Steve Anderson - VP, Administration & Director, IR Ben Brock - President & CEO Rick Dorris - EVP & COO David Silvious - CFO.

Stanley Elliott - Stifel Mig Dobre - Robert W Baird Nick Coppola - Thompson Research.

Greetings and welcome to the Astec Industries Third Quarter 2016 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Steve Anderson.

Thank you, you may begin..

Thank you, Brenda. Good morning and welcome to the Astec Industries' call for the third quarter that ended September 30. My name is Steve Anderson as Brenda noted, and I am the Vice President of Administration and Director of Investor Relations for the company.

Also on today's call are Ben Brock, our President and Chief Executive Officer; Rick Dorris, Executive Vice President and Chief Operating Officer; and David Silvious, our Chief Financial Officer.

In just a moment, I'll turn the call over to David to summarize our financial results and then to Ben to review our business activity during the third quarter.

Before I begin, I will remind you that our discussion this morning may contain forward-looking statements that relate to the future performance of the Company, and these statements are intended to qualify for the Safe Harbor liability established by the Private Securities Litigation Reform Act.

Any such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions. At this point, I will turn the call over to David to summarize our third quarter results.

David?.

All right, thanks Steve, good morning everybody, glad you are with us this morning. Our net sales for the quarter were $247.8 million compared to $211.4 million in Q3 of 2015, that's a 17.2% increase in sales or $36.4 million increase.

International sales were $47.9 million in the quarter compared to $55 million last year in Q3, that's a decrease of 12.9% or $7.1 million decrease in international sales. International sales represented 19.3% of this year's Q3 sales compared to 26% of last year's Q3 sales.

The decrease in international sales for the third quarter compared to the same quarter last year, primarily in Canada, in Africa, and in South America. These decreases were offset by some increases in Australia, Central America, and in the West Indies.

Domestic sales for the third quarter were $199.9 million compared to $156.3 million Q3 '15, for an increase of 27.9% or $43.6 million increase in domestic sales. Those domestic sales were 80.7% of our Q2 million dollars for Q3 of '15, that's an increase of 1.8% or $1.1 million increase in part sales.

Those part sales were 25.5% of our Q3 quarterly sales compared to 29.3% for Q3 of '15. For the quarter, part sales increased in the energy group and then the infrastructure group, and decreased in the aggregate and mining group. Foreign Exchange translation on sales had a negative impact of $2 million i.e.

the rates this year were the same as the rates last year, sales would have comparatively been $2 million higher. Net sales year-to-date were $820.9 million compared to $768.1 million for the first nine months of the last year, that's a 6.9% increase or $52.8 million increase.

International sales for that period this year were $144.6 million compared to $206.1 million for the first nine months last year to 29.8% decrease or $61.5 million decrease. The decrease on a year-to-date basis year-over-year was primarily in Canada, Africa, the Middle East, South America and in Europe.

Those decreases were offset by small increases in Southeast Asia and in China. International sales represented 17.6% of net sales for the year-to-date period this year compared to 26.8% for the year-to-date period in 2015. For the year international sales decreased in each of our groups.

Domestic sales were $676.3 million compared to $562 million for the first nine months last year, an increase of $114.3 million or 20.3%. Year-to-date, those domestic sales were 82.4% of 2016 year-to-date sales, compared to 73.2% of year-to-date sales in 2015.

Part sales for the year-to-date period were $201 million compared to $202.5 million in the prior year, that is a decrease of 0.8% or $1.5 million decrease in part sales year-over-year. Part sales for the year-to-date 2016 period were 24.5% of total sales compared to 26.4% of total sales for the year-to-date period in 2015.

The foreign exchange translation again has negative impact on sales for 2016 and $9.5 million that is, that if rates were the same this year compared to last year, sales would have been comparatively $9.5 million higher.

Gross profit for the quarter was $55.4 million compared to $45.1 million in the third quarter of 2015 at 22.7% increase or $10.3 million increase. Gross profit percentage was 22.4% for the third quarter compared to 21.4% in Q3 of '15.

