Astec Industries (NASDAQ:ASTE) Q3 2026 Earnings Call

0:00 Hello and welcome to the Aztec Industries third quarter 2026 earnings call. As a reminder, this conference call is being recorded. It is my pleasure to introduce your host, Steve Anderson, Senior Vice President of Administration and Investor Relations. Mr. Anderson, you may begin. Thank you and good morning, everyone. Joining me on today's call are Jaco van der Merwe, our Chief Executive Officer, and Brian Harris, our Chief Financial Officer. In just a moment, I'll turn the call over to Jaco to review our third quarter highlights and market conditions. Brian will then discuss our financial results and balance sheet. For your convenience, a copy of our earnings release and presentation have been posted on our website under the investor relations tab at aztecindustries.com.

0:47 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. Factors that can influence our results are highlighted in today's earnings release, and additional risks are described in our filings with the U.S. Securities and Exchange Commission. We also refer to certain GAAP and non-GAAP financial measures that management believes provide useful information to investors. Reconciliations of the non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release and in the appendix to this presentation, and now Turning to slide three, I will turn the call over to Jaco. Thank you, Steve. Good morning, everyone, and thank you for joining us.

1:32 As usual, I will begin with our third quarter results and then discuss the key factors in the markets in which we operate. This will include the latest developments on the renewal of the US Federal Infrastructure Bill. Finally, I will comment on order and backlog trends before turning the call over to Brian to review additional financial results and our Q4 outlook. As you saw in our press release earlier this morning, our third quarter results fell short of both our expectations and the high-level outlook we provided on our last earnings call. Let me address two key factors that contributed to what we believe was an outlier quarter.

2:18 First, as for plants and related equipment. On our Q2 call, we discussed a slowdown in orders that began early to mid-quarter. That softness persisted longer than anticipated, resulting in an unfavorable mix of shipments and invoicing during Q3. Importantly, order activity has recovered meaningfully, and the infrastructure solutions backlog has increased by 93 million since the end of Q2 2026. and by $122 million compared with the same quarter last year. We expect this recovery, together with the timing of shipment from backlog, to drive a significant improvement in EBITDA performance in Q4 2026 versus prior year and into early part of 2027.

3:11 Second, steel and broader material inflation. Our teams have been actively adjusting pricing to offset higher input costs. However, extended delivery lead times created the timing mismatch between pricing actions and the costs flowing through our P&L. As a result, cost inflation outpaced pricing by approximately 200 basis points during the quarter. We expect that gap to progressively close and return to parity over the next two quarters. While we would have obviously preferred to deliver stronger Q3 results, The underlying demand environment and recovery in orders gave us confidence the factors that weighed on this quarter are temporary rather than structural.

4:00 That said, we continue to evaluate our product portfolio as we are committed to delivering shareholder value. Moving to slide 4, net sales were $352.4 million, an increase of 0.7% compared with the prior year period. Adjusted EBITDA was $18.9 million, resulting in an adjusted EBITDA margin of 5.4%, and positive free cash flow was driven by sound working capital management. After a slower than expected order intake during Q2, we are happy to report a strong reversal during Q3 for most of our infrastructure group products. The uncertainty created by the delay in the Build America 250 infrastructure bill and elevated oil and diesel prices were somewhat offset by strong demand for data centers and other large factory builds.

4:59 Our material solutions segment continued to benefit from steady demand for rock crushing and screening equipment and aftermarket parts and service sales. Macroeconomic headwinds negatively impacted capital sales within the TSG business we acquired in July 2025. Parts and service volumes remain strong, and we are excited about the work our teams are doing to further integrate this business within Aztec. From a long-term perspective, however, federal, state, and local projects, together with data center construction, are expected to support continued multi-year demand. Parts and service sales were 125.8 million, up 0.3%.

