Greetings and welcome to the Astec Industries' Fourth Quarter 2016 Earnings 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, Director of Investor Relations for Astec Industries. Thank you. You may begin.

All right, thank you, Melissa. Good morning and welcome to the Astec Industries' conference call for the fourth quarter and fiscal year that ended December 31, 2016. As Melissa mentioned, I am Steve Anderson, VP of Administration and Director of Investor Relations for the company. Also on today's call are Benjamin G. Brock, our President and Chief Executive Officer; Richard J. 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 we 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. Factors that could influence our results are highlighted in today's financial news release and others are contained in our annual report and our filings with the SEC. As usual we ask that you familiarize yourself with those factors. At this point, I will turn the call over to David to summarize our financial results for the fourth quarter and the full year 2016. David?

All right, thanks, Steve. Good morning everyone. Thanks for joining us this morning. Net sales for the quarter were $326.6 million, compared to $215 million in Q4 of last year. That's a 51.9% increase or $111.6 million increase in sales. International sales were $61.6 million, compared to $54.7 million in Q4 last year, 12.6% increase or $6.9 million increase. International sales represented 18.9% of Q4 sales this year compared to 25.5% of Q4 2015 sales. The increase in international sales quarter-over-quarter occurred primarily in Mexico and Japan and then Australia. These increases were offset by decreases in the Middle East, in Africa and in Russia. Domestic sales for the quarter were $265 million compared to $160.3 million in Q4 2015, an increase of 65.3% or $104.7 million increase. Domestic sales were 81.1% of Q4 2016 sales compared to 74.5% of Q4 2015 sales. Part sales for Q4 2016 were flat at $62.5 million compared to $62.6 million in Q4 of 2015. That makes part sales 19.1% of quarterly sales in 2016 versus 29.1% in Q4 of 2015. For the quarter, part sales increased in the Infrastructure Group, and decreased in the Agg and Mining group and in the energy group. Our fourth quarter revenues were boosted by the recognition of higher than expected pellet plant revenues based on where we are in the delivery and in the construction schedule on that project. Foreign exchange translation had a negative impact on sales for the quarter of $600,000. That is if the rates this year were equal to last year’s rates then the fourth quarter sales would have been $600,000 higher. On a year-to-date basis sales were $1.147.4 [ph] billion that compares to $983.2 million in the last year of 2015. That's an increase of 16.7% or $164.2 million, increase in sales…

All right, thank you, David. Ben will now provide some comments regarding the fourth quarter of this year's operation and will offer some thoughts going forward. Ben?

Thank you Steve and thank you to everybody for joining us on our call today. Before going into my comment on our earnings release, I do want to take a minute just to say a word of thanks to our entire team at Astec for a very good year in ’16. We ended the year with a record $1.15 billion in sales, a strong EBITDA of $112.7 million and a new record backlog at the end of the months of December and January. And that takes a total team effort to execute a very good year and we look forward to getting even better in 2017. As we commented in earnings release this morning we’re pleased with our fourth quarter and our full year 2016 results. Our headwinds are still constant, the low yet stabilizing oil and natural gas prices, the global mining industry collapse [ph] and the strong U.S. dollar, all continue to present challenges to us that we’ve continued to secure and ship orders as a result of the passage of Federal Highway bill in the United States, which allows us to earn good result for the quarter and for the year in our traditional business areas. As David covered during his comments we recognized a much larger than anticipated $70.6 million in pellet plant revenue during the quarter. Frankly we’re just ahead of where we thought we were, it's a big project but I guess if we’re going to be ahead it’s better than being behind but $70.6 million in pellet plant revenue during the quarter. Our earnings per share were $0.53 per share versus $0.16 per share in the fourth quarter of 2015, an increase of 231%. The sales in the fourth quarter were $326.6 million versus $215 million, an increase of 52%. Year-to-date, sales as…

All right thank you, Ben. Mellissa if you'd open up the Q&A we would appreciate it.

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

Good morning, gentlemen and congratulations on a good 2016.

Thank you.

I guess, Ben I really appreciated all the detail in terms of put and takes on the guidance. Maybe my question to kind of clarify things a little further, by my own math you have done close to $137 million of pellet plant revenue in 2016. You're saying that you're doing to do $40 million to $50 million in '17. You only have $15 million to $20 million left in Highland, that would be in the backlog. I don't know if the remainder would be an additional order or if there is something else in the backlog that I need to be aware of. So that would be first part of the question. And the second part would be, so when I'm looking at the headwind that you're going to have from pellet plants, '16 versus '17 it looks like about $92 million. Your guidance implies call it $85 million worth of growth. So net-net we're looking at your core business, excluding pellet plants increasing something to the tune of $180 million in '17 versus '16. How confident are you that the end markets are strong enough to support this kind of growth to this point in the year.

