Astec Industries, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Completed the TerraSource acquisition on July 1st, which is accretive from day 1 with aftermarket part sales representing ~63% of total revenue and 80% of gross margin.
• Second quarter adjusted EBITDA was $33.7 million, up $6.1 million or 22.1% from Q2 2024; adjusted EBITDA margin was 10.2%, up 220 basis points. Adjusted earnings per share were $0.88, a 44.3% increase from Q2 2024.
• Backlog stood at $380.8 million, declining sequentially by 5.4% due to shorter lead times and challenging market conditions for forestry and mobile paving products in Infrastructure Solutions.
• Materials Solutions had relatively stable net sales despite high interest rate impact, with initial signs of dealer inventory replenishment and strong rental utilization.
• Tariff mitigation efforts have offset tariff impacts to cost of goods in the 2% - 3% range, and ongoing strategies to mitigate tariffs include dual sourcing, resourcing, and managing the manufacturing footprint.
• Favorable infrastructure funding status with state and local government transportation contract awards up 9% to $47.8 billion through April 2025, and ~$202 billion of Infrastructure Investment and Job Act funds committed as of April 2025.

Segment Performance

• Infrastructure Solutions: Net sales were impacted by declines in forestry and mobile paving equipment demand, but aftermarket parts increased $4.8 million or 9.4% compared to Q2 2024. Adjusted EBITDA was $32.2 million, an 18.4% increase over Q2 2024, with an adjusted EBITDA margin of 15.7% (up 340 basis points from Q2 2024).
• Materials Solutions: Net sales were relatively stable at $125.7 million. Equipment sales increased $4.1 million or 4.9%, while aftermarket parts sales declined slightly by $2.2 million or 5.9%. Adjusted EBITDA was $14.2 million, a 39.2% increase over Q2 2024, with an adjusted EBITDA margin of 11.3% (up 310 basis points from Q2 2024).

Guidance

• Raised the lower end of full year core business guidance from $105 million to $110 million, keeping the top end unchanged at $125 million.
• TerraSource is expected to provide adjusted EBITDA in the $13 million to $17 million range, bringing consolidated adjusted EBITDA guidance to $123 million to $142 million for the full year.

Risks

• Ever-changing tariff environment and high interest rates presenting headwinds to equipment dealers and end users, contributing to a soft market for forestry and mobile paving equipment.
• Weather impacts, such as excessive rain in May causing delays in construction projects.

Q: Could you dig deeper on year-over-year margin improvement, specifically pricing versus mix?

A: Our OneASTEC procurement team's efforts to navigate inflationary and tariff pressures, along with operational excellence initiatives, have contributed to margin expansion. Procurement has helped with pricing, and operational efforts are flowing through, especially in Materials Solutions as factories fill up.

Q: Did you provide the EPS drag from tariffs in the quarter?

A: We did not provide a number as we were successful in mitigating most of the tariff effect during the quarter.

Q: Talk about market differences between asphalt/concrete plants and mobile paving equipment.

A: Mobile paving equipment is affected by dealer inventory levels and high interest rates, similar to what Materials Solutions saw earlier. Asphalt and concrete plants have healthier demand, and we've reduced lead times, providing visibility for Q3 and opportunities to capitalize on orders into Q4.

Q: Discuss seasonality of working capital and free cash flow.

A: Working capital management has been strong, with focus on continuing to manage inventory levels. Free cash flow has been a focus area, with the team doing a great job managing it, and receivables and payables in good shape, aiming to fund further inorganic growth.