Q4 2023 Astec Industries Inc Earnings Call

Participants

Steve Anderson; Senior Vice President of Administration, Investor Relations; Astec Industries Inc

Jaco van der Merwe; President, Chief Executive Officer; Astec Industries Inc

Rebecca Weyenberg; Chief Financial Officer; Astec Industries Inc

Joseph Grabowski; Analyst; Robert W. Baird & Co. Incorporated

Lawrence De Maria; Analyst; William Blair & Company LLC

Presentation

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Operator

And welcome to the Astec Industries Fourth Quarter and Full Year 2023 earnings call. As a reminder, this conference call is being recorded, and it is my pleasure to introduce your host, Steve Anderson, Senior Vice President of Administration and Investor Relations. Mr. Anderson, you may begin.

Steve Anderson

Thank you, and good morning, everyone. Joining me on today's call are our Co-Founder, Murphy, Chief Executive Officer, and Becky Weinberg, Chief Financial Officer. In just a moment, I'll turn the call over to Jan to provide comments, and then Becky will summarize our financial results.
Before we begin, I'll remind you that our discussion this morning may contain forward-looking statements that relate to the future performance of the Company, and these statements are intended to qualify for the Safe Harbor liability established by the Private Securities Litigation Reform Act. Any such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions. Factors that could influence our results are highlighted in today's financial news release and others are contained in our filings with the SEC. As usual, we ask that you familiarize yourself with those factors in an effort to provide investors with additional information regarding the Company's results. The Company refers to various US GAAP, which are generally accepted accounting principles and non-GAAP financial measures, which management believes provides useful information to investors. These non-GAAP financial measures have no standardized meaning prescribed by US GAAP and therefore are unlikely to be comparable to the calculation of similar measures for other companies management of the Company does not intend these items to be considered in isolation or as a substitute for the related GAAP measures. A reconciliation of GAAP to non-GAAP results is included in our news release and the appendix of our slide deck. All related earnings materials are posted on our website at w. w. w. dot as dash industries.com, including our presentation, which is under the Investor Relations and Presentations tabs.
Now I'll turn the call over to Rocco.

