Greetings, and welcome to the Astec Industries' Second Quarter 2018 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It’s now my pleasure to introduce your host Steve Anderson, Vice President and Director of Investor Relations. Please go ahead Steve.

Thank you, Kevin. Good morning and welcome to the Astec Industries' conference call for the second quarter that ended June 30, 2018. As Kevin said, my name is Steve Anderson. 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 second quarter. 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 at 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 financial news release and others are contained in our Annual Report and are filings with the SEC. As usual we ask that you familiarize yourself with those factors. At this point, I'll turn the call over to David to summarize our financial results for the second quarter.

All right. Thanks Steve. And thanks to each of you for being with us this morning. During the quarter, we did record a charge to exit our obligation under the contract with Highland Pellets in Arkansas which really obscured an otherwise historically strong performance by our core businesses. Excluding pellets, this would have been our third best reported quarterly EPS on record. Our core business is strong. We have initiatives underway to make it even better. So let's talk about the financial details. Net sales for the quarter were $272.5 million compared to $301.9 million in Q2 of 2017, a decrease of 9.7% or $29.4 million decrease. International sales were $69.1 million in Q2 2018 compared to $65 million in Q2 2017, an increase of 6.3% or $4.1 million increase. The increase in international sales for the quarter compared to last year occurred mainly in South America, in Canada, in Mexico, the Middle East, and Australasia. These increases were offset by decreases in Russia, in Asia, and the West Indies. For the quarter, international sales decreased in the Infrastructure Group, an increase in the Energy Group, and the Aggregate and Mining Group. International sales were 25.4% of Q2 2018 net sales compared to 21.5% of Q2 2017 net sales. Domestic sales were $203.4 million in Q2 of 2018 compared to $236.9 million in the same quarter last year, a decrease of 14.1% or $33.5 million. Domestic sales were 74.6% of Q2 2018 sales compared to 78.5% for Q2 of 2017 net sales. For the quarter, domestic sales increased in the Aggregate and Mining Group and the Energy Group and decreased in the Infrastructure Group. Parts sales were $78.7 million in Q2 of 2018 compared to $68.8 million in Q2 of 2017, an increase of $9.9 million or 14.4% increase. Parts…

Thank you, David. At this time, Ben will provide some comments regarding the second quarter's operations and some commentary surrounding our expectations for the third quarter. Ben?

Thank you, Steve, and thank you to everyone for joining us on our call today. As we commented in the release this morning, we were pleased to report our core business continues to perform well overall. I'll provide some commentary on the wood pellet business in a few minutes. But first, I want to discuss the Company's overall results. As David noted, ex pellets, our EPS was $1.03 per share versus $0.76 per share last year. This exceeded our expectations and represents one of our top three EPS levels ever as a Company. Our EBITDA, ex pellets was improved to 11% versus 10.2% in the first quarter this year, which remains improved versus our EBITDA of 6.98% for the whole of 2017. Gross margin for the quarter was 23.6%, which was impacted mainly by product mix. We are still focused on delivering 25% gross margin in the fourth quarter this year, and we believe will be able to achieve this target. We remain focused on increasing our turns from [2.42] turns to 4 plus turns by 2020. Our backlog at June 30, 2018 was $302.9 million, which is up 3% and remains historically very good. Our Infrastructure Group backlog was down 51.2%. After consultation with our external auditor, we remove the Georgia wood pellet plant from our backlog for clarity. The Group maintains strong quoting activity, the lower order intake as our customers are experiencing hard work levels and focusing on that work. Our Aggregate and Mining Group backlog was up 38.9%, as the Group experienced strong order intake, mainly due to good economic activity in the United States. Our Energy Group backlog was up 33.6%, as the Group experienced very good order intake for products serving customers in the industries of construction, industrial, oil and gas. Our domestic backlog…

All right. Thank you, Ben. At this point, we'll be glad to entertain questions. In an effort to get to everyone, we would ask that’s you limit yourselves to two to three questions and then feel free to jump back into the queue if you have any afterwards in the call. Turn it over to Kevin, our Operator to initiate the queue.

