Astec Industries (ASTE) Q2 2026 earnings call transcript

Thank you, and good morning, everyone. Joining me on today's call for Yaku Fundermova, our Chief Executive Officer and Brian Harris, our Chief Financial Officer. In just a moment, I'll turn the call over to Yaku to provide his comments, and then Brian will summarize our financial results.

For your convenience, a copy of our press release and presentation have been posted on our website under the Investor Relations tab at www. aztecindustries. com.

Turning to slide two, I'll remind you that our discussion this morning may contain forward-looking statements that relate to the future performance of the company.

Factors that can influence our results are highlighted in today's financial news release, and others are contained in our filings with the US Securities and Exchange Commission.

In an effort to provide investors with additional information, the company refers to various GAAP and non-GAAP financial measures, which management beliefs provide useful information to investors.

A reconciliation of GAAP to non-GAAP results are included in our news release and the appendix of our slide presentation.

And now, turning to slide three, I'll turn the call over to Yaku.

Thank you, Steve. Good morning, everyone, and thank you for joining us. As you will see, we delivered a solid quarter with record revenues and adjusted EBITDA. We continue to make progress with our strategic initiatives as we drive greater consistency profitability and growth.

Moving to slide four, net sales were up 23.6% over the same period the prior year, and adjusted EBITDA increased 26%. Adjusted EBITDA margins to the 10.4%, which was a 20 basis point increase over a solid second quarter in 2025. And we reported positive free cash flow.

The infrastructure solution segment remained healthy as net sales grew 11.6% over the same period the prior year, largely due to demand for concrete, mobile paving, forestry equipment, and inorganic contributions.

For asphalt plant customers, order patterns remained consistent with the prior year. However, macro-driven events such as higher oil prices and uncertainty over the timing of the renewal of the Federal Highway Bill have caused select deliveries to shift to future quarters.

Much of our second quarter backlog growth was driven by the anticipated resurgence of our material solution segment. And we are optimistic about the future. Federal, state, and local projects are expected to drive multi-year demand, and the global mining sector is poised for significant investment. A surge in demand for lithium, nickel, copper, and rare earth elements is expected due to the electrification of transportation and growth in the construction of data centers.

Dealer inventory levels in the material solution segment are healthy, and we are seeing increased demand for mobile plants. Rental inventory conversions were active throughout the second quarter. And this provided dealers with the ability to replenish inventory.

Our new product development efforts are also beginning to show benefits as new crashing and screening units manufactured in our Omaha Northern Island facility gain traction.

Providing excellent availability of parts and servers to ask the customers to remain a key priority. In the second quarter, we generated revenue of 135.5 million of parts and servers, which was a 34.8% increase over the same period the prior year. As a percentage of net sales, parts and servers reached 33.2% for the quarter and trended upward to 35% on a year-to-date basis.

Backlog of 601.1 million increased 57.9%. Both segments contributed with most of the increase being derived from our material solution segment.

Overall, order activity in both segments remains encouraging. However, as stated, some asphalt plant customers have begun to schedule their deliveries for the fourth quarter of 2026 and first quarter of 2027. As such, we are advising our full year 2026 adjusted EBITDA guidance from the previous range of 170 to 190 million, 260 to 175 million. For modeling purposes, we anticipate adjusted EBITDA for the second half of the year to have a split of approximately one third in the third quarter and two thirds in the fourth quarter.

Then into slide five, we had a spectacular show at the ELAID 2026 squaring construction and recycling event held in the United Kingdom in June. ELAID drew thousands of attendees to see live in quarry equipment demonstrations over the three-day period. During the show, Aztec was proud to launch eight new models, including our frontier series, units produced in our Omaha facility in all an island.

The frontier crushing, screening and washing material anding lines are now available for the global market. All equipment is engineered with the latest innovations underpinned by proven technology and is fully compliant with CE standards. We were also pleased to display and operate two new prototypes of the shell that will be available for sale later this year.

Lastly, two new UK dealers for Aztec products were introduced at the show as part of our overall growth strategy internationally.

On slide six, we provide a status update for the renewal of the federal highway ball. Two eras of federal surface transportation funding are shown side by side. The Infrastructure Investment and Jobs Act, which runs through September, 2026 and is proposed successor, the Bold America, 250 Act, covering 2027 through 2031. At first glance, the 580 billion headline number in the Bold America, 250 Act appear smaller.

As it attains to Aztec, however, that comparison can be misleading. Aztec equipment is primarily used to process aggregates and produce asphalt and concrete. That goes into our nation's infrastructure.

