Astec (ASTE) Q3 2026 Earnings Call Transcript

DATE

Thursday, Nov. 5, 2026

CALL PARTICIPANTS

• Senior Vice President of Administration and Investor Relations - Stephen C. Anderson
• Chief Executive Officer - Jaco van der Merwe
• Chief Financial Officer - Brian J. Harris

TAKEAWAYS

• Net Sales -- $352.4 million, representing a 0.7% increase year over year driven by favorable pricing and product mix in the Materials Solutions segment.
• Adjusted EBITDA -- $18.9 million, a 30.3% decrease compared to $27.1 million in the prior year period due to material inflation and unfavorable absorption.
• Adjusted EPS -- -$0.01, down from $0.47 in the prior year quarter, reflecting the impact of operational losses and increased tax provisions at certain international entities.
• Total Backlog -- $670.5 million, an increase of 49.2% year over year, led by a rebound in asphalt plant orders and steady demand for aggregate processing equipment.
• Infrastructure Solutions Net Sales -- $189.0 million, a 2.2% decline resulting from unfavorable volume and mix that offset favorable pricing actions.
• Materials Solutions Net Sales -- $163.4 million, a 4.1% increase driven by organic growth and contributions from recent acquisitions.
• Inflation-Pricing Gap -- 200 basis points, representing a $7 million to $8 million headwind as steel and material costs outpaced the company's pricing adjustments.
• Data Center and Industrial Orders -- $75 million to $100 million, reflecting strong demand for large-scale projects consuming significant quantities of aggregates, concrete, and asphalt.
• Full Year 2026 Adjusted EBITDA Guidance -- $140 million to $150 million, revised from the previous range of $160 million to $175 million due to shifted delivery timelines and inflation.
• Fourth Quarter Adjusted EBITDA Outlook -- $48 million to $58 million, compared to $44.8 million in the prior year fourth quarter, supported by timing of shipments from backlog.
• Parts and Service Sales -- $126 million, accounting for 35.7% of total third quarter sales and reflecting the company's focus on recurring revenue streams.
• Infrastructure Solutions Implied Orders -- $281.9 million, increasing 43.4% year over year and 38% sequentially following a slowdown in order intake during the second quarter.
• Materials Solutions Implied Orders -- $139.9 million, a 37% decrease year over year following a record-high order period in the prior quarter.
• Total Liquidity -- $267.2 million, comprising $63.2 million in cash and cash equivalents and $204.0 million available under revolving credit facilities.
• Net Debt to Adjusted EBITDA Ratio -- 2.3x, remaining within the company target range of 1.5 to 2.5x.
• Infrastructure Solutions Backlog -- $381.5 million, a 47.0% increase compared to the same period last year.
• Operating Cash Flow -- $17.4 million for the quarter, reflecting improvements in working capital management and inventory optimization.
• IIJA Funding Commitment -- 86%, with states committing $300.5 billion of the $347.5 billion approved for federal highway and bridge projects through August 2026.
• Capital Expenditures -- $6.7 million for the quarter, with full year expectations established at $30 million to $40 million.
• SG&A Expense Outlook -- $70 million to $75 million for the fourth quarter, compared to $84.2 million in the third quarter.
• Book-to-Bill Ratio -- 120% consolidated, driven by a 149% ratio in the Infrastructure Solutions segment.

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RISKS

• Van der Merwe stated, "our third quarter results fell short of both our expectations and the high level outlook we provided on our last earnings call," attributing the gap to macroeconomic uncertainty and a temporary pause in asphalt plant orders.
• Van der Merwe noted that "extended delivery lead times created the timing mismatch between pricing actions and the cost flowing through our P&L," which resulted in material inflation outpacing pricing by 200 basis points.
• Van der Merwe warned that "increased diesel fuel prices have negatively impacted many of our customers most of which use diesel fuel to operate their trucks and equipment," potentially suppressing private and residential market activity.

SUMMARY

Astec Industries, Inc. (NASDAQ:ASTE) reported third quarter results that fell below internal expectations due to a temporary slowdown in asphalt plant orders and a timing mismatch between material inflation and pricing actions. Management reported that although inflationary pressures outpaced price increases during the period, order activity recovered during the quarter, leading to a significant increase in total backlog. The company highlighted emerging demand from data center construction and industrial mega-projects as key growth drivers that offset broader macroeconomic headwinds. Despite uncertainty related to the US federal infrastructure bill renewal and elevated diesel costs, the company maintains a constructive outlook based on high state funding levels and a robust pipeline of new products.

