Astec Industries Inc 2026 Q2 Earnings Call

Thank you, 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 provide his comments, then Brian will summarize our financial results. For your convenience, a copy of our press release and presentation have been posted on our website under the investor relations tab at www.astecindustries.com. 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 could influence our results are highlighted in today's financial news release, and others are contained in our filings with the U.S. Securities and Exchange Commission. In an effort to provide investors with additional information, the company refers to various GAAP and non-GAAP financial measures, which management believes provide useful information to investors.

A reconciliation of GAAP to non-GAAP results are included in our news release and the appendix of our slide presentation. Now, turning to slide three, I'll turn the call over to Jaco.

Thank you, Steve. Good morning, everyone, thank you for joining us. As you will see, we delivered a solid quarter with record revenues and adjusted EBITDA. We continue to make progress with our strategic initiatives as we drive greater consistency, profitability, and growth. Moving to slide four, net sales were up 23.6% over the same period the prior year, and adjusted EBITDA increased 26%. Adjusted EBITDA margins stood at 10.4%, which was a 20 basis point increase over a solid second quarter in 2025, and we reported positive free cash flow. The Infrastructure Solutions segment remained healthy as net sales grew 11.6% over the same period the prior year, largely due to demand for concrete, mobile paving, forestry equipment, and inorganic contributions. For asphalt plant customers, order patterns remain consistent with the prior year.

However, macro-driven events such as higher oil prices and uncertainty over the timing of the renewal of the Federal Highway Bill have caused select deliveries to shift to future quarters. Much of our second quarter backlog growth was driven by the anticipated resurgence of our Materials Solutions segment. We are optimistic about the future. Federal, state, and local projects are expected to drive multi-year demand. The global mining sector is poised for significant investment. A surge in demand for lithium, nickel, copper, and rare earth elements is expected due to the electrification of transportation and growth in the construction of data centers. Dealer inventory levels in the Materials Solutions segment are healthy, and we are seeing increased demand for mobile plants. Rental inventory conversions were active throughout the second quarter. This provided dealers with the ability to replenish inventory.

Our new product development efforts are also beginning to show benefits as new crushing and screening units manufactured in our Omagh Northern Ireland facility gain traction. Providing excellent availability of parts and service to Astec customers remains a key priority. In the second quarter, we generated revenue of $135.5 million of parts and service, which was a 34.8% increase over the same period the prior year. As a percentage of net sales, parts and service reached 33.2% for the quarter and trended upward to 35% on a year-to-date basis. Backlog of $601.1 million increased 57.9%. Both segments contributed, with most of the increase being derived from our Materials Solutions segment. Overall, order activity in both segments remains encouraging. However, as stated, some asphalt plant customers have begun to schedule their deliveries for the fourth quarter of 2026 and first quarter of 2027.

As such, we are revising our full year 2026 adjusted EBITDA guidance from the previous range of $170 million-$190 million to $160 million-$175 million. For modeling purposes, we anticipate adjusted EBITDA for the second half of the year to have a split of approximately one-third in the third quarter and two-thirds in the fourth quarter. Turning to slide five, we had a spectacular show at the Hillhead 2026 quarrying, construction, and recycling event held in the U.K. in June. Hillhead drew thousands of attendees to see live inquiry equipment demonstrations over a three-day period. During the show, Astec was proud to launch eight new models, including our Frontier series units produced in our Omagh facility in Northern Ireland. The Frontier crushing, screening, and washing material handling lines are now available for the global market.

All equipment is engineered with the latest innovations, underpinned by proven technology, and is fully compliant with CE standards. We were also pleased to display and operate two new prototypes at the show that will be available for sale later this year. Lastly, two new U.K. dealers for Astec products were introduced at the show as part of our overall growth strategy internationally. On slide six, we provide a status update for the renewal of the Federal Highway Bill. Two eras of federal surface transportation funding are shown side by side. The Infrastructure Investment and Jobs Act, which runs through September 2026, and its proposed successor, the BUILD America 250 Act, covering 2027 through 2031. At first glance, the $580 billion headline number in the BUILD America 250 Act appears smaller. As it pertains to Astec, however, that comparison can be misleading.