Our absorption variance for the third quarter of this year was $6 million of unabsorbed overhead, that compares to $5.4 million of unabsorbed overhead in the third quarter last year so we did have a negative change in absorption variance of $600,000 quarter-over-quarter.

Gross profit on year-to-date basis was $200.8 million compared to $173.4 million, that's a $27.4 million increase or 15.8% increase. Gross profit percentage as a result was 24.5% from this year-to-date period compared to 22.6% for year-to-date 2015.

The absorption variance on a year-to-date basis was $7.5 million of unabsorbed overhead compared to $9.9 million unabsorbed overhead in '15 that is a $2.4 million positive change in the absorption variance year-to-date versus year-to-date.

SGA&E for the quarter was $44 million or 17.7% of sales compared to $41 million or 19.4% of sales in Q3 of '15, that's a $3 million increase in dollar terms with a decrease of 170 basis points as a percentage of the sales.

The primary drivers in there were in the increase were payroll and related expenses, some profit share expenses and research and development. Those were offset by repairs and maintenance expense decrease, remember last year we had a major repair on an aircraft engine that we had to take and we did not have that again this year.

For the year-to-date we had a $132.7 million of SG&A or 16.2% of sales compared to $128.1 million of SG&A in the prior year or 16.7% of sales, that's a $4.6 million on a year-to-date basis or a 50 basis point decrease as a percentage of sales on a year-to-date basis.

Again, the primary drivers of the dollar increase were payroll and related expenses, profit share expenses, and we had exhibit expenses earlier in the year. We offset those increases with decreases in health insurance expense and again as previously mentioned the repairs and maintenance that was incurred last year but not this year.

We believe that the Q4 run-rate for SGA&E will be in that $43 million range. Operating income in the third quarter was $11.4 million compared to $4.1 million for Q3 of '15, that's an increase of $7.3 million or 178% increase in income from operations quarter-over-quarter.

Year-to-date operating income was $68.1 million compared to $45.3 million in the year-to-date period last year, an increase of $22.8 million or 50.3% increase. Interest expense again was $264,000 for the quarter compared to $505,000 last year and $1,057,000 for the year-to-date compared to $1,222,000 in the prior year.

Remember that the primary driver of interest expense for us is currently the debt that we have in Brazil. We are financing their plant, and their equipment and property and inventory down there. Although the debt is down, down there from September 30 of 2015, it was $8 million last year, at this time it's down to $6.9 million this year.

Other income was $508,000 for the quarter compared to $844,000 last year and $1.4 million for the year-to-date compared to $3.2 million for the year-to-date period last year. The primary source of other income for us is license fee income and investment income at our captive insurance company.

The year-to-date prior amount also includes key man [ph] life insurance proceeds of approximately $1.2 million. The effective tax rate for the quarter was 41.5% compared to 52.5% in the prior year and for the year is 37.6% compared to 38.8% for the year-to-date period last year.

Now the effective rates for the quarter and the year-to-date were impacted primarily by increasing a portion that's domestically in the high tax rates stakes along with higher rates in those non-combined filing states and we also had losses of certain subsidiaries for which the company cannot recognize the tax benefit, those things contributed the effective rates being higher that the statutory rates.

Net income attributable to controlling interest for the quarter was $6.8 million compared to $2.3 million in the third quarter last year, it's an increase of $4.5 million or 195.7% increase in net income.

Diluted earnings for the quarter was $0.30 compared to $0.10 in the same quarter last year, an increase of $0.20 or a 200% increase in EPS quarter-over-quarter. Year-to-date, our net income was $42.8 million compared to $29.2 million in the year-to-date period last year, an increase of $13.6 million or 46.6% increase.

And the EPS for the year-to-date period is $1.35 compared to $1.26 in the same period last year, a $0.59 increase or 46.8% increase.

EBITDA for the quarter was $18.1 million compared to $10.8 million for the quarter last year, a $7.3 million or 68.2% increase and for the year-to-date EBITDA is $87 million compared to $66.1 million for the year-to-date period last year, a $20.9 million increase or 31.6% increase.

Our backlog at September 30, $389.3 million compared to September 30 last year of $251.8 million. Remember that the prior year of backlog is adjusted for our acquisition of Power Flame which occurred on August 1 of this year, so you do have a true apples-to-apples comparison there. That increase in backlog is $137.5 million or 54.6%.