Thank you. [Operator Instructions] Our first question today is coming from Stanley Elliott from Stifel. Your line is now live.

Hey guys. Good morning and thank you for taking my question. Quick question on one of the institutional ownership filings did see historically what has been an activist group take a bigger role in the quarter. Can you talk about have you had discussions with them? Have they had any impact or conversations and what you're trying to do with some of the sourcing in the capital allocation piece?

Hi Stanley. This is Ben. We have a lot of shareholders. We talk to a lot of shareholders and we listen to a lot of shareholders. And when we have communications, they're requested to discuss. With the Board, we do that as well. With regards to the strategic sourcing initiative late last year, we thought about working on that. Early this year, we actually met with consultants. We then hired our new VP of Operational Excellence, so we waited on moving forward on the strategic sourcing while we got him going. Then we brought it back. We interviewed three different consultants. In the process, we talked about – with people about who they've used. Maine Pointe came up as a reference to us and they became the consultant of choice to help us with the project. A lot of companies in our space have done that, so we're excited to see what that can do for our company. We have kind of alluded to that for a little bit at the Stifel Conference actually on our presentation, so we're excited to announce it and excited to report back on where we are in our third quarter call.

Perfect. And then, yes, the core business sounds like it's tracking right kind of in expectations. Can you talk a little bit about the pricing environment that you're seeing? And my guess is that seasonally, typically, we'll see the backlogs built from here. Is there any reason to think why that wouldn't happen going forward?

The pricing environment right now is still competitive. Obviously, I mean, we have shrewd buyers as contractors, customers. However, with the steel price increase, we did, as we mentioned in prior calls, increased prices during the first quarter in most of our places. And by and large, it seems like those have been able to hold. Our customers do buy steel, as we've mentioned before, and they understand that cost. The other things that we purchased that contains steel, and many of those vendors are working to push through price increases. I think we've been doing a nice job of offsetting that, but it's still a very real thing, inflation and things we’d buy. But I think the strategic sourcing effort will help us in a big way as we move into the latter part of this year and into next year with regards to some of those things. Part of our inventory increase is in raw. We did buy ahead on some steel taking advantage of some opportunities, so that is a part of the reason for our inventory increase.

Perfect. Guys, thank you very much and best of luck.

Thank you.

Thank you. Our next question is coming from Mig Dobre from Robert W. Baird. Your line is now live.

Good morning, everyone. I actually have a bunch of questions. I hope you'll humor me here. I want to start maybe with the Infrastructure Group. A lot of moving parts here, but as I understand it, if we want kind of an apples-to-apples, we add back the revenue charge that you have taken. You also said that you've taken out of backlog Hazlehurst. So if we end up maybe adjusting for that too, it looks to me like an apples-to-apples basis, your orders were down, maybe something to the tune of 30% year-over-year in the quarter. That being – first and foremost, I hope my math is correct. If that's the case, can you maybe give us some comfort surrounding what's going on here in terms of how the market is progressing, and why we're seeing this volatility, if you would, in orders at play?

Sure. Hi Mig. This is Ben. It feels a little bit like a traditional summer on the infrastructure side. Our customers are busy. They have a lot of work, the ones that I've talked to talk about how big their backlog is. They're feeling really good. They're feeling good about next year. The quote levels are very good. I've talked with one of the sales managers of one of our Infrastructure Group companies yesterday, feeling very good, good quote levels. Multiple customers [indiscernible] this week on plans, so I think that's what we're experiencing, and the optimism is very good with our customers, so we feel optimistic about the Infrastructure Group.

Okay, so you’re not sensing that there are any sort of market share shifts. Obviously, we know you have a competitor in the U.S. that arguably speaking, has gotten even stronger over the past year or so. That's -- I'm reading too much into that in thinking there might be something going on, on the competitive front?

No. The market is bigger. Our market share is held [ph], and we're very comfortable with our market share. We compare what we see versus their numbers, obviously when they present them, and we're very comfortable with our market share.

