Astec Industries, Inc.

Hello and welcome to Aztec Industries First Quarters 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 good morning, everyone. Joining me on today's call are our President and Chief Executive Officer, Yaku Fundamurba, and our Interim Chief Financial Officer, Heinrich Janka. In just a moment, I'll turn the call over to Jaco to provide comments, and then Heinrich 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 earnings 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 company results, We refer to various non-GAAP financial measures which management believes provide useful information to investors. These non-GAAP financial measures have no standardized meaning prescribed by US GAAP and are therefore unlikely to be comparable to the calculation of similar measures for other companies. Management of a company does not intend these items to be considered in isolation or as a substitute for the related US GAAP measures. A reconciliation of U.S. GAAP to non-GAAP results is included in our earnings release 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 Presentations tabs. So now, I'll turn the call over to Jaco. Thank you, Steve.

Before I start with our review of the quarter, I'd like to take a moment to welcome Heinrich as our interim CFO. Since joining Aztec in 2021, he has been an integral leader on our financial team, most recently serving as the VP of Finance for our infrastructure solutions segment. Heinrich has approximately 20 years of public company experience, deep financial acumen, and he knows our business well. All of this has helped make for a seamless transition to interim CFO. Although I am certainly underplaying the hard work and long hours he and the team have put in since he stepped into the role. Heinrich, thanks for your commitment to ASTEC and for joining me on today's call. With that, I would like to begin my remarks with our first quarter overview, summarized on slide four. As our results indicate, we experienced a more challenging first quarter than anticipated, mainly due to market headwinds in our material solution segment. These headwinds impacted our reported results, offsetting what was a relatively solid quarter for our infrastructure solution segment. We are taking action to overcome these headwinds through focused execution of our strategy, and targeted cost reduction initiatives in material solutions, which we will return to later in the call. We continue to see opportunities ahead as we collaborate with our customers, deliver innovative new products to the market, and develop best-in-class aftermarket practices in both infrastructure and material solutions. Driving sustainable, profitable growth and margin expansions remains our North Star, and we have the right tools and team on hand to deliver on those objectives. Moving to our first quarter overview, we delivered $309.2 million in net sales and gross margin of 24.9%, with consolidated implied orders up 2.4% sequentially. While we experienced a supply chain delay from a specific supplier in our infrastructure solutions group, underlying results were positive and implied orders were up 9.3% from the prior quarter. Material solutions results were impacted by lower convergence from rental to buy and finance capacity constraints stemming from the current interest rate environment. With this, we saw implied orders and material solutions decrease 11% sequentially. Heinrich will share more on the specifics in a few minutes. But we do anticipate these headwinds to lessen as we move through 2024. And we are encouraged to see continued strong demand for asphalt and concrete plants. Our backlog levels approach the historic range at 559.8 million. due to improved lead times on most of our product lines. This will allow us to continue to meet the demand for our products moving forward and increase our sales. Another highlight of the quarter, our time at the World of Asphalt AG1 show and conference was incredibly fruitful, with strong customer engagement and a 38% increase in visitors over the previous record in 2022. Our new products displayed were very well received. We left with multiple plant leads, which we believe attest to a positive long-term mindset among customers. Now turning to slide five. I want to take a moment to discuss our new strategic framework that will drive our commitment to deliver sustainable value creation. As you know, for the last several years, we have been working under a strategic framework that we called simplify, focus, and grow. Operating under this framework, we made significant strides to streamline our organizational structure and operations, improve operational excellence in areas such as quality performance, aftermarket excellence, inventory management, and position the company for profitable growth. While elements of this strategy remain evergreen, for example, our focus on operational excellence and profitable growth, we ended fiscal 2023 with our key initiatives under the simplified focus and growth framework largely completed. As such, we are moving forward in 2024 with a new strategic roadmap supported by three core pillars, empowered, enabled, and engaged employees, customer-focused, and industry-changing innovations. Let me