Greetings, and welcome to Astec Industries' Third Quarter 2017 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 like to turn the conference over to Steve Anderson.

Thank you, Sherry. Good morning and welcome to the Astec Industries' conference call for the third quarter that ended September 30, 2017. Sherry mentioned, my name is Steve Anderson and I'm the Vice President 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; 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 as well as give some outlook going forward. Before we begin, I’ll remind you that our discussion this morning may contain forward-looking statements that relate to the future performance of the company, and these statements are intended to qualify for the Safe Harbor liability established by the Private Securities Litigation Reform Act. Any such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions. Factors that could influence our result are highlighted in today’s financial new release and other are contained in our annual report and are fillings with SEC. As usual we ask that you familiarize yourself with those factors. So at this point, I’ll turn the call over to David to summarize our financial results for the third quarter.

All right, thanks, Steve, thanks to each of you for joining us this morning. Our net sales for the quarter were $252.1 million compared to $247.8 million in Q3 of ‘16. That is a 1.7% increase or $4.3 million increase. Recall that on October 2, we announced that we would incur a charge related to new additional investment in the two wood pellet plants, so we have delivered to Georgia and Arkansas. This charge resulted in an impact on EPS for the quarter and year-to-date of $0.59 per share and I’ll discuss that a little later. But throughout my comments I will refer to this charge as the impact of new pellet investment. For comparative purposes, I will also be discussing the impact of all pellet plant activity during the periods under discussion. The new pellet investment is a component of that all or total pellet activity in Q3 of 2017. So without the impact of that new pellet charge for the quarter, net sales were $266.3 million for Q3 of 2017. That charge impacted sales because we are on a percentage of completion basis on the Arkansas pellet plant. Without the impact of all pellet plant activity during the quarter, which includes the charge I mentioned, net sales were $265.5 million for Q3 of ‘17, and $228.6 million for Q3 of ‘16. That’s an increase of $36.9 million or 16.1% increase in the core business. International sales were $55.6 million this quarter compared to $47.9 million in Q3 ‘16, a 16% increase or $7.7 million increase. International sales represented 22% of sales in this quarter compared to 19.3% in the same quarter last year. The increase in international sales for Q3 of 2017 compared to the same quarter last year, primarily in Canada and Brazil, the Middle East and…

Thank you, David. Ben will provide comments regarding the third quarter of this year's operations along with the outlook for Q4, ‘17 and full year 2018. Ben?

Thank you, Steve, and thank you everyone for joining us on our call today. As we commented in earnings release this morning, our wood pellet plant investments that we previously announced on October 2nd significantly impacted our earnings for the quarter. With the exception of the wood pellet plant investment impact we were pleased with our results for the third quarter and we were pleased that ex-pellets we were able to grow sales and backlog while also shipping new products during the quarter. I'll briefly cover a few of our actual financial results as usual however I'll also be referencing our ex-pellet financial reports for some core and future business perspective although David has done very nice job of trying to get the full picture of where we stand on those points. Our third quarter sales were $252.1 million versus $247.8 million for an increase of 1.7%. Our third quarter sales ex-pellets were $265.5 million, which is as increase of 16.1%. Our earnings per share for the quarter were negative $0.12 per share versus positive $0.30 per share in the third quarter of '16. That’s a decrease of 140%. Our earnings per share on new ex-pellets was $0.47 per share positive versus $0.30 a share positive for an increase of 57%. Earnings per share were mainly impacted by the wood pellet plant investment that we announced. Infrastructure Group gross margin was 1.8% versus 22.8% last year. Ex-pellets Infrastructure Group gross margin was 21.9% versus 22.8% last year. The Aggregate and Mining Group, gross margin was 24% versus 24.4% last year. They had no pallet effect in their gross margin, they had new products that went out during the quarter with gross margin slightly below expectations, but very much in line with our projections. The Energy Group was a bright spot…

Thank you, Ben. Sherry, we’re ready for any questions there maybe, so if you would poll the callers would be glad to take those as they come.

Thank you. [Operator Instructions] Our first question is from Mig Dobre with Robert. W. Baird. Please state your question.

Hey, good morning guys. This is Joe Grabowski on for Mig this morning.

Good morning, Joe.

So, thanks for all the additional color on the statistics ex-wood pellet plants. So I think I heard that sales in the third quarter were up 16% ex-wood pellet plants and year-to-date up 15% ex-wood pellet plants. What would the guidance of slight sales increase for the year implied for fourth quarter sales ex-wood pellet plants? So I know you have your toughest Wood pellet plant comparison fourth quarter 2016.

