Astec Industries Inc (ASTE) 2015 Q1 法說會逐字稿

Greetings and welcome to the Astec Industries first-quarter 2015 earnings call. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the call over to Steve Anderson. Thank you. Please go ahead.

Thank you, Brenda. Good morning and welcome to the Astec Industries conference call for the first quarter that ended March 31, 2015. As Brenda mentioned, my name is Steve Anderson 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 will 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 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 the financial results for first quarter. David?

All right, thanks, Steve, and good morning, everyone. Thanks for joining us this morning.

Net sales for the quarter were $288.7 million, compared to $238.7 million for the first quarter of 2014. That is a 21% increase or a $50 million increase.

Our international sales for the quarter were $77.7 million, compared to $63.2 million for the first quarter of 2014. That's a 22.9% increase or $14.5 million. International sales were 26.9% of Q1 sales this year, compared to 26.5% of Q1 2014 sales.

The increase in sales internationally occurred primarily in Australia, in the Middle East, and in South America, Canada, and Europe. Those increases were offset primarily by decreases in Russia, in Central America, and Mexico.

Domestic sales for the quarter were $211 million, compared to $175.5 million in Q1 of 2014. That is an increase of 20.2% or $35.5 million. Domestic sales were 73.1% of Q1 2015 sales, compared with 73.5% of Q1 2014 sales.

Parts sales for Q1 of 2015 were $73.1 million. That compares to $69.3 million in Q1 of 2014, a 5.5% increase or a $3.8 million increase. Parts sales represented 25.3% of Q1 2015 sales, compared to 29% of Q1 2014 sales.

Gross profit for the quarter was $66 million, compared to $56.8 million in Q1 of 2014. That's a $9.2 million increase or a 16.2% increase. Gross profit percentage for the quarter was 22.9%, compared to 23.8% for Q1 of 2014.

Our absorption variance for Q1 of 2015 was $2.1 million underabsorbed. That compares to $3.3 million underabsorbed in the first quarter of 2014. That was a positive impact on the gross profit of $1.2 million.

We did experience a little bit of a foreign-exchange transaction loss during the quarter, $734,000 and that compares to a $139,000 loss experienced in Q1 of 2014. Other things that impacted gross profit for the first quarter of 2015 were some cost overruns in the energy group on some new product development and introductions, as well as we began to recognize some of the restructuring costs at our Loudon facility as we combined the Loudon facility with GEFCO in Enid, Oklahoma.

SGA&E for the quarter was $43.8 million or 15.2% of sales, compared to $43.4 million or 18.2% of sales in Q1 of 2014, a $400,000 increase or a 300 basis-point decrease as a percent of sales.

You'll recall that we had $4 million of Con Expo expense in Q1 of 2014. Also, the $43.8 million in Q1 of 2015 as compared to the projected $41 million run rate that we have discussed previously, that over loan is primarily due to some unexpectedly high health insurance caused due to some large cases, as well as some ERP implementation costs, computer system implementation costs, that we recognized during the quarter, as well as additional commissions expense due to higher sales and the amortization of the Telestack intangibles of about $0.5 million for the quarter.

Our operating income was $22.2 million in the first quarter of 2015, compared to $13.3 million in the first quarter of 2014, an $8.9 million increase or 66.9% increase in operating income.

Interest expense for the quarter was $297,000, compared to $73,000 in the first quarter of 2014, a $224,000 increase. That increase is primarily due to our borrowings in Brazil as we borrow in-country there to finance the construction and the operations of the Brazilian facility. Had its grand opening in the first quarter of 2015.

Other income for the quarter was $1.9 million, compared to $800,000 in the first quarter of 2014. Typically, our primary source for other income during the quarter is license fee income and investment income related to our captive insurance company. However, during the first quarter of 2015 we recognized approximately $1.2 million of key man life insurance proceeds due to the death of Dr. Brock.

The effective tax rate during the quarter was 37.1%, compared to 32.2% for the first quarter of 2014. Now the effective tax rate is slightly higher this year in the first quarter than our expected run rate, that 35% to 36% rate that we typically target, due to certain increases in federal and state tax reserves that we took, and those were related to tax positions or audits that are occurring in certain jurisdictions, as well as our inability to book tax benefits related to losses in certain of our foreign subsidiaries.

The effective rate for Q1 of 2014 was at lower than our traditional effective rate in that 35% range, due to a one-time true-up of certain tax benefits related to our basis in those foreign subsidiaries last year. That was a one-time deal in the first quarter of 2014.

