Astec Industries, Inc. (ASTE) Q1 2016 Earnings Report, Transcript and Summary

Greetings and welcome to the Astec Industries First Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Steve Anderson, Vice President of Investor Relations for Astec Industries. Thank you, sir. You may begin.

Thank you, Melissa. Good morning and welcome to the Astec Industries' conference call for the first quarter that ended March 31, 2016. As Melissa mentioned, my name is Steve Anderson, Vice President of Administration and Director of Investor Relations for the company. Also on today's call are Ben Brock, our President and Chief Executive Officer; Rick Dorris, Executive Vice President and Chief Operating Officer; and David Silvious, our Chief Financial Officer. In just a moment, I will turn the call over to David to summarize our financial results and then to Ben to review our business activity during the quarter. Before I begin, I will 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. At this point, I will turn the call over to David to summarize our financial results for the first quarter.

All right. Thanks, Steve. Thanks to each of you for joining us this morning. Net sales for the quarter were $278.7 million. That compares to $288.7 million in Q1 last year, a decrease of 3.5% or $10 million. International sales were $44.5 million for the quarter compared to $77.7 million in Q1 of 2015, that's a 42.7% decrease or $33.2 million decrease. International sales were 16% of our Q1 sales this year compared to 26.9% of Q1 2015 sales. Those decreases in the international sales occurred primarily in Canada, in the Middle East, Australia, Africa, in post-Soviet States and in South America outside of Brazil. Those decreases were offset by some relatively small increases in Mexico, Japan and China. For the quarter, international sales decreased in each of our groups. Domestic sales for the quarter were $234.2 million, compared to $211 million in the first quarter of 2015, a 11% increase or $23.2 million increase. Domestic sales were 84% of Q1 2016 sales compared to 73.1% of Q1 2015 sales. Part sales were $74.1 million compared to $73.1 million in Q1 of 2015, that's a 1.3% increase or $1 million. Part sales represented 26.6% of reported quarterly sales in 2016 versus 25.3% in Q1 2015. For the quarter, part sales increased in the infrastructure group and a decrease in the Aggregate, Mining and the Energy Groups. The foreign exchange translation impact on the sales number was $4.1 million to the negative. That means that if rates this year had been equal to the ForEx rate in Q1 of last year, sales would have been $4.1 million higher on a competitive basis. For the quarter gross profit was $72 million compared to $66 million in Q1 of 2015, a 9.1% increase, $46 million increase. That leads the gross profit percentage of [0.8%] [ph] for the first quarter compared to 22.9% for Q1 of 2015. The absorption variance for the quarter was $1.5 million underabsorbed which was an improvement over last year's Q1 number of $2.1 million so we had a positive change in absorption rate from $600,000 contributing to taken the gross profit percentage. Also impacting gross profit percentage was the foreign exchange gains or losses that we recognized during the quarter. We had $115,000 gains in the first quarter of 2016 compared to $734,000 loss in the first quarter of 2015. SGA&E for the quarter was $43.8 million, a 15.7% of sales prior to the same number in Q1 of 2015, $43.8 million but it represented 15.2% of sales in that quarter, so it was flat in dollar terms for the 50 basis points increase as a percent of sales. So we think that impacted SGA&E on the outside, we think the increase SGA&E were exhibit expenses and travel payroll related expenses and travel expenses, bad debt expense and R&D expense increased, now each of those increase are fairly smaller. On the other side impacting SGA&E on the downside was our health insurance expense which was down compared to the prior year. Operating income for the quarter was $28.2 million, compared to $22.2 million last year in Q1, an increase of $6 million or 27%. Interest expense was $467,000 in Q1 of 2016 compared to $297,000 Q1 of 2015. Remember that we see there some debt in Brazil to finance the building, furniture, fixtures and equipment there in that facility in Brazil. Other income for the first quarter was $0.5 million compared to $1.8 million in the first quarter 2015. Remember that the primary source of other income of license fee income, investment income in our capital insurance company both last year we did have some key main life insurance proceeds to approximately $1.2 million that we recognized in the first quarter. The effective tax rate was 37.4% in the first quarter of 2016 compared to 37.1% in the first quarter of 2015. That rate was impacted negatively which was caused to increase by a losses in some of our foreign jurisdictions where we couldn’t claim a benefit for those losses. Also we did have some higher state income taxes in certain of our domestic subsidiaries. And so that negatively impacted the effective tax rate. Net income attributable to controlling interest in first quarter was $17.7 million compared to $15.1 million in Q1 of the prior year, $2.6 million increase or 17.2% increase. Diluted EPS for the quarter was $0.77 compared to $0.65 in first quarter of 2015, that's a $0.12 increase or 18.5% increase. EBITDA for the quarter was $34.3 million, compared to $30.1 million in the first quarter of 2015 a $4.2 million increase or 14% increase in EBITDA. Our backlog at the end of March is $432.8 million compared to $291.2 million at the end of March of 2015, as a $141.6 million increase or 48.7% increase. Our international backlog at the end of March this year was $50.4 million compared to $90.2 million of international backlog at the end of March of 2015, a $39.8 million decrease or 44.2% decrease. However our domestic backlog at the end of March of this year was $382.4 million compared to $201million at the end of March last year, a $181.4 million increase or 90.2% increase in domestic backlog. On March 31, backlog this year compared to the 12/31/2015, $313.3 million represent $119.5 million increase in backlog or 38.1% increase sequentially. The foreign currency translation impact on the backlog compared to March 31, of last year at the end of rates were even than the backlog would have been $3.6 million higher at the end of this March compared to the end of March of 2015. Balance sheet continues to be very strong. Our receivables were sitting at $119.4 million and that compares to $129.9 million last year, a decrease of $10.5 million and that represents days outstanding of $38.7 million compared to $39.7 million at the end of March of 2015 or reduction of one day outstanding. Inventories $389.5 million compared to $388.7 million of last year, that's an increase of about $800,000 and we are sitting at two terms this year compared to 2.1 terms last year. Domestically we own nothing now - $100 million credit facility and we have $62.4 million in cash and cash equivalents globally. Our letters of credit were sitting at $17.6 million outstanding right now, so our borrowing availability on net credit line is $82.4 million. Like I said before, in the interest expense discussion we had $10.9 million of debt outstanding in Brazil, company's building, fixtures, inventory and imports. Capital expenditures for the first quarter was $4.9 million and we're forecasting for 2016 to be in the $30 million range. Depreciation for the first quarter was $5.1 million and we are forecasting depreciation for the full year 2016 to be about $22.5 million. That concludes my prepared remarks and the financial details, so I’ll turn it back over to Mr. Steve Anderson

