Greetings, and welcome to the Astec Industries' First Quarter 2018 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, Vice President and Director of Investor Relations. Please go ahead Mr. Anderson.

Thank you, Rob. Good morning and welcome to the Astec Industries' conference call for the first quarter that ended March 31, 2018. As Rob mentioned, my name is Steve Anderson and 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 first quarter. Before we begin, I'll remind you that our discussion this morning do 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 today financial news release and others are contained in or in the report and are filings with the SEC. As usual we ask 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 first quarter.

Thanks, Steve and good morning everyone, thank you for joining us. Net sales for the quarter were 325.5 million compared to 318.4 million in Q1 of '17, a 2.2% or $7.1 million increase in net sales. International sales were 55.4 million in this quarter compared to 64.9 million last year, a decrease of 14.7% or $9.5 million decrease. The decrease in the international sales quarter versus quarter was primarily in Australasia, Canada, Mexico and Russia. Those decreases were offset by increases in South America including Brazil and the post-Soviet states. For the quarter, international sales decrease in the infrastructure group and the energy group and the increased in the aggregate mining group. International sales were 17% of sales in this quarter compared to 20.4% of sales in Q1 '17. Domestic sales were 270.1 million in Q1 of '18 to 253.5 million in the first quarter last year, an increase of 6.5% or $16.6 million increase in domestic sales. Therefore domestic sales were 83% of sales this quarter compared to 79.6% of Q1 '17 sales. For the quarter domestic sales increased Aggregate and Mining Group and the Energy group and decreased in the Infrastructure Group. Part sales were $88.1million this quarter compared to $81 million in Q1 '17, an increase of $7.1 million or 8.8% increase. Part sales represented 27.1% of our quarterly sales this year compared 25.4% of sales in Q1 '17. For the quarter part sales increased in each of our group's. Foreign exchange translation had a positive impact on sales for the quarter of approximately $2.2 million that is if this year's rates will equal rights sales would have been $2.2 million lower. Gross profit for the quarter was $78 million compared to 75.8 million in Q1 of '17, an increase of 2.9% or $2.2 million increase. The…

Thank you, David. Me and Brock's now are going to provide comments regarding the first quarter of this year's operations. Ben?

Thank you, Steve and thanks to everyone for joining us on our call today. As we commented in the release this morning, we were pleased with our results for the first quarter. Our earnings per exceeded our expectations as they rated back a favorable product mix and as David mentioned a lower tax rate. Our gross margin for the quarter was improved to 24%, which has progressed toward our goal of 25% gross margin exiting 2018. Our EBITDA was 10.2%, which has improved versus our EBITDA of 6.98% for the whole of 2017. We will look to grow EBITDA as we grow gross margin. As we mentioned on our last call in support of our focus on better financial performance, we added a new Vice President of Global Operational Excellence during the first quarter this year. Our new VP was with us on our quarterly review trips earlier this month and we're excited about our opportunities to improve gross margin as mentioned, in addition to working to increase on inventory turns from our current 2.4 turns to four plus turns by 2020. Our backlog at March 31, 2018 was 444.9 million versus 377.6 million on March 31 last year. Our Infrastructure Group backlog was 4% as the group continued relatively good order intake during the quarter, mainly as a result of good economic conditions in the federal highway bill in the United States. Ex with pellet plants the infrastructure backlog was up 7%. Our Aggregate and Mining Group backlog was up 38.6% as the group experienced strong order intake for the same reasons. Our Energy Group backlog was up 35.8% as the group experienced very good order intake for product serving customers and construction, industrial, oil and gas. We also experienced increased coding activity in the oil and gas drilling…

Thank you, Ben. Rob, if you will open up the lines we'll be glad to entertain questions.

Thank you, Steve. [Operator Instructions] Thank you. Our first question comes from the line of Larry De Maria with William Blair. Please proceed with your question.

Hi thanks. Good morning guys. I wanted to be more specific on inflations and steel cost and where you're getting, where - how much portfolio you maybe are getting price increases, how much we're not and as it relates to get into 25% of gross margin at the end of the year, what kind of risk does that material cost play or are we more or less - the industry is okay with pretty decent price increases, so can you give some more specifics on that please? Thank you.