Net income attributable to controlling interest was $15.1 million in the quarter, compared to $9.5 million in the first quarter of 2014, a $5.6 million increase or a 58.9% increase in earnings. Earnings per share for the quarter was $0.65, compared to $0.41 per share in the first quarter of 2014, a 58.5% increase.

Our backlog at March 31, recall that we always recast our prior-year backlogs when we do acquisitions and remember that we acquired Telestack on April 1, 2014, so we recast the March 31, 2014, backlog to include the backlog of Telestack on that date. So our March 31, 2015, backlog of $291.2 million compares to a recast backlog at March 31, 2014, of $309.6 million, an $18.4 million decrease or a 5.9% decrease.

The international backlog at March 31, 2015, was $90.2 million and that compares to $112.3 million at March 31, 2014, a $22.1 million decrease or a 19.7% decrease.

The domestic backlog at March 31 of this year was $201 million, compared to $197.3 million at March 31, 2014. That's an increase of $3.7 million or 1.9%.

Our balance sheet remains strong. Our receivables are at $129.9 million this year, compared to $109.1 million at March 31 of last year, a $20.8 million increase. The days outstanding related to those receivables has declined. It is at 39.7 days outstanding at March 31, 2015, compared to 40.6 days outstanding March 31, 2014.

Inventories at $388.7 million, compared to $361.2 million last year, had the $27.5 million increase and our turns stayed relatively flat. They were at 2.1 turns at March 31 this year and last year.

We owe nothing on our $100 million credit facility here in the US and we have $12.5 million in cash and cash equivalents. Our letters of credit outstanding against that credit facility are $12.4 million, giving us borrowing availability of $87.6 million.

Capital expenditures for the first quarter were $6.9 million, and that -- we still believe that we will achieve a budget of capital expenditures of $30.2 million for the year of 2015. Depreciation for the first quarter is $5.2 million and we're still projecting $23.1 million as the depreciation number for 2015.

That concludes my prepared remarks on the financials. I will turn the call over to Steve.

All right. Thank you, David. Ben Brock is now going to provide some comments regarding the first quarter of this year's operations. Ben?

Thank you, Steve. Good morning, everyone, and thank you for joining us on our call today.

As we mentioned in our earnings release this morning, we were pleased with our first-quarter results with earnings of $0.65 per share in the quarter versus $0.41 per share in the first quarter of 2014.

Our backlog at March 31 was $291.2 million, which was down about 6% versus last year. Our backlog domestically was up 2% year over year, and internationally, it was down 20% versus last year. International backlog was down primarily due to the strength of the US dollar against other currencies and the global mining slowdown in markets that were key to us.

The encouraging news for us remains that, as we mentioned on last quarter's call, we continue to hear from our infrastructure customers that they are experiencing good business levels in the United States and have backlogs of work to do, particularly on the private side. This has been good for our infrastructure group business, and while it will take a long-term highway bill to bring sustained growth in large-cap expending buyer infrastructure group customers, we are encouraged that our customers' equipment is running at higher capacities.

With regards to the federal highway bill, we continue to stay in close contact with our elected representatives in Washington, DC, and we're encouraging our customers, vendors, and other industry members to do the same through our Don't Let America Dead End effort. We expect -- after meetings last week and phone calls, our expectation is that we will see another short-term extension of the current highway bill by May 31 this year and that we remain optimistic that there will be a long-term highway bill of some kind passed this calendar year.

As we work and wait on a long-term highway bill, we continue to pursue new business with new products in the United States and we are maintaining our international effort, despite the challenge presented to us by the strengthening US dollar and depressed mining industries in some of our key markets. Our lower backlog in international was a direct result of those two developments.

Updating everyone on the pellet plant that we delivered to Hazlehurst, Georgia, line one of the three lines continues to run. Line two is in the testing phase. Line three is being installed as we speak. As a continued reminder, it is a new product that we chose to finance, and as a result, we will recognize the revenue for the plant as we are paid. This will have an effect on our cash or inventory until it's paid in full, and the order for all three lines was for about $60 million.

There was a large pellet conference in London last week that our team attended, and the start-up for the pellet plant continues to bring interested customers to us. We do expect to sell a new pellet plant this quarter (technical difficulty) pellet plants. However, coming out of the conference, our team was very encouraged.