Thank you, David. At this time, Ben will give some comments regarding the first quarter of the operations, also some comments for the year going forward. Ben?

Thank you, Steve. Thank you to everyone joining us on our call today. As we commented in our earnings release this morning, we were pleased with our first quarter results. We do still have had headwinds of low oil and natural gases prices, the global mining slow down and the strong U.S. dollar persisting and that challenges during the quarter. Despite these headwinds, we were able to secure and ship orders mainly as a result of the passage of federal highway bill in the United States, which allowed us to earn a good result for the quarter and our traditional business areas and we’re also able to recognize our $30 million pellet plant order during the quarter. As David mentioned, our earnings per share for the quarter was $0.77 versus $0.65 in the same quarter last year. And our year-to-date first quarter sales were $278 million versus $288 million for a decrease of 3.5%. Our first quarter EBITDA was $34.3 million versus $30.1 million, and that's an increase of $4.2 million in EBITDA on a $10 million decrease in sales. EBITDA was up mainly due to historical high gross margins as a result of favorable product mix and higher capacity utilizations and infrastructure in aggregate mining groups. Our backlog at March 31, was a record $432.8 million and that was up 48.7% versus last year. And our backlog has had a record level mainly as a result of the $122.5 million pellet plant order we announced during the quarter. However, backlog without the pellet plant order would have been up $22.9 million versus last year again mainly in our infrastructure group. Domestic backlog was up 90.3% year-over-year and international backlog was down 44.2%. At the end of last quarter, our international sales were down 50.7% year-over-year, which was near our trend for the full year 2015. So we did a least experience some slight improvement in the international on a percentage basis, the international is a challenge. While the strong U.S. dollar has been more than a significant headwind for our export efforts, we have seen better coding and sales activity in the infrastructure group internationally in the last three weeks. International activity remains low in another group though. International backlog remains down versus our norms primarily due to the U.S. dollar strength, lower oil and natural gases prices and the global mining slowdown. Our Astec do Brazil facility continues to experience everything you read about in Brazil with regards to the slow economic times and the terrible political environment in Brazil is not helping at all. We continue to work for orders in surrounding countries to try to help this facility out. Domestic order intake it's been very good in infrastructure groups since the United States long-term federal highway bill was tried in early December. Aggregate and mining group order intake has been fairly flat since January 1, mainly due to mining equipment and international sales being slow. The group's backlog was up 2.1% for the quarter. We believe that this group will start to see benefits from the federal highway bill in the United States late this year. Order intake in our energy group has remained soft with the exceptions that of asphalt stories and heating systems for hot mix and asphalt plants. One another bright spot in this group is concrete plant coding activity. We did continue to hear from our infrastructure customers did they experience and did business levels in the United States particularly on the product side along with good maintenance contracts in those states did have increased funding through gas taxes and oil mechanisms. We did continue pursuing new business with new products in the United States and we’re maintaining our international effort, despite the challenge presented to us by the strong U.S. dollar to present mining industries and our key markets. We’re keeping our long view with regards to international and we do see those headwinds as the strong dollar, lower oil prices and depressed mining conditions remaining in place with the balance of this year at the least. Our overall backlog in international is a direct result of those headwinds. Our higher backlog in domestic was primarily due to the capacities of long-term highway bill though private sector work levels for our infrastructure customers and the pellet order we announced during the quarter. Change in subjects to the original pellet plant at Hazlehurst, Georgia that we discussed on several calls. As we continue to reminder, we did choose to finance that product as a new product and as a result we’re recognized revenue for this plant as repay. This will have an effect on our cash and our inventory until it's paid in full. As a reminder the order for all three lines for that site was for $60 million. Also as a reminder from our last call, we did agree with the customer allow them more time or taking this out of financing and inspect the final payment in 2017. As a reminder, the interest rate on the note is 6%. We were pleased to report the $122.5 million pellet plant order during the quarter. It is an add-on to the $30 million that we recognized during the first quarter we had on pellet bringing the total pellet order amount to $132.5 million. Our plant is directing as the new $122.5 million as order as follows. In the second quarter approximately $20 million, in the quarter approximately $20 million and in the fourth quarter approximately $35 million, bringing the total for the three quarters left in the year to about $75 million and if you add the $30 million we just recognized, that would be a total of around $105 million and recognized revenue this year for pellet plant. With the balance around $45 million to $50 million been recognized in 2017, and that would include site work insulations start up and other items. Updating our current pellet