Astec Industries Q1 2025 Earnings Call Transcript

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April 29, 2025

There are 6 speakers on the call.

Operator

Thank you. Good morning, everyone. Joining me on today's call are Jakob Fundemerba, our Chief Executive Officer and Brian Harris, our Chief Financial Officer. In just a moment, I'll turn the call over to Jakob to provide his comments, and then Brian will summarize our financial results. For your convenience, a copy of our press release and presentation are posted on our website under the Investor Relations tab at www.astecindustries.com.

Operator

Turning to Slide two, I'll remind you that our discussion this morning may contain forward looking statements that relate to the future performance of the company, and these statements are intended to qualify for the Safe Harbor liability established by the Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions. Factors that could influence our results are highlighted in today's financial news release and others are contained in our filings with the U. S. Securities Exchange and Commission.

Operator

As usual, we ask that you familiarize yourself with those factors. In an effort to provide investors with additional information regarding the company's results, the company refers to various U. S. GAAP and non GAAP financial measures, which management believes provide useful information to investors. These non GAAP measures have no standardized meaning prescribed by U.

Operator

S. GAAP and are therefore unlikely to be comparable to the calculation of similar measures for other companies. Management does not intend these items to be considered in isolation or as a substitute for the related GAAP measures. A reconciliation of GAAP to non GAAP results are included in our news release and the appendix of our slide presentation. And now turning to Slide three, I'll turn the call over to Jakob.

Speaker 1

Thank you, Steve. Good morning, everyone, and thank you for joining us. Today is a very exciting day for the Astec family for two reasons. First, our team delivered exceptional results for Q1. And second, we are happy to announce we signed a definitive agreement to purchase TerraSource.

Speaker 1

TerraSource is a market leading manufacturer of materials processing equipment and the related aftermarket parts, serving complementary crushing, screening and separation markets. We will talk more about TerraSource in a few minutes, but let me start on Slide four by telling you more about our first quarter results. I am pleased to report we experienced another strong quarter for net sales, adjusted EBITDA and adjusted earnings per share. This is in line with our plans to deliver consistency, profitability and growth. Adjusted EBITDA of $35,200,000 increased $16,300,000 or 86.2% over the first quarter of twenty twenty four.

Speaker 1

Adjusted EBITDA margin of 10.7 increased four sixty basis points and adjusted earnings per share were strong at $0.88 Although our backlog of $402,600,000 moderated sequentially by 4.1%, we were encouraged by improved implied orders. In our Infrastructure Solutions segment, strong net sales for the quarter were primarily driven by capital equipment and healthy aftermarket parts sales. We continue to see strong demand for asphalt and concrete plants, which was partially offset by softness in the demand for mobile paving and forestry units. Capital equipment sales in our Material Solutions segment continued to be challenged by high interest rates and further dealer inventory destocking activity, while aftermarket parts sales remained stable at healthy levels. We were encouraged by the sequential double digit improvement in our Materials Solutions backlog and implied orders, and we expect to see restocking activity resume in the second half of the year.

Speaker 1

Order intake momentum continued in April. Free cash flow of $16,600,000 was 116% of net income and was generated due to increased profitability and continued focus on working capital management. For the full year 2025, we are maintaining our expectations for adjusted EBITDA in the range of $105,000,000 to $125,000,000 excluding the impact of tariffs. On the topic of tariffs, we all know this is a very fluid situation. I will share more details on tariffs on Slide seven.

Speaker 1

On Slide five, we provide a brief update of the state of our industry. As you know, America's infrastructure is foundational to our national economy, global competitiveness and quality of life. The 2025 report card for America's infrastructure provided by the American Society of Civil Engineers highlights the need for continued infrastructure investment. Before recent legislation like the 2021 Infrastructure Investment and Jobs Act, many of our infrastructure networks have been neglected for decades. According to the report, America's roads improved to D plus rating in 2025 versus a rating of D in 2021.