5:47 Parts and service represents 35.7% of third quarter sales and 35.2% of year-to-date sales. As a reminder, Q3 is historically the low quarter for parts and service as our customers are running full speed. Total backlog increased 49.2% to 670.5 million, led by a rebound in asphalt plant orders and solid demand for aggregate processing equipment. Based on the macroeconomic impact and our year-to-date performance and the shift of asphalt plant deliveries, we are revising our full year 2026 adjusted EBITDA guidance from the prior range of 160 to 175 million to a range of 140 to 150 million.

6:40 On slide five, we summarize the key factors influencing our market along with directional price inflation relating to materials used in our products and those of our customers. The broader US economy remains slightly positive with the S&P 500 index and the Dow Jones Industrial Average up approximately 15% and 11% respectively. Economic growth has been partially offset by inflationary pressures and higher interest rates. Despite a healthy economy, increased diesel fuel prices have negatively impacted many of our customers, most of which use diesel fuel to operate their trucks and equipment. Liquid asphalt cement prices are also important to our customers, and infrastructure construction in general. Liquid AC is a byproduct of oil, and the ingredient that binds aggregate together in asphalt pavements.

7:39 Prices spiked when the conflict in Iran began and have fluctuated over the past few months. Steel, our largest raw material input cost, continued to increase in price, driven by data center demand, elevated freight costs and tariffs. Public infrastructure activity in the United States remains healthy at the federal and state levels. I will share more on that in a moment. Private and residential markets are sensitive to interest rates and continue to be somewhat suppressed. That said, private work like data center construction and industrial mega projects are positive drivers in the private market. These projects consume large quantities of aggregates, concrete, and asphalt.

8:29 Thus far, we estimate data center and industrial projects to have generated between 75 to 100 million of orders. Macroeconomic headwinds can create near-term variability. However, we continue to see attractive long-term demand fundamentals. Turning to slide six, as you may know, Congress approved the Infrastructure Investment Jobs Act in October 2022. Over a five-year period, $347.5 billion was approved to be spent on federal highways, bridges, and public transit. Through August of 2026, states have committed $300.5 billion, or approximately 86%, of highway and bridge funds to support approximately 129,600 new projects.

9:24 The Federal Highway Bill expired on September 30, 2026. and was subsequently extended through December 11, 2026. The extension helped to reduce near-term uncertainty for companies involved in federal infrastructure construction and provided lawmakers additional time to address long-term reauthorization or extend current policies into 2027. State Department of Transportation budgets also remain at healthy levels. The preliminary fiscal 2027 data shown on the slide indicate substantial funding for highway and bridge activity going forward. For Aztec and our customers, a stable multi-year funded federal framework supports planning and investment decisions, and strong state funding provides consistent work. We remain constructive on the output for infrastructure spending in the United States.

10:24 Our implied orders and book-to-bill trends are shown on slide seven. consolidated implied orders of 422 million were relatively flat on a year-over-year basis. Sequentially, implied orders were down 8.3% following a very strong Q2 implied orders for the material solution segment. Our book-to-bill ratio at the end of the third quarter stood at 120%. Infrastructure solutions implied orders increased 282 million, up 43.4% on a year-over-year basis, and 38% sequentially. Order intake increased and drove the book-to-bill ratio to 149%, further supporting our belief in strong underlying demand.

11:17 Material Solutions implied orders were 140 million, which was down 37% from the same quarter of the prior year, and 45.3% sequentially. The book-to-bill ratio ended at 86%. Moving to slide eight, consolidated backlog was 670.5 million at quarter end, up 49.2% from the third quarter the prior year and up 11% from Q2 2026. Infrastructure solutions backlog stood at 382 million, and increase of 47% over the same period in 2025 and 32% from a quarter ago. As demand for asphalt plant and concrete plant equipment remains favorable, despite requests by selected customers for Q4 26 and Q1 2027 deliveries.