We are pleased with the proposed 7% increase in highway funding from roughly 351 billion to 376 billion and approximately 12% increase to improve our nation's bridges. The money also gets more certain as the formula funded share climbs from 87 to 90%. These guaranteed nondiscretionary portions increase every year, beginning with 65.54 billion in 2027 and progressively stepping up to 69.54 billion by 2031.

So the takeaway is this, the Bold America, 250 Act may make a smaller headline, but it channels more government guaranteed formula based money into the core highway and bridge programs.

The Federal Highway Program provides a meaningful volume of work for the infrastructure industry. This is good for our customers and in turn, good for Aztec. The exact timing of the Federal Highway Board renewal has yet to be determined, but a temporary extension in the form of a continuing resolution appears likely. That said, whether the bill is renewed by September 30th or extended, a longer term bill is a matter of when, not if.

For Aztec, this provides a baseline for achieving our 2030 revenue and EBITDA targets. Our implied orders in book to bold trends are shown on slide seven. On a consolidated basis, implied orders of 460 million grew 151.5 million or 49.1% for the same period, the prior year, and 6.7% sequentially.

As I mentioned previously, we are seeing strong across the board order intake by our material solution segment, while macro uncertainty has created the shift in deliveries for selected asphalt customers.

Moving to slide eight, backlog of 601.1 million increased 57.9% over the same period in the prior year. The majority of the increase was derived from our material solution segment, which grew 150.6% from a combination of organic and inorganic growth. Infrastructure solutions posted a 12.7% increase primarily due to additional orders for concrete, mobile piping, and forestry products. I will now turn the call over to Brian Harris, our chief financial officer.

Thank you, Yaku, and good morning. Our consolidated financial results are highlighted on slide 10. Net sales of 408.1 million increased 77.8 million or 23.6% over the same period in the prior year. Net sales include parks and service revenue, which grew 34.8% to 135.5 million.

Adjusted EBITDA increased 26% to 42.6 million. This compared favorably to 33.8 million of adjusted EBITDA in the second quarter of the prior year. Adjusted EBITDA margin reached 10.4% for an increase of 20 basis points. Adjusted earnings per share of 94 cents in the quarter compared to a strong adjusted earnings per share of 90 cents in the second quarter of last year.

Moving on to the infrastructure solution segment shown on slide 11, net sales grew 11.6% to 228.3 million from a combination of organic and inorganic contributions. This included aftermarket parts and service, which increased 2.9 million or 4.6% compared to the second quarter the prior year.

Operating adjusted EBITDA in dollars increased slightly. However, margin compression of 130 basis points was primarily due to a change in mix between asphalt plant and mobile paving equipment.

The material solution segment is shown on slide 12. Net sales for the quarter grew 43% to 179.8 million due to organic and inorganic growth while adjusted EBITDA grew 54.5% to 22.1 million. Segment operating adjusted EBITDA margin grew 90 basis points to 12.3% and compared favorably to the same period the prior year.

Moving to slide 13, we continue to maintain a strong balance sheet with ample liquidity. The quarter ended with cash and cash equivalents of 75.7 million available credit of 190.1 million for a total available liquidity of 265.8 million.

Net leverage of 2.2 times was well within our target range of 1.5 to 2.5 times. We expect net leverage to further reduce to approximately 1.7 times by end of 2026.

As we have previously communicated our 2026 outlook includes the following anticipated full year ranges. Adjusted EBITDA of 160 to 175 million. An effective tax rate of 26% to 30%. Depreciation and amortization of 55 million to 65 million. Capital expenditures of 35 million to 45 million. We also expect the following quarterly ranges. Adjusted SG&A of 70 million to 75 million. Interest expense of approximately 7 million.

I will now turn the call back to Yakov.

Thank you Brian. Flight 14 reiterates the Aztec Bolt to connect way and the key performance metric shared during our 2026 invest today. These are the measures we believe matter most to investors as they deliver significant value. While progress will not occur in a straight line, we remain confident in our ability to achieve these targets by 2030.

Flight 15 summarizes our key investment highlights. We have both strong reputation as a dependable provider of internationally recognized brands and high quality solutions. Our team remains closely engaged with customers and ongoing conversations indicate continued optimism about activity levels across the construction market. We are encouraged by the results of our operational excellence efforts and expect continued improvement over time.

We believe our manufacturing and procurement initiatives are increasing efficiency and will support further adjusted E-Brog growth. Several attractive opportunities and growth drivers support our path to 2030.

We have launched a significant number of new products, including the models introduced at the late 2026 construction zone. These products have been vetted through our discipline stage guide approval process. We have additional product scheduled for launch over the next 12 to 18 months. Each targeted at specific areas of market opportunity.