Jaco van der Merwe

Thank you, Steve. Good morning, everyone, and thank you for joining us. I will begin on Slide 4 with a review of e.l.f. Full year highlights. 2023 was an important year for Astec as we advanced key strategic initiatives such as operational excellence, growing our parts business, new product development and Oracle ERP execution. These efforts enabled us to achieve great results in 2023 and will help us deliver more consistent, profitable growth in the future. I am very proud of what the team has been able to accomplish this year. In 2023, we had record full year sales as end market demand remained solid in both segments. We were particularly encouraged by the steady momentum we saw across the business at the end of the year, with Q4 implied orders growing 27.6% sequentially. I met with many customers at the recent World of Concrete and National Asphalt Paving association events and was encouraged by the positive sentiment. They remain busy and are using our equipment to complete their projects. Their optimism combined with a positive turn in implied orders during Q4, increased funding from the federal highway bill and new product introductions give us confidence in the long term demand outlook for our business. During Q4 2023, our team delivered improved profitability and expanded margins. This is a testament to the team's ability to execute efficiently and apply operational excellence practices. We expanded gross margins 400 basis points and adjusted EPS more than doubled for the full year. a priority for us in 2023 was to build a performance culture that consistently delivers financial results. Our full year results demonstrated that we have made great progress towards this objective. These achievements have laid the foundation for an even higher level of profitability as our business continues to grow. Our Oracle ERP implementation continues to move forward, as indicated by the 2023 milestones we achieved and we will continue to harness the capabilities of the enhanced new systems to drive efficient and effective operations.
Lastly, we published our first corporate sustainability report in December. It was a tremendous team effort to get this project across the finish line. And I would like to acknowledge the hard work done by many individuals to complete this report guided by our core values of safety, devotion, integrity, respect and innovation. This report describes how we strive to do what is right for our customers, employees and the communities in which we operate. Our vision is to build industry-changing solutions that create life-changing opportunities. This inaugural report provides a foundation from which we can move forward with the goal of long-term sustainable growth.
Turning to Slide 5. As demonstrated over the past few years, we have taken steps to simplify our business by eliminating waste and enhancing processes to improve productivity. We are focused on areas where we add the greatest value, bringing innovation to our customers and working with our dealers to develop best-in-class aftermarket practices. We plan to continue to grow organically and explore opportunities through a disciplined acquisition road map Moving to Slide 6. After taking on the CEO role last year, one of the key priorities I establish was for us to create and embrace a performance culture built on consistent execution, reflecting on the last 12 months. I am pleased to see that we have made progress on this journey as evidenced by our 2023 results and achievements at the same time, we have identified significant additional opportunities to strengthen our business further and have built those into our long-term target goals.
I would like to take a few minutes to highlight some notable achievements from the past year. We expanded gross margins by 400 basis points in 2023. We continue to invest to improve processes and deliver innovation, creating positive margin. We will continue these efforts in 2024 addition investments will help us better serve growing markets, and a slate of new products will enable us to provide solutions to customer needs.
Second area we prioritized in 2023 was our dedication to our customers, dealers and shareholders. Accomplishments here included the expansion of our distribution network and the launch of new products that enable dealers and customers to better serve our growing global market. We want to continue prioritizing these elements in 2024 through greater collaboration and increased availability of parts to better serve our customers. These actions to drive an enhanced product offering out to a broader customer audience will enable us to create consistent, profitable growth, promoting the one Asic operating model drives continuous improvement. The implementation of the Oracle ERP system is a great example, as we have launched modules at corporate and one major manufacturing site in 2023 we have implementation plans for additional sites in 2024 and 2025. Operationally, we have made improvements in areas such as parts for rates, which improved 20% in the past two years, we will make additional investments to further improve throughput velocity this year. One constant in our business is our steadfast focus on our core value of safety. This is very important to me and our team. I want our team to go home, healthy and injury-free every day through continuous improvement. We have reduced our recordable injury rate to 1.27, the best in the Company's recent history and very favorable when compared to the industry average. Our goal is zero harm, and we will continue to work to eliminate injuries across our sites.
And finally, the Estech team will continue to unite around our long-term objective and new vision statement, which is to build industry-changing solutions that create life-changing opportunities. We will work together to make us take an even greater organization.
Turning to slide 7, I would like to offer some observations on the current business dynamics. While the macro environment remains uncertain. There are an increasing number of indicators, it point to a stable demand environment with opportunities for growth in our Infrastructure Solutions end markets, demand for asphalt road building and concrete production. Strong dealers need additional inventory, and we are working closely with our dealers to support a growing aftermarket opportunity by further improving the delivery of parts and service for our mobile equipment for material solutions. We saw signals from our annual dealer order writing event that heightened interest rates concerns may weigh on mobile crushing and screening equipment outlook in the near term for the long term. However, demand trends looks favorable due to domestic infrastructure spending and opportunities in international markets. In both groups, we are releasing new products to deliver innovation to our customer needs. Customers are busy and they rely on us to help keep their projects moving forward efficiently. In addition to new product introductions, we are increasing our sales coverage by expanding our dealer network and deploying this since through our direct sales force to further penetrate markets.
Funding from the federal highway bill continues to be deployed at a growing rate contract awards increased 8.6% in 2023, which is a positive leading indicator for future construction. Funding from federal legislation provides stability for our customers, driving future product and aftermarket demand.
Next, I would like to update you on two of our new products show on slide 8. Both products were launched in 2023 and both have been met with positive reception from our customers. Peterson 50 17 E horizontal grinder was launched in March. The number of units sold and includes rental margins for this product are in line with expectations. And we are on track with our unit forecast in 2020 for cirrhotic RX four or five cold planar was launched in October and is off to a great start new product launches are complex and require teamwork and dedication. I am pleased with the success of these and look forward to presenting more new products at the world of asphalt trade show in Nashville on March 21st three, 27.
Slide 9 shows that backlog continues to normalize from the peak levels experienced in 2022 that were primarily caused by customer reactions through supply chain and logistics constraints. Over the past year, orders have returned to more historic patterns, and we have made progress in converting backlog to sales through investments in throughput and operational excellence initiatives. Implied orders shown on slide 10, increased 27.6% sequentially in Q4 after holding steady through the first three quarters of 2023. While one data point does not make a trend. We were encouraged with the increase in orders. Customer sentiment for Infrastructure Solutions products is positive, while higher interest rates may temper demand for Material Solutions products in the near term industry data point to double digit growth in federal and state road construction, which bode well for our industry in 2024. Combined for our new products and healthy backlog, I'm becoming increasingly confident that 2024 will be a solid year for us.
And with that, I will now turn the call over to Becky to discuss. I will detail quarter and full year financial results.