Speaker 1

Although signs of progress have been made, the need for improvement to our roads is substantial. America's more than 4,100,000 miles of public roadways from a vital network facilitating the movement of people and goods. Of that 4,100,000 miles, 39% are in poor or mediocre condition. Bridges received a grade of C. Many bridges are approaching or having exceeded the fifty year life they were designed for.

Speaker 1

Of the 623,000 bridges across The U. S, only 44% were deemed to be in a good condition, 49% in fair condition and 7% are in poor condition. Continued maintenance and upgrades are essential for these bridges to withstand the higher traffic volumes and vehicle weights they need to support. As you know, Astec is a niche industry player focused on the rock to road sector. We have strong brand recognition in the infrastructure sector, which is largely comprised of aggregates and road and bridge construction.

Speaker 1

Needed improvements to our infrastructure provide long term stable demand for our equipment, aftermarket parts and digital solutions. Slide six shows our booth at the twenty twenty five World of Asphalt AG1 show and conference held last month in St. Louis, Missouri. Meeting with customers and interacting with our employees reminded me why I love working at Astec. We have great products, industry changing technology and more importantly, the best team in the industry.

Speaker 1

As I walked the show and looked at other providers, I feel Astec is well positioned to win. We also invite you to mark your calendars for the twenty twenty six CONEXPO Trade Show to be held in Las Vegas, Nevada on March 2026. We are excited about the new products and technology we will display at this show. On Slide seven, we show proactive actions we are taking to mitigate risk associated with the new tariff environment. Our One Aztec procurement team is requiring suppliers to provide support for any price increases, and we are actively negotiating all purchases.

Speaker 1

We have initiated additional pricing actions and will continue to assess the situation to protect margins. We continue to practice deal sourcing and resourcing. We are managing supply chain alignment and will re shore to The United States when feasible. We are continually managing our manufacturing footprint. As you know, this is a dynamic situation that can change quickly, but the Aztec team is diligently tracking the current and potential impact of the tariff environment.

Speaker 1

I'll also mention this is a great time to be an American manufacturer. On Slide eight, we show our backlog information. Overall, our backlog declined slightly on a sequential basis, but remained healthy, supported by growth in implied orders. Current backlog levels in the Infrastructure Solutions segment are a combination of strong invoicing for asphalt and concrete plants, dealers ordering equipment closer to desired shipment dates and internal operational excellence efforts to increase facility throughput. That said, we have experienced some softness in orders for mobile paving products and the market for forestry products are currently slow.

Speaker 1

In our Material Solutions segment, backlog grew $12,100,000 or 10.6% due to increased order activity. As noted in prior quarters, we expect demand for Material Solutions products to pick up in the second half of the year. Our implied orders and book to bill trends are shown on Slide nine. We are pleased to report consolidated implied orders rose on a quarter over quarter and sequential basis. The Infrastructure Solutions segment continued to generate solid numbers.

Speaker 1

We were especially pleased with our Material Solutions segment, which posted an increase in implied orders for the second consecutive quarter and posted a book to bill ratio of 113% for Q1. With that, I will now turn the call over to Brian to provide additional comments on our first quarter financial results. Thank you, Jakob, and good morning.

Speaker 2

Our consolidated financial results are highlighted on Slide 11. The demand for Aztec capital equipment and aftermarket parts continued as net sales grew 6.5 over the prior year first quarter and increased 2% for the trailing twelve months ended 03/31/2025. We were pleased to generate an adjusted EBITDA of $35,200,000 in the first quarter, which compared to $18,900,000 in the first quarter of last year. Adjusted EBITDA margin reached 10.7%, a four sixty basis point increase over the prior year. Adjusted EBITDA and adjusted EBITDA margins benefited from volume, pricing and mix as evidenced by a three twenty basis point increase in gross margin.