briefly touch on each pillar. First, it is our goal to develop high-performing talent. We do this through competitive compensation, the ongoing development of leadership and technical skills, and a culture based on values that align to our employees. Being an employer of choice provides employees with the tools needed to succeed at ASTEC and offers life-changing professional opportunities. Next, we believe a strong customer focus across the organization is key to our success. This means driving commercial and operational excellence and simplifying our product offerings and production processes as a few examples. Finally, innovation has long been a cornerstone of our legacy. We want to build on our history of industry changing innovation by rolling out a new product development approach It increases our market competitiveness and better leverages our technology and digital connectivity. Innovation is very much at the core of who ASTIC is and what we do. The success of our operational improvements over the past few quarters gives us confidence in our ability to deliver on our strategic goals. Our focus on these three strategic pillars will help us build on our momentum and support our efforts to drive value for our employees, customers, and shareholders. Now turning to slide six, I would like to provide an update on our current business dynamics. For infrastructure solutions, we are focused on strengthening our sales channels, including growing our strategic accounts, driving efficiencies, and ensuring strong inventory control and supply chain cost reduction. we saw net sales of 202.2 million, which decreased 6.2%. As I mentioned earlier, this decline was mainly due to a select supply chain issue, but this was partially offset by increased part sales. We also saw segment operating adjusted EBITDA margin of 12.7%, which decreased 50 basis points due to the supply chain delay and volume-related manufacturing inefficiencies. On the material solution side, we reported net sales of 107 million, a decrease of 19.1%. This reflects a combination of factors, including slower product conversions and lower equipment sales, the latter of which are due to finance capacity constraints with contractors and dealers. Separately, our segment operating adjusted EBITDA margin of 5% decreased 600 basis points. These results were impacted by lower sales volume, manufacturing inefficiencies, and select inventory-related costs. We also wanted to provide an update on the federal highway bill as it relates to our business. Federal highway and pavement contract awards increased 11% year-over-year. with state budgets up 12% year-over-year, according to the American Road and Transportation Builders Association. Given these numbers, we expect continued strong demand for asphalt road building and concrete production equipment moving forward. On slide 7, we further highlight implied orders. As I said, implied orders is up 2.4% sequentially at $299 million. in comparison to 292 million last quarter. Additionally, infrastructure solutions increased 9.3% this quarter from 192 million last quarter to 210 million this quarter, a strong indicator of the positive momentum we expect. Separately, material solutions saw implied orders decrease 11% from 100 million last quarter to $89 million this quarter. A change, as I said earlier, due to lower conversions from rental to buy and finance capacity constraints stemming from the current interest rate environment. As a reminder, infrastructure solution makes up two-thirds of our total business. On slide eight, we show our backlog trends. Backlog of $559.8 million as of March 31st 2024 is returning to our historical range. Backlog for infrastructure solutions was 372.7 million, a 2.1% increase sequentially. And our backlog for material solutions was 187.1 million, a decrease of 8.9% sequentially. As I noted earlier, consolidated implied orders were up 2.4% sequentially. and we believe we are well positioned to meet the demand of our products and convert this backlog into sales. Moving to slide nine, I noted earlier how important innovation and new product development is to our overall growth strategy. Let me highlight some of the new products we exhibited at the World of Asphalt AG1 trade show in March. Our Remix CCPR system efficiently utilizes reclaimed asphalt pavement, or RAP, minimizing waste and promoting sustainable road construction practices. Our very frequency screen technology will revolutionize the industry with its ability to eliminate screen cloth binding, increase performance, and reduce operating costs. The ASTEC Intellipec moisture system provides visibility into virgin aggregate moisture levels, with advanced features that empower operators with real-time data and insights. And our IntelliFlex burner controls provide intuitive control over burner performance and safety operations for asphalt mixing plants. We receive strong feedback on these innovative products at World of Asphalt Ag One, and our teams are hard at work to get them into customers' hands. Various of these new products will enable us to apply artificial intelligence-enabled technologies in the future. With that, I will now turn the call to Heinrich to discuss our detailed financial results.