plant code activity, we do have ongoing code activity for new projects and we do believe that will add a new large order late this year. As a reminder, these deals are long and complicates to get across the line and while we’re optimistic that a new price will happen by the end of this year and always can take longer than we anticipate. With regards to international sales overall, given the well-documented challenges globally that we’ve discussed and the global economic environment overall, we believe that despite our recent code and order activity internationally and the infrastructure group, we will remain challenges for at least the rest of this year with regards to sales internationally. But we do or may committed to growing our international sales over the long-term and we will continue to maintain our sales and service coverage around the globe. On the energy side - on the energy group side we remain extremely challenged in our drilling and pumping equipment sales activity and we're not only into the current lower oil prices and lower natural gases prices with regards to our drilling and pumping businesses. We’re moving our street room equipment line production to the most affected facility at Enid, Oklahoma. However, we’ll keep this rotate brand name and will be sold and service [indiscernible]. Demand for rooms has been strong as we have released new products in our last year and the federal highway bill at the same time. We're slightly upset sales challenges and heaters for oil and natural gas industries with sales to food processing and chemical plants. We’ve also continued to see reasonable sales of wood chippers and grinders in the energy group. Our concrete plants are also built in the energy group and coding activity is good for these plants. We remain optimistic on our outlook and our energy group in the long-term, however, growing an unexpected change in the majority of the market we served, we’ll be challenged in this group overall in 2016. Looking ahead to the second quarter of this year and the balance of the full-year, we’re encouraged by a record $432.8 million backlog. Our domestic sales outlook and our strong infrastructure group sales activity. In addition, our new product development continues in all groups. Most notably this quarter, our new previously unannounced Astec Double-Barrel plant sold to NCC in Sweden and displayed at the Alabama show a few weeks ago in Munich, Germany. Alabama attendance was okay overall, however, the quality of visitors to our stand was very high and as a result we were fortunate to sell all favorable units at the show, during the show and secured additionally $2 million on Alabama show. Next-year, [indiscernible] speaking of shows. We spent around $4 million on the [indiscernible] and expect to be in that same range for the upcoming [indiscernible]. We're also working on new products with this show, which was slightly increased our R&D for the balance of this year and into the first quarter of 2017. Changing statistics to our outlook for next quarter and the balance of the year, we believe that our second quarter will be in the range of our first quarter of this year. Our current revenue outlook for the balance of 2016 remains at 5% versus last year with improved bottom line performance. While our infrastructure group is performing very well, we are cautious on our outlook for our aggregate mining group and energy group with the main headwinds for these groups being very real and very persistent. As mentioned earlier in my comments from our last earnings release to now, orders have been strong in the infrastructure groups since early December last year mainly due to the highway bill and pellet plant. Orders are not strong internationally mainly due to the headwinds we mentioned at the U.S. strong U.S. dollar and mining slowdowns in the low oil prices. The energy group orders are soft for products targeted at the oil and gas industry, aggregate and mining group orders are soft for products targeted at the mining industry. Bright spots for activity were hot mix asphalt equipment sales, including asphalt plants, mobile paving equipment, concrete plant coding activity with pellet plant coding activity and wood chippers and grinder sales and code activity. We continue to see growth opportunities for asphalt market parts and service. Parts sales for the first quarter increased by 1.3% versus last year and with 26.6% of total sales versus 25.3% last year. We remain committed to improving our part and sales volume in the long-term along with work in the increase of competitive part sales. We continue to see results of our lean effort helping us see a better company. We continue to focus on gross margins as well. These efforts play a part in our gross margins during the quarter. Looking to the whole of 2016, we’re optimistic that we will end the year ahead of 2015. The majority of our customers in the United States continue to experience the stable private market and we’re focused on selling both our existing and new products. Given the headwinds we’re facing, we’re working to manage the businesses to the market conditions where our businesses launch and that’s all under vision, data vision basis. To that end, we did ask work over reductions at the most affective division during the quarter. Our acquisitions they remain a key piece of our growth strategy along with organic growth. Our goal is to add at least one company to Astec family during this year this year, so long as the company has a culture on the strategic within the industries we serve. We are very active in this part of our effort to grow and we do believe that we will grow our company this year, not only organically, but through acquisition as well. And these are my comments on the quarter and the year end what we see in front of us and we thank you again for taking the time to be on our call and further support as we move ahead. I'll now turn it back over to Steve Anderson