Hey Mig, this is Ben. I'm confident enough to say I think we'll still be at 5% to 10% for the year. And we have the National Asphalt Plant Association meeting this year and attended that and more than just a hello we asked everybody to contract, and many people I talked to more than just a pass by hi. And I talked to over 70 customers during that week and I just feel pretty comfortable that that market is going to stay pretty strong this year. Aggregate has got a pretty good hot week coming in with seeing the Highway build results. And I still think we have an opportunity to get some pellet business, at least to the number we said and possibly more, but at least to the number we said. So taking those together with a slight heartbeat in international that that's why we came up with the 5% to 10% number.

Well, I guess the thing that confuses me, I understand that we have a multi-year Highway Bill in place, which in theory should have helped -- probably helped demand in 2016. But when I'm looking at the [indiscernible] Construction Forecast, when I'm looking at the contract, the highway contract, I'm, for one not seeing a whole a lot of growth out there. So I guess what I'm wondering here is how sustainable is this growth, because when I'm looking at your infrastructure orders for instance in the fourth quarter, to me they didn't seem like they've accelerated in any meaningful form.

I think we got, when you look at the Highway Bill, the '16 number is $37.8 billion, the '17 number is $39.7 billion, '18 number is $41.8 billion, goes to $42.3 million and $43.4 million. That's the baseline that our customers are looking at to go ahead and invest the capital in the equipment. And so the confidence level outside of the [indiscernible] number, is I feel pretty good about replacement what they have, or getting a new plant and that's what we're experiencing. So we got have a little bit of a feel for what's going on and talking to guys on the ground and that just doing that and travelling and seeing customers and going to Europe and talking to people. And that's where we are and that's how we feel about this year and sitting where we are today.

All right. Can you however confirm to me that you did recognize a $137 million of wood pellet plant revenue in ’16 and headwind based on your guidance would be about $92 million from wood pellets in ’17?

Yeah, it was about a $135 million, Mig. This is David, so you can right there on the number. That number is correct, yeah.

Okay, and the last question before I go back in the queue. Maybe a little more color on the gross margin in the fourth quarter in infrastructure, specifically. I suspect that the reason why we’re looking at sub-18 percentage is because of the incremental pellet plant revenue that has been recognized in the quarter. Can you sort of confirm that that’s what drove the year-over-year margin contraction and maybe a comment on how the core business is operating ex-pellet plants?

Hi Mig, this is David. You’re right that additional revenue that was booked on the Highland pellet plant was related primarily to construction and that it bears a much lower margin. A lot of that is sub-contracted now and so it carries a much lower margin than equipment does and our traditional equipment margins. So you’re correct. As far as without that number in there you’d wind up in a much more traditional margin profile than that you’re used to seeing.

Okay, thank you.

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

Hey guys, good morning and thanks for taking the question. So just make sure I heard that right, so the gross profit ex the wood pellet would be more on the normal side. I want to make sure that the profitability of the wood pellet plant is going to be at least in line, maybe even ahead of expectations. And then kind of roll that forward, thinking about the year with the goal of hoping to improve margins but in all likelihood higher material cost right, some of the mix issues, can you talk about the confidence of being able to drive margin growth on the gross line in ’17?

Thanks, Stanley. This is Ben. On the total margin for the wood pellet plant I think going ahead we feel really good about being in line with our major equipment gross margins and frankly a little add. I think we’ve made in fact good momentum on that and the lines are repetitive and they’re 20 ton per hour line, so feel good about the equipment margins. As far as growing gross margin this year, I still think we can do that. We do feel like we’re going to see a steel increase later in the year. We’re okay on the steel to the third quarter. We have booked in the third quarter some of our divisions, but we’re on top of it. We’re talking with our Presidents and making sure we’re watching pricing. But yeah we do think we’re going to see increases in steel prices in the third quarter. The mills are talking, again similar ranges to last call. I think we were talking 12% to 15% last time, if I recall it correctly and that’s about what we’re hearing this time. Again it remains to be seen they get through, part of that is depending on what the President does with [indiscernible] and that type of thing, and order taxes and all like that good stuff, because there’s a lot of different -- remains to be seen on that, but as soon as anything happens there they’ll increase the prices. So we’re guarding and watching and watching pricing as a result of that. But we’re doing a lot of things, a lot of things we put in place over the last few years is on the lane side and how we’re doing purchasing. We’re working to just continually chip away. It’s never a single thing that helps you…

I hear you. Ben, you always have a good read on the pulse of what happened in this space, love to hear kind of some high level thoughts, what you are hearing from your customers and then also kind of what you are hearing around the [indiscernible] and kind of the prospects of that, or really any other infrastructure sort of program coming down the pipe in 2017?