Thank you, Jakob, and good morning, everyone. Before I jump into the overview of our results, I wanted to share how honored I am to be serving in this interim role. For almost three years, I have served as Aztec Vice President Finance, Infrastructure Solutions, and during that time have worked closely alongside our broader finance team. Due to Yaku and my colleagues' support and collaboration, the transition to this new role has been smooth. We have a strong and deep bench of talent at Aztec, and I know everyone is focused every day on delivering for our customers and our shareholders. Before I start, I wanted to share that the company has two reportable segments. Each segment comprised of sites based upon the nature of the products or services produced, the type of customer for the products, and the nature of the production process, among other considerations. Based on a review of these factors, the companies Australia and Latin America, LATAM, Sites, and Aztec Digital have changed reportable segments beginning January 1, 2024. The Australia and the TAM sites were previously reported in the infrastructure solution segment and have moved to the material solution segment. Aztec Digital was previously included in the corporate and other category and has moved to the infrastructure solution segment. Although the overall financial impact of this change is relatively minor, prior periods have been revised to reflect the changes for both the segment composition and the segment profit or loss metric calculation for comparability. With that, let's discuss the numbers. I'll begin my review of the first quarter results on slide 11. Net sales decreased 11.1% to $309.2 million in the quarter, due primarily to finance capacity constraints and lower conversions from our material and solutions group and supply chain delays from a specific supplier for our infrastructure solution group. As mentioned by Yaku, we do expect to make up ground the remainder of 2024. As we continue to see strong demand for asphalt and concrete plants. By region, net domestic sales were down across our markets with a decrease of 13.5% or 38.1 million and net international sales decreased slightly by 0.9% or 0.6 million. As a reminder, the US represents around 80% of our consolidated sales. Additionally, we saw equipment sales decreased 18.6% or 40 million. but part sales did increase 10.3% or 10.7 million. Further, we reported a decline in both adjusted EBITDA and adjusted EBITDA margin with a decrease of 46.3% or 18.9 million and a decrease of 400 basis points to 6.1% respectively. Adjusted EBITDA margin decreased due to lower volumes, which impacted manufacturing efficiencies at select sites and other period-related costs. This was partly offset by pricing net of inflation. Increased SG&A costs were largely driven by higher personnel costs linked to a one-time recovery related to restructuring activity during the prior year. Additionally, Increased consulting and technology support costs were partially offset by lower exhibit and promotional costs. Adjusted EPS was $0.34 compared to $0.90 in the quarter, a decrease of 62.2%. And we had GAAP EPS of $0.15 compared to $0.53. Our adjusted EPS excludes transformation and other costs of $0.19 in the first quarter this year. as well as $0.37 in the first quarter of 2023. Separately, our adjusted effective tax rate was 26%. Moving on to slide 12, infrastructure solutions net sales decreased 6.2% to $202.2 million, which, as I mentioned, was a result of a select supply chain delay related to equipment sales. Domestic sales, international sales, and equipment sales decreased by 3.2%, 30.6%, and 12%, respectively. We did see a strong performance from part sales, which were up 17.7%. Segment operating adjusted EBITDA decreased 10.2% to 25.6 million, and segment operating adjusted EBITDA margin decreased 50 basis points to 12.7%. These declines were primarily due to lower net volume and mix manufacturing inefficiencies from lower volumes, which were partly offset by pricing net of inflation. Moving to slide 13, material solutions net sales decreased 19.1% to 107 million, driven by lower equipment sales, which were attributable to previously mentioned finance capacity constraints with contractors and dealers and the late product conversions. We did see international sales up 15.3%, while domestic sales, equipment sales, and part sales were down 35.7%, 27.4%, and 3% respectively. We implemented cost right-sizing activities after the quarter as we anticipate softening conditions for the dealers and contractors during the first half of the year. Segment operating adjusted EBITDA also decreased 63.7% to 5.3 million. And segment operating adjusted EBITDA margin decreased 600 basis points to 5%. The clients were attributable to lower net volume and mix, manufacturing inefficiencies from lower volumes, other period-related costs, and higher SG&A costs, which were partially offset by pricing net of inflation. On slide 14, we show our adjusted EBITDA bridge. As I shared earlier, we had a decline in adjusted EBITDA of 46.3% to 18.9 million, and the decline in adjusted EBITDA margin of 400 basis points to 6.1%. We saw a slight benefit from volume, pricing, and mix, with inflation impact of 1.8 million. Manufacturing inefficiencies and other period costs of $10 million, of which $5.5 million mostly relates to inventory adjustments and the previously mentioned $4.6 million impact from SG&A and other costs. Turning to slide 15, we ended the quarter with cash and cash equivalents of $55.3 million, available credit of $150.2 million, and total available liquidity of $170.5 million. which decreased 27.3% as compared to December 31st, 2023. Our operating activities used 47 million of cash in the first quarter, and our cash available for operations decreased 7.7%. As you'll see on slide 16, we continue to execute a disciplined capital deployment framework. Balanced investments and growth and returning cash to shareholders We spent $5.8 million of capital expenditure in the first quarter to increase capacity and improve efficiency. We issued a dividend of $0.13 per share in the first quarter and continue to maintain a disciplined M&A approach to identify acquisitions that align with our growth strategy and meet our financial criteria. We also have $116 million remaining in authorized share repurchase program positioning us for opportunistic share repurchases. subject to market conditions. With that, I will turn the call back over to Jakub. Thank you, Heinrich.