Thank you, Ben. Melissa if you would open the queue for questions, we'll be glad to take those now.

[Operator Instructions] Our first question comes from the line of Mig Dobre with Robert W Baird. Please proceed with your question.

Hi, good morning guys. I have lots of questions, but I’m going to try to only stick to two or three before going back in the queue. I guess, the first one for me looking at infrastructure, if I am to take what pellet planned out, it looks like your bookings in the quarter were roughly $150 million, which is largely consistent, with what you've seen in the prior quarter, in the fourth quarter. And I guess, my question is this, how’s demand progressing thus far, what have you seen through the quarter, in terms of customers for this kind of asphalt plants in a core infrastructure product. And then how do you think we should be thinking about in terms of demand going forward for the rest of the year?

Mig, this is Ben. We’ve seen it be very strong I think even in prior calls we've mentioned we thought we'd see it pretty quick too much run a pellet demand orders once the highway bill was signed. I think we’ve absolutely seen that. I think it's now a little longer than that. Our customers will go back to work heavy in the summer so I suspect, we'll see a slowdown although activity right now is still very good, but I think what that will translate into that we have a better backlog between what we have now and infrastructure and the pellets to put us in a much better position for the third quarter than we've been in the last couple of years. And then I think, we’ll see more of the highway bill effect in the next buying season and for the next couple of year. With buying season for us would start starts, after September 1, typically and with a little delay last year that’s what we struggle so much and look forward last year but it's – customer seem to be in good mood and we feel good about the work they have.

I see, okay. Well, and then if we - you did a good job outlining how your revenues from the wood pellet are going to flow though this year, what is your assumption for infrastructure revenues - core infrastructure revenues for the year based on sort of where you see demand and what you got in the backlog?

Meg I think it will be up, I mean, it’s the reason we get check full year 5%, it’s just - I think we're little bit of a product for prior two years, what's going on around this, so our guys have done a great job, the whole men there, but in the energy in aggregate, probably energy is going to continue to be a challenge in aggregates will be flat to slightly up but I think the infrastructure side could be up 10% to 15%, if we take out the pellet plant. And on the aggregate when you put them all together, it's still little sluggish. We get plenty of work to do just how good it feels.

Okay. And then last one, before I jump into the queue. Maybe you can talk a little more about your concrete plant product. I’m trying to understand why to begin with this is flowing through your energy segment. And, you know, do you have any orders that you booked, where do you see opportunity for this product, in terms of revenue over the next 12 months to 24 months, however you want to frame it?