Continued growth in our parts and service businesses will support margin expansion over time. Public funding remains stable and modestly growing, while our public and markets are generally non-cyclical. Our robust digital offering enables us to meet customer needs for unified connectivity suites that aggregate data across product types.

Next, industry megatrains point to multi-years of growth in demand for construction materials. These megatrains include the construction of data centers, re-industrialization and domestic mining and rare earth minerals.

Lastly, our strong balance sheet provides attractive options for capital allocation, including strategic inorganic growth opportunities aligned with our financial objectives, growth opportunities in both established and emerging international markets.

With that operator, we are ready for questions.

Yeah, I am morning David. Yeah, Peter. Yeah, we, you know, when we look at the new guidance lines, obviously we talked in the earnings release around the shift that we've seen in asphalt from the leverage. So, you know, we've actually seen, we've actually seen bookings comparable to 2025.

But interesting, you know, earlier than normal, we've seen some deliveries from customers being scheduled for, you know, Q4 and then already for Q1 next year. So, what we've done there is we looked at our ability to react in the short term. We feel that they stole an opportunity for us to fit orders in to the fourth quarter that will drive us to a higher end of the range.

And, you know, the bottom end of the range we feel that we have great visibility to achieve at least that range. So, it just depends a little bit on timing here in the next couple of weeks of orders coming in. One thing that I will say is that we actually had, you know, very strong bookings towards the end of the quarter for asphalt plants.

July turned out to be one of our best bookings months. And we've also seen a very strong bookings month for parts year and July. So, you know, the momentum that we've seen late in the quarter is definitely giving us confidence that, you know, we can play within that range. And if we get one of two planned deals to fall, we can get rid of the range.

Right.

No. Good question. You know, we actually looked at the water pattern for last year. And, you know, we've seen a similar pattern last year, although I will say, you know, there was maybe a three, four week period at the beginning of Q2 last year where bookings were slow. And this year, it was more the first, you know, six to eight weeks.

And then obviously all the started to flow through strongly in June and July. I mean, as you know, there's a lot of uncertainty in the market right now. Our customers are affected by, you know, the spike in oil prices, diesel fuel prices.

And, you know, smaller customers are definitely looking at the highway both to give them confidence to buy while our larger customers, you know, they typically have a capex cycle and they, you know, apply that as they see fit. So really David, I mean, it's, I will say there's a difference maybe of three, four weeks this year compared to last year.

But the development orders here in June and July, you know, gives us confidence that they still demand all day. We have a good pipeline and, you know, when we talk to customers, they still a lot of work out there.

Yeah. No, good question. So we've definitely seen a little bit of a mix difference compared to a prior year. We saw a little bit of a slower, a lower parts mix. And we did see, you know, a little bit of, of margin pressure on, on parts.

But, you know, David, we, we don't see that to be the norm. We feel that the team is putting the right actions and place to drive that higher.

You know, last year, Q2 obviously was a very strong quarter for the highest team. And, you know, our visibility year into H2 and into early part of next year, you know, we feel the pricing action that we've, we've taken will, will hopefully drive that, you know, back to the margins we've seen last year.

Yeah. I do have to follow on some of the previous, I do have to follow up some of the previous questions because I'm trying to think about one, what your, what your guide does your guidance now assume we're just going to get the one year extension because that seems to have developed much more recently. And then have you gone back and looked at asphalt plant demand when we get into this, you know, extension cycle like we did in 2009 and what's the downside risk you think from that given a Congress that appears to be relatively dysfunctional.

Yeah. So just on the, on the ball, you know, Steve, we, we obviously very close to our, our trade associations there and we very active in those conversations. I will say, you know, unfortunately that the line in the ball is not necessarily because of this ball is because of other priorities. And that's, that's our shadow. So we did get an indication that they will be a probably continued resolution until the end of the year.

And then hopefully, you know, either a new ball introduced or, you know, further, further resolution. So, you know, if you look at the historical.

The areas around the new prostructable. I mean, basically since the first piece, we've always had a ball. Now there was a couple of years where we saw a slowdown in, in, you know, in orders due to that one year extension.

Steve, you know, looking at our bookings here, the last two months, we've been very strong. We have a very active pipeline.

Our parts, our parts bookings is very strong. So at this point in time, I mean, there is no indication that we have that, you know, we, we're going to see a slowdown. Yeah, there's a lot of work to be done. We all know the state of our country's road. So, you know, at this point in time, we have no indicators to give us a view that this will, you know, cause a slowdown.

And then clearly, I mean, we can look at the numbers, look at what was actually very strong IS revenue just on the lower margin and that's clearly mixed with the lower, as well, plant deliveries. But that clearly indicates outside of that, some of your other IS product lines has to be doing quite well. Can you talk a little bit about what's driving that and how much of that's driven by new product innovation, all the new ones you've come out with, or just gaining share?