Turning to slide 17. In summary, despite the challenging current market dynamics, the fundamentals of our business remain strong, led by infrastructure solutions, and we are moving forward guided by our new strategic pillars. The outlook for infrastructure solutions remain favorable. due to continued strong demand for asphalt and concrete plants. As we noted earlier, we have taken actions to drive additional cost reductions and efficiencies in material solutions, as we anticipate challenging conditions for dealers and contractors in the first half of this year. We released a significant number of new products at the 2024 World of Asphalt AG1 trade show, earlier this year, and we are excited about the momentum in our innovation pipeline between now and ConExpo 2026. We are also encouraged by the increased federal highway funding and the positive sentiments from our customers we continue to receive. Our resilient operating model, new strategic framework, and our cost reduction and efficiency initiatives provide us with a solid foundation to drive growth and value creation moving forward. With that, we are happy to take your questions.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. And your first question comes from the line of Stanley Elliott from Stifel. Please go ahead.

Good morning, Yoko, Steve, and welcome, Heinrich. Good morning, Steve. Can you all talk about how the quarter progressed? I mean, you did report at the end of February. Curious if you all were thinking that maybe orders would have picked up in March or if business dropped off in March. And then maybe how did April track, just to frame it all out for us?

Yeah, no, good question, Stanley. So obviously on the material solution side, Our shipments came in much slower than what we expected when we talked to you guys in February. On the flip side of that, parts sales came through pretty strong for the year. And we mentioned in the call some of the supply chain issues that we experienced on the infrastructure solution side. You know, that gave us a pretty decent, you know, a number that we moved from Q1 to Q2. So we will see that here in the following quarter. From an April point of view, you know, on the material solution side, I actually got an update this morning. You know, orders are, I will say, in line with what we've seen the last couple of months. However, I am very excited about the order intake that we've seen for asphalt plants and concrete plants. We think that business is going to be really strong for the remainder of the year.

I guess you also talked about kind of flat-up single-digit revenue. You maybe helped frame kind of where we are now with it sounding like that the plant business being strong and the material business being probably weaker than what you would have guessed.

Yeah. Yeah, no, we discussed that a lot internally, Stanley, and, you know, at this point in time, we are reconfirming that view. You know, as I said, that material solutions obviously is lower than what we expected, but we believe that the IS side, especially on the plant side, There's a potential that that can outperform and make up some of the losses on the MS side. I think it's important to also remember IAS makes up about two-thirds of our business. If that momentum is positive, it will have a good effect for the organization. We're also seeing really good margin momentum. Obviously in the quarter it dropped a little bit from the previous quarter, but we continue to see positive momentum on the margin side and I'm pretty optimistic on what we will see for the rest of the year.

Speaking of margins, maybe help kind of unpack the 600 basis points on the MS side. How are you all thinking about that for the full year or progression? sequentially to kind of figure out where we are? Because, I mean, right now you guys are kind of back to 21, 22 type of margins when it was COVID impacted.