It's a new product then it's a little bit of paradigm shift for traditional concrete manufacturing because it’s been a batch process and we’re basing our results for continuous process, similar what we have with asphalt plants and that just takes a long time. Within the energy group, mainly you could see us energy group, but the second piece is that, the continuous plants lend themselves to down projects, building, downs and the first sale that, big sizable sale that we have with two plants we’ve mentioned, as we go into DOV project to start. So you could make an argument if the volume grows big enough to see actually that move into the infrastructure group but for the moment where the sales are energy group is where it belongs and that first order was two plants, well it’s really a second order, but it's most recent orders two plants with some combined equipment from our aggregate group, so it’s around $7 million order that will deliver this year. We’re developing - eventually we’ll have non-different lines, non different models of concrete plants and some of those will get into the more traditional batch plant line model areas. There are here which is new products and trying to change roles beginning and that’s what the first plan is. The second plant, we have in-design which would be more traditional ready-mix plant, that was out and see how about two weeks to three weeks ago and we’re starting to build that now and we’re building for stock or testing, but we’re pretty slowly building that line. I wouldn’t say it will be significant to us for another year, year and half only, because it just takes so much to build up that facing the feel that the customers can go see the plants running.

I appreciate that but can you sort of size this market this opportunity?

I think for us - for Tier 1 looks like it could be $10 million to $15 million range and so that might - because some of these plants have been much less dollar volumes, because they can range in anywhere from couple of hundred thousand up to $1.8 million to $2 million or more depending the best ones that we sold or more. But, you know, in a couple of years $20 million to $30 million in revenue would be aggregate for us target.

Thank you. I appreciate that.

Thank you. Our next question comes from the line of Schon Williams with BB&T Capital Markets. Please proceed with your question.

Hi, good morning. Wondered if we could just talk about maybe surprises in the quarter, I mean, I think last time we came on the call here you guys were talking about that kind of more, I guess, flattish kind of year-over-year growth on the earnings versus my model a lot of the upside came on the margin side. So I just want to get, is that kind of your perspective on, maybe what went better than you taught in the quarter. And then as a follow on, how sustainable are some of the margins, some of the gross margins that we saw this quarter, how sustainable are those going forward?

Sure Schon, this is Ben. For a lot of it had to do with product mix and then had to get orders out there we got after December 1, and that was, that’s why it isn’t surprise. Our absorption was improved quite a bit I think, David mentioned around 600,000 in his comments. The foreign exchange, sometime off it went, and sometimes it’s a lose there, it’s a pretty good win this quarter about 800,000 I guess. And our parts volume, up $1 million and we’ve got better pricing on parts, because of demand right now, so that helped us. We have a little bit and when I say a little if your put your finger in your thumb together, the should almost be touching, but we have a little bit of pricing power on major equipment right now with what's happened in the infrastructure side, but it is not much and it’s - we have some pretty fierce competition and we have very savvy customers out not just on job. So as fuel prices have remained fairly low, although we do see they’re talking about increases on horizon, but we’re fairly protected everywhere through June and into the first part of July with our agreements. The lane work start to show up and again product mix has a lot to do with it, but going ahead founded that though - I don’t see us having this hard, I mean this is a little early in a cycle to have this high margin, I think we’ve talked about that on the calls before, I mean, I think we’ll probably see some steel increases and we’ll see some, does flow through our purchases parts. We don’t have as a great a product mix in this quarter that we have last quarter and we have a more visibility on that, now we have some backlog and we never really, know exactly what’s going to happen with ForEx seems to be a pretty good swing for us. But typically when we sustain good gross margins, you know, we’ve got a little bit international, so a little weaker dollar, our utilizations a little more consistent, because right now company – while we’re running between 70% and 75%, that if the energy group is lower and infrastructure group is the higher and aggregate group is slightly right there about 70%, 75% range so. And we’ve got a little better oil prices to help, you know, on our energy side too. So somewhere between where we were at the end of last year and where we ended up this quarter, I think is a better target for our margin going ahead this year.

Schon, this is David. Just a couple of things, it went away and so that was a cost savings that we - there were cost in first quarter of last year we don't have this year and also if you notice some of the segment play we had a recapture of inter-company profit net that goes through cost of goods sold or goes through the gross profit as well. So and that helped us pick up, last year we had a deferral just with inter-company sales and this year we have repeat that because we move some equipment in some locations that were sister companies that we brought it from one of our manufacturers. And so those things will add to - none of them had a huge impact but all had to - in the gross margin line.

Okay. And just want to clear even now you're saying, I guess the mix is not shaping up quite as well going into Q2 as it was in Q1, you're still talking about kind of earnings in line with the Q1 figure like I mean you reconcile that.

I do think that and I think our volume might be a little bit better and margin might not be as strong. Although I've love to be surprised, our guys are doing a pretty good job. I think the lane is showing up at where we are right now at this time we'll see.