The international backlog this year is $63.7 million compared to $58.7 million at September 30 of last year. Our domestic backlog this year is $325.6 million compared to $193.1 million at September 30 of last year, a $132.4 million increase or 68.6% increase.

The September 30 backlog of $389.3 million compares to June 30 backlog of $364.5 million so sequentially we are up $24.8 million or 6.8% up in backlog sequentially. The foreign currency translation impact on the backlog was minimal as $900,000. Our balance sheet remains very strong.

Our receivables are at a $111.8 million compared to $105.2 million this time last year, a $6.6 million increase but our days outstanding are down. They are at 40.8 days outstanding compared to 45.9 last year.

Our inventories at $399.7 million compared to $384.5 million at this time last year a $15.2 million increase and our terms remain flat at about two terms this year and last year. We have nothing on our $100 million domestic credit facility and we have $52.5 million in cash and cash equivalents on the balance sheet.

Letters of credit outstanding are $15.2 million leaving us borrowing availability of $84.8 million. If you recall, we previously mentioned we do have $6.9 million of debt currently in Brazil used to finance that company's building, fixtures and inventory. Our capital expenditures for the quarter are $7.6 million.

In year-to-date we are at $19 million and for 2016 we are going to end up around $23 million of CapEx. Our depreciation for the quarter was about $5.2 million and our year-to-date depreciation is $15.5 million and we believe we will end up 2016 somewhere in the $21 million range on depreciation.

So that concludes my prepared remarks on the financials, I am going to turn it back over to Steve Anderson. .

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

Ben?.

Thank you Steve and thank you to everyone for joining us on our call today. As we commented in our earnings release this morning, we were pleased with our third quarter. While the ever persistent head wins will blow yet stabilizing oil and natural gas prices, the global mining industry and the strong US dollar continues to present challenges to us.

We continue to send secure and ship orders as a result of the passage of the federal highway bill in the United States which allowed us to earn a good result in the quarter in our traditional business areas. We were also able to recognize $19 million in pellet plant revenue during the quarter.

Earnings per share for the quarter were $0.30 per share versus $0.10 per share in the same quarter last year for an increase of 200%. Our third quarter sales were $247.7 million versus $211.4 million for an increase of 17.2%. Now our year-to-date sales were $828.8 million versus $768.1 million for an increase of 6.9%.

And again as David mentioned our year-to-date EBITDA was $87 million versus $66.1 million for an increase of $20.9 million in EBITDA on a $52.7 million increase in sales. EBITDA is up again this quarter as our company's maintains stronger gross margins versus last year.

Our major product mix was fairly normal this quarter and a higher capacity utilization rate and infrastructure rates helped our gross margins. Our backlog at September 30 was $389.2 million up 54.6% versus last year.

Our backlog remained strong partially as a result of the $122.5 million pellet plant where we announced during the first quarter this year. The pellet plant order, our backlog is in the infrastructure group backlog.

Our infrastructure group also continued to o order intake during the quarter mainly as a result of federal highway bill in the United States. Our aggregate mining group backlog was down due to the global mining industry being slow and delayed core investments in the United States.

We have seen improved domestic quote and order activities since August 1 and we believe the highway bill will help this group as we move in to next year. Our energy group backlog was up slightly as products targeted as infrastructure customers gained some momentum and power plants backlog join the group as well.

Domestic backlog was up about 68.6% year-over-year and international backlog was down 8.6%. Our higher backlog and domestic was primarily due to the passage of the long term federal highway bill, good product sectors work levels for infrastructure customers and the pellet plant order that we just discussed a minute ago.

Regarding our increase in international backlog we mentioned in our last call that we experienced slight improvement in international on a percentage basis during the second quarter. Given the backlog in our international was up in a long while versus the prior year quarter, we are encouraged to say that we have seen a slight improvement once again.

Our increase in backlog of international was a direct result of pin up demand and our team executing for orders where we could. Despite our gains internationally, the strong US Dollar remains a significant head wind for our exports from the United States based operations.

