Greetings and welcome to the Astec Industries Third Quarter 2016 Earnings Call. At this time, all participants are in a listen-only mode. A brief 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 Steve Anderson. Thank you, you may begin.

Thank you, Brenda. Good morning and welcome to the Astec Industries' call for the third quarter that ended September 30. My name is Steve Anderson as Brenda noted, and I am the 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'll turn the call over to David to summarize our financial results and then to Ben to review our business activity during the third 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 third quarter results. David?

All right, thanks Steve, good morning everybody, glad you are with us this morning. Our net sales for the quarter were $247.8 million compared to $211.4 million in Q3 of 2015, that's a 17.2% increase in sales or $36.4 million increase. International sales were $47.9 million in the quarter compared to $55 million last year in Q3, that's a decrease of 12.9% or $7.1 million decrease in international sales. International sales represented 19.3% of this year's Q3 sales compared to 26% of last year's Q3 sales. The decrease in international sales for the third quarter compared to the same quarter last year, primarily in Canada, in Africa, and in South America. These decreases were offset by some increases in Australia, Central America, and in the West Indies. Domestic sales for the third quarter were $199.9 million compared to $156.3 million Q3 '15, for an increase of 27.9% or $43.6 million increase in domestic sales. Those domestic sales were 80.7% of our Q2 million dollars for Q3 of '15, that's an increase of 1.8% or $1.1 million increase in part sales. Those part sales were 25.5% of our Q3 quarterly sales compared to 29.3% for Q3 of '15. For the quarter, part sales increased in the energy group and then the infrastructure group, and decreased in the aggregate and mining group. Foreign Exchange translation on sales had a negative impact of $2 million i.e. the rates this year were the same as the rates last year, sales would have comparatively been $2 million higher. Net sales year-to-date were $820.9 million compared to $768.1 million for the first nine months of the last year, that's a 6.9% increase or $52.8 million increase. International sales for that period this year were $144.6 million compared to $206.1 million for the first nine months last…

Thank you David. This time Ben Brock will provide some comments regarding the third quarter of this year's operations. Ben?

Thank you Steve and thank you to everyone for joining us on our call today. As we commented in our earnings release this morning, we were pleased with our third quarter. While the ever persistent head wins will blow yet stabilizing oil and natural gas prices, the global mining industry and the strong US dollar continues to present challenges to us. We continue to send secure and ship orders as a result of the passage of the federal highway bill in the United States which allowed us to earn a good result in the quarter in our traditional business areas. We were also able to recognize $19 million in pellet plant revenue during the quarter. Earnings per share for the quarter were $0.30 per share versus $0.10 per share in the same quarter last year for an increase of 200%. Our third quarter sales were $247.7 million versus $211.4 million for an increase of 17.2%. Now our year-to-date sales were $828.8 million versus $768.1 million for an increase of 6.9%. And again as David mentioned our year-to-date EBITDA was $87 million versus $66.1 million for an increase of $20.9 million in EBITDA on a $52.7 million increase in sales. EBITDA is up again this quarter as our company's maintains stronger gross margins versus last year. Our major product mix was fairly normal this quarter and a higher capacity utilization rate and infrastructure rates helped our gross margins. Our backlog at September 30 was $389.2 million up 54.6% versus last year. Our backlog remained strong partially as a result of the $122.5 million pellet plant where we announced during the first quarter this year. The pellet plant order, our backlog is in the infrastructure group backlog. Our infrastructure group also continued to o order intake during the quarter mainly as a…

All right, thank you, Ben. Brenda, if you'd open the queue, we'd be glad to take questions.

[Operator Instructions] Our first question comes from a line of Stanley Elliott with Stifel. Please go ahead with your question.

Hey guys, good morning, thanks for taking my question. Quick question could you talk about dictating in the deceleration, especially in the infrastructure group from Q2 to Q3. is all that your typical seasonality, some of that would pellet [ph] coming out, just kind of help us reconcile that, and then in along those lines you mentioned the negative variants on the absorption in the quarter if you could go then there too.