Rebecca Weyenberg

Thank you, Rocco, and good morning, everyone. I'll begin with the review of our fourth quarter 2020 results on slide 12, sales were 337.2 million, down 3.6% as a slight increase in Infrastructure Solutions was more than offset by Materials Solutions decline by region. Domestic sales growth of 4.1 million was more than offset by softer international sales, but you were down 16.8 million with particular weakness this quarter in Europe, Australia and Canada parts sales grew 2%, which was offset by a decline of 6.9% in equipment sales. Adjusted EBITDA increased 46.8% increase in adjusted EBITDA margins by 340 basis points. The biggest driver was pricing realization and tailwinds for manufacturing efficiencies. We expanded gross margins by 610 basis points to 26.4%. Full year gross margins were 24.7%. Increased SG&A costs were driven by higher planned personnel-related costs and increased consulting and projects overall, we are pleased with the progress and improvements we're making on margins. Adjusted earnings per share increased to $0.9 from $0.34 the prior year, an increase of 164.7%. This figure excludes the transformation program and other costs. The adjusted net effective tax rate for the quarter was 17.3%, a significant decrease from last year. The lower effective tax rate for the current period included an income tax benefit from the utilization of existing net operating losses and corresponding release of valuation allowances. In Brazil and India. Our normalized net effective tax rate for the full year was 22.1%, which was slightly below the 23% to 24% range we had estimated on Slide 13. Fourth quarter adjusted EBITDA increased 46.8% to $32.6 million, with margin expansion of 340 basis points to 9.7% positive contribution from volume, pricing and mix plus manufacturing efficiencies more than offset the impact from inflation and higher SG&A expenses.
Moving on to Slide 14. Infrastructure Solutions. Net sales increased slightly to $240 million with domestic growth of 5%, offset by softer international demand. Parts sales were strong this quarter, up 7.2% as we were able to fulfill parts orders for aftermarket demand. Adjusted EBITDA margin for Infrastructure Solutions increased 500 basis points to 14.7%, favorable net volume price and mix outpaced inflation, driving higher gross margins. Net positive manufacturing efficiencies were partially offset by higher SG&A personnel costs.
Turning to slide 15, Materials Solutions net sales decreased 13.1% to $95.4 million as there were decreases in both international and domestic demand. International sales decreased 28.7% and domestic sales declined 7%. Equipment sales declined 15.7% and parts were down 7.8%. Adjusted EBITDA margins for Materials Solutions increased 50 basis points to 9.3% this was largely due to the positive impact from pricing and manufacturing efficiencies, partially offset by lower volume and mix and an increase in SG&A personnel costs.
On Slide 16, I'll review our full year results. Sales were 1,000,000,338.2 million, up 5%, with increases in both infrastructure and Materials Solutions due to price cost alignment and stable demand by region. Domestic sales growth of 6.8% was slightly offset by softer international sales, which were down 2.1%. Adjusted EBITDA grew 35.4% and adjusted EBITDA margin increased 260 basis points due to our ability to drive gross margin expansion through pricing initiatives. Adjusted earnings per share also had strong growth at 117.1%, even when factoring in the litigation loss reserve we incurred in the second half of the year.
Moving to slide 17, we highlight the key drivers of our year-over-year adjusted EBITDA bridge. As previously mentioned, adjusted EBITDA increased 55.4% to $110 million with an EBITDA expansion of 260 basis points to 8.2%. As seen in the chart, the positive impact of net volume, pricing and mix more than offset headwinds from inflation higher SG&A costs. We are proud of the strong expanded margin as our factory investments and pricing realization has come to fruition, and we expect to drive increased EBITDA to deliver long-term shareholder value.
Turning to slide 18, our cash and cash equivalents stood at 59.8 million, which generated operating cash flow of 27.8 million compared with a use of cash of $73.9 million in the prior year, difference of 101.7 million. This turnaround was due to improved earnings and the steps we took to improve our working capital. Our liquidity is up slightly from the end of 2020 to positioning us to continue investing in profitable growth initiatives while still maintaining a strong balance sheet.
Turning to slide 19, we maintain a disciplined capital deployment framework, balancing investments in growth with returning cash to shareholders. We spent 9.1 million on CapEx in the fourth quarter, bringing our full year CapEx to 34.1 million. This is within the range previously communicated. We were pleased to return $11.8 million to shareholders in the form of dividends during 2023 as we continue to direct capital to create the best returns.
With that, I will now turn it back over to Yakov.