With regards to international sales overall, given the well-documented challenges globally with regards to the US dollar strength and global mining and politics, particularly in Russia, we are challenged for the moment with regards to growing sales internationally. We do remain committed to growing our international sales over the long term and will continue to maintain and in some cases increase our sales and service coverage around the globe.

To that end, and as a reminder, we had an official open house for our new 132,000-square-foot Astec do Brasil facility in Belo Horizonte, Brazil, on March 26. It was well attended by customers, suppliers, and government officials.

We are already building crushers and screens in that facility. They look good. I was there. I really like the quality there. And we will build a small asphalt plant in the facility that will be completed in the fourth quarter this year.

On the energy side, we remain challenged in our drilling and pumping equipment with regards to shipments and margins in the first quarter and we're not immune to the current low oil prices with regards to our oil drilling and pumper business.

As a reminder, and as David mentioned in his comments, as a result of the low oil price and the overcapacity at our GEFCO Loudon facility, we regretfully informed our employees at the Loudon facility earlier this year that we would be closing the facility effective at the end of May. The product lines and related inventory at Loudon will be relocated to our GEFCO Enid, Oklahoma, facility. The main product lines at Loudon were oil drill rigs and pump trailers.

This move will result in a Q2 charge in the range of $1 million. However, it will result in cost savings in 2015 that will outweigh the Q2 cost of closing the facility.

In other energy group news, we saw continued strength in heaters for gas processing operations and stable sales of wood chippers and grinders. So despite the tough decision with regards to Loudon, we are optimistic on our outlook in the energy group.

Looking ahead to the second quarter of 2015 and the rest of the year, we do have an historically good backlog and stable quote levels in the United States. From our last earnings release to now, orders have been normal for the last three months, with the exception of three areas -- complete hot mix asphalt plants, which have been okay during this most recent selling season, but have also continued to lag historical levels due to the highway bill uncertainty; oil drilling and pumper equipment due to the price of oil; and international sales due to the strong US dollar and weakness in global mining.

We see growth opportunities in pellet plants, large crushers for mining despite the mining industry being down, high recycled asphalt plants, small commercial paving equipment, and aftermarket parts and service. We see the potential for a long-term highway bill with increased funding to be passed this calendar year.

Parts sales in Q1 increased 5.2% versus the first quarter of 2014 and we remain committed to improving our parts sales line in the long term, along with working to increase competitive parts sales.

We are continuing to work on our lean journey with regards to manufacturing our [hot mix] operations and we continue to see results of the effort helping us become a better company. As a part of that, we continue to focus on our gross margins as well.

Looking to the whole of 2015, we are cautiously optimistic. We expect to continue to improve on our operational performance versus 2014. With our divisions' current backlogs and delivery schedules, we're optimistic that our first half of 2015 will be improved versus last year and that our second half of 2015 has the same opportunity.

And again, this is despite the current state of our federal highway bill in Washington, DC. Our customers are experiencing a stable private market and we are focused on selling existing and new products not only in the US, but around the globe as well, although, as mentioned, we are facing a currency challenge at the moment internationally.

We're also growing our product sales targeted at multiple energy segments, including the biomass industry with wood pellets, the oil industry, and the gas industry that are not dependent on the highway bill. Acquisitions do remain a key piece of our growth strategy, along with organic growth between new product introductions and targeted sales growth efforts, both in the United States and international markets.

That ends my comments on the quarter, the year, and what's in front of us. Thank you for taking the time to be on our call and your support as we move ahead. I will now turn it back over to Steve Anderson.

All right, thank you, Ben. Brenda, if you would open the queue up, we would be glad to start answering questions.

(Operator Instructions). Jason Ursaner, CJS Securities.

Just starting with the sales outlook, backlog declined 12% sequentially. It was split pretty evenly domestic and international and across all three segments. I understand that orders towards the end of last year were strong and you delivered on that this quarter with the revenue. But just how should we be thinking about revenue growth going forward by business?

Jason, this is Ben. We have been encouraged over the last year, really, of what's been going on in energy and that group with the gas heaters. I mentioned that in the comments, and I think we will still, despite the price of oil, see growth there.

On the aggregates side and the infrastructure side, I think we are okay. We've just got -- we need a highway bill to have -- to help sustain growth, but we also, and I mentioned high recycled asphalt plant, have some newer products that will help us sell equipment even in a challenging market. So I think when you look at it going ahead, I think we've got new products, including the pellet plant, that give an opportunity to grow our sales.