Hey Stanley, this is Ben. On the volume side the third quarter for us as always, I hate to say hand-to-hand combat, but it just feels like that and you have some that don't make across the line like if you have terms of over the rail for international shipment for instance. We had one that was over the rail of the ship was disconnected from the porch. And sometimes we run into that and third quarter is always a bear [ph] although I would say that sure feels a lot better this third quarter than the last two third quarters because we were really struggling with in the last two third quarter. So, feels a lot better that, yes we had a few of those this time.

Stanley, all of the unabsorbed overhead piece of that the increase there occur primarily in the ag and mining group; there was a little bit of a slow down there, primarily related to mining, it was not necessary in the -- but the mostly related to the mining set.

Could you give us an update on the capacity expansion that you all had put out, was that happened this quarter, was that happened November if you get a fresh memory then.

This is Ben again, we originally planned to be fully operating in the middle of October; we are building some equipment and the new Bay and Astec Inc. but it's not fully operational, out probably a couple weeks away. Quicker we get lucky but the building is finished, it looks great but we need more iron in there.

And then lastly, you mentioned the Hazelhurst piece, and you threw out the word assumed it would get paid for it 2017, is that really a question or is it really more just the timing as to when we can expect that revenue in to fall into 2017.

I probably should use a bad word there, I feel like we are getting paid in 2017 I just didn't fit in and the projection because there's not profit in it, and I was afraid we fit in that big projection that we have margin and as people ran the models we all get tangled up, it's really we get paid but there's not really profit in it. We're maintaining at a breakeven.

So we'll be at a break even into next year.

Yes.

Thanks guys, thanks a lot.

Thank you.

Our next question comes from the line of Mig Dobre with Baird. Please go ahead with your questions.

Good morning, I just want to maybe go back to Stanley first point in the infrastructure group about the sequential revenue decline and if I'm looking sequentially, what happened here seasonally, you do have a decline but it seems like this year is a little more pronounced than what I've seen and in prior years. Even though it doesn't look like you had that big of a shift from the second to the third quarter in terms of realize revenues on the -- on the wood pellet plants. So I guess my question is this; do you have capacity constraints at this point and that's what sort of causing this sequential revenue movement. Or is there something else.

Hey Mig, this is Ben. No, we're okay on capacity I think the other thing thinking about the questions more we've -- Australia and Germany are in that group as well. And they did not have very quarters and I think that affected a little bit, that not more U.S. dollar related, although I tell you that we got a little bit hardly on Australia which is great, Germany's got a few things going. And they're in the right places hopefully get some of these things across the line very soon.

Okay, then maybe I can ask this differently in terms of your capacity utilization within this group, where are you now verses I don't know what you would consider normal and this addition of a new bay production bay, what is that do exactly for your capacity going forward.

So in infrastructure group you know on the asphalt plant side, we're Running 80% to 85% probably the same on the mobile equipment side. And we have lived down some that production for delivery issues to our GEFCO facility; we've built some asphalt limit there. But we haven't -- we've lost to my knowledge I was at breakfast with some of our sales guys, we got them in here today for some training. You know we've lost one plant on pure delivery reasons and that was to a nontraditional Astec costumer. If we had delivery 50-50 would gotten it now. It can -- it could be a challenge because the next few months that if we got to get this day open. We've got ahead, we can do some shift work and one of our facilities to help that, and we are adding people in Chattanooga [ph] and we are able to get people. It's taking a little bit longer but the people that were getting are good people, so we feel okay about our ability to deliver in this market.

Okay. And then, I don't know maybe coming out of the last call last quarter; my understanding was that you guys were really thinking here in the infrastructure business that you're going to have to back half revenue and margin largely gross margin that is largely similar to the front half. Now it you know that may maybe I'd misunderstood the way try to communicate that, but when I'm looking at the third quarter and the way you're talking about the fourth quarter, there seems to be a bit of a delta here and I'm trying to reconcile that in the back of my mind like what is different verses what you originally expected and how do we think about gross margin in infrastructure going forward.

Well, I think your gross margin in the fourth quarter you will have more pellet plant volume. Those are -- as we build more lines, we're getting better at those margins, so they're now in the high side of our normal good margin. So I think you can think of it as gross margins in the infrastructure group in the range of what we saw earlier this year in the fourth quarter.