Jaco van der Merwe

Thank you, Vicki. In closing, on Slide 20, we closed 2023 by delivering strong results in the fourth quarter. I'm confident our teams can deliver even better results during 2024. We have work yet to do, but we are well on our way to delivering enhanced performance for our customers and shareholders. I'm grateful to our employees for their dedication and hard work and to our customers for their loyalty and support.
With that, operator, we are now ready to open the call for question.

Question and Answer Session

Operator

(Operator Instructions) Steve Ferazani, Sidoti.

Hi, good morning. This is Alex on for Steve. Thank you for taking questions. And can we start by providing a little bit of color around what's led to the higher margins that higher margin sales are pricing or other factors?

Jaco van der Merwe

Yes. Morning, Alan. This is some clear in our like we like we mentioned in previous earnings calls, Q4 is typically a strong quarter for us with regards to some favorable box mix. We've definitely seen that during the quarter, and we also had a strong performance from our Infrastructure Solutions team. And it's difficult to pinpoint one thing, but our teams have obviously done a lot of work on on our past performance. We've done a lot of work around operational excellence and investing in our facilities. And then, you know, we have a positive effect on pricing versus inflation. And as you've seen by the bridges you know that that term effect is getting narrower every quarter and so differently in oh four for the coming year, we expect that to end you move much closer to each other as well.

Thank you for the context and a follow-up for me. And could you talk a little bit about order rate trends and you're seeing movement towards a positive turn or particular areas of improvement within the backlog?

Jaco van der Merwe

Yes, when it when it comes to ordering and and backlog, you know, there's a couple of factors that we are looking at as mentioned in the prepared remarks, I've had the opportunity to speak to many customers already this year as well as concrete National Asphalt Paving association. And our customers are busy and sentiment is positive and we are seeing seeing improved flow from from federal funding. And we obviously mentioned that a lease of new products, and that is that is busy hitting the market right now on the on the opposite side of that, obviously, interest rates are affecting mostly our mobile crushing and screening equipment. And in this year, you know, obviously being an election year, we always expect a little bit of up and down from an order point of view. But overall, we believe that this year is going to be a stable year for us and the implied board versus that, John Deere in Q4 was a positive signal. And so we are we are expecting flat to single digit, some growth for for 2020 meaningful.

Great. Thank you. And last question for me. Could you talk a little bit more? You've mentioned near plant efficiency and ERP, but I'm curious about some of the timing of margin improvements we might see from those as the implementations develop.

Jaco van der Merwe

Yes. So just on on margins as a whole, it comes from various various places. You know that we are continuously working on the left, putting operational excellence. And as you can see with our CapEx last year, we invested quite a bit in our facility in those or continuously now having an effect. And obviously, we saw that in the in the last couple of quarters. And we mentioned already the pricing inflation parity and then our one Asic procurement team, they are and they are really coming together nicely. And we are definitely taking advantage of the size of our stake now across the organization. So so those are all contributing on the GRP side, specifically, we went live on one side last year. We have various sites that will go live here during 2024, and we will have specifically two sites that will go in in Q2. So we expect to see a positive effect of those in future quarters, but for the shorter term, and there's a lot of good work that the teams have already done that term, that should help. And with margins, I think one thing to consider also from a margin point of view and the the level of work that we have in our factories are always a big one item to consider when it comes to having good absorption. And I think our teams are doing a really good job now with improved sales and operations planning processes to plan for resources based on on level. So the teams are well positioned that if the market continues to be strong, that we can take advantage of that. And on certain products, even if the market turns down, we have good visibility now to take the appropriate actions.

Rebecca Weyenberg

Yes, I might like to add a reminder as well we had a significant transformation program that's been in play the last two years with one of our sites sites in Chattanooga, and that is coming to a close. We are putting on the final details, which is launching in Q1 here, and then that's the end of that program. As far as the investments and then throughout the remainder of the year, they'll continue to perfect and stabilize. And so we do expect continued margin improvement from that investment impact us in the back half of the year. And then going forward, it will just continue to grow.
The other major investment we're making is in our Oman facility in Northern Ireland. We had a capital expansion to their facility, which is still in progress, but will also finish in 2024. And that is specifically what we're calling our gateway to Europe. So we will be launching several new products in that facility once they have the roof, and that will be in the back half of the year and into 2025. So we do see opportunity from our investments too increased our margin, our gross margin and EBITDA margin portfolio.