Speaker 2

Adjusted selling, general and administrative expenses were relatively flat at approximately $63,000,000 for the quarter, but improved by 130 basis points as a percentage of net sales. Q1 adjusted earnings per share of $0.88 compared very favorably to zero three four dollars of earnings per share posted in Q1 twenty twenty four. On a trailing twelve month basis, we increased net sales, adjusted EBITDA, adjusted EBITDA margin and adjusted earnings per share. This is in line with our commitment to provide consistency, profitability and growth and shows the actions we have taken are gaining traction. Moving on to the Infrastructure Solutions segment shown on Slide 12, we generated higher net sales for the quarter due to strong domestic capital equipment performance.

Speaker 2

Aftermarket parts were slightly lower in the first quarter, but remained at favorable levels. For the trailing 12, net sales in Infrastructure Solutions increased 10.7%. Segment operating adjusted EBITDA dollars and adjusted EBITDA margins were positively affected by volume, pricing and operational excellence initiatives and expense management. Both posted solid increases on a quarter over quarter and trailing twelve months basis. The Materials Solutions segment is shown on Slide 13.

Speaker 2

As previously noted, net sales for the quarter along with the trailing twelve months were negatively impacted by lower capital equipment sales resulting from the influence of high interest rates and dealer destocking. Aftermarket parts sales declined slightly, but remained at healthy levels. Despite lower sales revenue, we have been able to control costs and achieve improved adjusted EBITDA margins. Moving on to the first quarter adjusted EBITDA bridge on Slide 14, we were pleased to report adjusted EBITDA of $35,200,000 an increase of $16,300,000 over the first quarter of twenty twenty four. Favorable volume and pricing were the primary drivers.

Speaker 2

Proactive one asset procurement efforts helped contain inflation and manufacturing efficiencies also contributed. On Slide 15, we show adjusted EBITDA of 128,100,000.0 on a trailing twelve month basis. This was an increase of $34,400,000 or 36.7% driven by increased volume, pricing mix and expense management, partially offset by inflation and manufacturing inefficiencies and other period costs. On Slide 16, you can see we maintain a strong balance sheet with ample liquidity. We ended the quarter with cash and cash equivalents of 90,100,000.0 available credit of $148,800,000 for a total available liquidity of $238,900,000 Our free cash flow in the quarter of sixteen point six million was 116% of net income.

Speaker 2

These results were driven by profitable sales and sound working capital management. I'll now turn the call back to Jakob.

Speaker 1

Thank you, Brian. Turning to Slide 17. We are very pleased to announce we have entered into a definitive agreement to acquire TerraSource. This is our first step towards growth through a significant strategic acquisition. Moving to Slide 18, let me share our strategic rationale for adding Terasource to the Astec family of products.

Speaker 1

As you will see, Terasource and Astec are a strong fit. Terasource provides market leading process equipment and aftermarket parts and services. They will strengthen our Material Solutions segment. Aztec and TeraSource have complementary portfolios of products and technologies that will provide a meaningful synergy opportunity. Aztec's international footprint will be enhanced.

Speaker 1

Our two companies are a strong cultural fit. On Slide 19, you can see TerraSource products and services align well with the Aztec rock to road value chain. Tethersource has assembled century old brands that will flourish under our strategic ownership. This portfolio includes well known and respected brands that include Gunlock Crushers, Peninsula Ironworks, Jeffrey Raider, Pennsylvania Crusher and Algin. Their products and services are used in soft rock, rare earth and other minerals, dewatering and recycling applications used in diversified end markets.

Speaker 1

On Slide 20, we show information highlighting the size and scope of Teresource. The company has over $150,000,000 in annual revenue, approximately 400 employees and a diverse network of manufacturing, sales, service, engineering sites and channel partners. Therasource will be part of our Material Solutions segment and will strengthen our business through scale and product portfolio expansion. Therasource has developed market leading position that are complementary to our crushing, screening and separation applications, a globally integrated platform with end to end capabilities, an attractive reoccurring aftermarket parts business, a portfolio of high performance industry leading brands and a strong executive leadership team that will join Astec. Additional points are shown on Slide 21.