That's very helpful. And one more if I may. One of your competitors is out yesterday talking about pickup in some of their aggregate business specifically in North America. Can you just talk about any signs of maybe I understand the international headwinds, I understand the mining headwinds but any thought on kind of domestic aggregate business or something else.

The inquiries are - the business is still fairly flat. And I think that's reflected in our backlog in the group. Our aggregate group also includes the Brazil which is pretty difficult and South Africa which is pretty difficult now as it just continues to drag on. Although we're more in the maintenance side at - so we're probably maybe not just count as others but yes we would say that our guys are feeling little better about the second half right now.

All right, that's helpful guys. I'll get back in queue.

Thank you. Our next question comes from the line of Stanley Elliott with Stifel. Please proceed with your questions.

Hi guys, good morning and thanks for taking my question. On the wood pellet, could you talk about just the number of conversations that you guys are having. Was is above and beyond kind of potentially another plant in Thailand. Just help us frame out some of that opportunities we think about 2017.

Sure this is Ben. We had five customers really we could argue with six but really it's five that are pretty serious about plans and looking at current pellet demand right pellet demand would be really off because it had a couple of warm winters in Europe. But as utilities have planned switch over to using pellets, their contracts have been made now and people are looking at plans to be able to supply that future needs. So that's where our comfort levels comes to say which will get about one by the end of the year. It potentially is there more, yes but we feel good about one. And that's out of the five that we're talking to.

Would that be one line or is this have a similar $250 million sort of $1 million three line plant. How should we decide that out?

I think closer to the $100 million.

At one point we thought the Holland was going to be more like that. So they kind of - they're so, it really requires patience from our part because it feels like the ball is always moving on these projects but I think as we're thinking about, we're thinking of it in $100 million range right now.

Perfect. And with more of the profits or revenues coming from North America, how should we think about the tax rates this year?

I think the tax rate is going to be down from what it was in the first quarter. We've got some planning going on and we did incur couple of RFPs in the first quarter that occur with us little bit some state income taxes and things. So I think you're going to be back down to 36 and if depending on the planning that we implemented it could be even go lower than that. But I think I would stay in that 35% to 36% range.

Lastly, looking at international backlog, on a year-over-year basis is this business really is kind of big step down. Sales like that international markets are still pretty tough that we should see maybe more of a stabilization in this business. Is that a kind of way to possibly think about how the backlog might build through rest of this year? And then kind of whatever happens on the domestic side would be really what drives the overall?

Well, we love the idea that it's kind of -- it's just been tough. Now on the flip side as we mentioned there in the comments, we have started to get some hard orders in areas that we won't necessarily sure we were in the game on. So we do think that possibly Canada is getting more used to where the value is now. And possibly we are seeing that a little bit in Australia. So those are two markets where we really, traditionally done very well. So we really would like to say there is a bottom, but I think to be fair with the experience we had, we are saying that may be we don't see anything moving again until after this year. If certainly this is the case -- I mean the case is we are still saying in front of customers and its still working, because eventually it will swing and we're one of -- now, if we didn't leave then we are there for the long term. So we adjusted in our coverage and our service coverage and in international, because on the long term we think that's in our best interest.

That sounds great. One last one, I was on the conference call last week, they talked about pretty large-sized infrastructure spending build in Canada. Is that something you all have heard about recently? And then I think that would be kind of interesting given the business trends you're seeing there.

Yes, we've seen and heard the same thing. But we obviously all fought. So -- I mean our customers talk about it. I think they've done some of that already, but we will be ready when it happens for sure.

Perfect guys. Thanks you a lot.

Thank you. Our next question comes from the line of Michael Shlisky with Seaport Global. Please proceed with your question.

Good morning guys. I want to -- thanks. I wanted to talk about the large CapEx and order. Is there a difference in timing of the margins that you actually get them in this order compared to the revenue recognition? Is there -- I think we have to wait until the very to get a good chunk of that out bring -- or is it pretty much scale the same way that the revenues are?

It will -- we'll count it as we have the revenues in margin. And the margins are in line with our major equivalent margins.

And there is no difference in the installation margin at the end. There is no kind of clean up that's what being held back until the actual plant is installed. It's all going to be --

It is the margin on the backend is slightly less. That's still in the range of our major equipment margin. We are -- the parameters around the last payment, because it's a big project, our parameters -- we are very, very confident we'll meet -- we'll taking the job. We have enough experience in what we are doing and enable us to feel very good about that.

