Ladies and gentlemen, thank you for standing by. Welcome to the Actuant Corporation’s Second Quarter Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct the question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded Wednesday, March 16, 2016. It is now my pleasure to turn the conference over to Karen Bauer, Communications and Investor Relations Leader. Please go ahead, Ms. Bauer.

Good morning, and welcome to Actuant’s second quarter earnings conference call. On the call with me today are Bob Arzbaecher, Actuant’s newly re-retired CEO; Randy Baker, new CEO; and Andy Lampereur, CFO. Our earnings release and the slide presentation for today’s call are available in the Investors section of our website. Before we start, a word of caution. During this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Investors are cautioned that forward-looking statements are inherently uncertain and that there are number of factors that could cause actual results to differ materially from these statements. These factors are outlined in our SEC filings. Consistent with prior quarters, we will utilize the one question, one follow-up rule, in order to keep today’s call to an hour. Thank you in advance for following this practice. And with that, I will turn the call over to Bob.

Thanks, Karen and good morning, everyone. Thank you for joining us on the second quarter earnings call. To start the call I would like to introduce and welcome Randy Baker, as Actuant’s new President and CEO. It’s been about six months since I resumed my CEO duties at Actuant and when I returned I indicated I would focus on running the business by Actuant’s Board would focus on selecting a new CEO. The CEO search process was extensive, and included both internal and external candidates. While I was not on the selection committee I was involved in interviewing, discussing Actuant in its business strategies and finally helping on Board Randy. Randy joined Actuant on March 1 and I along with the rest of the Board and excited to have him at the helm and strongly believe he is the right leader to take Actuant to the next level. Randy has 30 years of experience in a variety of industries and organizations with broader size and scale than Actuant. The Board was particularly drawn by its track record of customer focus, new product development and service revenue growth. Now on to the second quarter. As you read in last week's preannouncement and this morning's press release, our second quarter results fell short of expectations. The industrial recession continues to weigh on demand and we continue to face headwinds in most of our end markets. EPS of $0.21 a share excluding impairment and restructuring charges was at the high-end of the guidance range entirely due to the lower full-year effective tax rate. Cash flow came in as expected and we used approximately $5 million to repurchase shares in the quarter. We also deployed approximately $15 million on a small tuck-in acquisition in the Industrial segment. We feel good about the acquisition pipeline as it currently stands. As I step back to retirement, I am confident that Randy and the Actuant leadership team will do all the things within their control to drive cash flow, customer focus, and operating results. I will remain on the Actuant Board of Directors and be available to support Actuant in anyway Randy sees fit. Mostly, that means getting out of his way. I will turn the call over to Andy to go through the quarter details and Randy will come back and provide his thoughts. Andy?

Thanks, Bob and good morning everyone. I am going to start today's financial review on Slide 4, with the reconciliation of second quarter GAAP to non-GAAP results to remove the current year restructuring costs and impairment charges. As reported in last week's press release, we recognized a $169 million net impairment charge to reduce the carrying value of our Cortland, Viking and Maximatecc businesses. The triggering event for the impairment charge for our energy businesses with the additional round of oil and gas, customer capital expenditure reductions that’s impacting our Cortland and Viking business units, which are tied to the exploration, drilling, and commissioning value streams in the oil and gas industry. We also wrote down the carrying value of our Maximatecc business, the result of reduced forecast. Excluding the $169 million impairment charge and about $4 million of restructuring expense neither of which were included in our guidance, we generated earnings per share of $0.21 a share compared to our second quarter guidance of $0.17 to $0.22 a share. These adjusted results include the benefit of lower effective income tax rate that will provide both cash and earnings benefit for the balance of the fiscal year. Relative to our second quarter guidance, the lower tax rate benefited EPS by about a nickel a share. Turning now to Page 5, we prepared a comparison of our second quarter results excluding the impairment charges in both years as well as restructuring costs this year. Our current year second quarter sales declined 13% while adjusted operating profit declined at a higher rate on account of lower gross profit margins. Our year-over-year EPS declined 25% as a result of lower operating profit which is partially offset by the lower income tax rate and lower share count due to buybacks. I’ll dissect these numbers…