Hi, Larry, this is Ben. In the first two weeks of the quarter here we visited with all of our subsidiaries and we're seeing price increases on steel everywhere, but the good news for us is if there is any is that by and large we're covered as we go ahead a little through the end of this quarter, so really the effect on us probably starts third quarter or fourth quarter and it offsets our working on operations to be a little better and working on purchasing of other items a little better and then price increases that you asked about and we have done that on the pricing side. How much of that sticks remains to be seen, we did that mostly late in the first quarter, our competition by and large is doing the same because the steel cost is a real thing. For instance we notified one customer that's a long time customer of ours that we had increased prices and they said your competitor did the same thing an hour before you called. So we do see that our customers, they buy steel, they understand that prices are going up, so we're working on making those stick. As far as the exposure for us is probably late third or early fourth quarter, but we feel like some of the things we're doing in the background to offset it will help us, we still have our target to exit the year with 25% gross margin in place.

Great, thank you and as it relates to the competition doing the same, specifically if, - I don't know if you're referring to Virgin [ph] that's where obviously it's a Q point where people are trying to figure out what's going to happen, we're now with new ownership, but has that been a rational process so far?

Well, we've - they've always been a mean competitor, for lack of a better way to say it and it's been about the same. We have seen areas where they raised prices, where they used - that I would say by and large they're still a strong competitor. They do have three of their - a lot of the dealers for them in the United States are also commodity dealers and there was a public announcement of the three commodity owned stores in the US are moving away from the working brands later this year, so that's got some of their network obviously got a little bit nervous about that we would assume, but for us it's still their strong competitor and we've got to continue to find.

Okay, is the commodity an opportunity for you guys, is that something that can be discussed at this point.

That's probably too early to tell for us frankly, we're happy with our dealer network as it stands, so we're pleased where we are right now.

Okay and then just the last question. As it relates to our pellet plant issues, you said you're - I guess you're on track to potentially get an order for 2019 delivery, but can you just be more specific, what are we waiting for? It sounds like the issues are behind you guys, but we need to see a little bit more before we can take an order or are we just - where exactly - are we a quarter away from trying to get an order or how does that look?

Well, we want to be completely finished at both places before we take an order and we feel like in Georgia that we passed the test, we're meeting with them next week to talk through that. In Arkansas, we actually have told June 19 now, we've had weather issues, we've had some mechanical issues and we've modified some equipment. It is tight at Arkansas. We've got a pathway to finish, but it is tight and so we're all hands on deck on that, but I feel like with what we committed to we have the - the charge we took last year is adequate that we've got to finish, so we're all hands on deck in Arkansas and that's where we stand. We're just not going to take an order unless we do and if we don't get one in time to deliver in '19, we don't - we just, we want to finish first.

Okay, the June 19 is kind of the next bogie for - but that's the next deadline and if you pass that then you're better placed to go out and bid out for new orders?

That's correct.

Okay, thanks very much and good luck guys.

Thank you

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

Hey guys, good morning and thanks for taking my question. Following up on with pellet order, you said the charges you took were adequate, you said some weather, some mechanical issues, is that related to the same sorts of issues, which I believe that the hammer mill press that you guys had last time or if you - any color there would be great.

Well, Stanley this is Ben and I think whenever we get into these, there's always something that'll pop up, but thankfully what has popped up and mechanical issues that we corrected has not been extremely major And so the hammer mills that piece and all that we quietly fixed, the extra bag houses we fixed, whereas you start up, sometimes things happen like shaft on our drag will break and you figure out how to correct that and fix that and have a long term fix, so it's things like that. We're in a position where are - we need to be cranking up and run a full production and going through testing and we've got a lot of people on site to do that. Fortunately for the charge we that we took for the commitments we made with [indiscernible] coverage. It will be like an outside plant every now and then and something pops up and you got to fix it fairly quickly and that's what we're doing as we get ramped up.

Perfect and then earlier in the call you'd mentioned you're pushing the inventory turns I believe to four times by 2020, can you talk about the pathway to that maybe what level of investment is going to be required to get that, assuming that I heard all that correctly?

Stanley, a lot of it comes to better inventory management. You see where our inventory level is with David's comments and part of that we bought ahead some steel, which turns out, looks like data right strategy. Part of that was specifically we've built a lot of equipment ahead in anticipation of going live on our new VRP system and we have not worked through that inventory as quickly as we thought. You kind of got to guess what's going to sell and - had a pretty good quarter volume wise, but had to build a lot of it too. So we're probably - we're a little heavier attack as far as that goes and then we've done a decent job to strike the steel by head and our steel turns pretty good, where we frankly need to manage our purchase inventory a little bit better. And then also and flow through shops and cycle turns [ph] and that's where our new VP of Operational Excellence is really going to help us and the conversations with him, find around the different companies first of this month and he was at one yesterday, I just think the opportunities to get there are very real.