Thank you, Jana and Becky. I really appreciate all the color.

Operator

Mig Dobre, RW Baird.

Joseph Grabowski

Hey, good morning, guys. I come Joe Grabowski on for Mig this morning. I also wanted to ask about the EBITDA margin, but maybe kind of split it out between segments from the infrastructure EBITDA margin, what's the highest quarter of spend in the past several years, but Materials Solutions margin was some softer. It's softer than it's been in 2023. So maybe kind of talk about margins by segment. And I know Becky, you were just kind of touching upon it, but what is kind of working in infrastructure than maybe it's not flowing through and material solutions?

Jaco van der Merwe

Yes, I would jump for you and I can I can take a first stab at that. When you absolutely in IT Infrastructure Solutions had a really strong performance. And if you look at that group specifically, Q4 is a very strong March quarter and as will be Q1 this year. So part of the sales, a positive influence and we also on the teams have done really well and in driving efficiencies around our plants and the asphalt and concrete plants that we're selling. And you guys have heard us talk in the past around modularization and the work we're doing on that. So we're starting to see the outcomes of that. And so but on the Infrastructure Solutions side, I will also say that over the last three, four years, we've created a very strong correlation of the and that team has obviously had enough time now to execute. And now that we are on. We have a new leader on the material solutions side. We will duplicate what we've done on that side. And we have definitely seen some interest rates having a more significant effect on the material solutions side of the business and specifically with firm with customers not converting into meaningful units due to procured units. So our dealers are carrying a bigger, bigger rental fleet versus soon hope I'm converting those at the end of leases. And the good thing is that and our customers are running the equipment. So it's not that we're not but we have equipment standing and they are running. So as soon as they are starting to convert, those are installed to purchase agreements and our dealers will have to replenish that inventory. And and we we obviously having discussions with our dealer network on a daily basis around that content.

Joseph Grabowski

Okay. Thanks for that color. How my next question would be, I guess international sale of $51 million in the quarter, down 25% year over year. Can you talk about what you're seeing on the international side of the business?

Jaco van der Merwe

Yes, I will say a big piece of that was more timing. And so, you know, obviously, Europe is soft. I think you've heard that from multiple others people in the industry. So Europe is soft, although Europe is not a big part of our business, but then actually view and if you look at our pipeline from an international point of view, we have a very strong pipeline in our quoting funnel, and we have various pieces of equipment that was in transit to international customers. And those those should flow through year and in Q1 so no, actually, I think our investments in our international organization have shown improvements over the last few years. And with the strong pipeline that we have now, we believe that that 2024 will be stronger on the international side.

Joseph Grabowski

Got it. Okay. And final question for me. Becky, you touched upon the transformation program from I think you had 26 million of charges in 2020 to 29 million in 2023. Maybe just kind of and I'll talk about what is what all is in the transformation program charges and what do you expect those charges will be in 2024 and beyond there?

Rebecca Weyenberg

Absolutely. So we do expect the same kind of range of spending as 24 25 are the rollout to all the sites. And we do expect to conclude on the majority of that program in 2025 with all of our largest sites that manufacture products. And then we'll continue with international sales entities and such that those will be a lighter lift as we go forward.
The on the transformation program, there was two programs as I mentioned, the transformation at our facility here in Chattanooga is concluding this year and so about one of that is and that being a key one for all intents and purposes, so that we won't have those charges going forward.
The remainder of the transformation is tied to our Oracle rollout. And I'll just remind everyone, it's more than an ERP. So it is we really had disparate systems everywhere in the company. Every site had a different flavor, but we were missing some fundamental basics. So we rolled out a human capital management system we rolled out a customer relationship management tool and we rolled out a corporate consolidation tool, our ERP, and we're doing a transformation management system program. So quite a few heavy on was there, but it will conclude at the end of 25. And we are pretty excited about it because we are already seeing that we have more effective and efficient operations because we went live in manufacturing facility and corporate, and then we went all of the U.S. on human capital management. So the information we're getting, the quickness of the information, the accuracy of the data. I mean, that's really setting us up for future profitability and efficiency.

Joseph Grabowski

Okay.
Thanks for taking my questions.
Good luck.