Hi, Joe this is Ben. Last year we ended I think $1.147 billion and I would say in that rang of 1% to 2% over that for total sales for the year.

Right. But what does that imply for the fourth quarter, ex-wood pellet plants?

I don’t know if we have run that number that way.

Okay.

Yes, we can get back to you with the wood pellet sales in the fourth quarter and we have already disclosed that last year. So the 1.2 so should be able to get back into that point for the revenues, Joe.

Okay, no that’s fair. And then do you have a feel for what the guidance of EPS slightly below Q3 implies for gross margins in the fourth quarter?

I think the gross margins would be reflective of the Q3 performance, if we were looking at EPS in the Q3 range then I would think that gross margins would be reflective of Q3 gross margins. You are going to have -- potentially have some pellet revenues in Q4 depending on the cost that we incurred on a percentage of completion at the one plant and those would come in at significantly lower gross margins like we said on our over two phone calls those would be in the 5% range. But those would be a small dollar amount of sales. And so I think Q3 ex-pellets gross margins as we described would be a good place to start for Q4 gross margins.

Great, okay got it. And then corporate expenses if you’ve mentioned this on the call and I missed it, I apologize. But corporate expenses were unusually low in the quarter, what was going on there?

Well we’ve actually started to curtail a little bit of R&D we get geared up for R&D for ConExpo and now we have a lot of those new products going through the shops. And so R&D is going to be more normalized as we enter 2018, we believe that’s one area. We didn’t have some of the more significant health insurance costs how those things bounce around and you hate even talk about them, but they are real and when you have some certain experience with those healthcare costs those things bounce around. And obviously as we have profit share if you will and when your profit is not high then the profit share is not high either. So the accruals for those payroll and related type things that are driven by performance are lower this year than they were last year.

Got it. And then just couple more quick questions on the -- I think Ben mentioned from 2018 guidance in his remarks sales up 5% to 10% in 2018. I assume that does not assume an additional wood pellet plant, any additional wood pellet plant revenues in 2018?

Yes Joe this is Ben. It really doesn’t we have the opportunity depending on timing for some pellet business in the fourth quarter, but we're not going to bank on that. That's most likely more of a '19 event for us.

Great. And then last question on 2018 guidance. Improved net income in 2018, is that sort of ex all the wood pellet plant noise in '17 if you kind of back that out net income would still be higher in 2018?

Yes.

Great, okay. Thanks for taking my questions.

Thank you.

Our next question is from Mike Shlisky with Seaport Global. Please state your question.

Hey, good morning guys.

Good morning.

I wanted to just quick follow-up a few of Joe's questions first. I guess the first one was your outlook for slight increase for the year in sales. Asked a little bit different way, when you exclude the pellet plant business do you expect to see -- can you tell us the range of growth that you're expecting for the year excluding all pellet plants?

I guess we've got pellet plants in the number that are -- this is Ben, Mike. In our number and I'm saving up slightly for the year that has everything in it. So we're saying for last year we had everything, we had pellets in last year and we are at the 1.147 range. We're saying we'd be up 1% to 2% with all pellets in. We have run it without pellets in that way.

We've given you the through third quarter wood pellets and also the projected or what's left about on wood pellets for fourth quarter. So you have enough to back into that.

Okay. Well how about this way. So through the first three quarters, as you mentioned excluding pellet plants your sales were up about almost 12% in the first three quarters I think. Are we in the similar range in the fourth quarter or is there some big decline that you expect to take place in the fourth quarter just broadly speaking?

This is David. We were up 15% year-over-year ex-pellets, ex-all pellet activity. And for the fourth quarter, if you think about what we're saying that we're going to be similar EPS, similar gross margin we believe in the fourth quarter then when you look at the sales, I mean, ex-pellets we're up 15% year-over-year, but with pellets we're up 1.7% through the nine months. I think you're going to find several ratios in the fourth quarter.

Okay. I'll sit down with your calculator a little bit later, no problem. Also I want to ask another one of Joe's questions different ways about the incentive comp. In the third quarter, was there a big sort of positive on incentive comp, because you had a large loss in the quarter? And so will you have to true them up next year if you go back to a more normalized profit environment whether there would be a large increase in your incentive comp expecting in 2018 assume your sales were up by 10% next year?

Yes it typically moves with the pre-tax profit with the return. We measure return on capital employed internally and that's a big driver EBITDA that sort of thing. So there is going to be an increase and as a percentage of sales or the overall performance of the company it's probably not going to be any larger. But it moves up and down with performance.