Well, coming out of the Asphalt Association Meeting which was very well attended, didn't talk to anybody that wasn't having -- had really good year last year and expected a really good year this year. Some contractors who wanted to be off the record saying they are already full for the year. So that’s -- I mean this is pretty good. Aggregate side we’re starting to sell more in the quarries, which is kind of what we thought and we said we’re selling a few [indiscernible] that we thought it would be little bit delayed there. So we’re seeing a little bit uptick, that’s reflected in the backlog for the aggregate mining group. On the mining side, we are seeing some upticks in productions at some of the larger mining companies and we have enquiries. But it’s just doesn’t feel great. Osborne [ph] is right in the middle of mining country in South Africa. They held in there okay for the year, given what’s around them. So they did a good job considering what the environment was. In the oil and gas side for Energy Group, there is a little bit of heart beat there and the whole thing's kind of hanging around in the 50s. We did get -- I mentioned the activity we did get in an order, our GEFCO facility for two pumpers in January for $4 million. It felt really good but [indiscernible] something or other that keeps coming on order side, we start to call out a trend but it sure felt really good, because it's been a long time since we had a nice order like that at GEFCO. So I guess that kind of covers the three groups, the equipment and infrastructure group are in energy group they goes to the infrastructure industry and I have seen an uptick. So we are seeing good quoting activity there.

And any comments around the bold act [ph], kind of what’s you hearing in the field?

Yeah, yeah sorry about that. I think it’s too early to call. The people that we have talked to that we know still think we will see something in the neighborhood of $400 billion to $500 billion that would be span over 5 to 10 years, that the money would start falling in 2018. But gosh, projecting and predicting what our current President's going to do is interesting. So we certainly would welcome that and would love it. But that’s kind of what we are hearing now. [indiscernible] I haven’t heard much on that on the momentum side, I have just heard the number on the size of the bill and not how to pay for it.

I hear you. Great guys. Well, thank you and the best of luck.

Thank you.

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

Good morning, this Jordan Bender on for Mike this morning. I was just wondering if there is a specific segment that you can point to that drove the January backlog increase.

Well, and David’s got [ph], there is another state. I know there our estate division had a great order intake in January and that our energy group had a good January. So I don’t think we have that number in front of us. But as -- if somebody asked me the order of where it came from, to me it's infrastructure, energy had a good January and then aggregate had an okay January.

Got it. Do you guys get the sense of the increase order activity is from increased business confidence coming out of this new administration or is that just more of a general business trend?

You know in talking our customers, they really like President Trump, it feels better -- and not just our customers. I mean if you go talking to people in another industries you know they tell like they just feel better. But I think the Highway Bill and the general private side [ph] for our customers is driving it more than just having Trump in office.

Okay. I'm going to squeeze in one more in here. Do you think once the early warranty issues are ironed out your new products will be positive from margin mix or they are going to be more in line?

I think they will be in line with major equipment margins. And maybe to be helpful, I mean on the CONEXPO show, to give you an example of some of the new products, we'll have fusion [indiscernible] CEI model. It's a small concrete plant. GEFCO will have a new [indiscernible] rig, that's a geotech drill rig. KPI, our crushing screen division we have a new dual power track mounted pressure system. It's a diesel electric unit. Peterson will have a new small drum chipper that will fit in a container and that can go international. Varitek will have a new material transfer vehicle, an MTE1100 and a new eight foot paver RPE175E. Telsmith will have a brand new 500 ton hour T500 cone crusher on the floor. Carlson will have a brand new 8 foot paver, CT130. Heatec will have a new redesign of terminal models that they have done for asphalt terminals. So those are just -- that's a quick cross section of new things we will have at the show, that some of those things end up in shops pretty quick as we start to develop them and as sales. And we’re also going to have some new products, [indiscernible] show, that a smaller dollar item that what we call ASTE will release the silobot at the show which will be a robot with magnetic wheels that will climb up the inside of a [indiscernible] and take fitness measurements of the steel and do a video inspection of inside [indiscernible] for the customer side that the people [indiscernible] do as inspections. So that will probably get a lot of play, because it's going to be really neat looking and be climbing up a wall, that -- pretty exciting things that the first round of what we do, when we do a new products always with lower margin.