Operator

Larry De Maria, William Blair.

Lawrence De Maria

Thanks to money.
Everybody pays one at a time when a lot of our EFT segment now of fresh material solutions and so I'll take that a little bit weak near term, but can you it's that a can you break out backlog by segment? And then secondly, how the Materials Solutions orders do versus expectations, considering the dealer event, I think we were looking for a 70 to 75 million there. Did we hit that number that relevant? Or if you just talk about the orders versus expectations and maybe split out backlog or order size segment?

Jaco van der Merwe

Yes, I'll take a stab at them at the dealer solutions, some event, and we know that the full value came in quite a bit lighter than what we expected term. And Larry, we have about 40 million. Now I will say that we had two or three of our biggest dealers that did not participate in that program this year due to what we explained earlier, and you know the equipment not converting from rental and due to procurement, and we are having discussions with those dealers right now, customers are using equipment, so we might them. We actually expect seeing some of that pricing to take place here in the next couple of months. And so yes, it came out quite a bit later, but know customers are still using equipment. And if you look at the reports of companies in the materials processing space. And all of those companies are expecting a pretty strong 2024. So we feel comfortable that this is more of a timing issue, and we're continuously working with our dealers on on getting what they need to support their customers on the backlog by segment by segment. And I don't think we typically break that out by segment, but obviously Material Solutions saw the biggest reduction year over year from a percentage point of view. And you know, sequentially in the last quarter, both were more or less the same percentage reduction compared to previous years. But we are we fully expect that that bookings here in Q. one and will be in line with what we expect and and potentially be above what it was last year in Q1.

Operator

Brian Sponheimer with Gabelli Funds. Please go ahead.

And good morning, everyone, and I appreciate all the color on the call. I've just a question about backlog. If we're looking at the 500 or almost 600 million in backlog here five 70 and compares that to 913 million a year ago, you talk about maybe imputed margins and imputed pricing in what is in that backlog maybe relative to a year ago? Or what's what you've seen there and your ability to really van pricing in that backlog is as it's normalized?

No, Brian, I will say we are very confident in the pricing that we have in our backlog. I think our team did an exceptional job of after that 1st year being caught off guard with the inflationary pressures that jumped up so quickly. And so we feel confident about that. We've also already implemented pricing to offset any inflationary expectations for for 2024.

So are there any within that backlog, are there any potential mechanism in the case inflation and the inflation outlook changes for you adjust price on that. But what is there?

We typically do not have an inflationary adjustment in our contracts post the signing of a deal, and that was the reason why what was it two years ago? Pricing lagged inflation so much. So I think the teams have been much more proactive to anticipate inflation and building that into pricing for future deliveries.

I'd appreciate that. And maybe you can help me here if I'm thinking about how 2023 West with FineSim decent quarters to start the year. Obviously, Q3 was a challenge. If we're thinking about the ability to drive profitability in 2024, maybe in a year where infrastructure is up and materials is down on. Can you talk about where your starting point is from a profitability perspective relative to a year ago?

Well, certainly, certainly we had some we've seen some softness in ag and we don't expect that to continue. We are seeing signs that that will come back. And part of that comes from the fact that on our Infrastructure Solutions side of the house, we are largely direct sales so we don't have the same pressures from. We don't internally have the same pressures from interest rates. Certainly our customers do, but we have some pretty large customers that can weather these storms a little bit more than we can at our size. But on the dealer sales channel, that's where we're seeing the most pressure. And if interest rates come down on I think everybody can read it yourself as the same as I can, but we expect maybe one or two cuts to come next year. If that happens or not, we're not banking on it. But if that happens, then that will give some confidence to our dealer network and they'll be able to carry some more inventory on right now. They're kind of wait and see. They want to see that these rentals convert. But certainly we were pretty pretty pleased every single quarter. There's here we had above 23% gross margin.
Our agenda.
And we know that we can do better than that as we saw in Q4. So we can get the sales. We feel pretty strong that we have on runway to expand both gross margins as well as EBITDA and profit margins going forward. We're also very confident in our programs that we're rolling out the return on our invested capital. It grew quite a bit this year and finishing the year at 9.9%. So we know that we're tracking very well with our programs that we're spending money on and we make sure that they get our metrics for approval. So we do see quite a bit of opportunity and Jacko mentioned this as well. The other point that gives us confidence is our ability to increase our parts fill rates. We should never have parts in backlog. So that is part of our drop in backlog. We are turning parts and so orders at a regular routine. We want to satisfy the customer in 24 hours when when possible on a little bit longer. We have to manufacture something that's new and old are equal abutment. We've seen very good progress there and but we're not where we want to be. So we'll continue to focus on that. And that should also give us some room for expansion.