Okay, I got that. Alright, and secondly I just want to also ask quickly about some of the issues you're seeing in the fourth quarter on delivery schedules. Ben give us a little bit more color there is it because you're seeing some difficulties in finding truck to new deliveries. There has been some disruptions in certain parts of the country because of the weather and also just a pretty solid environment for a lot of different pieces of machinery out there. Is it hard to find platform trucks to get things delivered these days? Is that part of the caution in the fourth quarter?

No, Mike we haven't really heard of any issues for us couldn’t been able to transport equipment. For us it's more of the dates when people ready to take on them in the contracted delivery dates. It's a little bit of the products that are going through is just the timing. We always have the holiday, so that's hard to kind of say that's a reason, but it's more of what we've picked up through our travel in all the divisions and looking at what we have to ship and the timing of everything it’s just we're just not going to have a huge fourth quarter.

Okay. And then I wanted to touch briefly on the infrastructure numbers as well. Other companies out there and I think also in mining, you have other companies there shown them have their calls today looking at growth of 20% this year in construction type equipment and 30% in mining and I'm not getting the sense that you are quite seeing the same growth I know that are different products. But even some of your comps in Europe are seeing mid-teens growth this year. Is there anything we should worry about here on market share or is it just simply delivery days that would make Astec sales not being a bulk part of other major players in the industry right now?

I think to be fair on hours our mining has never been a huge piece of our business, most of that for us is in South Africa with our Osborn Group and then Brazil which we haven’t -- we've got a struggle on that region for a lot of different reasons. But there that's what we referenced in the comments that we're seeing a little bit of an uptick in quoting we're starting to see that, but usually in our Aggregate and Mining Group most of that businesses in the aggregate side, the core, the construction products aggregate side and that part is pretty well for us.

Okay, I'll leave it there guys. Appreciate it.

Thank you.

Our next question is from Stanley Elliott with Stifel. Please proceed with your question.

Hey guys, good morning. Thank you for taking the question. Just in kind of with all the moving parts it would have been helpful to have a little bit of a table I guess just to kind of in the pro-order [ph] category, but can you guys talk about the pricing environment, what’s happening out there in terms of the quoting activity and things like that in terms of where we are on pricing?

Hi, Stanley, this is Ben. We have a little bit of pricing I guess pricing power, I think it gets hard all of our customers always have two, three or four people land and get against us on deals, but we have been able to get a little bit more. I think you’re seeing that a little bit in our ex-pellets margins year-to-date and we in our half side again on margins the last step cycle 25% to 26% gross margin. We really see an opportunity to be there in this second half of next year. We steel is a big input cost for us. We've been doing a pretty job of managing that. We're in pretty shape into the first quarter at most of our places, but the steel guys are always talking about raise in prices. So we keep up a strong eye on that and we worked on our pricing in September and October already. So we're -- we feel like we are able to get a little bit more I mean it is -- there is definitely demand there to do it.

Perfect. And then could you just remind us with the investments that you have made, where are these plants now the wood pellet plant running on a tons per year, tons per hour, any sort of metric that you can help us within that?

There are two different plants, two different tons per hour and even the modular lines that we supply the plant in Georgia is 315 [ph] ton per hour lines, so 45 tons on hour there where the plant is Arkansas are 20 ton an hour lines four of those line so 80 tons an hour there. That we are running the lines -- we're running one line and they are selling pellets out of Hazlehurst we’re doing the corrections on all lines kind of as we are going to be able to run on wood. And we are expecting to test that mid-November there and then at Hazlehurst, at Highland in Arkansas it's a little more involved frontend work with green hammer mills, cement plant work, they are running, they are running at low protection rates there selling pellets out of that plant. But to ramp up and go to 20 tons an hour in all four lines at the same time and do the test there it's a lot more involved and that’s the April drop dead date that we've mentioned in our comments. So, we have been at full production on individual lines at both places, but we’ve done it on gas mainly at Hazlehurst where there is a requirement for a long time contract. So we’re working on the wood part of that as we talked about on our last call. We had run on wood to run all three of them and start trying to push it up that’s where we hit our limits and found out issues as we went through time on back houses down there. But different issues at Arkansas, but we have run one of the lines at 20 tons an hour, but consistently doing that on all lines is our ultimate target. And so that kind of and maybe more than you ever wanted, but that’s kind of where we are and we know what to do, we just got to execute.