International backlog remains down historically, primarily due to strength the go over national gas prices and the global mining slowdown. Our Astec do Brazil facility continues to experience everything you read about Brazil with regards to slow economic times.

We are committed to this facility for the long term, and we will be in a good position when conditions improve in Brazil, however in the meantime we continue to pursue work for this facility in countries that surround Brazil.

We are maintaining our international effort despite the challenges presented to us by the strong and the press mining industries in our key markets. While we are keeping our long view regards international, we do see a strong U.S. Flat oil price and flat mining conditions remaining in place for the foreseeable future.

Changing subjects to the Hazelhurst Georgia Pellet plan that we have discussed on several calls as a continuer reminder. It was a new product that we chose to finance, as a result we're recognized revenue for this plan as we're paid, this will have an effect on our cash and our inventory until its paying forward.

The water for all three lines was for $60 million, we expect a prompt payment and 2017. As a reminder the interest rate on the note is 6%.

We were pleased to report $122.5 million pellet plant order during the first quarter this year, it is an add on to the $30 million order that we recognized during the first quarter with Highland Pellets bringing the total project order amount to $152.5 million.

As we mentioned in our last call, our plan is directing $922.5 million order as follows, in the second quarter about $20 million and it ended up about $18 million, in the third quarter about $20 million and it ended up about $19 million, and in the fourth quarter about $35 million for a total of approximately $105 million in 2016, but the balance if you order, being recognized in 2017 in the range of $45 million to $50 million, as the side work installation and start up.

I was able to visit the Highland site a few weeks ago and I'm happy to report that the site looks great and the project is on-schedule, we anticipate starting line one in November.

Updating our current Pellet plant core activity, we do have ongoing core activity for new projects and we believe that we will add a new large order late this year or early next year for delivery in 2017. We believe the order will be in the range of $50 million rather than the $80 million we mentioned on our last call.

We're also working on new projects that are in the $100 million range each, based on what we know today we project our pellet plan revenues will be in the range of $100 to $125 million in 2017, this includes the remaining $45 million to $50 million that we anticipate on the Highland Pellets project.

This projection does not include the $60 million Hazlehurst with pellet plant, assuming we are paid on Hazlehurst in 2017, it would be in addition to our projection however, as mentioned on prior calls we would only break even on the revenue, as a reminder these bills are long and complicated to get across the line.

While we are optimistic that a new project will happen in the timeframe mention, it could always be longer than we anticipate.

Changing subjects to the energy group, we remain extremely challenged in our drilling and pumping equipment sales activity; we continue to increase our street broom equipment line production in Enid Oklahoma at our most effective facility in the industry -- in the energy group.

The line remains a rotate brand name on and it is sold and serviced Varitek [ph]. We have slightly off sales challenges and heaters for oil and natural gas industry with sales of asphalt terminal systems during the quarter.

Sales of which a person grinders remain consistent during the quarter, our concrete plans that are built in the energy group, we have very good quoting activity. We mention in our last call that we had our first ready-mix concrete plant set up on our yard at CEI testing which brought us to two of non-plant concrete plant models completed.

As a reminder, we name this new plant the Fusion plant, we are pleased to announce that we have sold this plant, we remain optimistic on our outlook in our energy group and in the long term however, barring an unexpected change in some of the key markets we serve we will be challenged in this group overall for the rest of this year and at least during the first half of 2017.

Our new product development continues in all groups, in addition to our energy groups and the fusion plant that we have sold, our aggregate mining group completed engineering a manufacturer of a new flexible production modular crushing system.

Jointly designed by our JCR and KPS subsidiaries, this new system will have the flexibility to provide con-crushers for 200, 300 or 400 tons per hour production rate, while being able to be easily ship in standard shipping containers.

We're happy to report that this system was not only built during the third quarter, it was also just sold, regarding new product the ConExpo trade show starts just 133 days from today, we spent around $4.2 million on the prior ConExpo and expect to be in that range for the upcoming ConExpo.

We have been working on new products for this show, which will slightly increase our R&D for the balance of this year and into the first quarter 2017. Looking ahead to the fourth quarter of this year 2016, we're courage by our backlog, our domestic sales outlook and our strong infrastructure group sales activity.