I see. Then there is a modeling aspect of this too, because if I'm looking at your backlog, $106 million, and I look at the revenues, say for instance, year-to-date, again, adjusted for the charge, on average, your revenues here has been running about $150 million per quarter in front half? How do we think about the back half of the year because obviously, orders are lumpy year, the backlog now is only $100 million. Can you help us understand infrastructure revenue progression back half versus what you had in the front half of 2018?

Mig I think the third quarter for infrastructure could be off a little bit. We feel comfortable and feel very good about the fourth quarter. So I think overall, it will still be better than last year's.

So you’re saying you’re going to be up year-over-year? Is it in the third and the fourth quarter?

Combined two quarters will be up for the year.

Does that include revenue recognition from Hazlehurst or not?

That will be ex-pellets.

That would be ex-pellets?

Yes.

Related to Hazlehurst, if you have taken the charge for Highland, if you have taken Hazlehurst part of the backlog, why not take the charge for Hazlehurst as well?

We have agreements in place on Hazlehurst, and so we really – I mean, we don't need to do that.

But why does your auditor feel like you need to take it from the backlog if you don't need to do that?

That’s clarity to the backlog for all of us.

Okay, so you can – with a reasonable degree of confidence, still state that you expect to recognize revenue in the fourth quarter of 2018 from Hazlehurst?

At this time, yes, we do. If is sails before then, I mean, which who knows that it does or not. We do have multiple prospects looking at the plant. It could pull forward – as we've said before, it is breakeven.

Understood. Two more questions, and I'm done. One, I want to ask a little bit about the way you're thinking about the cost structure in general and I understand that you're bringing in this consulting group to look at sourcing. Just my own benchmarking, when I'm looking at the Company, what stands out to me is that SG&A is perhaps higher as a percentage of sales than peers. Are they going to have a role in addressing that as well, or is it just pure sort of manufacturing cost? And how do you think about evolving your operating model maybe away from this decentralized structure that we've seen in the past towards something that's a little more cost efficient?

We did a look back in the past five years against all of our TSR peers in our SG&A is in line. We do have Operational Excellence VP that potentially could help us to some of that. At the current time, the Maine Pointe group is focused solely on strategic sourcing.

I see. Last question on capital deployment. I understand that the Board is reviewing this. But, frankly, I'm not entirely sure as to what that means down the line. Is it that you are reevaluating your M&A strategy? Is it that you’re starting to consider share buyback or dividends in some sort that we haven't seen in the past? What are the options that are been on the table right now?

Mig, this is Ben. There's really four main options that things you mentioned: stock buybacks, dividends, M&A and also investments back in the business where we have opportunities for gains at companies. Those are all the things that the Board will be considering.

All right. Thank you for taking the questions.

Thank you.

Our next question is coming from Mike Shlisky from Seaport Global Securities. Your line is now live.

Hey. Good morning, guys.

Good morning.

So want to start off with the question on the settlement that you’re engaging with. Is there a cost you can outline to us and maybe some kind of goal is to what you think you can actually get in return to that cost in that time frame? Is really just the upfront cost is fine for now.

Hi Mike. This is Ben. The upfront cost is actually very small and it anticipates a second phase. That would be the price here of the two phases. However, they typically have a return against fees of 6:1 or better. They've got examples of double-digits to one, and they guarantee that against their fee if you move against or move on with Phase 2. Lots of people or a lot of divisions in the first phase right now, they are doing a deep dive on that because they do guarantee what they do. So more color on that really in the third quarter call, but we're excited about the opportunity to help our bottom line with the effort.

So then by the third quarter you’ll have a good sense of the plan? Did they ever tell you like how long these plants generally take to be implemented or [exceeded success]?

Typical implementation phase,10-month range. And, Cushing gets all savings in day 1, but it certainly get a good number or good percentage of them. So will have more clarity on that for the third quarter.

Okay. Then I also want to ask about just sort of the environment for shipping and obtaining components during the quarter. It’s been said, is a very tight shipping fleets out there, hard-to-find truck capacity. Has that tech have an issue either incoming deliveries or outgoing? And secondly, are there any components of your products that are in short supply right now

On the shipping side, we've – in the last few weeks had core reviews with all of our divisions and we really have not had any issues. We outsource our shipping of the equipment and we really – where we had issues as we try to get everything out at the end of the quarter. But even then, we were okay on what we've been using.