Speaker 1

Of note, over 50% of the company's 2024 revenue was derived from aftermarket parts and components. Equipment sales and rebuilds represent 3711% of sales, respectively. As you have heard me say over the past two years, we are passionate about providing aftermarket parts for our customers. We will continue to grow this business. By geography, Telesource is well balanced with 55% of revenues being in The United States and 45% generated in the rest of the world.

Speaker 1

The addition of TeresSource provides us attractive international growth opportunities. TeresSource also has diversified end markets. General industrial products and services comprise approximately one third of revenue, while metals and mining and energy and power each account for approximately one quarter of revenues. The remaining 15% of TerraSource revenues are generated by forestry products. On Slide 22, we provide a transaction overview.

Speaker 1

Let me summarize the key points. The purchase price will be $245,000,000 in cash on a cash free, debt free basis. The net purchase price after approximately $15,000,000 of tax benefits is expected to be $230,000,000 The purchase price represents a 2024 adjusted EBITDA multiple of 5.9 times adjusted for expected tax benefits and including run rate synergies. Annual integration synergies of $10,000,000 are expected to be recognized by the end of year two. Additional upside is expected by cross selling products to existing and new customers.

Speaker 1

We will finance the transaction with existing cash on the balance sheet and external financing in the form of a term loan A. Initial net leverage is expected to be 2x and between one and one point five times by the end of twenty twenty six. Our strong balance sheet allows for additional inorganic opportunities while keeping leverage below 2.5 times. We expect adjusted EBITDA to be accretive from day one with significant synergy opportunities. DataSource is expected to provide EBITDA margin expansion and improved free cash flow.

Speaker 1

The closing is subject to customary regulatory considerations and closing conditions, and we anticipate closing in the early part of Q3 twenty twenty five. Turning to Slide 23, our Astec investment highlights are summarized. Astec continues to be a trusted source of globally recognized brands and a high quality solution for our customers. Customers continue to cautiously display favorable sentiment as they are encouraged by the level of activity in construction markets. Likewise, we are encouraged by a high level of aftermarket sales, which validates equipment in the field is being used.

Speaker 1

As previously discussed, tariffs present an element of uncertainty. However, we are taking proactive measures to mitigate their impact. We were also encouraged by the cautious customer optimism expressed at the recent World of Asphalt Ag1 show last month and attendance at our booth was strong. Our operational excellence efforts will continue to gain traction with many of the benefits yet to come. Manufacturing and procurement efforts are driving efficiencies and we are seeing positive adjusted EBITDA trends.

Speaker 1

Our business has several growth drivers, including our exciting new product pipeline, a growing recurring aftermarket parts business, stability provided by multiyear federal and state funding for interstates and highways, expansion opportunities in current and future international markets and inorganic growth opportunities that are strategically aligned to meet our financial criteria. A strong balance sheet provides ample liquidity to fund growth and manage leverage, highlighted by today's announcement to acquire TeraSource. With that, operator, we are now ready to take questions.

Speaker 3

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from the line of Steve Parazani of Sidoti. Please go ahead.

Speaker 4

Good morning, Jakob. Obviously,

Speaker 1

second straight

Speaker 4

really strong quarter. Got to ask why not raise guidance here given some of your commentary. Implied orders were good. You said MS, expect to see better orders by the second half. Obviously, margins are much better.

Speaker 4

Did you pull forward anything from 2Q? Anything that would indicate why not raise here?

Speaker 1

Yes. No, Steve, just to answer the last part, no, we didn't pull anything forward. If you look at the range that we provided, it still gives some upside from the midpoint, 115,000,000. I think the one thing that maybe kept us from raising, obviously, there is some uncertainty around the tariffs from two sides: one, obviously, from a cost point of view And then the next one is customers just sitting on

Speaker 5

the

Speaker 1

sideline for two or three months to see what the outcome of tariffs will be. So but on the tariff side, I think a couple of things from our side. We have a really strong team that drives this discussion for us right now. I feel that our team has been very proactive in terms of understanding the potential impact for us, looking at price adjustments. And then, of course, this is potentially the best time to be a U.