Giving these encouraging signs we believe the fourth quarter this year will be better than a fourth quarter last year, our current revenue outlook for the full year 2016, is up between 6% and 9% versus last year, with improved bottom line performance.

As a reminder our revenues are up 6.9% year-to-date versus last year and our profit is up 47.1%, while our infrastructure group is performing very well, we are cautiously optimistic on our outlook for aggregate mining group and cautious on outlook for the energy group, with the main headwinds for this group been very real very persistent.

For my last earnings release to now, orders have been good in the infrastructure group mainly due highway build. Orders are slightly better internationally, however not strong internationally mainly due to the strong U.S.

dollar and mining slowdown, energy group orders are soft for products targeted at the oil and gas industry that improved for products targeted at the infrastructure customers.

Aggregate mining orders are soft for products target at the mining industry, bright spots for activity hummocks asphalt sales, asphalt plants and mobile type equipment, concrete plan quoting activity, wood plant quoting activity with shippers and grinders, and international core activity, despite the strong dollar.

For competitive reasons we will not be indicating their regions of activity, however we do feel the responsibility to indicate that our quote levels have increased internationally.

Year-to-date parts sales were down by just under 1% versus last year were 24.5% of sales versus 26.4% of sales in 2015, this represents an improvement from last quarter results, we remain committed to improving our Parcells behind in the long term along with working increase competitive parcels and service sales.

We continue to see a result of Arlene [ph] helping us be a better company, and we continue to focus on our gross margins, these efforts play a part in our gross margins increasing quarter-over-quarter. The majority of our customers in United States are experiencing a stable private market and we are focused in selling existing and new products.

Given the headwinds we are facing, we are working to manage the businesses in the market conditions where the business warrants. To that end, we did have staff and/or work hour reductions at our most effective divisions during the quarter.

As most of you know we're pleased to announce on July 7, that we signed the agreement to purchase Power Flame Incorporated for $43 million subject to final due diligence and any adjustments if necessary. As we announced this quarter was in August 1, and they were accreted to us during the quarter.

Power Flame engineer sales and services borrows for many industries including industrial and commercial uses, they are profitable and successful business that we believe will add in the range of $40 million in revenues in 2017. They are a market share and technology leader in each segment that they serve.

Our Heatec and CEI subsidiaries due 200 burners per year from there, for there thermal hot oil heaters; however we are not large costumers for them, as they build thousands of burners per year. They specialize in burners from They specialize in burners from 400,000 BTUs to 25 million BTUs that have built burners as large as 100 million BTU.

Our Astec subsidiary builds burners for asphalt plant from 20 million BTUs 20 million to 150 million BTUs. So we believe we have a good opportunity for technology transfer between divisions particularly on the control side. We believe that Power Flame has very good technology for lower mission burners that we can learn at Astec.

We believe we can help Power Flame with our corporate purchasing agreement and benchmarking with our other subsidiaries.

And we are right now purchasing benefits not only Astec company Power Flame, that's our plan healing Astec, we were please though we remain at the company's present as a reminder Power Flame remain in its location, and they have joined our energy group.

In our full year revenue outlook up between 6% and 9 % versus last year we have included the anticipated revenue in addition from a powering this year. With regard to energy group. We were proud to add a new group president had the energy group during the quarter. His name is Jaku Vanderbur [ph]; Jaku comes to us from Atlas Copco.

Jaku is with Atlas Copco for over 18 years and progressive roles included some global responsibilities. Rick Dorris, our COO, was previously providing oversight at the energy group, in addition to his role as COO. The addition he offered to our team with free recap to fully focus on his COO duties.

Speaking ahead the 2017 we are optimistic with regards to our infrastructure outlook on infrastructure related equipment, we are cautiously optimistic on with Philip plants [ph] and his group.

We believe our great mining group will be up slightly next year, and we believe that our energy group might prove on the bottom line in 2017 despite the challenges we face. Taking all that together, we will have the opportunity to successfully grow and operational improve our company for the fourth year in the raw in 2017.

