Astec Industries, Inc.

Hello, and welcome to the Aztec Industries Third Quarter 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 welcome to the Aztec Third Quarter 2023 Earnings Call. Joining me on today's call are Jakob van der Merwe, Chief Executive Officer, and Becky Weinberg, Chief Financial Officer. In just a moment, I'll turn the call over to Yako 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 could 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 are therefore 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. A reconciliation of GAAP to non-GAAP results are included in our news release and 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 Presentations tabs. And now, I'll turn the call over to Jakob.

Thank you, Steve. Good morning, everyone, and thank you for joining us. Turning to slide four. The third quarter turned out to be disappointing from a short-term results perspective, yet positive from creating a stronger business for the long term. As mentioned in earnings release, our results for the quarter were negatively impacted by a litigation loss contingency of $6.4 million related to equipment sold during 2017. Becky will make more comments about this in her remarks. Sales also ended lower than expected due to various infrastructure solutions related orders being delayed to Q4 due to customer readiness and payments. From a long-term performance point of view, I'm excited about the 220 basis point improvement and margins we realized during the quarter. The investments we are making in our factories and systems are progressing well and I fully expect to see further benefits in future quarters. The large transformation at one of our infrastructure solution sites is developing well, with most of the capital equipment and new shop floor layouts completed. Margin development at this facility improved from last year, but ended below our Q3 expectations. Gross margins are up 320 basis points year to date, and we have exceeded 20% gross margins for five consecutive quarters. We continue to see funds flowing from the federal highway bill, further supporting our long-term confidence. Year-to-date sales were up 8.3% with growth in both segments. Our teams are working diligently to reduce inventory levels, and we expect the results of these efforts to flow through over the next few quarters. We expect operating cash flow to improve in Q4 as we convert inventory to cash and improve profitability. During the quarter, I visited various customers, attended the National Ready Mix Concrete Association meeting, and met with most of our mobile construction equipment dealers. The sentiment remains strong, and customers continue to express a desire to do business with Aztec. The mobile construction dealers were specifically excited about the new products we are bringing to the market. More about this later in my commentary. I'm pleased to see the way our employees are bracing a culture of sustainable performance and improved execution. Focusing on our employees clearly reflect in our new vision. I am proud that we announced the addition of paid parental leave for both parents during the quarter and an increase in our company 401k match. for our employees effective January 1, 2024. Lastly, we are excited about the release of our first corporate sustainability report during Q4. The team has done a fantastic job with this. We have now established a baseline from which we can set improvement targets. Slide five highlights that our focus in 2023 has been on execution. There are a number of significant initiatives noted for your convenience, but today I would like to tell you more about our progress on two specific things I'm passionate about. Parts and safety. Having the right parts available as and when needed by our customers is key to success in the capital equipment markets we operate in. We have made significant improvements in our parts fill rate after a challenging first half of the year. The investments we've made in our factories and the implementation of management dashboards are helping us to improve further. Creating a strong parts business will further enhance our ability to create sustainable and predictable results in the long term. Finally, our core values augment individual efforts into a team that works together to deliver results. Safety is one of our core values. and I would like to highlight our favorable year-over-year safety performance. Our recordable incident rate improved to 1.31 year-to-date, below our 2022 performance. Investing in our factories has had a positive impact on our safety performance, and our teams will continue to find further improvements to make. Turning to slide six, I would like to review the current business dynamic and how we are responding. Our customers remain optimistic about 2024 as they already have solid backlog on the books. As mentioned earlier, last month I attended the National Ready Mix Concrete Association meeting in Nashville, Tennessee. While there I was able to connect with various customers and dealers. They remain positive and this is reflected in the solid backlog we have for our concrete plants and related equipment. We are expecting that our material solutions national dealer conference to be held in Q4 will yield strong demand for 2024. Our current indication is that it will be stronger than last year. Over the last 12 months, we have improved our dealer coverage, and this has contributed to demand. Rising interest rates could potentially have a negative effect on the conversion of dealer rental fleet to customer sales. We have seen examples of dealers' customers extending rental agreements versus buying equipment at the end of the lease. Customers and equipment are however still working, but this could potentially put pressure on our dealer network. Driving down our in-house inventory will however give us the ability to support stronger dealer floor plans to mitigate this if required. However, With the pressure in the macro environment inclusive of the rising interest rates, we are monitoring our high-volume dealers' orders in the backlog for possible modification, push-outs, or cancellations. Funding from the Federal Highway Bill has started to flow, with federal contract awards increasing 12% year-over-year. We view the federal funding mechanism as providing long-term stability for our markets and customers. Slide seven further illustrates our expanding global footprint. Our international team has made significant improvements on our market coverage and presence. While various of these dealer relationships are still new, we are encouraged about the level of activity. Our backlog continues to normalize, as can be seen on slide eight. As a reminder, Q3 has historically been a lower order intake quarter, due to customers working and focusing on completing projects before the winter months. Our October bookings are encouraging within the infrastructure solutions business, and we have good inputs that the material solutions national dealer conference will yield strong bookings, as mentioned earlier. I'm very excited about the release of our new vision on slide nine. To build industry-changing solutions that create life-changing opportunities. This vision is focused on our employees, our customers, and resonates well with our legacy of strong customer service and innovation. We will share more about our vision and our Aztec 2030 strategy during our investor day planned for the spring of 2024. I'm extremely pleased with how our employees are embracing the new vision significance and the profound impact we will have on our people, customers, and the industry in the future. Turning to slide 10, we continue to execute our simplified focus and growth strategy to deliver value for employees, customers, and shareholders. For example, we have simplified by streamlining our internal staffing and adopting branding as one aspect. Under focus, we are pursuing operational excellence Investments to optimize the manufacture of mobile construction and crushing equipment domestically and internationally are examples of putting capital to good use. We're also focused on inventory management and aftermarket parts excellence to enhance customer value. Grow includes the introduction of new products and growing into new geographies as well as developing our aftermarket. This includes getting more parts out of the door. We are working closely with our dealers and direct sales teams, understanding what they are seeing in the field and partnering with them to better serve our customers. Flight 11 highlights a few of the innovative new products we displayed earlier this year at the ConExpo trade show in Las Vegas. Our new horizontal grinders were released during Q3. and the milling machine and paver are scheduled for release over the next two quarters. These products address specific market needs and have sparked the interest of our dealers and customers. The large investments we have announced before for mobile crushing and construction equipment are progressing well at our Omaha Northern Island and Chattanooga, Tennessee facilities. These investments are both transformational for the respective product lines, and will yield positive results in the future quarters. Slide 12 reflects our one ASTEC business model. This framework ties in well with our new vision, placing our employees and customers in the center. I'm very proud of our purpose of Built to Connect, and it is meaningful and tells the story about what ASTEC's customers accomplish with our equipment. Lastly, on slide 13, we are proud that we will release our first corporate sustainability report during Q4. This is a significant step forward on our ESD journey. Our report highlights how we are investing resources to advance environmental and social initiatives while maintaining sound governance. I look forward to publishing our report and updating you on our progress. With that, I will now turn the call over to Becky to discuss our detailed financial results.