Yeah, so on the IS side, you know, we actually have a very nice diversified portfolio now on the IS side, you know, between asphalt concrete and the mobile equipment side.

You know, over the last four, five years, as you know, Aztec is the same old, I will say market leading position in concrete and we are very proud of the, you know, the mix that that business have provided us. It's a very strong performing business for us. On the mobile side, you know, last year, you know, we had a pretty, pretty slow business on the mobile side.

It's basically, you know, Q3 and Q4 last year. So, you know, we feel that Q3, Q4 this year on that side is going to be stronger. So, you know, from Y, I mean, we have, we introduced, you know, a new shuttle buggy or a placement of an older model. That has received very, very good reaction from our customers. So, now we have two models in the market and, you know, our backlog on that equipment is now well into next year.

Most of the new products that we've talked about at ConExpo and at Eli is actually in the material solution side. So, you know, that's, we very confident about what that team is doing and the pipeline of new products that's flowing through that business.

Yeah. You know, Steve, I think, you know, obviously, interest rates is always something that that customers and dealers are thinking about. What I will say, you know, interest rates have been on the higher end now compared to the, you know, the absolute low we saw. And we think that, you know, everybody is just used to doing business in that higher environment now.

You know, our dealers rental fleet utilization is actually really strong. I spoke to our, one of our regional sales leaders yesterday.

And, you know, that the rental utilization of various of our top dealers are, you know, well above 80% in some cases. And that just gives an indication that, you know, there's a lot of work equipment is on the rental and, and like we said in the, in the prepared remarks, we've actually seen a very nice conversion of our rental to purchase, which, you know, gives the dealers the opportunity to buy new equipment and put that back into the, into the rental fleets.

Good morning. Stephen, you know, so if you, if you look back at material solutions a little bit over the last four, five years, you know, you will remember that when we came out of COVID, we obviously came out with a very strong backlog and to some extent, you know, a backlog that was probably higher than what the market was absorbing at the time.

And then we went through a period of time where we saw, you know, us working down inventory that was created in the, in the data channel. So, you know, we, we are, we are now probably more in a, I want to say a stable environment for that business. Our dealers inventory is very healthy. And, you know, right now there's a lot of work, you know, across the country. When we came out with that record backlog and in 2022, you know, a lot of it was focused to one or two dealers.

This time, you know, we see it across the board and we actually see a couple of, of significant retail orders where the dealer, you know, got, got orders for equipment that will go directly to a customer, no rental. So, yeah, just overall, it's been, it's been a strong business there. Obviously, you know, PSGs and that product line, you know, we actually had our best bookings month for PSG last month.

So, you know, overall, there's good strength, international on, on, MS has been strong. So, you know, the work that the team have done there on new products, improving the quality of the product over the last two, three years, or in our mind really starting to pay off.

Yeah. So, you know, from a financial performance, I will say our concrete plants are in line with the performance of our asphalt pipeline. It's performing very well. Once again, since we've acquired those companies, we've done a lot of great work there.

Typically, margins on your mobile equipment is, is lower than what we have on the, I will say, the engineer to order product lines. So, you know, if, if we see a bigger mix of mobile equipment, it will definitely put a bit of praise on the overall margins.

However, you know, we do, we do see, you know, maybe a couple of percentage points swing in that, in that mix, but I don't think it will be, you know, significant that it will drive margins down from where they are right now.

Yeah. Good morning. Yeah. We, you know, backlog on, on material solutions. We already have quite a bit of product for deliveries out in the early part of next year. But most of the backlog that we have will convert this year already. So, you know, that gives us, that gives us good confidence about H2, especially on the material solution side, because we have quite a bit of the outlook already covered in terms of capital orders.

Yep.

I mean, I want to make sure we clear here that the guidance change was primarily due to the shift in deliveries of grants. So, you know, the business is strong. You know, bookings is comparable to last year. And I've already mentioned, you know, June bookings were strong, July bookings were strong. So, we, we've seen a shift of deliveries to Q4 and to Q1 on that side.

And, you know, as, as you know, if you move three or four bonds from one quarter to the next, or from one year to the next, it can have a significant effect on, you know, under financial results.

Yep.

I will now turn the call back to Steve Anderson for closing remarks. Thank you. We appreciate your participation in our conference call this morning. And thank you for your interest in Aztec. As today's news release states, this conference call has been recorded. A replay of this conference call will be available through the registration link provided in a news release and an archive webcast will be available for 12 months. The transcript will be available under the investor relations section of the Aztec Institute's website, then five business states.

This concludes our call, but I'm happy to connect if you have additional questions. Thank you all. Have a good day.