Thanks Bob and Andy. I am excited to be joining Actuant with its long tradition of customer focus, cash flow, and operational excellence. Actuant is a Company with well-respected global brands, a sound business model, and achievable vision. Its track record for generating outstanding cash flow is impressive and it’s clearly one of our best assets. I’ve confirmed, in my first couple of weeks, that it is truly a great organization with enormous potential. I plan to spend the next 90 to 120 days as you would expect meeting customers, touring facilities, and learning about the business and people. As attractive as our future maybe, Actuant is facing some significant end market challenges. We have missed investor expectations for a number of quarters and we’ve underperformed versus our internal targets. Yet, our priorities are clear, we need to drive organic growth. We need to get our cost structure right and we need to successfully allocate our strong free cash flow. That allocation process will continue to be disciplined with top priorities be investments and core growth, tuck-in acquisitions, stock buybacks, and debt reductions in that order. I have received many questions concerning about our 2018 vision of $300 million in EBITDA. It is achievable and we are committed to the efforts required to make it reality. Over the next two quarters, I’ll be formulating my detailed strategy and communicating the changes at our Investor Conference in the fall. Rest assured, we will be highly focused on creating value for shareholders. I am honored to be the Actuant’s CEO and I am looking forward to meeting and working with all of you. That’s it for our prepared remarks. Operator, we can open it up for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Charley Brady with SunTrust Robinson Humphrey. Please proceed with your question.

Hi, thanks. Good morning.

Good morning, Charley.

Just on the industrial for a second, can you just maybe parse out what the Enerpac tools business and the Enerpac pack the large project business look like in the quarter and whether that had any impact on the margin?

Yes, the IT business which is the traditional Enerpac business was down essentially what drove the reduction, we do have a slight decline within IS as well, so that mix did not help – the mix of those two did not help with the base IT business being down more than IS.

Can you talk about the cadence, as you went through the quarter? Was it continuing to down month after month? Or was there any kind of stabilization particularly as you exited the quarter?

Charley, this is Randy. We really didn't see any sequential change in order bookings rates, it really started slow and ended slow. So we really didn't believe that there was going to change substantially at the end of the quarter.

Okay. I’ll get back in queue. Thanks.

Our next question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Please proceed.

Hey, good morning guys. Welcome aboard, Randy.

Thanks.

Good morning, Jeff.

So just back on industrial, it just seems like we’re seeing kind of a greater deceleration happening at a time where a lot of distributors and companies are starting to talk about easier comps and destocking abating. And I just want to understand better where you're seeing particularly this further step down in activity and what maybe your distributors are telling you is kind of driving that behavior?

I would say that we do not believe much of the decline that we saw in industrial this quarter, even the last quarter was a result of destocking. Most of our distributors do not carry a lot of Enerpac product in inventory because our turn rate on it is so quick. What orders come in today it goes out tomorrow. Essentially what our distributors are telling us is it is weak everywhere, in all market, certainly if we’re talking to someone that’s down in Houston or someone that’s near the coal mines, it’s going to be a different – a much more negative story than other general fluid power distributors, but it isn’t like there are packets where we are seeing good growth in this area geographically or in some specific niche it’s across the board. It’s weak out there. We don't feel this has anything to do with market share at all. We really poked and probed distributors on that. And certainly the end markets that are the worst would be mining, would be energy and certainly we’ve got to tie in with both of those. I think the other item I would say, regarding our Enerpac businesses. While we do sell through some industrial distributors like Grainger or Fastenal that clearly is not the normal type of distributor we have, where we’re working with specialty fluid power distributors. So there we are selling tools through them as opposed to a consumable like a fastener or something like that. So that's definitely a difference between our typical distributor and those industrial distributors.

Okay. And then over on energy, you cited the mix in Hydratight. Can you just talk about visibility one, in general on Hydratight? And if you think kind of that mix dynamic with service continues into the second half?

Yes, I think the quick answer is, we do expect this mix to continue, we have reasonable visibility to the spring turnaround season around Hydratight, and it feels pretty good. I mean this is not one specific region. It’s not just the Middle East, it’s not just the U.S., we are seeing pretty good strength, obviously the North Sea is a little bit weaker than other regions. But it's pretty consistent out there and the service level will continue, I think it will continue to outperform maybe the sale of products which are little bit higher margins so that mix will continue and certainly across our businesses within the Energy segment there is no question that the mix is going to be a headwind as Hydratight type will be up, but the other two will be down and Viking’s decremental margins on its rental are significant, will weigh on the overall segment margins.

Okay, thanks guys.

Our next question comes from the line of Matt McConnell with RBC Capital Markets. Please proceed.

Thank you, good morning.

Good morning Matt.

