management, under the supervision of the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of September 30, 2021[153] Internal Control over Financial Reporting States no material changes occurred in internal control over financial reporting - There have been no changes in the Company's internal control over financial reporting during the three months ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting[154] PART II - OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 8 for details on legal proceedings and confirms no other pending or threatened litigation is expected to materially affect the Company's business, financial position, cash flows, or results of operations - The Company is involved in legal actions in the ordinary course of business, as detailed in Note 8, and management believes no other pending or threatened litigation will materially affect the Company's financial position, cash flows, or results of operations[155] Item 1A. Risk Factors This section refers to the risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2020, and subsequent quarterly reports, noting that additional unknown or currently immaterial risks could also adversely affect the business - The Company's risk factors are detailed in its Annual Report on Form 10-K for the year ended December 31, 2020, and subsequent quarterly reports, acknowledging that additional unknown or currently immaterial risks could also materially adversely affect the business[156] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or use of proceeds to report - None[156] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities to report - None[156] Item 4. Mine Safety Disclosures This section states that there are no mine safety disclosures to report - None[156] Item 5. Other Information This section states that there is no other information to report - None[156] Item 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications from the CEO and CFO, and iXBRL formatted financial statements - The report includes certifications from the Chief Executive Officer and Chief Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2) and financial statements formatted in Inline Extensible Business Reporting Language (iXBRL) (Exhibit 101)[157] SIGNATURES Details the signing parties and date of the report - The report was signed on November 4, 2021, by Rebecca A. Weyenberg, Chief Financial Officer, and Jamie E. Palm, Vice President, Chief Accounting Officer and Corporate Controller[159]