In closing, acquisitions remain a key piece of our growth strategy along with it organic growth; we are still diligent work -- diligently working on potential acquisition. That is my comments on the quarter and what's in front of us.

Thank you again for taking the time to be on our call, and free you support as we move ahead, I'll now turn it over to Steve Anderson. .

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

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

Hey guys, good morning, thanks for taking my question. Quick question could you talk about dictating in the deceleration, especially in the infrastructure group from Q2 to Q3.

is all that your typical seasonality, some of that would pellet [ph] coming out, just kind of help us reconcile that, and then in along those lines you mentioned the negative variants on the absorption in the quarter if you could go then there too. .

Hey Stanley, this is Ben. On the volume side the third quarter for us as always, I hate to say hand-to-hand combat, but it just feels like that and you have some that don't make across the line like if you have terms of over the rail for international shipment for instance. We had one that was over the rail of the ship was disconnected from the porch.

And sometimes we run into that and third quarter is always a bear [ph] although I would say that sure feels a lot better this third quarter than the last two third quarters because we were really struggling with in the last two third quarter. So, feels a lot better that, yes we had a few of those this time. .

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

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

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

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

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

We're maintaining at a breakeven. .

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

Yes..

Thanks guys, thanks a lot..

Thank you..

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

Good morning, I just want to maybe go back to Stanley first point in the infrastructure group about the sequential revenue decline and if I'm looking sequentially, what happened here seasonally, you do have a decline but it seems like this year is a little more pronounced than what I've seen and in prior years.

Even though it doesn't look like you had that big of a shift from the second to the third quarter in terms of realize revenues on the -- on the wood pellet plants. So I guess my question is this; do you have capacity constraints at this point and that's what sort of causing this sequential revenue movement. Or is there something else. .

Hey Mig, this is Ben. No, we're okay on capacity I think the other thing thinking about the questions more we've -- Australia and Germany are in that group as well. And they did not have very quarters and I think that affected a little bit, that not more U.S.

dollar related, although I tell you that we got a little bit hardly on Australia which is great, Germany's got a few things going. And they're in the right places hopefully get some of these things across the line very soon..

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

So in infrastructure group you know on the asphalt plant side, we're Running 80% to 85% probably the same on the mobile equipment side. And we have lived down some that production for delivery issues to our GEFCO facility; we've built some asphalt limit there.

But we haven't -- we've lost to my knowledge I was at breakfast with some of our sales guys, we got them in here today for some training. You know we've lost one plant on pure delivery reasons and that was to a nontraditional Astec costumer. If we had delivery 50-50 would gotten it now.

It can -- it could be a challenge because the next few months that if we got to get this day open. We've got ahead, we can do some shift work and one of our facilities to help that, and we are adding people in Chattanooga [ph] and we are able to get people.

It's taking a little bit longer but the people that were getting are good people, so we feel okay about our ability to deliver in this market. .

Okay. And then, I don't know maybe coming out of the last call last quarter; my understanding was that you guys were really thinking here in the infrastructure business that you're going to have to back half revenue and margin largely gross margin that is largely similar to the front half.

Now it you know that may maybe I'd misunderstood the way try to communicate that, but when I'm looking at the third quarter and the way you're talking about the fourth quarter, there seems to be a bit of a delta here and I'm trying to reconcile that in the back of my mind like what is different verses what you originally expected and how do we think about gross margin in infrastructure going forward..

Well, I think your gross margin in the fourth quarter you will have more pellet plant volume. Those are -- as we build more lines, we're getting better at those margins, so they're now in the high side of our normal good margin.

So I think you can think of it as gross margins in the infrastructure group in the range of what we saw earlier this year in the fourth quarter. .

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

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

This my last question, I'm asking this because I think if you look at this quarter, this is where the big variance was and I'm trying to make sure that we all have our models straight for fourth quarter given what is coming out of your backlog.

Can you help us at all? Is the fourth quarter versus the first half or versus the third quarter; however you want to put it?.

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

Okay. It was worth a try. Thank you. .

Okay. Thank you. .

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

Good morning, this is Jordan [ph] on for Mike Shlisky this morning. My first question is that your cash levels remain quite high even after the power flame deal.