Okay. And the second large pellet order, last quarter it sounded like it was pretty close to heading towards a firm order. Coming out of the London conference, is that still in the works? Is it getting closer? Just help us out (multiple speakers)

It's still in the works. Had a meeting with the customer there, our guys did, and it is looking like it is this quarter. And as I mentioned in the comments, it is requiring a high level of patience for us as the permitting and their supply contracts get worked out, but they indicated that they are very close to going ahead.

Okay. And just SG&A, David, appreciate all the details on what drove it, but the run rate of $41 million, is that still how you are thinking about it going forward or do some of these change that at all?

Yes, I think it could be slightly higher than that. I don't think it is going to maintain this high run rate, but, again, there are a couple of wild cards in there.

The health insurance played havoc with us this quarter and that was certainly not something -- we are a self-insured company, so it was not something that we -- that you can even mitigate. It is what it is, so we are responsible for it.

So we're -- I don't think it's going to maintain the run rate that we had in the first quarter, but it could be slightly higher than the $41 million on a run rate basis.

Okay, I will go back in the queue. Thanks, guys.

Mig Dobre, Robert W. Baird.

This is Brian Brophy on for Mig. Just had a few questions on the infrastructure segment. Sales were pretty strong this quarter versus last year. I was hoping you could elaborate on which product lines were driving that growth.

Brian, this is Ben. As I mentioned in my comments, we had a pretty good -- it was really a pretty good selling season for our asphalt plants, so that's at the Astec Inc. division.

But again, we -- a typical back in the day, years, for Astec, we had what we used to call the summer doldrums, and one of the concerns would be there that would you have the summer doldrums on the asphalt plants. An offset to that is the pellet plant, so if we could sell one or two of those, that would fill that up, but it was at the Astec Inc. division and asphalt plants.

Got it, and dovetailing on that, is it possible that we could see the beginning of a large replacement cycle in asphalt plants, even without a long-term highway bill? Can the stronger private markets and state initiatives provide enough confidence for your customers to drive that replacement cycle?

I think we probably saw a little bit of that through this buying season. Between that and their -- their prices for liquid have gone down a little bit. We are seeing an average price, talking to different customers, anywhere from -- depending on the part of the region you are in -- $400 to $500, so maybe use $450 a ton. That's down, so that's helping them a little bit.

So, yes, I think that could happen and we were -- you know how we are. We travel a lot. So seeing some customers during the quarter, there are some initiatives being taken at a state and local level to help with construction of infrastructure, and so, yes, we gave definitely see that. But I think it would take a highway bill to make it a consistent demand through a few years.

I think you'll still see when they get into their season there will be seasonality in asphalt plant purchases because they'll be focused on doing the work.

Got it, and then on the wood pellet plants, you mentioned you were expecting to get an order this quarter. Would revenue be recognized this quarter as well or would that be pushed out to a different quarter?

No, Brian, I think if it is -- the sooner it is, the better chance we have of recognizing any revenue in the quarter -- in the year, not the quarter. So the best case would be to recognize part of it in the fourth quarter and the rest of it in the first part of next year.

Got it. Thanks, I will pass it on.

Nick Coppola, Thompson Research.

Aggregate and mining continued to see some nice double-digit year-over-year growth. What were the key drivers in that segment and were there certain customer types or end markets that really drove that?

Nick, this is Ben. They have really been pretty balanced in the quarter where their equipment went. There were some larger projects and then a lot of on-site crushing -- contractor-type crushing sales, so to target it, I think it was kind of a balanced quarter.

Going ahead, one of the challenges for that group, if oil stays down. They are pretty successful in the oil regions in the US and that could be a concern for us, although it's not there yet. There is still decent activity, but that has been a place where they have been pretty strong is supporting that business, too -- or there -- in that group, there would be a dealer network supporting that business.

Okay, and then second question, also regarding oil, in the energy segment where are you looking for growth in 2015? And I'm just trying to understand where in that segment oil prices may have a bigger impact and where it may have a less significant impact.

Right. In that group, we have products in the heating side targeted at not just oil production, but also gas processing and chemical businesses, in food processing businesses.

And then, one of the things that David mentioned was new product introduction in the energy group, which it is a piece of the energy group and it is in there because it's with CEI that builds heaters and tanks, and that's going to -- in the energy side, they also do a lot of work with asphalt blending and some terminal work.

But the one thing that they are transforming and building, too, is a concrete plant, and number one for them, we moved the concrete plant we started to build at Astec to CEI because Astec focused on the wood pellet plant and now that's good because we have to focus on it. But on the other hand, that's a new product, first time for them, and so you get a hit on that in the quarter. But long range, next year is going to feel a lot better because they will be through that process and be a good supplier of new technology for concrete production.