Jaco van der Merwe

Hi, Brian.

I don't know, Jeff, maybe just an additional comment on that and beat this this year for us. I will say. And if we get the sales and we feel that operationally we have a lot of stability now and in the way we manufacture pricing. And so if the sales are there, we feel that there is an upside to the two profit development. So we're spending a lot of time and effort with our sales teams to drive that to fill the pipeline up and down. And because of all the work that we've done to create more consistency in our business. And that's that should show up positively in the future if we if we materialize to sales, I appreciate that.

I guess one last one, if you'll if you'll allow with the idea that you kind of set a baseline for where profitability is going to go. Balance sheet is in great shape and how do you think about using cash here? Is it buyback you're looking for acquisitions is just fixing what's continuing to fix?

Yes.

No, good question. Good question, Brian. So from a capital allocation point of view. You know, there's a couple of things that we have on the table. And obviously, CapEx. We we still want to invest in our facilities and so we see CapEx is going to be in that 30, 35 million range. And then I will continue with the dividends up income this past year, that was about 12 million from a buyback point of view, we do have an open program and under the current program design, even if we do start buyback, it hits it will not give us significant volume and just because the way the plan is designed and but we want to make sure we drive down our inventory to obviously fund and pay down the debt that we have on our revolver today, and we are definitely looking at a future acquisition opportunities. The teams are all working on filling that pipeline. And if we can if we find the right company, we will definitely consider that. And I will also just mention that our teams have done a really good job this last year on on things other than just inventory. And if you look at our accounts receivable accounts payable work that the teams have done there, I will say it's in the best shape. It's been in a long time so a lot of work around to using our capital in a good way and driving that and otherwise see in the right direction.

Reserve is a big focus for us very very much appreciated and congrats on a good point. It turnaround from Q3 here we do.

Operator

Your next question is a follow-up from the line of Larry De Maria with William Blair.
Please go ahead.
And Herbert, I get disconnected before yet. You noted the obviously the big increase in gross margin for the year, and I think 24.7, obviously about 22nd for Q, we looked at 25.2 or 24 flat, flat up sales transformation program benefits growth in parts. So should that not imply 25% to 26% gross margin and 24. Is that fair or not why?

Yes, no, that's that's a good question. And you know, we definitely have various items that we have we are working on and low. You know, I talked about further driving the parts business, the new products that we're releasing and the work we're doing on procurement and I will say the the item that that we are watching very closely is making sure that we have good control in our factories around absorption. And so all the goods that we're working on we are we are expecting margins to to continue the improve. It's just them. It's just a timing timing thing on exactly when it will hit. But and there's definitely a lot of positive momentum around margin development.

Operator

Okay.

Thanks, Barry. I would say without looking for Yes, Larry, I might add we're positive on our margin expansion. But just you know, we're cautionary at this point because we do have, you know, several factors, crews that are going to go live with Oracle. We're really confident in where we're positioned there. The teams are on board and great leadership at our sites that are going live that are really driving it from the top down. So if everything goes as planned, we should expect our margin to improve. But we are certainly expecting an uptick here with a range that could be anywhere from 24% to 25.5%.

Okay.

Fair enough.

Operator

Thank you very much for the color.
There are no further questions in queue. I'd like to hand the call back to Steve Anderson for closing remarks.

Steve Anderson

I think it is I'll thank everyone for being on the call, I'd like to remind you that the asset will be displaying products at the world of asphalt trade show in Nashville, Tennessee on March 25th through March 27th. So if you attend that show, please stop by our booth and say, hello, we appreciate your participation on this call and thank you for your interest in Astec as today's news release indicates this conference call is being recorded. A replay of the conference call will be available through March 13th, 2024, and an archived webcast will be available for 90 days. The transcript will be available under the Investor Relations section of the Astec Industries website within the next seven days. All of that information is contained in the news release that went out earlier this morning. This concludes our call. But as always, I'm happy to connect with the calls later on. Thank you all.

Have a good day.

Operator

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

You mean the no no paid in the news release went out or.