Excellent. I also wanted to touch on the free cash outlook for '16 and to 2017. Do you see Astec being a bit more positive on the free cash in '16 or we have to invest in inventories for the pellet plant at the end of the year here and would have either outlook for '17 perhaps once the payments start to kind of roll in?

I think we'll be okay on our cash and we'll be able to -- and we have a payment schedule on the pellet plant. Of course we recognize and hit that the cash on - next year I think. What we'll be looking to do with that is acquisition mark.

Got it. Next time. I’ll jump back in queue guys. Thanks.

Thank you. Our next question comes from the line of Nick Coppola with Thompson Research Group. Please proceed with your question.

Good morning. Can you talk about trend of the infrastructure group post Highway Bill? And so is there any distinctions for the ramp on Asphalt plant, maybe some equipment in Roadtec. And so really what you're seeing within that infrastructure group whether it's pent-up demand or what kind of the need is out there?

Roadtec has seen strong activity as far as the asphalt plant and Astec and Roadtec also Carlson. It makes us discreet that goes back of pavers and there are small commercial-class pavers are doing very well. So we've seen pretty good activity across the line there including our division. Good strong activity.

Okay, that makes sense. And then really just another question on that infrastructure business. By region where are you seeing particular strength and then where are you gaining energy intensive areas like Texas?

Texas has been good. And regionally, it has been pretty consistent. Probably maybe better to talk about where it's not as strong. It is probably be more in the Western US, California. Everywhere it is pretty -- the demand is pretty spread out. Maybe not up in Dakota so much, but north-east, mid-south, mid-Atlantic, south-east. I'm just going up in my mind thinking about orders and where they're coming from. It's fairly consistent.

Okay. That makes sense. Thanks for taking my question.

Thank you. Our next question comes from the line of Morris Ajzenman with Griffin Securities. Please proceed with your question.

Hey guys. My question is on allocation of capital. You've mentioned earlier in the conversation. So as a positive outlook, looking at efficiency, you can -- how you're allocating capital? Is there being any ship waste energy are the possibly group, just share your thoughts on that process please.

The biggest one we have one right now, is we are adding a day on our Astec Inc. facility for the -- mainly to build the large drums for the pellet plant. And that should be completed by September. We -- also that is a bottleneck for Asphalt business. So the ability to build more drums is something we need over the next few years. We are managing so our CapEx for the year is around $30 million. But we always say that with an Astec that we'll manage the businesses to the business that we have and to the demand. So some will get probably less and some will get probably more based on how the year is playing out. But broad thinking in that range of $30 million is the right place to think for our CapEx this year. We've been really running about depreciation in the last several years, which depreciation is about $23 million. So we'll spend maybe a little bit more this year. However, things -- apparently we can -- we are very quick and we can flow it fast.

And just a clarification. Still earlier in the call, you have said revenues would be [indiscernible] in second quarter than first quarter. And then asked you another question, you then said EPS would be alike. Can you just kind of clarify what you have said about the second quarter versus the first quarter for the revenues in EPS?

I've probably -- you've got -- that's a good point, Morris. We really feel like the whole quarter is going to be pretty close to what we just had. That's earnings per share, and then the volume maybe all high up to if the margin is off a little bit. So we do think we'll be in the range.

Thank you.

Thank you. Our next question comes from the line of Todd Vencil with Sterne Agee. Please proceed with your question.

Thanks, good morning guys. I believe my questions have been answered, but I will ask this one. Thinking about the 5% kind of topline growth that you guys have reaffirmed you said in last quarter and again today. Looking out and what you can see in your backlog and what you see in your order trends and what you expect, I mean, what you think is the swing factors on that? Are going to be positive or negative? If you end up - to 5%, what's going to be the driver and similarly if you end up under that?

If we end up over I think it will aggregate mining breaking up a little bit in the second half. And if we end up under I think that will be flat to down. I think the infrastructure is going to have a good year overall and I think the energy is - they are doing a good job of what they have but it's going to be a challenge for the rest of the year. I don’t - I mean barring a huge swing from what we see right now, I don’t see it as being down on that 5% but I think that opportunity would be to be above it. I think again as I said earlier, I think we're a little bit – our experience in the last few years, you know it’s just been a - we give our question one on hire but I think based on what we know right now 5% range is the right number.

Okay, good. And given the aggregate amount you said this one factor that I’m going to get more on the aggregate side and the mining side is that right?

That's correct because we don’t think the mining starts going to get much worse or much better.

Okay. I don't want to pick anymore on the growth margin and I think you did a good job of answering questions but I’m going to say really nice performance in the quarter on that.

Thank you.

Thanks a lot.