I appreciate that. And the last one for me, so with the drop dead date November then kind of April in terms of guaranteeing the throughput, if these the moneys that we kind of spend in the quarter to upgrade and modify, if that doesn’t solve the problem then is Astec responsible for additional capital outlays to get those to meet the said throughput?

In the unlikely event that we don’t we would be.

Great guys. Thank you.

Thank you.

Our next question is from Nicholas Coppola with Thompson Research. Please state your question.

Hi, good morning.

Good morning.

I just want to follow-up on the last question. Do you have any sense for how much investment in the wood pellet plant and wood pellet plant upgrades should occur in Q4?

That would be cash only. Because all of the charges in the third quarter.

Okay. So no impact to gross margin.

So -- no there wouldn’t be any impact to gross margin; the only impact to gross margin would be on percentage of completion if we were to catch up to where we had previously recognized sales. In other words, if we get back to 95% complete or whatever the number is then we would recognize some sales those sales would come through at around a 5% gross margin. There are $17 million in the range of $17 million of sales left to be recognized on the Highland’s plant. And as Ben said there is nothing to be recognized on Hazlehurst until December of ‘18 in Georgia. On the Highland’s plant, it really depends on how much cost is incurred and in the Q4 that will drive the amount of revenue to be recognized. If there is revenue recognize, which we think there will be, but we just don’t know how much, it won’t be any more than $17 million probably significantly less than that.

Okay, I appreciate that, that’s a great clarification. And then just on infrastructure end markets can you talk at all about areas of strength across the U.S. and maybe one particular area to drill on would be California, I am interested in kind of hearing if you are seen folks invest in equipment ahead of the greater spending that we expect to see in that state?

Yes, Nic this is Ben. We’ve from an area standpoint it’s pretty strong still coast-to-coast and in California in particular we have some major asphalt plants been delivered. So we have already seen that activity. We have seen some activity on the mobile side, we have not traditionally been strong out there with our Roadtec Group, but we have gone to dealer model in that company and that has turned out to be a very good move. We are seeing a little uptick in California, but a lot bigger uptick in the states touching California. So, we’re optimistic on how that will play out long-term, our Carlson Group with the commercial style of pavers and screed business doing extremely well in that region and really across the country. But really proud of what they are doing with their new pavers in the screed business.

Okay, that’s great. And then one last question on Energy, backlogs there up 50% year-over-year quite strong. And I heard in your opening comments called out construction water and oil and gas products doing well. I guess within that are there any standouts any color you can add as to how I guess how you achieved that kind of growth?

Well double pumpers that are built at our GEFCO facility. We've gotten some nice large orders in that and some larger international water drill rig in as we had one, I mean, I hate look as a description it looks like a monster truck guys. But it's a drill rig in the Middle East to drill for water. We've got a couple of orders on that, so that's been a bright spot. And then we've gotten some food industry orders too in that group, that's not really construction related, but the hi-tech division has gotten some nice industrial business in the back half year or two, so that's been another good pick up. And then at CEI mentioned in the region California is where that ready mix concrete plant is going. So we're -- it's good, I think it's been down long enough that we stay cautiously optimistic on the short-term and still really optimistic in the long-term that it has an opportunity to stay pretty good through '18.

Alright. Well, thanks for taking my questions.

Thank you.

Our next question is from Jon Fisher with Dougherty & Company. Please state your question.

Good morning, everyone. Just the 2018 revenue growth outlook commentary of 5% to 10% that includes RexCon and includes the fourth quarter wood pellet plant payment?

Yes. Well I say that not on the wood pellet plant. And I think it could be a little bit more Jon it's a good question. And that 5% to 10% I hate to be an eye grabber [ph] I frame that out and that's a great question that could be on top but there is no earnings on that pellet plant. So that's probably in my mind why I didn't say that in the top-line. It's a breakeven event. So great question thanks for asking that.

Okay. Because the follow through on that question was I was going to ask your opinion given the strong backlog growth that you've put up this year. Kind of what your sentiment was on 5% to 10% revenue growth off of a year of consistent steady mid-teens to mid-20% backlog growth? I mean, if you thought that was good translation or not including RexCon and including the fourth quarter wood pellet plant payment?

Jon, there is a little bit of hedge in the back of my mind. I mean, there still two years left in the Highway Bill. We don't know what congress is going to do on tax reform and infrastructure. And so it could be, we see still a really pretty good year. And we really think it's going to be a pretty good year. But is there going to be a slight summer doldrums that hasn't been there that's the hedge. Because to your point, we’ve seen the teens growth that's where the reservation comes in. So when you start to say okay, what do we really think, the prudent thing to say is 5% to 10% in our business that is there an opportunity, sure I mean we definitely would think there would be an opportunity. But when we're saying what we really think and we're going to hear about it again later next year 5% to 10% would be the number.