And in terms of revenue out of your backlog, because there is we're talking 200 and call almost $90 million worth the backlog, what's your visibility as to what you get, what you are able to convert in the fourth quarter.

Well that -- we don't give revenue guidance on that so we -- I would just say that we go pretty good about having good fourth quarter.

This my last question, I'm asking this because I think if you look at this quarter, this is where the big variance was and I'm trying to make sure that we all have our models straight for fourth quarter given what is coming out of your backlog. Can you help us at all? Is the fourth quarter versus the first half or versus the third quarter; however you want to put it?

You know we just don't give revenue guidance. I am not sure we could really answer. I would love to tell you what we think our sales, net income and gross margins exactly would be, we just don't give the guidance. It should be last year's fourth quarter.

Okay. It was worth a try. Thank you.

Okay. Thank you.

Our next question comes from the line of Mike Shlisky from Seaport Global. Please go ahead with your question.

Good morning, this is Jordan [ph] on for Mike Shlisky this morning. My first question is that your cash levels remain quite high even after the power flame deal. You mentioned in your prepared remarks, you are working on acquisitions but can you give us an update on any potential cash use to the first half of the year?

This is Ben. We are active on the acquisition front and we would like to use cash towards acquisition that are in what we do. So we are energy, aggregate mining and infrastructure industries. If that's our city we wanted to stay in our metro area and everything we are looking at is in that and we are not looking to load up on a lot of debt. We are not going to set the house on anything but there are opportunities for us and it's interesting how that works. We have looked at a lot that we haven't moved on but we want to have a cultural fit with whatever we do and so we are active on that. So we would pull the trigger for the right one.

Got it. And there is one more in here. Could you comment on -- without giving us any type of endorsement either way? Could you maybe give us your thoughts on what a presidency and the congress with the same party controlling both sides, if that were to happen either party, what would it mean for potential increase in infrastructure and highway spending?

Sure, both candidates seem to be good for infrastructure. Hillary Clinton has on the record, $275 billion over 5 years and Donald Trump has $500 billion with really no timeframe tied to it so while getting into the politics, I would love to but we won't fit. They both sound good for infrastructure. And infrastructure when you look at stimulus, every president seems to want a seamless package in their first year. There's not a whole lot to go into that well and pull out for stimulus so thankfully, infrastructure is usually [ph] and so we feel good that either one of them, even at discounted numbers on top of the current highway bill would be good for us and I will only add to that. Thank goodness, we have a highway bill in place while all this craziness in the election is going on and think if it wasn't it would be a total lockdown for our customers. So we have been very fortunate to have a highway bill in place while these two candidates really embarrass us globally. So that's what I would say about that. They both sound pretty good, even at a discounted number after I guess for the congress.

All right, I appreciate the color.

Thank you.

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

Hi, good morning.

Good morning.

So I just wanted to ask about how the [indiscernible] has been flowing through your business and it sounds like the aggregate side of mining is longer lags and the asphalt plant and the infrastructure group, maybe help us think about that and your expectations for quarry type equipment as dollars turn into construction projects.

Sure, Nick. This is Ben. I think part of the weakness we identified earlier on the aggregated flaw was a traditionally focuses on the big quarry projects and those that have just come out of the gate as strong as the other on side crushing and open shape type crushing. But they picked up, they got some work and we think that's a result of the highway money coming through the system. It always takes a little while for that money to come through the system. I have been staying in touch with the customers and last week was with a -- they are not sure that the private wasn't really pushing it and now they are seeing the state money coming through on the ones that I was with. So I think it's just been a delayed reaction that based on the code activity and the sales activity that we think that is going to show up.

On the asphalt side, how would you characterize the impact, I mean it sounds like the authority?

I do think it's affected the buying decisions earlier than it did on the quarry side because we have seen pretty consistent activity there. And there activity through the summer is normal when we are working. We talked about when it first started, with Dr. Diaz. You know two minds rhyme when there is a bill signed and maybe a low as people figure out what's happening and then it would kind of kick back in with two or three years. And what we saw was that we have two minds running in the state fairly, if they would have stayed better through the activity instead of now when we are in the buying season there is quite a bit of activity.