Randy, I was hoping to ask about your view on some of the hallmarks of Actuant recently? And specifically, the four growth spaces that have been emphasized ag, energy, infrastructure, mining and then I know you touched on it briefly in your prepared remarks, but capital allocation has historically been very focused on bolt-on M&A and the occasional slightly larger deal. So what are your view on those two elements of how Actuant has historically been run? Are those under review? Or when might you have any viewpoint on whether those are the strategies, going forward, whether they could be adjustments?

You can imagine for the last two and half weeks I’ve been digging in a lot of detail on that exact topic. The areas I have probably the most interesting right now and simply is the service revenue stream coming out of our energy sector. It is very impressive. They have got a great pipeline of jobs. When you see over a 1000 field service people, pulling wrenches on jobs around the world making us money, it’s an area that we undoubtedly will continue to drive a lot of growth in. I think that element is going to be clearly on my gun sites in the next couple of months. As far as the general other streams that you saw, mining is going to be a tough market for a long time. There's no doubt about that. And so there's service components in our industrial business that are going to become even more prevalent because the equipment in those mines are actually being run at higher utilizations than ever before. Those fleets have been shut down so what was large fleets of trucks are now cut down to make sure the utilization rates are back up to 80%, which means they have to be better at doing service. So I think that some of the tooling and things we can do to help those mines can be helpful. Ag is going to go through its cycle. I'm hopeful that we are going to see a good crop season this year, it sounds like a lot of people got into the fields early and I also think that once that Hay & Forage business starts to fall order writing for those companies of the big three, we are hoping to see some outflow of orders from our core business, but I do think that there's targets in every single segment. I think the strategy is valid. I think as I go through the next four or five months there will be some tweaks to that strategy and relative to your question on capital allocation and how we go out, go after tuck-in acquisitions I think that’s a great idea. I think that what's been done in the past has been good and it’s provided growth that the Company desperately needed. So I see no change in that strategy in the short-term. Our pipeline has activity right now and from what I've seen it matches up to that strategy quite well.

Okay, great. Thank you very much.

Our next question comes from the line of Mig Dobre with RW Baird. Please proceed.

All right, good morning everyone. It’s Joe Grabowski on for Mig this morning. I guess I just wanted to ask about the destocking in off-highway vehicles. Was it pretty uniform across the different off-highway end markets? And then, how do you see it playing out over the next quarter? Do you think it's closer to the end of the destocking? Or do you think it lasts through the quarter? Just some perspective there?

I’ll tackle that one, and if Randy has any additional comments he can come on. I would say it was pretty universal across the off-highway markets, we consider that being construction equipment and Ag and forestry, material handling, mining for that matter as well, pretty consistent across. We’ve had customers in each of those verticals adjust down their production schedules or push new product introductions out and whatnot. I would say it’s probably worse in the U.S. than it is in Europe. On that, certainly, our on-highway stuff is not being impacted in the same way being heavy-duty truck and automotive. So I guess that would be my two cents on it.

Great. Okay. Thanks. And then I guess my follow-up question and I hate to ask about the tax rate, but it seems like the tax rate has been negative, three out of the last four quarters. And the guidance, maybe, is for it to be pretty close to zero, maybe, for the third quarter. Just a little bit more, maybe, on what's driving the tax rate so low? And what – I guess what the outlook is, maybe even past the next couple quarters? How long can these low tax rates sustain?

Sure. One of the reasons we had the negative tax rate this quarter is because we had a positive tax rate last quarter and as you book the accounting rules, as you book taxes you're looking towards the whole year, what is your rate going to be for the whole year. And you start off with that assumption and if there's anything unusual in a particular quarter a big credit or an adjustment or something because of a change in planning you run it through at that point in time. So what we have this quarter, we essentially we are reversing the expense we had in the first quarter, because our outlook for the full-year has come down from what we thought was going to be 15% down to 5%. So you say why is it down from 15% now down to 5%? There’s two items that I called out in particular, and I will just review them again. Our highest tax jurisdiction, bar none, is the U.S. 3% state rates, our income in the U.S. is down, our forecast for the year is down relative to what our plan was and relative to what it was in December. As a result of that, our mix improves plus where we are recognizing a little bit better profiles, or better outlooks, in some of our lower tax countries. There’s countries out there that have tax rates that are less than half of what the U.S. is and we’re seeing a quite a shift, where we’re seeing some income. So that mix is really helping us out as we move on for the year. The last item I would call out for taxes and again, not trying to get too technical on this thing, but if we have a fixed tax credit, say there is a fixed tax credit out there. I’ll just throw out a number $5 million. And you expect that your pre-tax earnings are going to be $100 million at the beginning of the year. That will have 500 basis points of impact on the tax rate. If you get into the year and you say my taxable income is no longer to $100 million, it's going to be $70 million, but I still have that same $5 million fixed tax credit out there, it’s not impacted by what's happening with revenues that will have a much bigger impact. And that’s essentially – those are the items that have really impacted us here from a tax rate standpoint.