• CEO van der Merwe stated, "order activity has recovered meaningfully," resulting in an infrastructure solutions backlog increase of $93 million since the end of the second quarter.
• Management indicated that data center and industrial projects have become significant demand drivers, with van der Merwe noting these projects consume "large quantities of aggregates, concrete, and asphalt."
• Harris reported that the third quarter is "historically the low point of the year" for sales volume and adjusted EBITDA margins due to business seasonality.
• The company expects to enter 2027 with an infrastructure solutions backlog approximately $100 million higher than its starting point in 2026.
• CEO van der Merwe noted that the acquisition of CWMF provides "extra capacity" to handle current lead times for asphalt plant production.
• Management expects the gap between inflation and pricing to progressively close and "return to parity over the next 2 quarters."

INDUSTRY GLOSSARY

• Book-to-Bill Ratio: The ratio of orders received to units shipped and billed, used to measure demand strength.
• BUILD America Act: A legislative framework for US infrastructure investment and financing.
• CWMF: An asphalt plant equipment manufacturer acquired by Astec to expand production capacity.
• Infrastructure Investment and Jobs Act (IIJA): A federal law providing $347.5 billion in funding for US highways, bridges, and public transit.
• Liquid Asphalt Cement (Liquid AC): A byproduct of oil refining used as a binding agent to hold aggregates together in asphalt pavement.
• OneAstec: The company internal strategic model focused on integrating business segments for unified operations.
• PSG: A business division acquired by Astec in July 2025 that supports the Material Solutions segment.

Full Conference Call Transcript

Operator: Hello, and welcome to the Astec Industries Third Quarter 26 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.

Stephen C. Anderson: Thank you, and good morning, everyone. Joining me on today's call are Jaco van der Merwe, our Chief Executive Officer and Brian J. Harris, our Chief Financial Officer. In just a moment, I will turn the call over to Jaco to review our third quarter highlights and market conditions. Brian will then discuss our financial results and balance sheet. For your convenience, a copy of our earnings release and presentation have been posted on our website under the Investor Relations tab at astecindustries.com. Turning to Slide 2, I will 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 earnings release, and additional risks are described in our filings with the U. S. Securities and Exchange Commission. We also refer to certain GAAP and non-GAAP financial measures that management believes provide useful information to investors. Reconciliations of the non GAAP measures to the most directly comparable GAAP measures are included in our earnings release and in the appendix to this presentation. And now, turning to slide 3, I will turn it over to Jaco van der Merwe.

Jaco van der Merwe: Thank you, Steve. Good morning, everyone, and thank you for joining us. As usual, I will begin with our third quarter results and then discuss the key factors in the markets in which we operate. This will include the latest developments on the renewal of the US federal infrastructure bill. Finally, I will comment on order and backlog trends before turning the call over to Brian to review additional financial results and our Q4 outlook. As you saw in our press release earlier this morning, our third quarter results fell short of both our expectations and the high level outlook we provided on our last earnings call.

Let me address 2 key factors that contributed to what we believe was an outlier quarter. First, asphalt plants and related equipment. On our Q2 call, we discussed a slowdown in orders that began early to mid quarter. That softness persisted longer than anticipated. Resulting in an unfavorable mix of shipments and invoicing during Q3. Importantly, order activity has recovered meaningfully. And the infrastructure solutions backlog has increased by 93 million since the end of Q2 26. And by a 122 million compared to the same quarter last year.

We expect this recovery, together with the timing of shipments from backlog, to drive a significant improvement in EBITDA performance in Q4 26, versus prior year and into early parts of 2027. Second, steel and broader material inflation. Our teams have been actively adjusting pricing to offset higher input cost. However, extended delivery lead times created the timing mismatch between pricing actions and the cost flowing through our P&L. As a result, cost inflation outpaced pricing by approximately 200 basis points during the quarter. We expect that gap to progressively close and return to parity over the next 2 quarters.

While we would have obviously preferred to deliver stronger Q3 results the underlying demand environment and recovery in orders gave us confidence the factors that weighed on this quarter are temporary rather than structural. That said, we continue to evaluate our product portfolio as we are committed to delivering shareholder value. Moving to slide 4, net sales were 352 million an increase of 0.7% compared with the prior year period. Adjusted EBITDA was 18.9 million resulting in an adjusted EBITDA margin of 5.4%. And positive free cash flow was driven by sound working capital management.