So from a business flow through standpoint, double-digit backlog growth this year kind of flows through for the most part intra year. The turn on that backlog growth is fairly quick within a quarter or two?

Yes.

Okay. Alright, that's good color there. And then just your comments on Brazil, since you went ahead and made some cautionary outlook comments on Brazil. Just from a business impact standpoint, should we be concerned about just from a revenue impact or an earnings impact if Brazil is inordinately weak in 2018, any sort of negative ramifications financially that that could have. I wouldn't think Brazil specifically would be that significant to your financials, but.

No, Jon, it's not. We actually have it where it breaks even and makes a little money right now in size. And we think that's adequate for next year. So we don't think there will be a significant effect there.

Okay. And then just one last question on SG&A spend, pretty comfortable with the current spend rate on SG&A given all the angulations in revenues and when we look at the outlook for SG&A growth next year. Would you expect that to be less than or in line with revenue growth?

In line.

Okay. Okay, thank you very much.

Thank you.

Our next question is from Brian Sponheimer with Gabeli & Company. Please state your question.

Hey, good morning guys.

Good morning.

Just a quick one, the D&A of this company is that have a decentralized organization and you’ve had to get I'm sure more involved on the wood pellet plants and you normally would have with the business. Has this experience in anyway led you to consider maybe the breadth of the business’s ability to have so many underlying operating segments?

Brian this is Ben. More of what we have come away is that we’re unlikely to do very large projects like this, which is a big step out from our model of the big project work in managing those projects that’s the biggest take away from the collection of the companies we have and how they overlap with our customers in the field. And the focus of Energy Infrastructure and Mining, we’re still very comfortable with that. And we’re very comfortable even with the pellet plants when we get to other sizes of this pain that we’re going through because we’re going to have a great product that makes pellets we’re going to be really alone in the market as a solution for a plant that everybody knows what we’re coming out. And so I think the biggest takeaway for us is we’re not big project managers, we’re equipment suppliers and we do stick to what we’re good at and that’s what we’re good at. And I think long-term that pellet plants are going to pay off that October 2nd day was not a great day for us. Nor the 40 days leading up to that either. But I think long-term it’s going to be okay and I think we’re very comfortable with our model once we get through the issues we’ve got at the pellet plants.

So well best of luck in getting through the speed bump and good luck for a great fourth quarter.

Thank you.

And our last question is from Brian Rafn with Morgan Dempsey Capital Management. Please state your question.

Good morning, guys.

Morning.

Let me ask and you’ve talked about a little Ben I guess a little way but if we look at your core infrastructure on the highway trans side, you look at whole billing your screeds, your asphalt, your hot mix plants, your pavers what kind of a run rate do you see in the current cycle? We had a -- lighting was almost 10 years to get the fast act done in 2015 what do you see as runway out with the fast act in some of the state DOT budgets? And then as an adjunct to that does the infrastructure talk with President, Trump and then maybe an infrastructure bank does that extend that at all or is that just a lot of political rhetoric?

Brian, the kind of the previous question on the 5% to 10% the highway bill has a few years left on it and I think there’s a couple to three years that could be very good still with that that maybe some more traditional summer months where there is more work and that we see maybe more traditional summers that still higher than in low side when we had extension after extension after extension. So the environment is good for two to three years. The thing about when you talk about Trump I mean, been and travelled about over 30 states this year and talked to a lot of owners and is talking to a lot of our customers nobody likes how that guy is going about his business as President, but everybody agrees with what he wants to get done. And so -- but he can’t send himself a bill to sign to clear the decks to do an infrastructure bill. So they have to get tax reform done or something done with healthcare to put the mechanism in place to be able to do an infrastructure bill and then I think absolutely the appetite is there in DC to get that done. But we’ve got a house in the center that refuses to do their job. And so they’ve got it all and saw our road blocked and so I'm not trying to stunt for politicians but at the end of the day no president can send himself a bill to get something done. And so if that happens I think there will be an infrastructure bill and I think it will extend this and I think it get extended two to three years on top of what we already have. I don’t think that will be $1 trillion bill, I think that will be $200 billion to $400 billion but that’s a great number, because the current and that will be mainly roads and bridges. And so the current highway bill is $205 billion of roads and bridge work. So that would be very good for our industry. So we definitely welcome that environment out there is man it's enough.