12:16 As a result, our infrastructure solution segment expects to enter 2027 with backlog that is approximately 100 million higher versus when we entered 2026. Material solutions backlog was 289 million compared with 190 million at the end of the third quarter in the prior year for an increase of 52.1%. Backlog in the material solutions segment began to build in the second half of 2025 as dealer inventories returned to healthy levels, and conversions from rental to purchase units began to increase. Sequentially, the material solutions backlog went down 23 million, or 7.5%, following the strong Q2 implied order. I will now turn the call over to Brian Harris, our Chief Financial Officer.

13:13 Thank you, Jaco, and good morning, everyone. I will begin with our consolidated third quarter results, then review segment performance and our balance sheet. Before we review our results, I would like to put our third quarter into context. If you have followed Aztec for some time, you'll be aware that there is significant seasonality in our business and that Q3 is historically the low point of the year for both sales volume and adjusted EBITDA margin. 2026 was no exception. However, reported results were further depressed by the factors Jaco mentioned previously. Our consolidated financial results are highlighted on slide 10.

13:59 Net sales for the quarter were $352.4 million, an increase of 0.7%, compared with $350.1 million in the third quarter of 2025. Trailing 12-month net sales increased 13.8%, to 1.557 billion. Adjusted EBITDA was 18.9 million, down 30.3% from 27.1 million in the prior year quarter. Adjusted EBITDA margin was 5.4%, a decrease of 230 basis points. On a trailing 12-month basis, adjusted EBITDA was 136.6 million, and adjusted EBITDA margin was 8.8%. The declines were largely due to inflationary headwinds which impacted sales, mix, absorption, and margins.

14:57 Adjusted earnings per share were negative one cent for the quarter compared with 47 cents in the prior year quarter. The majority of the decline was the result of the loss on operations and the impact of increased tax provisions at certain international entities. Turning to slide 11, infrastructure solutions net sales were $189 million, down 2.2% from $193.2 million for the same quarter in the prior year. Trailing 12-month sales of $877.9 million compared to $882.6 million the prior year. Segment operating adjusted EBITDA was $15.3 million in the third quarter for a decrease of 36%. The adjusted EBITDA margin was 8.1%, down 430 basis points. For the trailing 12 months, segment operating adjusted EBITDA was $118.5 million, which yielded a margin of 13.5%.

16:05 As previously mentioned, the quarter was affected by timing and mix, most notably customer shifts of selected asphalt plant deliveries to Q4-26 and Q1-27. However, underlying demand for concrete and asphalt plant equipment remains healthy. The material solution segment is shown on slide 12. Net sales increased 4.1% to $163.4 million from $156.9 million in the prior year quarter. Trailing 12-month sales increased 39.8% to $679.5 million from a combination of organic and inorganic contributions.

16:50 Segment operating adjusted EBITDA was 13.9 million, down 9.7% from the third quarter in 2025, and the adjusted EBITDA margin of 8.5% declined 130 basis points. On a trailing 12-month basis, adjusted EBITDA increased 55.6% to 65.5 million, and the adjusted EBITDA margin improved 90 basis points to 9.6%. Moving to slide 13, we continued to maintain a strong and flexible balance sheet with ample liquidity. We ended the quarter with cash and cash equivalents of $63.2 million and available credit of $204 million for total available liquidity of $267.2 million.

17:42 Operating activities provided $17.4 million in cash during the quarter, and we remain compliant with all covenants. Net debt to trailing 12-month adjusted EBITDA was approximately 2.3 times, which was within our target range of 1.5 to 2.5 times. As a reminder, we expect the following quarterly ranges, SG&A of $70 to $75 million, and interest expense of $7 million and Q4 adjusted EBITDA range of approximately $48 million to $58 million, which compares to $44.8 million in the fourth quarter of 2025 and results in a full year adjusted EBITDA range of $140 million to $150 million.