Thank you. Our next question comes from the line of Larry DeMaria with William Blair. Please proceed with your question. Q – Larry DeMaria: Hi, thanks good morning. Curious on the sustainability with pellet plants. What are the prospects beyond what we are quoting and what can the industry do, where do we get to point where we can talk about more than you know one-off plans, when could this be a sustainable business and you know you competing for few plans in the marketplace. And secondly, where would you estimate annual sustainable part sales with the pellet plants, in other words if you could do the $109 million in sale this year would that lead to 25 million around 25% parts annually in a recurring basis? Thanks.

Larry this is Ben. I think we are still such a relatively new industry and it could be years before it’s a sustainable industry. We kind of feel like it is - if you went with the pellet projections even with being down right now you will still think there would be 25 to 35 pellet plants build in the Eastern Seaboard, large plants over the next 5 to 8 years or so. We’re in a really good position on that. I will give you an example we run three at Hazlehurst, when we turned it ran full production in under two weeks on a tons per hour basis. That is crossing the line, it’s kind of never been done line, so we feel really good about our abilities that on the other hand we still have to be able to support it, it’s another been able to build it. I think we’re in a good position, I think if we do as well as we feel like we are going to do at island, people will be coming down us first and we might have ability to work on our pricing to scale our margin up little more but we thought about it. We thought when we had one to one and half in the next year, in the next two years and continue to build that, we will gain a good position but I think it’s hard some of that is policy driven to say exactly when that turning point is where you this is a ongoing business for a long, long time. We still continue here but South Korea and Japan and China are looking at it pretty hard. There is a pellet conference in Japan coming up, so maybe stay tune on that if the - you know I think it will be in line volume to current parts that we have on asphalt equipment. So as we look at volumes, and pellet plants and of course the early stages they may not need that many parts but as they get older and start to need parts and then it depends on how well they can maintain the company that owns it. So I think thinking of it in terms of in the long run being the same percentage of parts business would be a good way to look at it.

Okay, thanks. I guess part of this is very helpful, part of it is that you get that one or two large plants and then you don’t know about the year ahead and that creates an uncertainty with regard to the outlook. So is it safe to say that you have - you think visibility that reaches the base level business that you have reached in one to one and half year so that they won’t provide hole in the outlook. And in fact you did mention minus low cost, would that I guess does that mean that won’t be significant then?

Mine Expo will not be usually significant, that's in Las Vegas in September and then Con Expo will start to see expenses on that probably midway through this year and then the total expense will be like it was last time which is around 4 million. I think though our goal that we’re working for is to make sure we can get one to one and half pellet plants a year for a while. And we’re putting ourselves in a position to be able to do that with how we are doing it at Hazlehurst and how we feel like we’re going to do it and given what we know.

Great, thanks a lot, good luck.

Thank you. Our next question comes from the line of Schon Williams with BB&T Capital Markets. Please proceed with your question.

Hi, I just wanted to follow- up – you mentioned some of the capacity expansion here in Tennessee but at what point do you get concerned about your capacity as the infrastructure business starts to ramp up. I mean do you feel comfortable that you can still significantly ramp infrastructure and then layer on another you know kind of one to one and half pellet plans for the next, I don’t know as we look at over the next 12 to 24 months, is that so plausible given the capacity expansion that’s already in the works?

Schon for the moment the answer to that is yes because the pellet plans are planned out far enough that we're able to talk with our infrastructure customers and get their deliveries in and around them which is really then great to see. I mean I still [indiscernible] are they involved in some - we have had some customers they are okay till December because we said hi, could you wait till December you know. So far to my knowledge we have a cost of deal on delivery and that's per plans. And so we’ve been okay on that but we are consistently keeping our eye on that and we do have capacity to help with that particularly in Oklahoma where we are working on some infrastructure projects there now not just the rooms but we’re building South and pellet there. So we have capacity but really going for the moment we have been okay and we think we would be okay even into the next couple of years with the expansion we are going to hear Astec and some of the things we are doing at on the shop floor, I think we will be okay.

All right, thanks guys.

Thank you. Ladies and gentlemen we have come to the end of our time allowed for questions. I will turn the floor back to Mr. Anderson for any final remarks.

All right. Thank you, Melissa. We appreciate everyone's participation on our first quarter conference call. Thank you for your interest in Astec. As our news release indicates, today's conference call has been recorded. The replay of the conference call will be available through May 12, 2016 and an archive webcast will be available for 90 days. The transcript will be available under the Investor Relations section on the Astec Industry's website within the next 7 days. All of that information is contained in the News Release that was sent out earlier today. As Melissa said, this concludes our call, so thank you all have a good week.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.