You mentioned in your prepared remarks, you are working on acquisitions but can you give us an update on any potential cash use to the first half of the year?.

This is Ben. We are active on the acquisition front and we would like to use cash towards acquisition that are in what we do. So we are energy, aggregate mining and infrastructure industries. If that's our city we wanted to stay in our metro area and everything we are looking at is in that and we are not looking to load up on a lot of debt.

We are not going to set the house on anything but there are opportunities for us and it's interesting how that works. We have looked at a lot that we haven't moved on but we want to have a cultural fit with whatever we do and so we are active on that. So we would pull the trigger for the right one. .

Got it. And there is one more in here.

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

Sure, both candidates seem to be good for infrastructure. Hillary Clinton has on the record, $275 billion over 5 years and Donald Trump has $500 billion with really no timeframe tied to it so while getting into the politics, I would love to but we won't fit. They both sound good for infrastructure.

And infrastructure when you look at stimulus, every president seems to want a seamless package in their first year.

There's not a whole lot to go into that well and pull out for stimulus so thankfully, infrastructure is usually [ph] and so we feel good that either one of them, even at discounted numbers on top of the current highway bill would be good for us and I will only add to that.

Thank goodness, we have a highway bill in place while all this craziness in the election is going on and think if it wasn't it would be a total lockdown for our customers. So we have been very fortunate to have a highway bill in place while these two candidates really embarrass us globally. So that's what I would say about that.

They both sound pretty good, even at a discounted number after I guess for the congress..

All right, I appreciate the color..

Thank you. .

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

Hi, good morning. .

Good morning. .

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

Sure, Nick. This is Ben. I think part of the weakness we identified earlier on the aggregated flaw was a traditionally focuses on the big quarry projects and those that have just come out of the gate as strong as the other on side crushing and open shape type crushing.

But they picked up, they got some work and we think that's a result of the highway money coming through the system. It always takes a little while for that money to come through the system.

I have been staying in touch with the customers and last week was with a -- they are not sure that the private wasn't really pushing it and now they are seeing the state money coming through on the ones that I was with.

So I think it's just been a delayed reaction that based on the code activity and the sales activity that we think that is going to show up. .

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

I do think it's affected the buying decisions earlier than it did on the quarry side because we have seen pretty consistent activity there. And there activity through the summer is normal when we are working. We talked about when it first started, with Dr. Diaz.

You know two minds rhyme when there is a bill signed and maybe a low as people figure out what's happening and then it would kind of kick back in with two or three years.

And what we saw was that we have two minds running in the state fairly, if they would have stayed better through the activity instead of now when we are in the buying season there is quite a bit of activity. .

Okay. Thank you for taking my questions. .

Thank you. .

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

Hi guys, congrats on the fabulous gross margin in the quarter.

You touched on infrastructure gross margins earlier but can you tell any expectations of overall margins could end up in current quarter versus Q3?.

Hi Wayne, this is Ben. It should be better. We have got good utilization and we have little more work to cover some hours and aggregates group. When we started this with the highway bill, looking back historically the 25 to 26 range was the high side. I guess we have pushed 26 on the high side and I think we can get back in that range during the cycle.

We have already kind of went over it when we were really and things just kind of hit but I think 25 to 26 and this 2 to 3 year cycle is a target we have to try to hit as we have this volume. .

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

Well, you know we touched it, we have already been in the 26 range as we started.

We have got a highway bill in place which is going to help our business we believe for 2 to 3 years and if we can get oil and gas to take a comeback little bit, mining to comeback just a little bit, we have enough change to maintain that little bit here for a couple of years. .

All right, thank you very much. .

Okay. Thank you. .

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

Yes, thanks for taking my follow up. Just clean up question on energy.

Can you remind us what the Power Flame contribution to revenue in orders were in the quarter?.

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

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

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

In backlog?.

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

Got you. And I am sorry, the $3.5 million versus the $6 million. I am trying to equate that.

Is that their own backlog declining to that extent or is it that you are recognizing partial quarter or something like that? How do I reconcile those two numbers?.

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

Got it and then last question I know we talked about this little bit in the past I am wondering if you can give us an update on raw material cost, fuel prices have been volatile.