Yeah, no, good question. I think if you look at material solutions, you know, obviously there was a couple of one-time items in there. You know, we highlight in our EBITDA bridge you know, a few items there, including some one-time inventory adjustments. You know, we don't foresee those things to continue, although we have, you know, a very conservative inventory valuation policy that we follow. And, you know, we're going to watch that very carefully. And in this case, you know, we have now inventory available, obviously, on the Phoenix goods side and the If the market momentum comes back, we will be well positioned to shift that inventory and get it into our customers' hands. We have a good view on that, Stanley, and obviously we're going to continue to watch that. For the remainder of the year on the material solution side, as I said, we do see the volume staying under pressure. Although here in April, you know, we've seen that about 18% of all the machines that our customers had, that our dealers had in inventory moved into their rental fleets. So, you know, customers are still busy. The only thing our dealers are not seeing that those are converting into purchases is The moment that happens, we will obviously see those orders replenished by our dealers. Parts continue to see good momentum. In the quarter, we were up about 10% on parts. As you guys know, it's one of the things that me and the team are focused on a lot, and we are very encouraged with the work our teams are doing, and I think that that momentum will continue as well for the rest of the year.

Perfect, guys. Go ahead. That's it for me. Thanks, guys. Best of luck. Thanks, Dan.

Our next question comes from the line of Nick Dobrer from Baird. Please go ahead.

Yes, good morning. Can you hear me okay?

Yes, good morning, Nick.

Yeah, good morning. I want to go back to your commentary about the outlook here being flat up single digit for 2024. To be honest with you, I really struggle with the math here because that would imply that for the next three quarters, you need to deliver average revenue of call it 340, maybe 345 million. When we're looking at your orders in Q1, there were less than 300 million. backlog backlog is down pretty significantly relative to the prior year so I'm trying to think through what needs to happen here from an order standpoint over the next three quarters to allow you such a significant ramp in revenue unless the assumption here is that we are going to be burning down the backlog to something like I don't know 300, 350 million exiting 2024. So how do you think about that and how do you do production planning given kind of what the numbers are?

Yeah. Yeah, Mick, I mean, if you look at backlog, you know, it only went down about 1.8% from Q4. We do see that our lead times in manufacturing is continuously improving due to our investments in our factories. And obviously that allows backlog to go down without necessarily affecting sales. Our parts availability is at an all time high for most of our product lines. So that means that most of our parts doesn't make it to backlog. And then, as I mentioned, when Stanley asked the question, We are really encouraged with the order intake that we've seen here in April for asphalt plants and concrete plants. We have all indications that that will continue. Our customers on that side continuously give us feedback around the amount of work that they have and the backlogs that they have. The other thing that I think we need to consider is that we have positive momentum on new products that we've released to the market. There's a couple of models that we displayed at World of Asphalt, and those products are entering the highest volume segments in the market. We believe that we will get we will get an upside due to those volumes. So yeah, strong, strong, strong view on the next three quarters. But with what we see right now, we felt that it was prudent for us to reconfirm that.

I want to clarify something. The reason why your backlog is only down 2% sequentially is because Q1 revenues were down 11% relative to the prior year. Q1 came in below your own internal expectations. As a result, your backlog was relatively unchanged. The discrepancy between your order intake and revenues is what the issue is here, because in order for you to grow revenues or even keep them flat relative to the prior year, that obviously implies a very significant ramp sequentially in production, in revenues, which again, at least in theory, it has to be supported by orders. So I guess my question relative to all of this is, if you're saying that you're seeing better orders in April, are you able to sort of quantify that? And should we think that orders can actually return towards a full $340 million plus kind of run rate as we think about the back, the remaining three quarters of the year?

Yeah, no, I mean, as I said, April was very strong for us on the asphalt plant side and the concrete plant side. Our parts order intake remained strong. MS was more or less in line with what we've seen in the last couple of quarters. The encouraging part on the MS side is the movement out of dealer inventory, just standing inventory into the rental fleet, you know, 18% movement there was pretty significant for us. So, yeah, no, Mick, I mean, it's a fair question. You know, we do, we are very encouraged with what we've seen here in April. And, you know, if anything shifts, obviously we will update you guys on that. With what we see right now, we felt comfortable with that.

My second set of questions here is around margin. And I'm curious, you've spent the last couple of years investing internally in systems and in people as well with the idea that you're going to have better visibility and you're going to have hopefully more consistent execution. And unfortunately, this quarter, Yet again, we're sort of seeing some variances here relative to that. So I'm kind of curious, from your standpoint, what needs to be done here in order to sort of get a more even operational sort of roadmap here on a go-forward basis?