Great. That makes sense.

The other thing I just want to toss in there, just for clarity. This is cash taxes, absolutely. This is not an adjustment where we are adjusting, reversing a tax reserve or something like that, on the balance sheet. This will benefit our free cash flow for the year, as has the stuff in the past.

Okay. Understood, thanks. Thanks for taking my questions.

[Operator Instructions] Our next question comes from the line of Justin Bergner with Gabelli & Company. Please proceed.

Good morning everyone and congratulations Randal on your joining the Company.

Thank you.

My first question relates to I guess the industrial side of the business. Are you still seeing sequential declines there and sort of once things stabilize, is there any possibility that the recovery will be V-shaped or is there nothing in what you are seeing to suggest that at the current time?

Hey, I’ll jump in and Randy can come behind me if I miss something here. Certainly, sequentially from quarter one to quarter two, we saw a reduction in sales that’s normal because the seasonality in absolute dollars we’ll see a step up in Q3 relative to Q2 because of the seasonality. We tend to look at core. What is happening core year-over-year and when you look back over the last three, four quarters, it's been a pretty clear trend where it’s been weakening on a year-over-year basis for quite some time, and the last three quarters as an example. So that has not improved and as we mentioned during the quarter, it was not a situation where we had one bad month and then two good months, so the quarter finished better, it actually was a modest weakening during the course of the quarter from December to January to February. So I wish I had better news on that standpoint, in terms of recovery, V, what it means. I’m not going to stick my neck out and say that though we’re expecting a V-recovery in this thing. I'm just looking for an improvement in our daily order rates, which we’re going to see because of seasonality here, but how does that compare to what we had last year and that's really the thing we are watching right now.

Thank you. I appreciate the color. One other question on capital allocation? Is there any change today to the acquisition strategy to focus on tuck-in acquisitions. And if not what would allow the management and the board to consider changing that acquisition strategy going forward particularly as you make progress or tend to make progress towards the $300 million EBITDA target?

Let me cover in a couple of ways. First of all, if you think about the $300 million target, we had about $40 million attributed to tuck-in acquisitions. And so from that perspective I think that strategy is valid and we have enough in the pipeline that we’re on the road towards that end game. What would change our strategy to go to larger ones or different type of acquisitions, which have to be a very good strategic fit. And if we found something that absolutely matched our strategy, and we felt that it was at a value rate that helped our Company. We would probably start looking at it, but our short range I am talking probably the one and a half years in front of us. These $45 million to $100 million acquisition range are the right size for this size of company to consume and get value out of quickly. And to me that's the most important things, we have to get value quickly out of it. It can’t be a six-year turnaround.

Thank you for taking my questions.

Our next question comes from the line of Stanley Elliott with Stifel. Please proceed.

Hi, good morning everyone, and Randy, welcome aboard.

Thank you.

Randy quick question for you. Could you talk about your thoughts on Actuant’s new product development that had a lot of – that had the G&I initiatives in for quite some time. You maybe think about what are your thoughts high level on the process. I know it's still pretty early, maybe things that they do well, things you guys could improve going forward?

Yes, I think that there is a couple elements that I’ve had personal experience with right now. Our joint integrity processes, I think are spot on. I like what we’re doing there because it's differentiating who we are in the market space and it's something that a lot of our competitors can't do it. And particularly, if you are doing joint integrity it's about the exact torque ratios that you put on individual bolts that get to a very, very tight and safe joint. The second one that I really like in our Ag sector is we’ve got some technology coming that I think is going to be very, very good in and having my background in Ag and particularly in the implement and attachment combine headers, there's some new transmission technologies we’ve come out with that effectively eliminates some of the maintenance requirements in the header and also simplifies it a great deal. And when you see things like that in agriculture it’s a big deal for the farmer, because when you are in the field you don’t want to stop. You only have a few weeks when your corn or soybeans are ready to come in and anything you can help them on their maintenance is a great win for them. So we have good partners there, developing those products and you'll see that out in the future. So the pipeline is there. I’m getting into it. I think that there's individual products and whether it's on-road trucks, anything there, the tools guys are constantly coming up with new attachments and usage. So I'm confident it's in there, but my background is we are going to press hard to find differentiated product that quite honestly the competition has no answer to because that will gain your share.