After a slower than expected order intake during Q2, we are happy to report a strong reversal during Q3 for most of our infrastructure group products. The uncertainty created by the delay in the BUILD America Act infrastructure bill elevated oil and diesel prices were somewhat offset by strong demand for data centers and other large factory builds. Our material solutions segment continued to benefit from steady demand for rock crushing and screening equipment and aftermarket parts and service sales. Macroeconomic headwinds negatively impact capital sales within the PSG business we acquired in July 2025. Parts and service volumes remained strong, and we are excited about the work our teams are doing to further integrate this business with OneAstec.

From a long term perspective, however, federal, state, and local projects together with data center construction are expected to support continued multiyear demand. Parts and service sales were $126 million up 0.3%. Parts and service represents 35.7% of third quarter sales and 35.2% of year to date sales. As a reminder, Q3 is historically the low quarter for parts and service as our customers are running full speed. Total backlog increased 49.2% to 671 million led by a rebound in asphalt plant orders and solid demand for aggregate processing equipment.

Based on the macroeconomic impact, and our year to date performance, and the shift of asphalt plant deliveries, we are revising our full year 2026 adjusted EBITDA guidance from the prior range of 160 to 175 million to a range of $140 to $150 million On Slide 5, we summarize the key factors influencing our market. Along with directional price inflation relating to materials used in our products and those of our customers. The broader US economy remains slightly positive, with the S&P 500 index and the Dow Jones Industrial Average up approximately 15, 11%, respectively. Economic growth has been partially offset by inflationary pressures and higher interest rates.

Despite a healthy economy, increased diesel fuel prices have negatively impacted many of our customers most of which use diesel fuel to operate their trucks and equipment. Liquid asphalt cement prices are also important to our customers. And infrastructure construction in general. Liquid AC is a byproduct of oil and the ingredient that binds aggregate together in asphalt pavements. Prices spiked when the conflict in Iran began. And it fluctuated over the past few months. Steve, our largest raw material input cost, continued to increase in price, driven by data center demand elevated freight cost, and tariffs. Public infrastructure activity in the United States remains healthy, at the federal and state levels.

I will share more on that in a moment. Private and residential markets are sensitive to interest rates, and continue to be somewhat suppressed. That said, private work, like data center construction, and industrial mega projects, are positive drivers in the private market. These projects consume large quantities of aggregates, concrete, and asphalt. Thus far, we estimate data center and industrial projects to have generated between $75 to $100 million of order. Macroeconomic headwinds can create near term variability However, we continue to see attractive long term demand fundamentals. Turning to slide 6, As you may know, Congress approved the Infrastructure Investment Jobs Act in October 2022.

Over a 5-year period, $347.5 billion was approved to be spent on federal highways, bridges, and public transit. Through August 2026, states have committed $300.5 billion or approximately 86%. Of highway and bridge funds to support approximately a 130 thousand new projects. The Federal Highway Bill expired on 09/30/2026 and was subsequently extended through 12/11/2026. Extension helped to reduce near term uncertainty for companies involved in federal infrastructure construction. And provided lawmakers additional time to address long term reauthorization or extend current policies into 2027. Steve Department of Transportation budgets also remain at healthy levels. The preliminary fiscal 27 data shown on the slide indicates substantial funding for highway and bridge activity going forward.

For Astec and our customers, a stable multiyear funded federal framework supports planning and investment decisions. And strong state funding provides consistent work. We remain constructive on the outlook for infrastructure spending in the United States. Our implied orders and book to bill trends are shown on Slide 7. Consolidated implied orders of 422 million were relatively flat on a year over year basis. Sequentially, implied orders were down 8.3% following a very strong Q2 implied orders, for the Material Solutions segment. Our book to bill ratio at the end of the third quarter stood at 120%. Infrastructure Solutions implied orders increased 282 million up 43.4% on a year over year basis and 38% sequentially.