Yeah. I mean, if you look at the margins, you know, Q1, we ended on that 24.9%. Our range that we provided to you guys before was in the 24% to 25.5%. We feel optimistic that we will end closer to the higher end of that range for the year. Actually, in our infrastructure solution side, margins came in strong. Obviously, we have the underabsorption and some of the inventory costs that we book on the material solution side that pull them down. We also see continued positive margin development on our parts business. So, Mick, I think the teams are working on the right things. I'm still encouraged with what we see. You know, if we just take the inventory and adjustments out that we had, you know, our margins were closer to 26% during the quarter.

So, on that note, can you help us understand what was this inventory charge that you're talking about?

Yeah, no, I can. You know, obviously, we have internal policies that we review the quality of our inventory from an excess, obsolescent, and aging point of view. It's a conservative policy, and during the quarter, a couple of finished goods units reached a certain threshold that we had to take the ride down. Obviously, that inventory is still very good. It's sellable inventory, and when we move that inventory, we will see that positive effect in the margins in the future. We are evaluating this. We have pretty good visibility on that for the next couple of quarters. So we'll keep an eye on that and obviously we'll continue to apply our policy as we've got it in place here at the moment.

Is that inventory used equipment or new equipment?

No, it's not. And that's the big difference from the past. I think you guys will remember a couple of years ago, there was a big used inventory issue. Now this is new inventory. And as the dealers move inventory out of their fleets, we feel very comfortable that we'll be able to sell that inventory.

I'm sorry, one last question here. I find I'm a little bit puzzled by this because If anything, equipment prices have been going up, so why is it that this requires a write-down, especially if we're not talking about used equipment inventory?

Yeah, once again, good question. It's a conservative policy that the team here put in place a couple of years ago. Obviously, we are applying that policy, and we're continuously reviewing these policies together with our internal audit team, so definitely conservative, Mick.

Okay, that's a lot.

Again, if you would like to ask questions, please press star 1 on your telephone keypad and wait for a name to be announced. Our next question comes from the line of Stephen Farazani from Cydoti. Please go ahead.

Morning, everyone. Appreciate the detail on the call. I wanted to ask about the supply chain challenges you ran into on infrastructure solutions in Q1. It would seem, given the strength in highway construction spending and the projects underway, and as you noted, you're seeing orders picking up, it would seem like those challenges might widen over the next five or six quarters. So I'm trying to think about, do you have visibility to that? And what can you do to prevent those challenges from impacting your results on a quarterly basis? Is there anything you can do?

Yeah, no, absolutely, Steve. We can do something about that. You know, this is specific electronic components that basically goes into our asphalt plants. You know, it's a pretty complex design if you look at the whole control house that operates an asphalt plant. And that is one area that we were typically single sourced with in the past. You know, we have found alternative suppliers. Unfortunately, there's an engineering design cycle and verification cycle that we're going through right now. So, you know, we have alternative suppliers. um suppliers on on the line now that is approved um so over the next couple of quarters you know we will have additional options um from a from a supplier based point of view so um it will be tight you know some of this um the orders that move from q1 and q2 you know those orders will ship um There is a potential risk of some of the items that we see to be delivered in Q2 that will move out to Q3. But we feel that, you know, within the year, we should still be able to deliver what we, you know, what we have on the backlog and where we make commitments to customers for this year.

So just to be clear, your expectation on the supply chain challenge, it's to a very specific item on the electronic side that could persist somewhat into Q, but you're not seeing it in anything else right now and you're not concerned?

No, I mean, I will say there's always, you know, one or two components that is bugging us from time to time. But this is a very specific issue where we just had no alternatives to explore during the quarter. You know, our corrective action and the work that our engineering teams have done now has given us alternatives in the future.

Okay. Appreciate that. When I look, I know Q1 is never a good cash conversion quarter. It typically is negative compared to EPS, and obviously you had certain challenges this quarter. A bit concerned on how much receivables went up this quarter. whether that's specific to issues you ran into on material solutions and some of your customers, how reversible that is and how you're thinking about cash conversion this year.