18:35 And our outlook also includes the following full year ranges. effective tax rate of 26 to 30 percent, depreciation and amortization of 55 million to 65 million, and capital expenditures of 30 to 40 million. I will now turn the call back to Jaco. Thank you, Brian. Slide 14 summarizes the key elements of the ASTEC investment thesis. First, our underlying business is strong, as evidenced by growth in our backlog, and we are happy to report record parts and service bookings during the first month of Q4. Second, ASTEC is a trusted provider of high-quality solutions supported by strong global brands. Our close engagement with customers continues to indicate optimism in important construction markets.

19:30 Further, the path to our long-term goals is supported by the following growth drivers. We are building momentum in our new product pipeline. Our recurring parts and service business consistently represents approximately one-third of revenue and supports deeper customer relationships. Federal and state funding provide our customers with a core level of stability. Our Aztec digital connectivity solutions create best-in-class solutions for our customers across our integrated rock-to-road portfolio. Industry megastrends, including data center construction, reindustrialization, and demand for critical minerals support multiyear demand for construction materials.

20:18 Our balance sheet provides the flexibility to pursue disciplined inorganic growth, and we see international expansion opportunities in both existing and future markets. We remain focused on execution and on building a more consistent and the company is actively executing a long-term strategic plan that will drive value creation for our shareholders. With that operator, we are ready for questions. We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device.

21:10 Please stand by while we compile the Q&A roster. Your first question comes from the line of Stephen Ramsey with Thompson Research Group. Your line is open. Please go ahead. Good morning and appreciate all the color that has been shared. Could you talk about for the full year EBITDA guidance being lowered about $20 million from the prior guide? Can you parse out how much of that is the delayed orders and how much of that is the inflation headwind that you discussed? Hi, morning, Stephen. Jaco here. So, you know, we mentioned that there was a gap about two percentage points between inflation and pricing.

21:59 So, you know, during Q3, it was about seven million or so. And that number will taper down over the next couple of quarters. and then from a shift point of view obviously you saw that you know last quarter we talked about we want to be about one-third in Q3 you know two-thirds in Q4 obviously that shifted quite a bit and you know we probably see about five to ten million of that lower number comes from the shift into 2027 So that's on high level, you know, the numbers that we see.

22:46 Okay, that's helpful. And then the materials demand, still good to see the backlog trends in the materials business. You know, there's multiple markets there that are being served. Do you feel like the demand in materials, that it's broad-based? that's driving the results there, or are there any pockets of strength that are driving the results? No, I mean, in general, it's good in all markets, Stephen. Obviously, there's still a lot of road construction. You've seen some of the reports from the material suppliers. They are pretty bullish on what they expect for future quarters.

23:36 We did see some tailwinds over the last couple of quarters with the large industrial bulge-outs that's taking place. So we were definitely a beneficiary of that. And that activity is still pretty strong. Our backlog for our material solutions business is running well into Q1, even some product lines well into Q2 for next year now. So yeah, it's a strong market in most of the markets. Excellent. And last one for me, the infrastructure backlog is getting quite sizable.

24:22 If you think about the delivery time and how you pace production to deliver it, is this going to challenge operations in the coming months and quarters, or can you handle that in a way that is that works well for pacing that production and generating good margins? Yeah, yeah, no, good question. You know, one thing that companies that follow us for a long time will know. There's actually quite a bit of production that takes place during the third quarter that will be invoiced during the fourth quarter. If you do the math, obviously we expect the fourth quarter to be a record in terms of shipments.

25:12 The factories are working basically from middle Q3 all the way into Q4 to deliver that. And then Q1 right now, I mean, from an asphalt line point of view is full. So we already expect a strong performance going into next year. I will say that the acquisition of CWMF that we made and the beginning of the year, you know, that company came in with a great facility and that was one of the reasons why we were so interested in them and they're going to be a great asset for us as part of this period and, you know, giving us that extra capacity.