And then lastly conversation customers ahead of world asphalt trade show, maybe you could kind of share any pros of wisdom that you're picking up in the field in terms of how people are thinking about kind of the year, the sentiment out there or anything like that would be great.

Well, the customers that I've talked with at world asphalt and in between after world asphalt, general sentiment remains strong with confidence. And in one of the conversations with one of the customers was centered around an asphalt plant and delivery on that and what's the increase on steel and talked through that and he was like well, I'll be okay because there's good work and that sounds okay. So I just - it still feels pretty good. I was on the phone with a customer last night and I asked him how things were going? He said, it's going great if we just get the rain to stop it will be great. There's been a lot of rain in the southeast.

Yeah, for sure. Great, guys, thank you very much. Best of luck.

Yeah, thank you.

The next question is from the line of Mig Dobre with Robert W. Baird. Please proceed with your questions.

Thank you good morning everyone. Ben, just looking at that 1Q results, your earnings $0.87 really materially better than what we what you are guiding to initially for $0.77 and I'm just sort of wondering from your perspective what works out better than you expected in the quarter, was it a factor of revenue or something else within the cost structure, how did all play out?

It's interesting, we had order creep, but what didn't creep out was really good product mix that we performed a lot better on and that contributed to it and then the other thing that helped us - the lower tax rate helped us frankly, but it helped us to ensure our margins up, still hard work to do to get to 25 exiting the year, that was generally it. And it was very pleasing and that slightly more would have not been as high as we got for sure, but it was unexpected frankly, but we welcomed it and that's really where it was.

I see, is there something at segment level that you can call out in terms of the mix because related to this I'm wondering as we're thinking about the rest of the year, if we should be anticipating any specific mix shift that would impact margin.

I think in the second quarter it's going to be a similar mix and that's why we say slightly better than this quarter, I think the revenue will be slightly better as well. I think when you look at it the aggregate group has some good - pretty good mix. They did more unit sales of crushers than project sales and that always helps them and also we do fairly well on our track equipment and had a good quarter on that. In the energy group side a lot of what has helped us is, Gefco has improved quite a bit and got to profitability in a good way and the proper trailer sales are sales are good, got some backlog there, they've worked through a lot of inventory with that because we have some proper inventories, engines and that type of thing, so that really specifically helped us during the quarter as well in the energy group.

Okay, I see and when you're talking about the outlook for the four year of 7 to 12 as well as your - that's for growth as well as for margin exiting the year, gross margin at 25% to be clear, we're not including the pellet plant revenue recognition into that in the fourth quarter right?

That's correct, that's correct.

Okay, then with that being said, understanding that Q2 is going to be somewhat similar to Q1, is there a sense of whether or not we should be sort of thinking about a seasonal dip in gross margin in Q3 before rebounding to Q4, is that how you think about it or a little?

Yeah, it is, maybe a little - Yeah, I'm sorry, go ahead.

I was just wondering if you sort of expect just kind of a more linear progression in terms of gross margin improvement through the year.

Right, I do think we'll see a better revenue dip in the third and that's pretty normal that I think will be able to hold our margins out a little better. And we're not refining on steel, I mean that's for sure, but I just think we're going to be a little bit better there.

Right I mean historically it looks to me like that was kind of a case of seasonality. I just want to make sure we have the expectation that properly. Then lastly on SG&A, you're running north of 16 as a percentage of sales. How do you think about this line item longer term as a percentage of sales and what can you do to potentially manage this down over time?

Hey, Mig, it's David. The SG&A, yes, you're right and we're about 16% this quarter and have been higher than that. And long-term I expect this line item to be bouncing around 16. We want to keep it under that, that would be our goal. Part of the interplay of first quarter always is a strange quarter because of the interplay of - that's the quarter that we do things like pay out profit share and so there are increased 41K contributions and fighter taxes and unemployment taxes and all that stuff sort of piles up on you in the first quarter. We did have a show and couple of shows expensed in this quarter, Intermat and world of asphalt had some expenses in this quarter that didn't exist in Q1 of last year, of course last year Conexx [ph], but I mean we do have increased over head, I'm sorry increase headcount as well as basically with the addition of about eighty folks at RexCon which we bought in October of last year. So I would expect long term to see this thing running slightly sub 16, but I do expect it to be in a dollar - from a dollar perspective higher as our sales grow. It tends to grow with that and includes commissions and travel and all that sort of things, so I would expect, we're managing it to be sub 16%, but I do expect it to grow in dollar terms.