Yeah, let me take a first step in that and then maybe Heinrich can elaborate. You're right, receivables went up, you know, in the range of $39 million. One thing to remember, Steve, is that, you know, On capital equipment, our terms is typically that customers pay on delivery. On parts, we typically have 30 days and Q1 being a strong part sales. Obviously, that's the biggest reason for receivables going up, but I don't know if you have any additional view on that.

No, I think it's similar to what Jakub mentioned here. I think for us, we continue to focus, I think, in a lot of areas within that cash conversion cycle, specifically related to the inventory side of the business. More specifically to your question on the receivable side, Yaku mentioned a little bit the strong part sales that we had here during Q1. We do have terms on those part sales. On the equipment side, we fully collect basically on shipment and equipment sales were lower during the Q1 phase. And yeah, we continue that to improve from the equipment side going forward. We also within the receivables had a share based, a share class suit that we have that reached the criteria of being estimable and probable, which is within that number as well. There is no P&L impact to that item. It's purely a balance sheet item. It's graded as a receivable and then also as a liability. The insurance carrier will take on full payments on that, so it will not be a long-term item for us in receivables.

Steve, just to confirm also, we feel very good about the quality of that receivables. We see very low risk in aging receivables.

Okay, that's helpful. To get one more in just on, you know, you sound pretty confident on the 24 margin based on your comments in the last questions. Are you expecting to see more benefits from these plant deficiency efforts you've undertaken over the last year, as well as are you starting to see any benefits to margin from ERP implementations?

Yeah, so from an OPEX and CAPEX point of view, our teams are now, I will say, fully structured. Some of the teams have been in operation now for a year plus. We fully expect the benefits of those to show up in the future. I will say it's a little bit early on the Oracle implementation. Although the plants that we went in first, we believe that the teams are starting to identify the next step in our phase. Now that we have the investments finished, we have the Oracle implementation finished. So the opportunity for us to drive margins there is pretty good. I think we will see more, and that's why we feel comfortable with talking about the upper end of the range for this year.

Great. Thanks, Jakob. Thanks.

Our next question comes from the line of Brian Sponheimer from Gabelli Funds. Please go ahead.

Hi, good morning, everyone. I just want to talk about the broader competitive environment and pricing and what you're seeing from larger competitors relative to some other niche providers and whether that's something that as we go forward into this year, there's either an opportunity or perhaps a challenge for you to get the pricing that you want.

Yeah, morning, Brian. Yeah, no, good question. Obviously, we have quite a wide array of competitors in the market. I will say the one thing we are seeing specifically from the larger players is subsidies in terms of interest rates and floor plans. Giving 12, 36 months type zero interest floor plans through our plan arrangements. So we're definitely seeing more of that, which takes us a little bit back to the pre-COVID era. We have responded in some of those cases, and obviously that is reflected in some of the results that we've had as well, especially on the material solution side of the business. We are keeping a very close eye on pricing Um, but, um, but you guys also know that, um, inflation is not, it's not, um, come down as much as, as, um, the feds wanted. Um, so I think we're going to see, you know, fairly stable pricing, um, for, um, for the foreseeable future. Um, and you know, we even think that going forward and as we start to sell, um, Some of our product lines are now into 2025. We are already thinking and taking pricing action for the items that we sell into next year. The other side that I'm really excited about is I think our one Aztec procurement team is doing a really good job for us with data analytics and trend lines. you know, we have better visibility today than what I've seen in my time with Aztec around, you know, price increases from suppliers, trend lines on steel, copper, those type of things. So we're definitely managing it in a much more proactive way than what we've done in historical quarters.

All right, great. Well, thank you very much, and best wishes for some... Thank you.

And there are no further questions in the queue at this time. I would like to hand the call back to Steve Anderson for closing remarks.

Thank you, Dee. We appreciate your participation on our conference call and thank you for your interest in Aztec. As today's news release indicates, the conference call has been recorded. A replay of this conference call will be available through May 15th of 2024. And an archived webcast will be available for 90 days. The transcript will be available under the investor relations section of the Aztec Industries website within the next seven days. All of that information is contained in the news release we distributed this morning. So, as Dee said, this concludes our call, and I'm happy to connect with any of you if you have questions later on. Thank you all. Have a good day.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may now disconnect your lines at this time and have a wonderful day.