Order intake increased and drove the book to bill ratio to 149%. Further supporting our belief in strong underlying demand. Material solutions implied orders were 140 million which was down 37% from the same quarter of the prior year and 45.3% sequentially. The book to bill ratio ended at 86%. Moving to Slide 8, consolidated backlog was $671 million at quarter end. Up 49.2% from the third quarter of the prior year and up 11% from Q2 26. Infrastructure solutions backlog stood at $382 million an increase of 47% over the same period in 2025 and 32 percent from a quarter ago.

As demand for asphalt plant and concrete plant equipment remains favorable, despite requests by selected customers for Q4 26 and Q1 27 deliveries. As a result, our infrastructure solutions segment expects to enter 2027 with backlog that is approximately 100 million higher versus when we entered 2026. Material solutions backlog was 289 million compared with $190 million at the end of the third quarter in the prior year for an increase of 52.1%. Backlog in the Material Solutions segment began to build in the second half 25, as dealer inventories return to healthy levels and conversions from rental to purchase units began to increase.

Sequentially, the material solutions backlog went down $23 million or 7.5% following the strong Q2 implied orders. I will now turn the call over to Brian J. Harris, our Chief Financial Officer.

Brian J. Harris: Thank you, Jaco, and good morning, everyone. I will begin with our consolidated third quarter results then review segment performance and our balance sheet. Before we review our results, I would like to put our third quarter into context. If you have followed Astec for some time, you will be aware that there is significant seasonality in our business. And that Q3 is historically the low point of the year for both sales volume and adjusted EBITDA margin. 2026 was no exception However, reported results were further depressed by the factors Jaco mentioned previously. Our consolidated financial results are highlighted on Slide 10.

Net sales for the quarter were 352 million increase of 0.7% compared with 350 million in the third quarter of 25. Trailing 12 month net sales increased 13.8% to $1.56 billion Adjusted EBITDA was 18.9 million down 30.3% from $27.1 million in the prior year quarter. Adjusted EBITDA margin was 5.4%, a decrease of 32 basis points On a trailing 12 month basis, adjusted EBITDA was $137 million and adjusted EBITDA margin was 8.8%. The declines were largely due to inflationary headwinds which impacted sales, mix, absorption and margins. Adjusted earnings per share were -$0.01 for the quarter compared with 47¢ in the prior year quarter.

The majority of the decline was the result of the loss on operations and the impact of increased tax provisions at certain international entities. Turning to Slide 11. Infrastructure Solutions net sales were 189 million down 2.2% from $193 million for the same quarter in the prior year. Trailing 12 month sales of $878 million compared to 883 million the prior year. Segment operating adjusted EBITDA was $15.3 million in the third quarter or a decrease of 36%. The adjusted EBITDA margin was 8.1% down 34 basis points. For the trailing 12 months, segment operating adjusted EBITDA was $119 million which yielded a margin of 13.5%.

As previously mentioned, the quarter was affected by timing and mix, most notably customer shifted selected asphalt plant deliveries to Q4 26 and Q1 2027. However, underlying demand for concrete and asphalt plant equipment remains healthy. The Materials Solutions segment is shown on slide 12. Net sales increased 4.1% to $163 million from $157 million in the prior year quarter. Trailing 12 month sales increased 39.8% to 680 million from a combination of organic and inorganic contributions. Segment operating adjusted EBITDA was 13.9 million down 9.7% from the third quarter in 2025 and the adjusted EBITDA margin of 8.5% declined 130 basis points.

On a trailing 12 month basis, adjusted EBITDA increased 55.6% to 65.5 million and the adjusted EBITDA margin improved 90 basis points to 9.6%. Moving to Slide 13, we continued to maintain a strong and flexible balance sheet with ample liquidity. We ended the quarter with cash and cash equivalents of $63.2 million and available credit of $204 million. For total available liquidity, of 267 million. Dollars Operating activities provided $17.4 million in cash during the quarter and we remain compliant with all covenants. Net debt to trailing 12 month adjusted EBITDA was approximately 2.3x which was within our target range of 1.5 to 2.5x. As a reminder, we expect the following quarterly ranges.

SG and A of $70 million to $75 million and interest expense of $7 million and Q4 adjusted EBITDA range of approximately 48 million to 58 million which compares to $44.8 million in the fourth quarter of 25. And results in a full year adjusted EBITDA range of $140 million to 150 million And our outlook also includes the following full year ranges. Effective tax rate of 26% to 30%, depreciation and amortization of 55 million to 65 million and capital expenditures of 30 million to 40 million I will now turn the call back to Jaco van der Merwe.