So, there will be some growth that comes out of that, and the Peterson business for the wood chipping and the grinding, they are doing some good R&D on some new equipment that would come out end of this year, so there will be some growth from that. So there is some good R&D going on in that group.

Okay, that's all very helpful. Thanks for taking my question.

Ted Grace, Susquehanna.

Congrats on the quarter. Ben or David, could you maybe just talk about how 1Q performed to plan and how you are tracking to that? I apologize if I missed it, but I know you feel possibly optimistic within the first half and prospectively the second half, but could you just help us understand mark to market where you are, relative to where you thought you would be?

Well, there are a lot of variables in there. That's a loaded question, so, yes, I think we are pretty positive on where the year is going.

Again, there are headwinds. There are the ForEx headwinds. We have put a lot into international growth, into putting people overseas to developing those markets in those geographical regions, and we think we are ahead. Even though we have got those headwinds, we think we are ahead of obviously where we would have been had we not made those investments.

So, I think when you compare to plan internationally, I think we are doing well. Domestically, again, the highway bill gets a lot of discussion and a lot of talk. The states are really driving a lot right now because they are being proactive and they are being very creative in the way they're having to finance the highways and their piece of it, because it is not something that is going to be able to sustain itself.

We're going to have to have some expenditures in some form or fashion, so we would love to see a gas tax, a user fee adjustment, but we are happy to work with whomever and provide the equipment that is going to be the most efficient to build these roads in the least costly manner.

So I think domestically we are holding our own. So overall, I would say that relative to where we think we should have been, we are where we think we should be. We are poised to take advantage of any uptick.

And on a related basis, just in terms of on the competitive front, can you maybe talk about what you are seeing in the core businesses, whether it is paving equipment or AMG, where it is more competitive and a more fragmented market? Can you just talk about what you are seeing on that end?

Ted, this is Ben. We are just -- we are still seeing competitors on just about -- every segment of our business has strong competition, and even on asphalt plants where the competitive landscape may be a little smaller, we have -- contractors are pretty shrewd buyers and we have competition on every deal.

Where we -- what we thought about was with the euro and the dollar and a lot of European competitors coming at us in the US, particularly on the mobile paving side, it was already competitive. So we haven't seen that change, so the pricing is still very competitive.

Okay, and the last thing, if I could just squeeze it in, and Ben, you have now -- you have been at this Company your whole career and you have been CEO for the last 15, 16 months. Could you just maybe talk about what your vision is for the Company in the next 10 years? And I realize that could be a really long-winded question, but just where do you see yourself taking Astec with the team, whether it's financial metrics that you are aiming for or end market diversification that you are targeting? I guess it would be interesting to hear where you see the greatest opportunities over the longer term.

That is a good question, Ted, and in the short term I feel like one of our goals needs to be to get -- try to get back to historical higher gross margins in the 25% range, and the things that we are doing to get there is a lean effort, working on our highway purchasing things.

And you can hurt yourself a little bit with purchasing because sometimes the cheapest thing isn't the best thing because long term you need quality, too, to be able to be in business down the road.

I want us to be doing a better job in parts and supporting customers and also being better on competitive parts. And so, those things are -- they may seem short term, but they take a little longer to get done.

Our target over the years of 15% growth a year, 10% pure organic and 5% through acquisition, is still a good target in my mind, and if we could do that, we would double our size every five years. It's more challenging on the acquisition side than it was maybe 10 years ago because of the private equity money that's on the sidelines, so as we look at companies, we have got to be more creative and think about things.

But the other thing I would tell you is we probably have a little bit bigger appetite today for a larger acquisition than we did in the past, so that -- we would take on a little bit of debt to do that, but we are not willing to bet the Company over it.

I think those are some things that may be outside of our thinking, and we are conservative by nature and that's not going to change, but we could maybe be a little more aggressive on the size of acquisition we would look at. Energy infrastructure and mining are the industries that we are focused on. We are not looking to get outside of that. If our city is infrastructure, energy, and mining, we are not going to want to get much outside our metropolitan area, as an example.

So that's not to say we wouldn't take a look, but it would have to make a lot of sense to do that. So those are just a few of the things that hopefully give you a little insight to how we think.

They do. They are really helpful. Best of luck this quarter. We will talk to you soon, guys.

Larry De Maria, William Blair.