Okay, I appreciate it. Thanks.

The next question is from the line of Jon Fisher - Dougherty & Company. Please proceed with your question.

Thank you, good morning. Just going back to your rain comment a little bit ago, just the overall weather outlook in the quarter. When you talk with customers and get feedback from the sales forces, had there been much in the way of delayed projects or push outs due to weather or was generally good enough that things actually remained on schedule through Q1?.

Jon, this is Ben. I have not personally heard customers saying that pushed them out on the equipment side. It has stayed steady, so I can do some double checking on that, but I've not necessarily heard that personally.

Okay, thank you for the feedback and then just from a cash standpoint. No cash was taken yet, I can see that in the10-Q, but just the cash level before the end of the quarter was a little bit lower than what I expected and I was just wondering from a payable standpoint kind of understand and proceed the explanation on inventories, but I just wonder if there wasn't anything one off from a payable standpoint or expense or anything that caused a cash level to drop from the end of last year.

No, there was nothing in particular. We did have to some taxes, make some estimated payments there. Based on this year, our expectations are a little higher than the full year 2017 turned out to be. We did add to some inventory and certainly the acquisition of RexCon last year took the chunk out in the quarter and so, we haven't necessarily made that back up yet, but those are - so it's sort of normal cash flow during the quarter, it wasn't anything really odd ball.

Okay and then just the incremental million in SG&A from RexCon, is that something that's kind of permanent now or is it just something that was temporary short term that can be worked through over the course of the year.

No, that's going to be a permanent addition. I mean obviously the SG&A will fluctuate from quarter to quarter, but that's what it was this quarter, so I would expect it to be in that range on an ongoing basis each quarter.

Okay, thank you.

The next question is from the line of Brian [indiscernible]. Please proceed with your question.

Hi, good Morning. Just from a strategic perspective and I appreciate the color on any working changes with their new talent. You've added an operating result, so to speak, is there any discussion as to the need to also get bigger to get at least some scale benefits than they have been relatively less than the working has there?

Well, as far as Roadtec goes, the strategy to get bigger there was through the distribution that we've done. We've gone to the dealer network, we've done that over a few years we didn't know that Deer was going about working when we started that process, that will be helpful to them the other thing that will be helpful as we work to grow and get more size is the international plan that we're working and start up regional offices which are obviously closer than we already are to customers, with slight changes to our products for international market that we have not necessarily done a great job of over our whole history, but they're having those guys in the regions focusing on that little that will help us get back size as well. I would say that we can actually get bigger with our existing footprint particularly at Roadtec with the work that our operating person will work with that's probably - our very first big project will be Roadtec as far as that operational side goes. But I would still say we've had to compete with them for many years before Deer bought them and they were a multi-billion dollar company at the time and we were certainly held on our own in the markets where we're serving and mainly in US, Canada and some Latin America. But we're going to look to grow that footprint and indeed there is some product changes in working on the facilities where we compete with them.

Okay, thank you.

Okay, thanks.

The next question is from the line of Mike Shlisky with Seaport Global. Please proceed with your question.

Good morning guys. I had some that's been answered just feel free to have me go to the transcript. First off I want to ask as about, you had mentioned you're looking to improve inventory turns, which is great news of course. Can you just give us a little color as to how you plan to get there? Is there anything that you're doing at the warehouse level or is it just ordering in advance of the - is it more ordering your parts at the same time of the order of the - from the customer and if you do get some good take of inventory and faster turn, is there any plan for any kind of it trying to catch as you could squeeze out as a result?

This is Ben and I think we've got quite a few opportunities. I think with regards to inventory turns and we've done it. And we started working on lean probably later than most of our competitors and did an okay job with that and I think we actually done better we give ourselves credit for because when we were doing it we were in tight markets and we were able to maintain market shares in our margins Well, not exactly where we wanted them held their own through the down cycle. However, as we've gone to a bigger up cycle and looking at where top teens were to get better on bringing in the new VP of Operational Excellence with his experience and he's got a lot of good experience and worked it through and helped a lot of companies. It's just giving us another look from outside and opportunities to get better and cycle times and in purchasing and basically the whole order process from when the sales takes and gets all the way through to ship it, so it's some just in time, it's some quality and that's quality from actual order all the way to engineering to when it gets in the floor. We just see a lot of opportunities to increase our turns that way, so it's a multi-pronged effort and I love to zero in on one thing that I think if there was one thing we can certainly manage our purchase parts on hand a lot better. I do think we've done a decent job on steel in most of our places, some better than others because some are closer to the steel source than others. But I just think we've got a lot of opportunities through just getting better at managing what we're holding on to and our stock accounts to our shops.