Okay. Thank you for taking my questions.

Thank you.

Our next question comes from the line of Wayne [ph] with Gabelli Funds. Please go ahead with your questions.

Hi guys, congrats on the fabulous gross margin in the quarter. You touched on infrastructure gross margins earlier but can you tell any expectations of overall margins could end up in current quarter versus Q3?

Hi Wayne, this is Ben. It should be better. We have got good utilization and we have little more work to cover some hours and aggregates group. When we started this with the highway bill, looking back historically the 25 to 26 range was the high side. I guess we have pushed 26 on the high side and I think we can get back in that range during the cycle. We have already kind of went over it when we were really and things just kind of hit but I think 25 to 26 and this 2 to 3 year cycle is a target we have to try to hit as we have this volume.

And do you have any anticipation of when you would hit the high side of the cycle?

Well, you know we touched it, we have already been in the 26 range as we started. We have got a highway bill in place which is going to help our business we believe for 2 to 3 years and if we can get oil and gas to take a comeback little bit, mining to comeback just a little bit, we have enough change to maintain that little bit here for a couple of years.

All right, thank you very much.

Okay. Thank you.

Thank you and we have follow up questions from the line of Mig Dobre with Baird. Please go ahead with your questions.

Yes, thanks for taking my follow up. Just clean up question on energy. Can you remind us what the Power Flame contribution to revenue in orders were in the quarter?

Revenue for the quarter in the $5 million to $6 million range with the bottom August first and then from a backlog standpoint, the contribution to backlog was, I got that right here somewhere, hold on. Sorry. Let me look that up for you quickly Mig, I got it right here.

I mean if need be we can follow up offline on that. That's fine.

Yes. Let's do that. Yes. $3.5 million.

In backlog?

At September 30 of this year and in the backlog of last year, just so you know it was $6 million because we did adjust prior year's backlog so we call that.

Got you. And I am sorry, the $3.5 million versus the $6 million. I am trying to equate that. Is that their own backlog declining to that extent or is it that you are recognizing partial quarter or something like that? How do I reconcile those two numbers?

Those were orders in place at the end of the month.

Got it and then last question I know we talked about this little bit in the past I am wondering if you can give us an update on raw material cost, fuel prices have been volatile. Are you, at point do you start to see some impact from higher steel prices, is it a fourth quarter, is it the next year?

Hi Mig, it's Ben. We, last quarter we were getting indications that the steel mills and all their suppliers wanted 12% to 15% and we saw some steel pricing increase at a couple of divisions and it affected us slightly but not much. They really haven't been able to get to increase. And we have had a couple of notices actually today, about people trying again but we are doing [ph] now as using the word hedge is a wrong word. We assume longer term volumes right now. It's still relatively pretty good. That being said we have met with all our presidents in person, the last week of August and absolutely harped on watching calls to steel and pricing because if that moves on, as everybody knows that's a big deal so our president's, we are on top of it.

But should I understand that this is not really a concern for you or a material head went to margin going forward?

Not right now. Not for us.

Okay. Thank you.

Thank you.

Our next question comes from the line of Brian [ph] with Morgan Dempsey. Please proceed with your question.

Good morning guys.

Good morning.

Give me a sense, you talked a little bit the pent up demand with some of the road builders. Can you put any more flavor in demand say from a national design build contractor versus maybe sales, how robust sales are at the regional or the local levels? Some of the smaller contractors.

Sure Brian. It is an interesting question because I am just lucky because I asked that question last week but and what it is, an asphalt plant, over 95% of what happened with our order since December 1 of last year is with privately held companies. So that means that most of our business with a larger bigger contractor companies is probably still yet to come and I have set up with leadership of those public companies and they are anticipating increase CapEx next year at a rate higher that depreciation. So we have started to see that core activity but they have not pulled the trigger, of course they are just at the end of their budget process but you know the private companies pull the trigger quicker than the public companies when the bill was signed.

Yes and what do you see, you mentioned asphalt plans, what you're seeing on the mobile equipment side, same trends?

Same trends.