Just a clarification, first, in the pellet plant orders, the potential anyway. Would you issue a press release for it? And remind us how many lines we would be looking at.

We would, and right now it looks like it's a three line.

Okay, thank you. And then, as we're getting closer to a long-term highway bill possibility, can you just help us understand better the impact and exposure maybe to public and private highway spending, maybe help us with the size of public versus private that you guys have and how far off peak we are in both of those, just so we can -- we want to try to gauge, obviously, sensitivity to the P&L, should we get a longer-term bill later this year.

Right. Our exposure, and this is Ben, I am sorry. Our infrastructure group would be more closely tied to the highway bill than most in our companies, although the aggregate group would supply the equipment to the quarries that would crush the rock for any roads or bridges or subgrades that would be put in as a result of a highway bill.

So to quantify, it's a little bit -- I wish I had the crystal ball because -- but I would tell you I know that there is still a lot of pent-up demand, in traveling around and talking to customers. I know that our customers' equipment is running at higher capacities from being out there, and I do think if we got a highway bill, we would see a quick increase in larger CapEx orders, and then a little bit of a break while people figure out where the work was going to be let. And then with the right bill, we'd probably have a couple, three years of a good run in probably both infrastructure and the aggregate side of our business.

To put a percentage on it not knowing what the bill would be, it's impossible to say, but it would be very good for us.

I can give you a little bit more -- you didn't ask, but I will tell you what we're hearing on the bill. There was a fly-in of the Transportation Construction Coalition last week and we had several of our division presidents attend. That's why we think it looks like an extension of May 31, and we definitely see and feel and hear a desire by our representatives, and we have divisions in multiple states, so there are multiple states in this comment, from Congressman and Senators that there is a desire to put a long-term bill in place.

How to fund it is the big question, and everybody seems to be scared of a gas tax and people are going out, tax reform tied to it or repatriation tied to it. At the end of the day, it's who will walk the plank and be the one to say this is what we are going to do and put it out there for a vote.

The associations, I talked to a large association yesterday, they are seeing the same thing. They are telling us they see a small crack in the door for some kind of bill by May 31. That's not what we are hearing from our representatives, but they like -- the associations liked the TCC fly-in tone and they feel like it got attention like we haven't had in the past because the tone was maybe slightly angry, people that were talking to the Representatives, and that took the Representatives and the Senators by surprise, to the point that there was a fundraiser where one of the guys came in to the meeting and was lighthearted, and when he left, he was not so glad he came to the meeting.

So it -- I think they got their attention. I think my opinion is we're going to need a highway bill to happen by August or we will be in extensions until after the presidential election because nobody will want to touch it.

The rest of the story is that Congress in DC has proven that they will do extensions, so if they do that, that means a lot of mill and inlay work, and we have built equipment that is wheelhouse for mill and inlay work. So it's not the end of the world if this extensions. It would just be a great world or better world, I guess, if we had a long-term highway bill, and that's just not for Astec Industries. That's the country.

We travel to a lot of states and I can tell you, the roads are coming apart and you don't want to look underneath the bridges you are driving over. And at some point, Congress has to wake up and do something because it really is getting bad.

So, anyway, if you didn't want that comment, I am sorry. I am on my soapbox, but we just need to do it. And it's not just for Astec; it's for the country.

No, thank you very much. That's really, really helpful. I appreciate it.

Just the last thing, obviously the states will pick up a lot of the slack due to what's going on in the federal side. Is that a structural shift or does that come down if we get a longer-term bill and the states pull back on their spending, or is that just a structural shift now?

I think once it gets into place and if the states continue -- we were in the Dakotas earlier this quarter, South Dakota, I think, is the one that had just put in a $0.06 a gallon gas tax increase. If they will keep it in the roads, people are okay with that. It's when they siphon it off and take it to the general fund that people start -- stop trusting them and then it doesn't get approved down the road.

So, I think it becomes more permanent if they keep spending it on roads and people see the results, and the states will still have to match federal funds, so there are things that they are putting in place now that are helping shore them up a little bit will actually need to be in place to help them meet their matching funds on the other side of the federal highway bill, too. So it's good that that is happening before the bill.

Okay, thank you very much. Good luck this year.

Brian Sponheimer, Gabelli.

Thank you very much for that color on the bill. That was where I was headed with my first question. I guess just one on the potential for another pellet plant. If you were to get this order, this would be added to your -- would all three lines be immediately added to your backlog?

Yes.