Jaco van der Merwe: Thank you, Brian. Slide 14 summarizes the key elements of the Astec investment thesis. First, our underlying business is strong. As evidenced by growth in our backlog, we are happy to report record parts and service bookings during the first month of Q4. Second, Astec is a trusted provider of high quality solutions supported by strong global brands. Our close engagement with customers continues to indicate optimism in important construction markets. Further, the path to our long term goals is supported by the following growth drivers. We are building momentum in our new product pipeline. Our recurring parts and service business consistently represents approximately 1-third of revenue and supports deeper customer relationship.

Federal and state funding provide our customers with a core level of stability. Our Astec digital connectivity solutions create best-in-class solutions for our customers. Across our integrated rock-to-road portfolio. Industry megatrends including data center construction, the industrialization, and demand for critical minerals support multiyear demand for construction materials. Our balance sheet provides the flexibility to pursue disciplined inorganic growth and we see international expansion opportunities in both existing and future markets. Remain focused on execution, and on building a more consistent profitable, and growth-oriented Astec, and the company is actively executing a long term strategic plan that will drive value creation for our shareholders. With that, operator, we are ready for questions.

Operator: We will now begin the question and answer session. If you would like to ask. To withdraw your question, please press 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please standby while we compile Q&A roster. Your first question comes from the line of Steven Ramsey with Thompson Research Group. Your line is open. Please go ahead.

Steven Ramsey: Good morning, and appreciate all the color that has been shared. Could you talk about for the full year EBITDA guidance being lowered about $20 million from the prior guide, can you parse out how much of that is the delayed orders and how much of that is the inflation headwind that you discussed? Yeah.

Jaco van der Merwe: Hi. Morning, Steve. Yeah. So, you know, we mentioned, that there was a gap about 2 percentage points between inflation and pricing. So, you know, during Q3, it was about $7 million or so. And that number will taper down over the next couple of quarters. And then from a shift point of view, obviously, you saw that you know, last quarter, we talked about we wanted to be about 1-third in Q3, 2-thirds in Q4. Obviously, that shifted quite a bit. And know, we probably see about $5 to $10 million of that lower number comes from the shift into 2027. So that. that is on high level, you know, the numbers that we see. Okay. that is helpful.

Steven Ramsey: And then the materials demand still good to see. The backlog trends in the materials business. there is multiple markets there that are being served. Do you feel like the demand in materials that it is broad-based that. that is driving the results there, or are there any pockets of strength that are that are driving the result?

Jaco van der Merwe: No. I mean, in general, it is it is good in all markets, Steve. You know, Obviously, there is still a lot of road construction. You have seen some of the reports from the material suppliers. You know, they are pretty bullish on what they expect for future quarters. You know, we did see some tailwinds over the last couple of quarters with the large industrial build outs that is taking place. So we were. We are definitely a beneficiary of that. And, you know, that activity is still pretty strong. Our backlog for our material solutions business is running well into Q1, even some product lines well into Q2 for next year now.

So yes, it is a strong market in most of the markets.

Steven Ramsey: Excellent. And last 1 for me. The infrastructure backlog is getting quite sizable. As you think about the delivery time and how you pace production, to deliver it is this going to challenge operations in the coming months and quarters or can you handle that in a way that works well for pacing that production and generating good margins.

Jaco van der Merwe: Yeah. Yeah. No. Good question. You know, 1 thing that companies that follow us for a long time will know is there is actually quite a bit of production that takes place during the third quarter that will be invoiced during the fourth quarter. You know, if you do the math obviously, we expect the fourth quarter to be a record in terms of shipments. So, you know, the factories are working basically from the middle of Q3 all the way into Q4 to deliver to deliver that. Then you know, Q1, right now, I mean, from an actual plant point of view is full. So, you know, we already expect you know, a strong performance going into next year.

I will say that the acquisition of CWMF that we made the beginning of the year, you know, that company came in with a great facility, and that was 1 of the reasons why we were so interested in them And they are going to be a great asset for us as part of this period and, you know, giving us that extra capacity. So, obviously, lead times are longer now, Steve, than what we want. Actually for that product. But the teams are doing great work, and, you know, the next couple of quarters, we should see really good output from an asphalt plant point of view.

Steven Ramsey: that is great color. Thank you for the time.