Are you, at point do you start to see some impact from higher steel prices, is it a fourth quarter, is it the next year?.

Hi Mig, it's Ben. We, last quarter we were getting indications that the steel mills and all their suppliers wanted 12% to 15% and we saw some steel pricing increase at a couple of divisions and it affected us slightly but not much. They really haven't been able to get to increase.

And we have had a couple of notices actually today, about people trying again but we are doing [ph] now as using the word hedge is a wrong word. We assume longer term volumes right now. It's still relatively pretty good.

That being said we have met with all our presidents in person, the last week of August and absolutely harped on watching calls to steel and pricing because if that moves on, as everybody knows that's a big deal so our president's, we are on top of it. .

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

Not right now. Not for us. .

Okay. Thank you..

Thank you. .

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

Good morning guys. .

Good morning. .

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

Sure Brian. It is an interesting question because I am just lucky because I asked that question last week but and what it is, an asphalt plant, over 95% of what happened with our order since December 1 of last year is with privately held companies.

So that means that most of our business with a larger bigger contractor companies is probably still yet to come and I have set up with leadership of those public companies and they are anticipating increase CapEx next year at a rate higher that depreciation.

So we have started to see that core activity but they have not pulled the trigger, of course they are just at the end of their budget process but you know the private companies pull the trigger quicker than the public companies when the bill was signed. .

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

Same trends..

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

domestic, but how much does the import compete against you guys?.

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

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

I've made the comment last call, I remember fitting my thumb in my index finger together and just barely pulling them apart and looking through, and it's maybe just a little bit further away from the thumb but it's not much.

And it's really because we -- all of the people that we deal with are shrewd buyers, and it's rare that we're ever alone and all of our competitors are working like men to get the deals too. So I think our guys have really done a nice job given as competitive as their reveal really is and we're doing little bit better there but it's not right..

Okay, all right.

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

It will be similar to the asphalt plant as far as the percentage. So I don't see it necessarily move in our needle on a percentage basis of part sales annually, but the more we can get out there and grow the volume.

And so the top line hopefully keeps moving with it as we sell more pellet plants too but I see the parts businesses meeting fairly similar..

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

I feel like we can still increase our part sales but partially what you are saying is true because you know when the new equipment's out there just takes less parts, but the other thing that we can work for is support compares equipment that they do as good a job on parts in the field.

And so I that's and service sales too which will show up and parts. I still think even though to your point that new equipment will take less parts, I think you assume opportunity in service and support of other brand new parts.

And because it is hard to get people and we think that there's an opportunity in service sales as well that'll help our part side. It is probably better margin to be and service. .

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

Very excited about ConExpo, excited about the number of new products that we're going to have on the floor. I think for competitive reasons if we can get my asset February call, me happy to say that I think we're that got long enough to react.

They cannot believe that I can say that we will have more new products on the floor at this ConExpo than we had three years ago..

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

Our GEFCO facility in Oklahoma is our number one challenge.

And they're utilization, Rick Dorris, our COO was here, is very low I had its almost embarrassingly low, so that's why we're moving brooms, straight broom production there from Rotek [ph] as there -- that could create room for more militant and papers to be built, we've done its out overload shops that we're trying as hereby do not outsource with in source if you need capacity.

So we're just trying everything we can't get through there. Good news is GEFCO whom I mentioned in the comments our new group president of energy, came from Atlas Copco this last [ph] was in the drilling business in Texas. Although he's worked all over the world he's a native of South Africa.

But he -- he has a good vision and visibility into that market. And the products and I think he's going to help them. And it won't be an immediate effect but I think you know six to ten months from now I think we can be a much better position in Oklahoma. .

All right guys, congratulations great quarter. .

Thank you. .

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

All right, thank you, Bridget. We appreciate your participation in this third quarter conference call and thank you for your interest in Astec. As today's news release indicates the conference call has been recorded. A replay this conference call will be available through November 8, 2016. And our webcast will be available for 90 days.

Transcript will be available under the investor relations section of the Astec Website within the next seven days. All of that information is contained in the news release that was sent out earlier today. This concludes our call again thank you and have a good week. .

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