Astec equipment is primarily used to process aggregates and produce asphalt and concrete that goes into our nation's infrastructure. We are pleased with the proposed 7% increase in highway funding from roughly $351 billion to $376 billion, an approximately 12% increase to improve our nation's bridges. The money also gets more certain as the formula funded share climbs from 87% to 90%. These guaranteed non-discretionary portions increase every year, beginning with $65.54 billion in 2027 and progressively stepping up to $69.54 billion by 2031. The takeaway is this. The BUILD America 250 Act may make a smaller headline, but it channels more government guaranteed formula-based money into the core highway and bridge programs. The Federal Highway Program provides a meaningful volume of work for the infrastructure industry. This is good for our customers and, in turn, good for Astec.

Exact timing of the Federal Highway Bill renewal has yet to be determined, but a temporary extension in the form of a continuing resolution appears likely. That said, whether the bill is renewed by September 30th or extended, a longer-term bill is a matter of when, not if. For Astec, this provides a baseline for achieving our 2030 revenue and EBITDA targets. Our implied orders and book-to-bill trends are showed on slide seven. On a consolidated basis, implied orders of $460 million grew $151.5 million or 49.1% for the same period the prior year and 6.7% sequentially. As I mentioned previously, we are seeing strong across-the-board order intake by our Materials Solutions segment, while macro uncertainty has created a shift in deliveries for selected asphalt customers. Moving to slide eight, backlog of $601.1 million increased 57.9% over the same period in the prior year.

The majority of the increase was derived from our Materials Solutions segment, which grew 150.6% from a combination of organic and inorganic growth. Infrastructure Solutions posted a 12.7% increase, primarily due to additional orders for concrete, mobile paving, and forestry products. I will now turn the call over to Brian Harris, our Chief Financial Officer.

Thank you, Jaco, and good morning. Our consolidated financial results are highlighted on slide 10. Net sales of $408.1 million increased $77.8 million or 23.6% over the same period in the prior year. Net sales include parts and service revenue, which grew 34.8% to $135.5 million. Adjusted EBITDA increased 26% to $42.6 million. This compared favorably to $33.8 million of adjusted EBITDA in the second quarter of the prior year. Adjusted EBITDA margin reached 10.4% for an increase of 20 basis points. Adjusted earnings per share of $0.94 in the quarter compared to a strong adjusted earnings per share of $0.90 in the second quarter of last year. Moving on to the Infrastructure Solutions segment shown on slide 11, net sales grew 11.6% to $228.3 million from a combination of organic and inorganic contributions.

This included aftermarket parts and service, which increased $2.9 million or 4.6% compared to the second quarter the prior year. Operating adjusted EBITDA in dollars increased slightly. However, margin compression of 130 basis points was primarily due to a change in mix between asphalt plant and mobile paving equipment. The Materials Solutions segment is shown on slide 12. Net sales for the quarter grew 43% to $179.8 million due to organic and inorganic growth, while adjusted EBITDA grew 54.5% to $22.1 million. Segment operating adjusted EBITDA margin grew 90 basis points to 12.3% and compared favorably to the same period the prior year. Moving to slide 13, we continue to maintain a strong balance sheet with ample liquidity. The quarter ended with cash and cash equivalents of $75.7 million, available credit of $190.1 million, for a total available liquidity of $265.8 million.

Net leverage of 2.2 times was well within our target range of 1.5-2.5 times. We expect net leverage to further reduce to approximately 1.7 times by end of 2026. As we have previously communicated, our 2026 outlook includes the following anticipated full year ranges. Adjusted EBITDA of $160 million-$175 million, an effective tax rate of 26%-30%, depreciation and amortization of $55 million-$65 million, capital expenditures of $35 million-$45 million. We also expect the following quarterly ranges. Adjusted SG&A of $70 million-$75 million, interest expense of approximately $7 million. I will now turn the call back to Jaco.