Yes, chaotic and hate guy get there. I appreciate the color. Look across your different businesses, what might be your range of capacity utilization. Where is it tight and then where do you guys have capacity?

It's tightest in the Infrastructure Group. We’re probably around about 80% in the Infrastructure Group. Next tightest would be in the Aggregate Mining Group 70% to 75% range. And then in the Energy Group still probably despite how well they've been doing 65% to 70% range, which would put us overall in probably a 70% to 75% utilization. We have lost a few deals on the asphalt site to delivery, but our market share is still as strong as ever. So we cannot -- we don't like losing any deal on delivery. But all-in-all we can't complain about our market share there. We think we're gaining market share in pavers for sure.

Okay, awesome. The RexCon deal in Burlington you talked about meeting that with CEI. How big is that market in concrete production plants? Is it primarily domestic, is it global. Give me a sense as to where it -- how big that is?

Well, it's for us, RexCon has done international business, but their main business is U.S., Canada. And there are five main competitors in that space in our estimation, and we estimated at a -- it's a pretty evenly split market and maybe $150 million to $175 million. If CEI could have a good year and RexCon have a little bit better year next year and with the crossover of our customers probably 70% of our customers on asphalt plant site have concrete plants. We feel like we should be with a target goal of being number one in concrete plants by the end of next year. And so I would say then with that we got to execute. So but the opportunity is there.

Okay. Being up in Wisconsin we got a ton of rain through 4th July almost 40 inches of rain. Burlington was flooded, these guys have any problem with their plant, water damage or anything?

Thankfully no. They're in a good spot where they are.

Okay. And then just on the wood pellet you guys little bit of a pause stepping aside you talked about some of the big projects stop. Does that at all translate to customer cancellations, or perhaps as you guys pause a bit to reengineered, do you have other competitive entries coming in, or how does that look for 2018?

We're not aware of anybody working to be a complete pellet plant supplier like we are. And if we miss a deal we miss a deal, we don't want to take a deal until we're through these plants and we think it’s better to be finished and then move on for the next one. But we do have customers that know what our timing, and know what we're doing. And so we feel like we have an opportunity for a large order on the other side of what we're doing.

Okay. And then just on commodity raw materials. You talked a little bit about the steel side, anything else paint, oils, resins anything from a feedstock standpoint?

Generally, I think we've been able to hold around on that. There is pretty good competition on those things. And really steel is the one we're watching the hardest right now.

Okay, thanks guys. Appreciate it.

Thank you.

And we have one final question from Morris Ajzenman with Griffin Securities. Please state your question.

Hi, guys. I'll make it quick. Infrastructure just you touched on the previous question 80% capacity utilization. Then earlier in the conversations you spoke about the adjusted gross margins in infrastructure being 21.9 versus 22.8 first is that, correct? And secondly if it is correct, why the strength you've experiencing in this division are the gross margin still at that level and actually down year-over-year and should maybe much higher. Can you just comment on that please?

Hey Morris this is David. When Ben mentioned that he was talking about 21.9% ex-pellets in Q3 of 2017 and he used the 22.8% number that includes pellets last year, which had like a good profit in last year in the Infrastructure Group. But in the Infrastructure Group last year ex-pellets the gross margin was 19.7%. So that really the 21.9% is a comp to 19.7% as opposed to the 22.8%, but I think he was just expressing the fact that even without pellets this year we were comparable too with pellets last year, but the true comp is 21.9% versus 19.7%.

I appreciate the commentary, but again 21.9% with the strength you are experiencing are you want to be at 25% gross margins or there about for the company, you point that disappointed at this point or when it is expect that to rise?

Morris one of the issues, this is Ben, one of the issues you are into at Astec Inc. as they ramped up for more pellet plant work and we have had a reduction in force at Astec Inc. So we had a higher cost base as then we needed for the asphalt plant business. And so that showing up in our margins what you’re seeing in that. I think you’ll see an increase in margin in ex-pellet margin going forward in the Infrastructure Group.

Thank you.

Ladies and gentlemen we have reached the end of our question-and-answer session. I would like to turn the call back to management for closing remarks.

Thank you, Sherry. We appreciate your participation on this third 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 November 11, 2017 and an archive webcast will be available for 90 days. Transcript will be available under the Investor Relations section of the Astec Industries website within the next seven days. All of that information is contained in news release that we sent out earlier today. So again this concludes our call thank you all, have a good week.

Thank you. You may disconnect your lines at this time and thank you for your participation.