Speaker 1

S. Manufacturer. But there is still a little bit of uncertainty on how that will all play out.

Speaker 4

Yes. Makes sense. Where how are you positioned now given the current tariffs that are in place? If you pass through, is it still reasonable to think there'll be a lag where your margins may trend lower and then come back up as you catch up on some of the higher equipment costs?

Speaker 1

Yes. Steve, as I mentioned, I think our team have learned a great deal during COVID. And we've got good internal models now to simulate the effect of these things that we maybe didn't have during COVID. So our team were very proactive. When the first tariffs came around, we saw an artificial bump here of steel pricing, and we took immediate action on that.

Speaker 1

On things like parts, there will be an almost immediate flow through if we see significant part changes. So I feel that the team has done a really good job here. Obviously, there's always risk, especially with having backlog that goes into two or three quarters in the future. On some of our equipment, like our concrete plants, we are giving deliveries well into the first part of next year. So we believe we've taken appropriate action.

Speaker 1

But as you know, it's a highly fluid situation. And if there's significant increases announced here recently, obviously, we're going to have to take some more actions.

Speaker 2

Okay. Appreciate

Speaker 4

the thoughts on that. If I could turn to the acquisition, you noted it will fit within Materials Solutions, which has been your more your underperforming side. Can you indicate how TerraSource has been performing? And I know the end markets are different. You have more geographic diversification, and I certainly appreciate the much higher aftermarket exposure.

Speaker 4

But can you give us some indication on how TerraSource has performed in the last couple of years versus your legacy material solutions?

Speaker 1

Yeah. So I just want to highlight one significant difference here. If you look at TerraSource product portfolio, they have a much smaller exposure to the mobile crushing and screening market that is typically equipment that goes through rental fleets and then converts. Most of their products are part of larger fixed installations. So they've been less affected by what we've on the historical or the traditional MS side.

Speaker 1

The other thing here is they have a significant part of their business are aftermarket parts. I mean you can see about 60, 60 three percent is parts and service, and that's also where the majority of the gross margin comes from. These guys have assembled here a portfolio of legacy brands that I will say maybe didn't fit with their previous owners, and they've done a really good job to put them back on the map. And now the growth will come from the huge installed fleet that they have. And with our ability to support with our manufacturing around the world, we feel that these guys will perform really well in the future for us.

Speaker 2

Great. Thanks, Jakob.

Speaker 1

Okay.

Speaker 3

Your next question comes from the line of Mig Dobre of Baird. Please go ahead.

Speaker 5

Thank you. Good morning. Just a quick clarification, making sure that I heard this correctly. In your prepared remarks, the guidance that you've reiterated today, that excludes any impact from tariffs. Did I heard that correctly?

Speaker 1

That is correct at this point, Amit.

Speaker 5

Okay. And I am a little bit confused in terms of kind of how you're talking about tariffs because we do know that there are some that are in place, right? Steel tariffs are certainly in place. We've seen steel prices move higher in The U. S.

Speaker 5

As a result. And I would imagine that within your supply chain, there are certain portions of it that impacted right now by the tariffs that are in place. So maybe reiterating the previous question, based on what you know today, is there a way to size the impact, recognizing that maybe that changes three months from now?

Speaker 1

Yes. Depending on the product, with the information that is available right now, we model this that there could be anything between 410% impact, depending on exactly what product we have. Now remember here, about onethree of our product or our sales is from parts, and we are going to focus on flowing through that to our customers. From a U. S.

Speaker 1

From a steel point of view, we source all our steel in The U. S. We don't import any steel. And of course, there was a little bit of a bump on local steel prices after the initial announcement. That have moderated quite a bit.

Speaker 1

We did implement some price increasing very early on to take care of that. And our procurement team was also really quick to go out and do some forward buying on steel. So you might see a little bit of bump in working capital here in the next quarter. But we are well covered now Q2 and even partially into Q3. So yes, Nick, you're right.