All right, well, I appreciate it.

Thank you.

Thank you. Our next question comes from the line of Mario Gabelli with GAMCO Investors. Please proceed with your question.

Thanks, it was good to follow-up on the list of products that you guys are showing at CONEXPO. What I watch a movie being released this industry would speculate on kind of how much money that might gross domestically. What’s your gut on what you think your orders would be and might you tell me what that the silobot would cost, I may want to have that in lieu of something else in our firm?

The silobots can be pretty inexpensive. It’s probably not going to be more than -- I think it’s not even more than $15,000 but what it replaces, the safety for our customers is the big deal that's a confined space issue form and unless they have to get in the [indiscernible].

Yes, no, no, I just curious because I can see those silo bot equivalency going through pipelines through inspection which they are doing now in water?

Yes.

Lot of potential, how -- where do you produce that one and how much of the value added is internal technology and software?

We produced here at [indiscernible], came out of our controls department. I’m not sure on the value added piece of that but it's almost…

That's okay. I will get offline another time, but just your gut on the total size of your orders? What would be a good number that we should think about come the middle of April that you are going to report in Q1?

For the silobot [ph]?

No, just for the entire CONEXPO product line ups that you have, you’ve got to have a dream list?

Okay. Well dream come out of CONEXPO and I think if we can share we came out with 20 millionish to 30 millionish that would be incredibly good because it’s not a selling show normally.

Yes, no, I got it. And what is your cost to attend the show and are you expensing that as part of what you gave us as an estimate for Q1?

Yes, we are expensing in the range of 4.2 million.

Thanks [Technical Difficulty]

Hello?

Well he we may have dropped. Melissa, let's go in to the next call.

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

Hey, Good morning.

Good morning

Good morning.

I want to ask about sales in backlog, we’re up in the quarter despite the drag you talked about with the stronger U.S. dollar. Is there any lumpiness in there that you would call out and what you expect going forward in terms of your international performance?

Hey, this is Ben. I think I referenced pent up demand on the call and then in my mind there is a pent up demand for U.S. made products. And I think some of the countries have gotten used to the spread and thinking well it just not going to change things in how I want to go ahead. So it feels really good because it's been so down. And so we hate to say that it's back and it's going to continue to go up just because the currencies aren't moving and in some cases they move with still stronger US dollar. So I would almost say that's why we're just -- we're cautiously optimistic. We want to keep reporting on that and if becomes a trend that will be awesome. But with the currency where it is, it's hard to say that it's going to be consistent.

Okay, that makes sense. And I then I want to shift gears a bit to the energy segment. I think you've called out pockets of demands in certain segments of industrial. And so I was hoping if you could elaborate on that where what segments of the market are you seeing strength what product types and that kind of thing.

In the industrial side, Rick Dorris is here, he's been speaking with them recently, he might want to speak to couple of those.

Yeah, they sold heaters into chemical plants, and some even food processing plant. They have also recently started selling some small heaters for gas processing pipelines or heating the gases as it's let down in pressure. And that's been a pretty good market for them recently.

Okay that’s helpful. Thanks for taking my questions.

Thank you.

Thank you. Our next question comes from the line of John Fisher with Dougherty & Company. Please proceed with your question.

Yes, good morning. Just looking at your backlog ex would tell it the roughly 20% year-over-year increase through December, would you expect a similar type of increase in 2017, driven by the passed act and since the passed act's -- it's a five year bill, does the scope of the line from a demand standpoint for you, is kind of where does that start to level off, is it at year five, is it past year five or does it start to level off from a growth and demand standpoint in kind of year two or three?

Jon, this is Ben. We -- it will vary by group, but in infrastructure group on the asphalt equipment side it typically would tail off about a year to 1.5 year before the end of the bill. So two to three years from now. It would maybe go a little longer in the aggregate side, because it started low -- slower on the aggregate side. The asterisk on all of that is not having a crystal ball on what President Trump will do, and what comes out of his infrastructure plan. That could change the normal model for us, a normal outlook would be it's going to tail off at some point, and that's logical but if there is another 400 billion or 500 billion that comes in on top of what's there that would change what we just mentioned.