26:05 So, you know, obviously lead times are longer now, Stephen, than what we want actually for that product. but the teams are doing great work and the next couple of quarters we should see really good output from an asphalt plant point of view. That's great, Kohler. Thank you for the time. Your next question comes from the line of Steve Farzani with Sedoti. Your line is open. Please go ahead. Hi, morning, Jaco, Brian. I appreciate the time this morning. Yaku, if you can help us walk through the slide on the implied orders. I'm trying to make some sort of, you know, read it in some way because the two segments have had pretty significant swings in opposite directions in both of the last two quarters. And I'm trying to figure out what that means.

27:05 Should we just be thinking about that over sort of a six-month stretch? Because I know Timing, particularly with IAS, you get those larger orders. How are you reading that and what are you hearing from your customers? Because the implied orders, different directions along the last two quarters. Good question, Stephen. I think you summarized it very well. If we look at this business in two halves of the year, I think we've mentioned this multiple times in the past, that our volatility will be a lot less. So obviously, last quarter we had a very strong order intake for material solutions. It's timing related. I think our dealers have seen that their inventory is in healthy condition.

27:57 They feel bullish about the remainder of this year and next year. So orders was put in place and and typically what happens is when lead time starts to go up, obviously people want to get their orders into the pipeline. On the IAS side, we had an unusual slow period. During the Q2 call, we mentioned that typically we see about a four week or so slow time for asphalt. This year it was close to seven weeks and then all of a sudden it just broke loose. and we saw significant bookings. So I won't read anything into it. It's obviously fluctuating.

28:44 I think the overall backlog and book-to-bill ratio is what is really important to us. Okay, that's really helpful. In terms of what's in backlog now, because as you know, they're very healthy. How much older pricing is in that backlog now? How much should we hold for what length and how much does it diminish should we see sort of your not normalized margins? So, you know, obviously, especially steel has moved pretty quickly this year and our teams have, you know, introduced pricing on a rather frequent basis. Like I said in the opening remarks, during Q2, during Q3, we peaked at maybe that two percentage points variance, but we're seeing that that progressively closes here.

29:40 So we'll see a little bit of that still in Q4, and then by the time we go into Q1, most of that should be back to par. Okay, that's helpful. In terms of delays on the IS side, what do you owe it to? And I guess, look, the risk for us from a modeling perspective is some of these delays stretch out. How are you thinking about that? And have they been purely delays and not cancellations would be the other part of the question. Yeah, no cancellations. We haven't had any cancellations of note. Steve, I think there was just A lot of major things happening in the world.

30:25 We had the war in Iran started, oil prices change, inflation, election uncertainty. So customers are just cautious. And when you look at the effect that diesel prices have on customers, it's pretty significant. However, they still have good work. There's still good backlog. and customers have felt very confident to place orders and we made a note of the size of the data center business which in the beginning we didn't expect that to be that much of a tailwind but I can tell you the last quarter we saw some nice order intake on the concrete side and asphalt side for big industrial projects like data centers.

31:29 Yeah, helpful, helpful. As the last one for me, just update thoughts on capital allocation. I would assume right now debt reduction would remain the focus, but at what point do share buybacks get discussed? Yeah, you know, we're constantly looking at that. We still have reauthorization left to do that. Like we explained in the past, you know, our float is pretty small. And we just think that there is still better opportunities for us in other places. But we're obviously always looking at it. You know, as a reminder, during the investor day call, We didn't include share buybacks as part of that presentation.

32:24 But if the share price developed, you know, in a certain way, we'll obviously look at that, Steve. Okay. Thanks, Jaco. Thanks, Brian. Your next question comes from the line of David McGregor with Longbow Research. Your line is open. Please go ahead. Hey, good morning. This is Joe Nolan on for David. Hey, morning, Joe. Hey, good morning. I just wanted to start on just price cost and how that played out in the quarter and how that will evolve. So I think it was about 200 basis points in the third quarter, and you expect that to progressively close as pricing improves and hopefully return to price cost parity over the next few quarters. Can you just walk us through timing and how to think about price costs as we get into 4Q and then maybe the timing of when that gets to parity, whether that's early 27 or later in the year?