Speaker 1

There is some risk. But once again, I feel like we've been very quick to react to this. And I think the other thing here is we feel that we are well positioned as a U. S. Manufacturer.

Speaker 1

As you know, a lot of our competitors import a lot of units to The States, and they will obviously see different levels of tariffs than what we are experiencing.

Speaker 5

So when you are saying 4% to 10% impact, is that 4% to 10% of sales? Or is it COGS impact on margin? What what what is that metric referred to?

Speaker 1

Well, yeah. So it really just shows the exposure that there is if we do nothing. And obviously, it's our ambition to make that neutral. So that's the potential impact it has on COGS if we do nothing. But we've already, as I mentioned, parts will flow through as we get increases from suppliers.

Speaker 1

We've already made some adjustments due to steel, and we are watching it. We know exactly what to do by product line if we see significant price changes from suppliers. And the other thing is, are very focused, we have a really good tracking process here because we are going to push our suppliers to be very clear to show us where do they actually get the product from, what is the effect on tariffs before we just accept price increases.

Speaker 5

And are you able to reprice your backlog?

Speaker 1

No, we are not. But once again, as I mentioned, we've been very proactive. So we feel that we are well covered this time compared to what we have in during COVID, especially now that our backlog is down to a more normal level of that one percent to 1.5 or so.

Speaker 5

I see. You know, guidance excludes, obviously, all these effects. So given the fact that it excludes the tariffs, it is interesting relative to Q1, the way you're formulating the rest of the year. You have roughly 30% of your EBITDA at the midpoint generated in Q1, which is pretty rare, you normally have less than that. Normally, where we would see this sort of cadence is in years in which things are getting tougher from a margin perspective.

Speaker 5

So I guess the way I would ask the question is if all these uncertainties are excluded from the guidance, how should we think about how you see the year progressing in this outlook? And maybe more specifically in Infrastructure Solutions, you started with percent EBITDA margin. I'm curious how you think about that as the year progresses, again, excluding tariffs.

Speaker 1

Yes. No, good point, Mig. We actually had that same discussion yesterday. We know that there's obviously a range here. We have a higher end of the range.

Speaker 5

If

Speaker 1

Q2 shape up to be strong, obviously, that will be the ideal time to update guidance. We just felt that with the uncertainty we have right now, it was too early to raise the guidance.

Speaker 5

Final question for me, just to be clear on the acquisition. Can you tell us what the sort of year one or maybe I should say trailing 2024 EBITDA for annual EBITDA for this business was? So taking out all the synergies and all the other stuff around the multiple.

Speaker 1

Thank you.

Speaker 2

Mig, we're probably not going to provide that guidance at this point. It's a little early. Obviously, when we get to report Q2 and we close the transaction, we'll be updating our guidance for the full year to include TerraSource in the numbers at that point. You can probably back into it a little bit, at least to get a ballpark range from the numbers we've disclosed with the purchase price along with the synergies that we've identified and the tax step up benefit that we'll get. But we're not going to provide a historical EBITDA number at this stage.

Speaker 5

Well, we can do the math, but I would rather hear it from you so we make sure that's correct. Thank you, though.

Speaker 3

There are no further questions at this time. With that, I will turn the call back over to Steve Anderson for closing remarks. Please go ahead.

Operator

Thank you, Calvin. We do appreciate your participation in our conference call this morning, and thank you for your interest in Astec. As today's news release states, this conference call has been recorded. A replay of this conference call will be available through 05/13/2025, and an archived webcast will be available for ninety days. The transcript will be available under the investor relations section of the Astec Industries website within the next five business days.

Operator

This concludes our call. I'm happy to connect if you have additional questions later on. Thank you all. Have a good day.

Speaker 3

Ladies and gentlemen, this concludes today's conference call. We thank you for participating and ask that you please disconnect your lines.

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Astec Industries Q1 2025
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