Astec Industries, Inc. (ASTE) Earnings

Management highlights

- Overall Quarterly Performance * Delivered a solid quarter with record consolidated revenues and adjusted EBITDA, 23.6% year-over-year net sales growth, 26% year-over-year adjusted EBITDA growth, and positive free cash flow. * Total company backlog reached $601.1 million, up 57.9% year-over-year, with most growth coming from the Material Solution segment. * Maintains a strong balance sheet with $265.8 million in total available liquidity, and a net leverage ratio of 2.2x, which is within the company's 1.5x-2.5x target range. - Strategic & Product Development * Launched eight new models including the Frontier Series crushing, screening and washing material handling units at the Hillhead 2026 event in the UK; the new line is CE-compliant and available for the global market. * Displayed two new functional prototypes that will launch for sale later in 2026, and added two new UK dealers to support international growth. * Additional new products are scheduled for launch over the next 12-18 months, each targeted at specific high-opportunity market segments. * New crushing and screening units from the Omaha, Northern Ireland facility are gaining market traction. - Market & End Demand Dynamics * Multi-year demand growth is expected from federal, state and local infrastructure projects, and significant investment in the global mining sector driven by demand for lithium, nickel, copper and rare earth elements from transportation electrification and data center construction. * Dealer inventory levels in the Material Solution segment are healthy, with increased demand for mobile plants, and active conversion of rental inventory to owned units that allows dealers to replenish their fleets. * The proposed Build America 250 Act (successor to the IIJA expiring September 2026) includes a 7% increase in core highway funding and a 12% increase in bridge funding, with a higher share of guaranteed formula-based non-discretionary funding, which is positive for the company's core end markets. * Parts and service revenue continues to grow as a share of total sales, supporting long-term margin expansion. - Capital Allocation & Long-Term Targets * Remains confident in achieving 2030 revenue and EBITDA targets, underpinned by stable public funding growth, favorable industry megatrends, and a strong balance sheet that enables strategic inorganic growth opportunities.

Guidance

- Full year 2026 adjusted EBITDA guidance was revised downward from the previous range of $170 million to $190 million to a new range of $160 million to $175 million, driven entirely by a shift in asphalt plant deliveries from earlier in the second half of 2026 to Q4 2026 and Q1 2027. - Management expects the adjusted EBITDA split for the second half of 2026 to be approximately one-third in Q3 and two-thirds in Q4. - Additional full year 2026 guidance ranges maintained: effective tax rate of 26% to 30%, depreciation and amortization of $55 million to $65 million, capital expenditures of $35 million to $45 million, adjusted SG&A of $70 million to $75 million, and interest expense of approximately $7 million. - Net leverage is expected to decline to approximately 1.7x by the end of 2026.

Segment performance

1. Infrastructure Solution Segment: Net sales grew 11.6% year-over-year to $228.3 million, contributing 55.9% of total consolidated net sales. Aftermarket parts and service revenue within the segment increased 4.6% year-over-year to $31.9 million. Dollar-adjusted operating EBITDA increased slightly, but adjusted operating EBITDA margin saw 130 basis points of compression due to a mix shift between asphalt plant and mobile paving equipment. 2. Material Solution Segment: Net sales grew 43% year-over-year to $179.8 million, contributing 44.1% of total consolidated net sales. Adjusted EBITDA grew 54.5% year-over-year to $22.1 million, and adjusted operating EBITDA margin expanded 90 basis points to 12.3% year-over-year. Backlog for the segment grew 150.6% year-over-year, driven by both organic and inorganic growth. Consolidated: Total net sales for Q2 2026 were $408.1 million, up 23.6% year-over-year. Standalone parts and service revenue company-wide grew 34.8% year-over-year to $135.5 million, accounting for 33.2% of total net sales in the quarter and 35% year-to-date. Consolidated adjusted EBITDA was $42.6 million, up 26% year-over-year, with an adjusted EBITDA margin of 10.4%, up 20 basis points year-over-year.

Risks & headwinds

- Macroeconomic uncertainty: Higher oil and diesel prices are impacting smaller asphalt plant customers' purchasing timing, and are contributing to delayed delivery scheduling. - Uncertainty around Federal Highway Bill renewal timing: A temporary continuing resolution is likely before a long-term bill is passed, which has historically caused temporary order slowdowns in the infrastructure space. - Interest rate risk: Sustained higher interest rates could impact customer and dealer purchasing activity for construction and mining equipment. - Mix shift risk: Higher share of lower-margin mobile equipment in the Infrastructure Solution segment can put moderate downward pressure on overall segment margins.

Analyst Q&A

• Q: What drives the range of the revised full-year EBITDA guidance, and what is causing the delivery delays for asphalt plants? /

  A: The range depends on the timing of near-term order intake: management has visibility to achieve the lower end of the range regardless, and strong late-quarter and July bookings for asphalt plants and parts give confidence the company can reach the upper end if additional orders close in the near term. Delivery delays are driven by customer uncertainty from higher energy prices and pending Federal Highway Bill renewal, particularly for smaller customers, pushing deliveries 3-4 weeks later than the prior year, though demand remains solid and order flow strengthened strongly in June and July. Total bookings are comparable to 2025 levels.\n\nQ: If a one-year continuing resolution for the Federal Highway Bill is passed, what downside risk does that create for asphalt plant demand, given Congressional dysfunction? / A: Trade association indications suggest a temporary extension to the end of 2026 is likely, but history shows a long-term bill will eventually pass. Management notes there is no current indicator of a material slowdown in demand: bookings over the last two months have been very strong, the parts pipeline is robust, and there is substantial unmet need for infrastructure improvements across the U.S.\n\nQ: What is driving the strength of non-asphalt product lines in the Infrastructure Solutions segment, and what is the margin impact of this mix shift? / A: Diversification into concrete and mobile paving equipment is driving strength. Concrete product margins are currently on parity with asphalt plant margins, performing well post-acquisition. A new mobile shuttle buggy model has received strong customer demand, with backlog extending into 2027. While mobile equipment has lower margins than engineered-to-order products, the expected mix shift is only a couple of percentage points, so it will not create significant downward pressure on overall segment margins.\n\nQ: What is driving the resurgence of the Material Solutions segment, and when will the segment's backlog convert to revenue in the second half? / A: The resurgence follows a multi-year period of working down excess dealer inventory built after the COVID-19 boom. Dealer inventory is now at healthy levels, and demand is broad-based across all regions and dealer channels, with strong direct retail customer orders in addition to rental fleet replenishment. International demand is also strong, and product quality improvements and new launches are starting to pay off. Most of the current backlog for Material Solutions will convert to revenue in 2026, giving good confidence for second half performance, with only a smaller share scheduled for delivery in early 2027.