Astec Industries, Inc.

Hello and welcome to the Aztec Industries fourth quarter earnings call. As a reminder, this conference is being recorded. It is my pleasure to introduce your host, Steven Anderson, Senior Vice President of Administration and Investor Relations. Mr. Anderson, you may begin.

Thank you and welcome to the Aztec fourth quarter 2022 earnings conference call. Joining me on today's call are Jaco Fundermerve, Chief Executive Officer, and Becky Weinberg, Chief Financial Officer. In just a moment, I'll turn the call over to Jaco to provide comments, and then Becky will summarize our financial results. Before we begin, 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. Any such statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions. Factors that can influence our results are highlighted in today's financial news release and others are contained in our filings with the SEC. 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, which are generally accepted accounting principles, and non-GAAP financial measures, which management believes provide useful information to investors. These non-GAAP financial measures have no standardized meaning prescribed by U.S. GAAP and therefore are unlikely to be comparable to the calculation of similar measures for other companies. Management of the company does not intend these items to be considered in isolation or as a substitute for the related GAAP measures. Management of the company uses both GAAP and non-GAAP financial measures to establish internal budgets and targets and to evaluate the company's financial performance against such budgets and targets. You should also note a reconciliation of GAAP to non-GAAP results is included in our news release and in the appendix of our slide deck. All related earnings materials are posted on our website at www.aztechindustries.com, including our presentation, which is under the Investor Relations and Presentation tabs. And now I will turn the call over to Jaco.