Sure, okay. And then again just looking at the year-over-year '16 versus '15, the roughly 20% there, a lot of been driven by the FAST [ph] Act, is 20%, give or take a good expectation for '17 over '16 ex-wood pellets? Or would you expect a greater increase off that 280 million exit rate.

I guess I have to apologize, I didn't follow the question. Your question was…?

Well you talked about backlog as of the end of December being 280 versus 229.6. I am just trying to get a feel for ex-wood pellet plant, kind of what would be a good expectation for backlog growth in '17 versus '16?

I think in terms of the growth of backlog, it would somewhat mirror what we’re saying on our total revenues, so 5% to 10%.

Okay, okay and then when you look at growth out of the aggregate mining and the energy groups, and in International I guess to, if that were to be better than expected over the course of ’17 is that margin dilutive or would that be margin accretive?

It would be accretive.

Okay, thank you.

Thank you. Our next question comes from the line of Brian Sponheimer with Gabelli and Company. Please proceed with your question.

Hi, good morning. Thanks for having me on.

Good morning.

Ben, just to ask a similar question a different way when you’re talking to your customers, particularly at the EXPO conference was there any sense that some of them are waiting to pull the trigger on orders until they get clarity on how CapEx and interest is going to be treated, should tax reform begin to take hold.

Brian, this is Ben. I didn't have anybody mention that, when I talk to them.

Okay, that's good. Also just thinking about Astec as an export base, what would you say your -- the amount that you export from the U.S. is on a year-to-year basis.

We have few divisions outside of the U.S., our Osborne division and Telestat that manufacture outside the U.S. and Brazil which has not been great. But those are three locations we are actually MTTI [ph] record technology. So of that about 19% of our business last year probably half of that was exported in the U.S.

Yeah, in a good year, in a good International year when International was 40% or whatever it would be, be up at 75% when the dollar is weak and encouraging those folks overseas to buy within these with the U.S. dollar headwinds, I think Ben is right.

The other thing I would add to that is that I did visit Telestat 2 when I was over in Europe and I'll tell you we've been very pleased with that acquisition, those guys are going a great job And they got good backlog. So they have been really pressured ahead with us.

That's helpful, just two other smaller ones, regarding the slowdown of wood pellets that you spoke to with some confidence for the back half of the year, what's driving that?

There is a frankly an oversupply of pellets because it’s been warm on the private market and the Europe they haven't needed as many pellets for the housing and so there is an oversupply of pellets. And so there’s some stock buying going on that slowed it down and the other thing that helps us feel good that it's going to come back is there is utility is coming online in 2018 and the demand is going to go that, so that -- they still have had housing market for the demand to go up?

And just finally the Power Flame contribution in the quarter?

Yes. Let me get that number for you. In the quarter Power Flame was -- it’s about $8 million in revenues and ex-amortization which we’ve buried amortization of their intangibles as you know in acquisition accounting, they did about $350,000 of contribution profit before amortization.

All right, terrific. Well thank you so much and good luck on another successful year.

Thank you.

Thank you. Our next question comes from the line of Ryan Hamilton with Morgan Dempsey Capital Management. Please proceed with your question.

Good morning guys.

Good morning Ryan.

This has kind of been asked I might ask in a little bit different way, can you give us a feel as far as what you are seeing in your infrastructure group, if you are getting a feel of its more pent-up demand versus maybe expansion? Could you maybe just -- I know you can't [indiscernible] a little bit, but just to kind of get a feel for that?

Hey, this is Ben. Actually until about -3 months ago, I'd say most of it's pent-up demand. But we have had some new plans for new area of purchases in the last two to three months. So there is now it's past the pent-up demand stage in my opinion.

Okay, is there any regions you asked [ph] that you’re kind of seeing accelerate faster than others? Anything of note?

I’ll tell you it’s really consistent across the U.S. It’s more where it’s not and where it’s not is more the Dakota’s still depressed but it’s pretty active consistently across the country right now for us.

Okay, thanks. The rest of my questions have been answered.

Thank you.

Thank you. At this time there are no further questions. I'd like to turn the floor back to Mr. Anderson for final remarks.

All right, thank you, Melissa. We appreciate your participation on this fourth quarter conference call and thank you for your interest in Astec. As our news release indicates today’s conference call has been recorded. A replay of the conference call will be available through March 7, 2017 and an archived webcast will be available for 90 days. A transcript will be available under the Investor Relations section of the Astec Industry’s website within the next seven days. All of that information is contained in the news release that was sent out earlier today. So this will conclude our call. Thank you all, have a good week.

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