Okay. And do you anticipate funding this in the same manner that you did the first three lines?

No. Our customer has their own financing. So we really don't intend to be in the pellet plant finance business. And fortunately, the people that we -- we picked up some additional leads while we were at the conference and everyone we are talking to has their own funding.

So, could you just very quickly explain the differences from an accounting perspective as far as how this would flow through your P&L versus your first plant?

Yes, I can explain that. This is David, Brian. On the first plant (multiple speakers) yes, so in the first plant we are financing that, and so you have to defer the revenue because it is essentially our plant until we finish it and they get their financing. And once that financing is in place, we can recognize the revenue.

On these other plants, once we deliver the facility, which we have already done for the initial plants that we are financing, but for these additional plants, once we deliver those, we would recognize the revenue because the financing would already be in place with the third party. So that's the fundamental difference right there.

Okay, so this isn't a pay-as-you-go, either. This is -- you set up a line and send them an invoice and they pay you for the whole thing and that's that?

Right.

Okay. All right, I appreciate that. Thank you very much.

Stanley Elliott, Stifel.

Thank you for taking my call. Quick question, I hate to go back to the wood pellet piece, but on the permitting or the customer that you are thinking will have the order by the end of this year, they have both their permitting secured already and their financing secured? I just want to make sure that I heard that correctly.

Well, I would tell you that -- the answer to that would be 95% on both.

Okay.

And about the same on their supply contracts, so they are very comfortable where they are.

Perfect. Then you talked about getting the gross profit back up to 25% as a near-term goal. There is lots of momentum on this pellet business. Is it a matter of flipping the switch once you get the one that's in testing right now, maybe another one or two lines or plants, actual plants going, that you can get up to that 25% threshold, or is it that some other parts of the energy business need to help pick up some of that slack?

With the pellet plant, when we are successful and get one sold and it comes through, it will show up in the infrastructure group through Astec Inc. because they are the lead seller of the equipment, so it will show up in infrastructure even though the product is for energy.

So, the opportunity for us is -- the first one out the gate was in the range of normal margin on the site. That's the first one and we have taken our punches in getting it all lined out and getting it running. And so, we have an opportunity to be back in line with historical margins in the course of the second plant, the one that we are selling now.

But we will have to do a lot of things right and we will be focused on it, but we have the opportunity to do that on this one that we're getting ready to sell. It won't be home run type margins, but we can get it back in line with our traditional margins.

Perfect, and I apologize if you guys said something about this earlier, but what sort of benefit could we possibly see from lower input costs, steel, et cetera, in the back half of the year?

Well, right now, this is Ben, we are seeing steel prices down a little bit as we travel around the divisions. One of the challenges we have goes back to the question about competition and pricing, and we're still seeing quite a bit of competition, so we're going to try to get the advantage where we can, but to a certain extent -- I hate to say we give it away. We are trying to keep it, but we are facing pretty stiff competition in a lot of places, too.

Perfect. Thank you very much and good luck.

Brian Rafn, Morgan Dempsey.

Give me a sense, you talked a little bit about -- I was going to ask you about the price elasticity on the infrastructure with the construction and engineering side, road builders or pavers and that type of thing. You talked about them being very shrewd buyers and certainly having stiff competition.

I am wondering, you guys develop a lot of new products. What is the receptivity of some of the road builders adopting new product, given how competitive they are and how price elastic they are? Are they deferring any when you guys bring out a new product line? Is the [deferrance] today different than maybe their adoption might have been when markets were a little stronger?

Brian, this is Ben. What we are seeing is if we've got a new product like our high recycled asphalt plant system, what we call the V-flight system, that causes inside the drum their flights have a new design and then we tie that design in with the VFD on our drum, which is more detail than you probably ever wanted. But where we can run higher recycle from 0% up to 65% through an existing spiral drum, there is great reception to that.

And so, we do okay on that. The problem with that particular one is the prices aren't high enough. We need to sell a lot more of them to make a difference on the topline, but we have seen good reception to things that help them lower their costs and be more competitive to get -- win more work, win more bids.

Okay. Is there -- are there any -- on a regional basis, there are some states where the DOTs have been pretty aggressive -- Texas, Florida, Wisconsin. Are there pockets of strength where you are seeing better business versus maybe other areas where states, maybe the DOTs aren't as aggressive in the infrastructure build?

Yes, and you named some of those states. Texas is one where we have done very well. We have done well up in the Dakotas and the Midwest in general. On the west coast, California on the infrastructure side, not so much, although we did deliver a large asphalt plant to California during the quarter. But it was -- that has been a few and far between delivery.