Operator: Your next your next question comes from the line of Steve Ferazani with Sidoti. Your line is open. Please go ahead.

Steve Ferazani: Hi. Morning, Jaco, Brian. Appreciate the time this morning. Jaco, if you can help us walk through the slide on the implied orders. I am trying to make some sort of you know, read it in some way because the 2 segments have had pretty significant swings in opposite directions in both of the last 2 quarters, and I am trying to figure out what that means Should we just be thinking about that over a 6-month stretch? Because I know timing, particularly with IAS, you get those larger orders Or how are you reading that, and what are you hearing from your customers because the implied orders? Different directions along the along the lines of the last 2 quarters.

Jaco van der Merwe: Yeah. No. Good question, Steve Ferazani. And, you know, I think you summarized it very well. You know, if we look at this business in 2 halves of the year, I think we have mentioned this multiple times in the past that our volatility will be a lot less So, obviously, you know, last quarter, we had a very strong order intake for material solutions. You know, it is timing related. I think you know, our dealers, have seen that their inventory is in a healthy condition. They feel bullish about you know, the remainder of this year and next year. So you know, orders were put in place.

And, typically, what happens is when lead times start to go up, obviously, you know, people want to get their orders into the pipeline. On the IA side, we had an unusual slow period, you know, during the Q2 call, we mentioned that, typically, you know, we see about a 4-week or so slow time for asphalt. This year, it was close to 7 weeks, and then all of a sudden, you know, it just broke loose. And, and we saw, you know, significant bookings. So I will not read anything into it. it is obviously fluctuating. I think the overall backlog and book to bill ratio is what is really important to us.

Steve Ferazani: Okay. that is really helpful. In terms of what is in backlog now, because as you noted, they are healthy, how much older pricing is in that backlog now? How much should we hold for what length of and how much does it diminish? Should we see sort of your. Yeah. Not normalized margins?

Jaco van der Merwe: Yeah. So, you know, obviously, especially steel has moved pretty quickly this year. And our teams have, you know, introduced pricing on a rather frequent basis. Like I said in the opening remarks, during Q2. During Q3, we peaked at maybe that 2 percentage points. Variance, but we are seeing that progressively close here. So we will see a little bit of that still in Q4. And then by the time we go into Q1, most of that should be back to par.

Steve Ferazani: Okay. that is helpful. In terms of delays on the IS side, what do you attribute it to? And I guess, look, the risk for us from a modeling perspective is some of these delays stretch out. How are you thinking about that? And have you. Have they been purely delays and not cancellations? that is the other part of the question.

Jaco van der Merwe: Yeah, no cancellations. We have not had any cancellations of note. You know, Steve, I think, you know, there was just a lot of major things happening in the world. We had the war in Iran started, oil prices changed, inflation, you know, election uncertainty. So, you know, customers are just cautious. And, you know, when you look at when you look at the effect that diesel prices have on customers, it is pretty significant. However, you know, they still have good work. there is still good backlog.

And, you know, customers have felt very confident to place orders, and, you know, we made a note of the size of the data center business, which in the beginning, we did not expect that to be you know, that much of a tailwind. But I can tell you the last quarter, you know, we saw we saw some nice order intake on the concrete side and asphalt side. For big industrial projects like data centers.

Steve Ferazani: Yeah. Helpful. As the last 1 for me, just update thoughts on capital allocation. I would assume, right now, debt reduction would remain the focus. But at what point do share buybacks get discussed?

Jaco van der Merwe: Yeah. You know, we constantly looking at that. We still have a reauthorization left to do that. Like we explained in the past, you know, our float is pretty small, and we just think that there is still better opportunities for us in other places. But we obviously always looking at it You know, as a reminder, during the Investor Day, we did not include share buybacks as part of that presentation. But if the share price develops in a certain way, we will obviously look at that, Steve.

Steve Ferazani: Okay. Thanks, Jaco. Thanks, Brian.

Operator: Your next question comes from the line of David MacGregor with Longbow Research. Your line is open. Please go ahead.

Joe: Hey. Good morning. This is Joe Nolan on for David.

Jaco van der Merwe: Hey. Morning, Joe.

Joe: I just want to say hey. Good morning. I just wanted to start on, just price cost and how that played out in the quarter and how that will evolve So I think it was about 200 basis points in the third quarter, and you expect that to progressively close as pricing improves and hopefully return to price cost parity over the next few quarters. Can you just walk us through timing and how to think about price cost as we get into 4Q and then maybe the timing of when that gets to parity, whether that is early 27 or later in the year.