And as far as the cash that might result what - is there a plan for it?

I think we're early enough into this and we don't have - no we are early into this, we don't have that yet, but there will certainly be a point when we - he does really fully started on with us March 1, so we're just getting arms around that. We'll probably have that in a few months and that I think is just too early for us to put a number out like that.

Okay, got it. I want to ask secondly about labor availability. Some of your facilities domestically are in smaller cities I wanted to make sure are you, seeing any issues with getting enough labor or getting the people to build your pretty decent backlog here?

Welders and fabricators we haven't had as much trouble as we have with machinists. Probably the toughest labor market haven't just gone to almost all of our places in the US and Canada last three weeks, I think South Dakota is probably our toughest labor market. Everywhere else it seems like we can get welders and fabricators it's still taken us a little longer than it did in the down cycle when we needed people, but again as the machinist and that skill trade that's the tougher, the tougher person to hire right now.

Okay, thanks so much for the color, I appreciate it.

Thank you.

The next question is from the line of Brian Rafn with Morgan Dempsey. Please proceed with your question.

Good morning guys. Question for Ben, in some of your conversations with your customers when you look at demand for hot mix asphalt plants or some other road building equipment from say, Roadtec, is your sense that your customers replacing obsolete equipment or do you think they're actually expanding capacity?

I think right now I would say we're at about a half and half. There's still a lot of older plant replacements and then we are seeing new plants, new production or affordable looking for new markets for people that are established maybe in a metro area.

Got you, what - you were talking about some fairly nice ramp up and big code activity in the oil and gas site or the energy side. What specific products you mentioned pumpers trailers, anything else that's seeing some interest?

Yeah, both those rigs and pumper trailers, but more pumper trailers than the drill rigs.

Okay, as you guys kind of amp up, any capacity utilization bottlenecks, are you running any multiple ships in any of your subsidiaries, any over time, how do you see 2018 building out?

Yeah, most of our divisions are running some level of overtime right now. Some of our capacity constraints that - before we might have felt like we were fully constrained at a plan or close to how utilization - our minds have changed on that a little bit with our new loom, with the operational fell on, but I would say utilization is fairly hot in those developed facilities.

Got you, relative for the pellet plants, as you guys move through the first couple of plants you put out the light of those plants how much did you guys focus on service parts, how much service part repair or replacement, how much of that on the pellet plant side is available versus your normal infrastructure side? Thanks.

We see it as being about the same. We don't put any - we try not to put any two specialized purchase parts on plants because we want it to run and they need to be able to get them, but we do hold the inventory for supportive parts, buts we think it will be in line with our normal run rate on parts for asphalt plants would be a good example although the plants do are targeted to run higher hours per year. So the potential is there for a little bit more, but we still think it'll on line.

Got you and wondering from a strategic standpoint kind of a future runway for the pellet plants is - are you seeing - would you say over the next three to five years or might you see five or ten or dozens, how big of a footprint - would there be a market domestically for those pellet plants?

Well, for us - just speaking for Astec, once we're through we gave you and we offer the plans that we said - they've classes they run, we see it as a potential of being about $100 million year business for us. There could be more plants sold in that and they should be based on the projections of pellets needed for - the production needed for pellets in the UK and Japan particularly, but for us we see it as a potentially $100 million business.

Okay and then just on the infrastructure side, what - any specific products on the road building side - [indiscernible] versus spreads or anything to standout demand wise?

It's pretty steady right now and pavers we rightly feel like we might even take a market share. But in the plants we're maintaining our traditional strong market share. And it's active although - to the earlier question would there be a little seasonality in the third quarter, we think there probably will be a little bit of that per normal on the asphalt side.

Okay and then on the hot mix asphalt plant, what's kind of the mix between fixed site versus mobile?

I don't have any scientific data on that. I'm going to - my gut tells me right now we're about 70% and 30% mobile.

Okay, alright. Hey, great quarter guys, thanks so much.

Thank you.

Thank you. At this time I'll turn the floor back to Steve Anderson for closing remarks.