But we definitely -- and that holds true even when there is a big highway bill because different states are in different positions, so there will be that kind of -- there is hot areas and not so hot areas even when there is a highway bill. But the middle part of the US has been good for us.

Yes. Let me ask you, going back to the highway bill, as you look at your discussions have really been about timing. I think you made a very good comment if we don't get something by August, this may be it for this administration. From the standpoint of what kind of dollar volume or what kind of dollar -- if you look at Army Corps of Engineers, if you look at Obama's shovel ready, you have numbers on a six-year highway bill that are all over the map. What is your sense of if we get a bill, what might be -- what might we see in total dollars for the bill?

Brian, it depends on the years that they went, because we have heard everything from a four- to a five- to a six-year bill, and my -- this is just an educated guess, but my guess would be about $50 billion a year.

Okay.

I don't have anything in writing or anything to take that to, other than just hearing what I'm hearing, and that's just pure opinion.

Well, that's fine. Your opinion weighs very high, so I think we will take that.

Let me ask if we get -- if we don't make August and we're back to, as you said, the milling and inlay business, is there any point where equipment becomes critical from a standpoint of if you say that you are seeing higher capacity utilization, the private business is coming up. At what point if we don't have a six-year bill is there some incremental secular buildup or might that be it for the entire administration? Might we be that sluggish for the next two or three years?

I think there are two pieces to that because you've got the private side and the public side, and it seems like for our customers in the private economy, it's staying pretty consistent and that has been a pretty good base for them now for a little while.

And then, you've got the states with their funding mechanisms that they are starting to put in place, and then the federal government. I think if there is extensions, the base is in place for everything to be okay, and then our job and our place is to have the new product releases that we are working on come out to help create additional demand to the normal demand that comes in a stable market. And those are the things that we are working on in our different divisions right now.

Okay. Let me ask you a dumb question. I see -- every time I see Tennessee's Bob Corker on the TV talking about Iran, was he the bright card, the lead guy in this highway bill, or is that just your representative from Tennessee? And if he is mitigating deals with Iran, does that at all take away his leadership from the highway bill?

That proposal never became a bill, but they put out a written proposal saying, hey, we would like to see a $0.12 a gallon gas tax increase over two years, and that was Senator Corker and Senator Murphy. Murphy is out of Connecticut, and Murphy is a Democrat and Corker is a Republican, so it was bipartisan.

So I think it's fair to say that with his Foreign Relations Committee assignment that he's a little more focused on the international and what's going on there, but I wouldn't say that his staff is not less focused. In talking with them, they are still a very vocal supporter of highway funding and we have talked to them within the last week, really, and they are still very much a supporter behind the scenes.

Okay. If you look on the infrastructure side, is there anything in this market of extensions, product lines that are doing better than maybe -- small pavers versus larger pavers or types of hot asphalt mix plants? Or is it each quarter is very different in the product mix?

Brian, we are seeing pretty consistent market share gain in small pavers and in larger pavers, too. So, that would be the Carlson pavers on the small side and Roadtec on the large side. And we're seeing good market share on the milling machines, and we have been very pleased with how both those companies are doing.

Okay, and just one final. Your sense, again, from a 50,000-foot view, your capacity utilization, how many shifts are you running, infrastructure versus energy and mining, your three basic segment business?

Sure. Overall, on average in every group, we are running around 70% to 75% utilization. Of course, we have some divisions that aren't running that much, but that would be a pretty fair average.

Okay. Any hiring at all, headcount this year, or pretty stasis?

We will do it as demand requires. We are in a couple of markets where it's a challenge to hire. South Dakota is a challenge to hire. Oklahoma has been, probably less of a challenge with oil where it is. Other than that, I think we will be able to find the right level of labor.

Okay, guys. Congratulations. Very good quarter.

Thank you. Ladies and gentlemen, this concludes today's question-and-answer session. I would like to turn the floor back to Steve Anderson.

Thank you, Brenda. We appreciate everyone's participation on the first-quarter call and thank you for your interest in Astec.

As our news release indicates, today's call has been recorded. A replay of the conference call will be available through May 5, 2015, and an archived webcast will be available for 90 days. A transcript will be available under the investor relations section of the Astec Industries website within the next seven days. All of that information is contained in the news release that was sent out earlier today.

So this concludes our call. Thank you all. Have a good week.

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