Okay, how about you talked a little bit about the strong dollar being obviously in impairment to export, in the -- maybe the asphalt hot mix or the -- some of the mobile highway road building equipment, how much of competition do you have from foreigners coming in and selling parts, obviously timed the market, service supply, repair parts, always customer served, that's real important, probably tougher to do that from Europe for U.S. domestic, but how much does the import compete against you guys?

Not so much on the part side but on the major equipment side right now, it's a good buy on deals where they are involved. On the park side we're finding, we're gaining a little market share on supporting their equipment once they get here, if we lose the deal. Now we're seeing that not just in the U.S., we're seeing that in other countries.

How price elastic Ben are -- as you've said we've got a pent up demand, you guys expect a little low, it's been pretty steady, how much price discipline is in there?

I've made the comment last call, I remember fitting my thumb in my index finger together and just barely pulling them apart and looking through, and it's maybe just a little bit further away from the thumb but it's not much. And it's really because we -- all of the people that we deal with are shrewd buyers, and it's rare that we're ever alone and all of our competitors are working like men to get the deals too. So I think our guys have really done a nice job given as competitive as their reveal really is and we're doing little bit better there but it's not right.

Okay, all right. And then on the pellet plant side, what as you guys begin building that up as an ongoing business, what kind of ongoing parts repair might be serviced for that business?

It will be similar to the asphalt plant as far as the percentage. So I don't see it necessarily move in our needle on a percentage basis of part sales annually, but the more we can get out there and grow the volume. And so the top line hopefully keeps moving with it as we sell more pellet plants too but I see the parts businesses meeting fairly similar.

Well, on the part side you have the pent-up demand new equipment, is obviously owned in the field, on the mobile highway side, the C-part sales for a while, you are not planning to use the equipment, or because there is a bigger infield installation this year numbers you see parts going along with it.

I feel like we can still increase our part sales but partially what you are saying is true because you know when the new equipment's out there just takes less parts, but the other thing that we can work for is support compares equipment that they do as good a job on parts in the field. And so I that's and service sales too which will show up and parts. I still think even though to your point that new equipment will take less parts, I think you assume opportunity in service and support of other brand new parts. And because it is hard to get people and we think that there's an opportunity in service sales as well that'll help our part side. It is probably better margin to be and service.

Okay. And then you guys mentioned the pellet new products anything specifically if you're willing to comment on for ConExpo 2017.

Very excited about ConExpo, excited about the number of new products that we're going to have on the floor. I think for competitive reasons if we can get my asset February call, me happy to say that I think we're that got long enough to react. They cannot believe that I can say that we will have more new products on the floor at this ConExpo than we had three years ago.

Okay. And then just one final one, you talk a little bit about kind of capacity utilization, you get the asphalt hot mix, and some of the mobile. What would be your will the obviously the worst areas, what might be your toughest I am sure it's in mining in that or energy what might be the lowest level capacity utilization you might have.

Our GEFCO facility in Oklahoma is our number one challenge. And they're utilization, Rick Dorris, our COO was here, is very low I had its almost embarrassingly low, so that's why we're moving brooms, straight broom production there from Rotek [ph] as there -- that could create room for more militant and papers to be built, we've done its out overload shops that we're trying as hereby do not outsource with in source if you need capacity. So we're just trying everything we can't get through there. Good news is GEFCO whom I mentioned in the comments our new group president of energy, came from Atlas Copco this last [ph] was in the drilling business in Texas. Although he's worked all over the world he's a native of South Africa. But he -- he has a good vision and visibility into that market. And the products and I think he's going to help them. And it won't be an immediate effect but I think you know six to ten months from now I think we can be a much better position in Oklahoma.

All right guys, congratulations great quarter.

Thank you.

We reached the end of our question and answer sessions I would like to turn the poor recommend him for any closing comments.

All right, thank you, Bridget. We appreciate your participation in this third quarter conference call and thank you for your interest in Astec. As today's news release indicates the conference call has been recorded. A replay this conference call will be available through November 8, 2016. And our webcast will be available for 90 days. Transcript will be available under the investor relations section of the Astec Website within the next seven days. All of that information is contained in the news release that was sent out earlier today. This concludes our call again thank you and have a good week.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.