33:21 Yeah. Yeah, no, like we said in the prepared remarks, you know, we believe that by the first quarter, we will start to see that parity. You know, we have multiple different price increases in flight with different timings. You know, so there's... Some pricing that will already affect products that is invoiced here in the fourth quarter and definitely into the first quarter. So, you know, Q3 was what we mentioned about seven, eight million effect more or less. And that number will progressively get smaller. So, you know, we are obviously adjusting pricing on parts and things like that more regularly. We believe that by the end of first quarter, we'll be in a much better position.

34:23 Got it. That's helpful. And then given the push out in asphalt shipments, does that allow you a better opportunity to recover pricing and improve margins on those volumes or are those locked into the price? Yeah, so typically when we sign a contract, pricing is locked in. You know, there is some provisions that if you have, you know, let's say major tariffs, those type of things that there's an opportunity to adjust, but most of our contracts are fixed. So, you know, when pricing or when cost develops pretty quickly as we've seen this year on steel, You know, you're going to be caught a little bit behind, and obviously we saw that this year.

35:12 Got it. Okay. And last one for me. On material solutions, it sounds like it was down sequentially, but it sounds like timing was a big factor within that. Can you just talk about what's given you confidence in that business into 2027? If you look at the backlog for material solutions, it is still very strong. We have almost 100% of the first quarter covered in backlog. We have a nice backlog going into next year already. We see our parts and service teams doing some really good work there. And then, you know, the new product development that we've been talking about quite a bit over the last year, that product is starting to hit the market now.

36:07 And, you know, we see a great opportunity for that side of the business to perform in 2027. Got it. Thanks. I'll pass it on. Your next question comes from the line of Dilyara Silobayeva with Freedom Broker. Your line is open. Please go ahead. Yes, hello. So I would like to ask about your operating cash flow. So despite weaker earnings, your operating cash flow improved significantly in 2026. So how much of this improvement reflects structural working capital efficiencies? And as production volumes increase in later quarters, Should we expect working capital investment to rise proportionately or is there room for further optimization?

37:00 Yeah, good question. If you look at our inventory and specifically our working capital terms development, this year will be the strongest year in my 10 years with FastTech. So our teams have done a really good job optimizing our inventory. Our teams are working hard with our customers to collect payments. We're working hard to get better terms with our supplier. So this is a key focus for us. We think it will continue to improve. Now Q4 will be a big invoicing quarter. Capital equipment is typically paid before shipment.

37:47 So, you know, as you will see, we actually had a bit of an increase in inventory between Q2 and Q3. So that will right size here in Q4. But you will have some parts that typically, you know, have 30-day terms or 45-day terms. that will increase your payables a little bit. But structurally, we will continue to see good cash generation. Okay, great. Thanks. So my next question is about the infrastructure solutions. So within that segment, how has the revenue mix evolved between asphalt plants, road construction equipment, and aftermarket parts? And which product categories are currently showing the strongest demand?

38:33 And do you anticipate any meaningful shifts in the next year, in 2027? Yeah, no, good question. And that was one of the reasons why the margins in the IS business was down because the mix changed with lower asphalt plant invoicing. You know, we have seen a decent recovery in the road construction equipment orders during 2026, but we expect, you know, a A bigger asphalt and concrete mix in that segment for 27. Okay, great. Thanks. I'll turn it back. Thank you. There are no further questions at this time.

39:20 I will now turn the call back to Steve Anderson for closing remarks. Thank you. We appreciate your participation in our conference call this morning and your interest in Aztec Industries. As stated in today's release, this conference call has been recorded. A replay will be available through the registration link provided in our earnings release and an archived webcast will be available on our investor relations website. The transcript will be posted under the investor relations section of the Aztec website as well. This concludes our call. Thank you all. Have a good day. This concludes today's call. Thank you for attending. You may now disconnect.