Okay. As far as the supply chain, is that pretty intact right now or are you finding it hard to find certain components?

So far, so good on that for us. We do have a Corporate Director of Procurement, works with our purchasing teams. We talk a lot so when we do run into issues, and when we do, we've been pretty fortunate on that.

Okay. And just finally for me, on the pellet plant that may or may not be sold. I’m not sure how this is supposed to work. If the plant is sold, is there any risk to Astec if the price is not that great or is it just the general idea this will be a profitable sales for the seller?

The idea is, is that it would not be a – that would hurt us. So we are – the goal is to come out okay on it.

But if it is that great of a price, is there any [indiscernible] with Astec or you kind of guaranteed?

We don’t have any from office on the plans, so that I’d be speculating to answer that question. I really would be. And the value is there to our potential buyers. So, you never say never, but I really think that opportunity to sell the plant where we were okay is there for sure.

Got it. Perfect. Thanks Ben.

Thank you.

[Operator Instructions] Our next question today is coming from Larry De Maria from William Blair. Your line is now alive.

Hi, thanks. Good morning. With regards to the Hazlehurst plant and other liabilities in pellet plants. Just to look into this, are there any other liabilities potentially besides Hazlehurst and what gives you the confidents that the operation and performance of that plant are strong enough to warrant, obviously good outcome for you guys considering the – obvious issues in Georgia?

Right, this is Ben. The plant in Georgia is running. It’s running for an order in Europe. We’re able to show it in running condition, producing very high-quality pellets. We're told that the end users of the pellets find them to be in some of the highest quality pellets that they've received. So our confidence is in – is running its performance today.

And then Bob, why this wouldn't be running so well and the other one will have major issues with?

Well, as you recall, they’re different plants, plant 1 to plant 2 is an evolution, larger plant Hazlehurst different heater designs, different fee designs. So they’re close but not exact. So and then the bigger thing at Highland, was that timing of the liability test versus the agreements and what we face in there.

Okay and you said you’re going to stay in the business of proven technology and in equipment supplier? What exactly does that mean? You're going to supply other people who want to do take on EPC, your technology and equipment or it just going to be a component supplier. What exactly does this mean going forward?

What you say they are Larry is we will only supply proven equipment and component. So if someone wanted a full plant and they were accepting on terms and conditions that are normal for us is an equipment supplier, along the lines of what we do at asphalt plants, then we would supply a full plant. If ones, you have a proven system, we're not actively out quoting a full plant because even though at Highland, it will run and it is running. It's not like it's a catastrophic plant didn't run. And we really ran into timing versus reliability. To third-party of course for the customer, really complementary the plant, well-built is going to get there. We just had a timing issue. But we would sell components as an equipment supplier. We would sell plant as an equipment supplier, but we are not going to be a financier of pellet plants and we are not going to be in EPC, Engineer Procure Construct Contractor. If the industry is ready for an equipment supplier, we are the best option in the industry for wood pellet plant equipment.

And therefore we shouldn’t have anything other than Hazlehurst in the model?

That is correct.

Okay. And then I guess on the infrastructure side, orders were actually surprisingly weak. I know you said that customer has business, but when do you think we get this inflection ramp up in orders to have to wait until next year? And that imply that there is excess capacity industry. The fact they don’t have to go out and buy stuff now? I was just trying to understand why the orders is really so week. It wasn’t share changes and one we might get an inflection positively.

Fourth, first and second quarter is one that will happen and all I can tell you is what I've said, it really is active on the quote side, and I’m talking to customers personally, and I just – I know they’re working and I know that’s were their focuses and I’m comfortable saying that it’s feels like a traditional summer in some ways, although we’re busier and with the work that we already had. So I think you’ll start seeing that again fourth, first and second quarter moving ahead.

Is that for orders or that’s for sales?

Orders and sales.

Okay. Okay, thank you.

Thank you. End of Q&A

Thank you. We reached the end of our question-and-answer session. I’d like to turn the call back over to management for the further closing comments.