Jaco van der Merwe: Yeah. Yeah. No. Like we said in the prepared remarks, you know, we believe that by the first quarter, we will start to see that parity. We have multiple different price increases in flight with different timings. So there is some pricing that will already affect products that are invoiced here in the fourth quarter and definitely into the first quarter. So you know, Q3 was what we mentioned, about $7.7, $8 million effect more or less, and that number will progressively get smaller. So, you know, we are obviously adjusting pricing on parts and things that move more frequently.

So, you know, we believe that you know, by the end of first quarter, we will be in a much better position.

Joe: Got it. that is helpful. And then given the pushout in asphalt shipments, does that allow you a better opportunity to recover pricing and improve margins on those volumes, or are those locked into the price?

Jaco van der Merwe: Yeah. So, typically, when we sign a contract, pricing is locked in. You know, there are there are some provisions that if you have you know, let's say, major tariffs, those type of things that there is an opportunity to adjust. But most of our contracts are fixed. So you know, when pricing or when cost develops pretty quickly as we have seen this year on steel, you are going to be caught a little bit behind, and, obviously, we saw that this year.

Joe: Got it. Okay. And last 1 for me. On material solutions, it sounds like it was down sequentially, but it sounds like timing was a big factor within that. Can you just talk about what is giving you confidence in that business into 2027?

Jaco van der Merwe: Yeah. No. I mean, if you look at if you look at the backlog for material solutions, it is still very strong. So, you know, we have almost 100% of the first quarter covered in backlog. We have a nice backlog going into next year already. We see our parts and service teams doing some really good work there. And then, you know, the new product development that we have been talking about quite a bit over the last year, That product is starting to hit the market now. And, you know, we see a great opportunity for that side of the business to perform in 2027.

Joe: Got it. Thanks. I will pass it on.

Operator: Your next your next question comes from the line of Dilyara Sailaubayeva with Freedom Broker. Your line is open. Please go ahead.

Dilyara Sailaubayeva: Yes, hello. So I would like to ask about your, operating cash flow. So despite weaker earnings, your operating cash flow improved significantly in 2026. So how much of this improvement reflects structural working capital efficiencies? And as production volumes increase in later quarters, should we expect working capital investment to rise proportionately or is there room for further optimization?

Jaco van der Merwe: Yeah. No. Good question. If you look at our inventory and specifically our working capital turns development, you know, this year will be the strongest year in my 10 years with Astec. So our teams have done a really good job optimizing our inventory Our teams are working hard with our customers to collect payments. We are working hard to get better terms with our suppliers. So, you know, this is a key focus for us. We think it will continue to improve. Now Q4 will be a big invoicing quarter. Capital equipment is typically paid before ship. So, as we you will see, we actually had a bit of an increase in inventory between Q2 and Q3.

So that will rightsize here in Q4. But you will have some parts that is typically you know, have 30 day terms or 45 day terms. That will increase your payables a little bit. But, structurally, we will continue to see good cash generation.

Dilyara Sailaubayeva: Okay. Great. Thanks. So my next question is about the infrastructure solutions. So within that segment, how has the revenue mix evolved between asphalt plants road construction equipment and aftermarket parts? And which product categories are currently showing the strongest demand? And do you anticipate any meaningful shifts in the next year in 2027?

Jaco van der Merwe: Yeah. No. Good question. That was 1 of the why the margins in the in the IS business was down because the mix change with lower asphalt plant invoicing. You know, we have seen a decent recovery in the road construction equipment. Orders during 2026, but we expect you know, a bigger asphalt and concrete mix in that segment for 2027.

Dilyara Sailaubayeva: Okay. Great. Thanks. I will jump back in the queue. Thank you.

Operator: There are no further questions at this time. I will now turn the call back to Steve Anderson for closing remarks.

Stephen C. Anderson: Thank you. We appreciate your participation in our conference call this morning and your interest in Astec Industries. As stated in today's release, this conference call has been recorded. A replay will be available through the registration link provided in our earnings release and an archived webcast will be available on our Investor Relations website. The transcript will be posted under the Investor Relations section of the Astec website as well. This concludes our call. Thank you all. Have a good day.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

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