Thank you, Steve. Good morning, everyone, and thank you for joining us this morning. I would like to begin my comments by saying how humbled and grateful I am to be speaking to you as the CEO of Aztec. When I joined the company six years ago, I was drawn by what I saw. A strong company with a history of delivering valued product that had tremendous potential. Now as CEO, I'm even more convinced of these early impressions. Aztec has established itself as a market leader in the industries we serve, bringing innovative solutions to the road construction industry for over 50 years. The team here is talented, dedicated, and committed to making the company as strong and resilient as possible. As a leadership team, we remain united around our purpose of Build2Connect. It defines where we are going and what we can become. We have made progress, and I'm proud to be part of the team that has moved us forward. The priorities for Aztec in 2023 are shown on slide four. I'll share more detail in a few minutes, but the priorities are executing on our simplify, focus, and grow strategy and delivering on our commitments to employees, customers, and shareholders. As CEO, I will continue to champion these priorities for the organization while emphasizing the importance of execution to drive consistent and sustainable financial performance. We have a sound framework and motivated team, and we are working together to create a culture of outperformance to reach our potential. Through our Build to Connect purpose, we are enabling our employees to create a customer-centric culture that provides value, and this will benefit our shareholders. That being said, we still have work to do. Our efforts this year will be primarily spent on our simplified and focused pillars. This foundation will better position us to grow profitably through organic investments in the future. Then at the right time, targeted acquisitions can be pursued and effectively integrated into our operations. This is a great company with an outstanding team and differentiated products, and I'm very grateful for the confidence, the Board has placed the need to be its next CEO. I look forward to meeting with you over the coming months, and I commit to performing in a way to earn your confidence in the future. On slide 5, you can see in the end markets, we serve through our two complementary segments, ensuring that needed materials are delivered and installed for ongoing infrastructure investments. I recently attended the National Asphalt Pavement Association's annual meeting and was able to connect with many of our customers. I can tell you that they are optimistic and the interactions were positive as the project pipelines look very full for 2023 as well into 2024. I will also add that a lot of the work that is planned for this year is not yet being driven by the infrastructure bill. as we are still in the early days of those funds flowing into specific projects. Excitement is high, and our customers are anxious to get the solutions we provide. The three pillars of our strategy, simplify, focus, and grow, are best summarized on slide six. They align the elements of our performance culture and provide the organization with a common framework to create value and drive returns. Beginning with Simplify, we are optimizing organizational structure by reducing complexity across our organization, starting with the leadership team and extending into select areas. We are focused on consistent execution and driving efficiencies. The current system and process consolidations help enable efficiencies through better reporting and access to data as well as uncover opportunities for further improvement in our operations. We are also using Simplify to help optimize our product portfolio, including which products we make, how we make them, and where we make them. Once we simplify and remove unnecessary complexity, we are better able to focus, using the one Aztec business model to drive excellence in everything we do. Operational excellence is permeating our entire organization, driving a focus on quality and performance into our culture. Performance includes thorough planning and execution. We are further assessing prior strategic actions and are harvesting learnings that will benefit us going forward. Prior strategic actions under review currently include our Drive to 25 initiative, the performance of our Brazil business, our site closures in Mequon and Tacoma, and the integrations of recent acquisitions. We improve as an organization when we drive functional excellence across every part of the company. As we do this, we discover that operational excellence is not only for production teams, but is applicable to all areas, such as commercial teams, where we can elevate the customer experience through aftermarket excellence. This drives higher customer satisfaction and engagement, as well as growth in our business. Profitable growth will be driven by expanding our parts and service business, our dealer networks, and our international presence. It will also be driven by bringing innovative new products to the markets and by leveraging technology and digital connectivity for our customers. We have great products and a team that is diligently working to develop improvements and enhancements to meet customer needs and deliver solutions to add value. Together, these three pillars of simplify, focus, and grow help ensure we have the right priorities to consistently drive profitable and sustainable growth as we bring value to our customers, employees, partners, and shareholders. Moving on to the financial results and the current business environment, we summarize our Q4 key messages on slide seven. I have already mentioned some of these and focus on those comments not yet addressed. Our fourth quarter results reflect a strong finish to a year that was characterized by challenging and dynamic environments. The global Aztec team rose to the challenge by demonstrating our core values, delivering unique solutions and by providing outstanding customer service to our valued commercial partners. Q4 sales improved 31% compared to last year and full year sales were up 16%. In addition to the strong effort of our team, we benefited from robust end market demand across both segments. Positive customer sentiment is proving sustainable even in the face of ongoing macroeconomic uncertainty. And our record-level backlog gives us confidence as we enter 2023. As a market leader in our industry, we develop and deliver technology that enables our customers to be successful. We are taking this same approach internally as we unify existing systems, standardize processes, and integrate solutions with the rollout of our Oracle suite of solutions. Becky will say more about this in a few minutes. Turning to slide eight, I would like to review current business dynamics and how we are responding. As we enter 2023, the demand outlook is much the same as it was during the second half of 2022. Infrastructure projects, which tend to be longer term and less correlated with near-term economic fluctuations, have remained robust and our customer sentiment has remained positive. This supports our confidence and challenges us to increase output through capacity expansion and operating efficiencies to meet strong demand and convert backlog into delivered product. As funding begins to flow from the Federal Infrastructure Investment and Jobs Act, We expect this to provide future revenue growth and visibility. As a reminder, the bill currently runs until September 2026. The health and reliability of the supply chain we rely on has shown improvement over the last year, eliminating some of the challenges we encountered. However, pockets of tight labor conditions are persisting, contributing to supply chain delays. Our procurement and engineering teams have done a good job to identify and qualify second sources when feasible. From a human capital management perspective, we continue to hire and train personnel to increase operations staff and output. At the same time, we are implementing operational excellence initiatives to mitigate future disruptions in our supply chain. Inflationary pressures are stabilizing. but we expect some inflation to persist into 2023. We continue to proactively offset inflation through pricing as needed. We show our historical backlog on slide nine. As you can see, backlog at the end of Q4 is down slightly from the record level we established in the previous quarter. Over the past two years, our backlog has increased 153%. and some moderation is expected. We are making steady progress on our initiatives to convert backlog and expect to see this trend continue as order rates normalize and we increase output. I mentioned earlier how the one Aztec business model shown on slide 10 has aligned us along a unifying framework and centered us around our customers and markets. It is this alignment on core values that unite us as an organization and keeps us focused on achieving our operational excellence objectives. It guides us in onboarding talent and as we add new employees to meet customer demand. It directs us as we leverage our global footprint to reduce lead times, optimize revenue, and manage costs. And it empowers us to better mitigate supply and logistic challenges by building a robust supply chain. This model is a critical component of our success, and I believe it has become an ingrained component of our culture that will enable continued future success. Slide 11 and 12 lay out targeted areas of growth, with our primary focus being the organic growth opportunities shown on slide 11. These initiatives, such as growth in parts and services, and dealer expansion are beginning to gain traction. Organic opportunities offer us the most straightforward and efficient path to profitable growth, and we will continue to prioritize these initiatives while we keep our eyes open for selective opportunities to acquire businesses that meet our discipline, strategic, and financial filters. We are on an ESG journey, as shown on slide 13. That is focused on key areas where we believe we can create the most value. We are still early in our journey, but already we are making progress. Slide 14 shows a carbon footprint model where we can employ our materials knowledge, process tools, and telematics to monitor and drive lower emissions. This is an area where I believe we can add even more value and one that is generating interest from our customers. Staying on the theme of telematics, slide 15 shows how we are developing comprehensive digital solutions, including positive contributions from our GrafWall and Mines acquisitions. This approach aligns well with our Simplify, Focus, and Grow framework as we develop capabilities that improve our operations, elevate the customer experience for our partners, and expand our ability to grow into high-value market opportunities. Finally, bringing these slides together on slide 16, we highlight the ASTEC digital suite, beginning with materials in the ground to completed roads and bridges, and then ongoing service, with providing products and services that differentiate ASTEC as the industry leader. And while I am proud of the progress we have made, I'm even more excited about the paths we have in front of us to deliver sustainable, profitable growth. With that, I will now turn the call over to Becky to discuss our detailed financial results.