Great. And then, when you talk broadly speaking, about the service revenue component being a larger piece of the business. Does that structurally change how we should think about Actuant margin profile going forward, with service revenues typically being a little bit less margin-rich than some of the equipment side?

Well, let me try to address that in service inherently will drive a lower margin than some of the original equipment or components. But what I can tell you - and Andy may want to get into a little further detail - but our service margins are very, very healthy. And our utilization of those crews, which is a critical aspect of driving good service revenue is outstanding, in fact the project management capabilities that I've seen here would drive only thing I saw in the mining industry. So I think that is something that we want to make sure, we keep an eye on, but I also believe it's not going to diluted in the long run.

Yes, the other comments I would just toss in there is from a ROIC basis we are very focused on ROIC here as you know and cash flow is everything, we love the service business because it’s a very high ROIC and we don’t have to invest a lot of brick-and-mortar and inventory more importantly in this thing. And the beauty of service is it pulls through high-margin product sales and in our case high-margin rental businesses well within Hydratight although, not all of it does, but that’s certainly part of it. The mix thing that I talked about earlier with service and rental it’s not just that Hydratight is doing well from a service and suddenly, its service business is going gangbusters. It's also the fact that you’ve got high-margin coming off on the Viking business because of the rental part there and there is not as much service on that part of the business.

Great, guys. And one last one if I could. Whether it’s a U or V shaped recovery, how should we think about incremental margins, with all these things kind of moving behind the scenes? Thanks.

No change I think from what our historical view is I mean industrial margins will be very, very robust on the way up, certainly we talked about 40 range in the past, in the energy we talked about 30 and little bit behind that on the Engineered Solutions side, so no change.

Our next question is a follow-up question from the line of Matt McConnell with RBC Capital Markets. Please proceed.

Thank you. I just wanted to follow-up on what your long-term expectations are in Viking and Cortland? I know you've done a lot of restructuring across the whole company including energy. But how are you setting up the cost structure in those two businesses specifically? And what are your expectations for offshore oil and gas activity in the medium and longer-term?

Well, I think that the cost structures that I’ve reviewed thus far we have taken major trimming and we moved assets around and try to utilize them better particularly in the Viking business. And on the Cortland side, we gone into other segments because you know they are an optical cable business and they found other places that they can sell that product. But the fact is when you look at oil production whether it’s offshore or onshore, it will recover. I don't believe that’s a long-term effect so we believe it's a solid business, and we’ve structured it whether the down cycle and that Energy segment right now is offsetting those decremental margins with service revenue in the Hydratight business. So I think we’re in good shape.

Okay, thank you.

Our next question is a follow-up question from the line of Justin Bergner with Gabelli & Company. Please proceed.

Thank you for taking my follow-up question. Just to delve a bit further, on the cost side. Clearly, you recently announced some major cost-cutting initiatives, due to weak end market conditions, and those end market conditions have weakened further. Is there anything that you're contemplating, in terms of incremental cost cutting? Or how would you think about the end market weakness that would necessitate a further round of cost cutting?

Good question. Something near and dear to my heart, obviously. We talked at the beginning of the year about a $25 million program from a restructuring standpoint. And when we teed that up, we had not approved each and every project. I can tell you that each month, we’re approving more and more, as we go along, so that $25 million is very solid. I think the savings that we communicated as well in that being roughly a two-year payback is valid. I am not limited in anyway from a mindset standpoint that I’ve used up to $25 million and therefore we’re done, because that clearly is not the case. We are still looking. We will keep on uncovering and turning over stones, to look for new opportunities going forward. If we see that we are going to exceed that $25 million in any meaningful way, we absolutely will communicate it to you guys on quarterly earnings calls. But today, we’re not saying hey, there’s another $10 million or $20 million or whatnot, but we’re not feeling any kind of limits, or feeling inhibited at all, because of that.

Great. Thanks for the clarity. End of Q&A

We have no further questions at this time. [Mr. Lampereur], I’ll turn the call back to you.

Well, thanks everybody for joining the call today. I'll be around all day to take any follow-ups that you have. Just a note for your calendar, our third quarter call will be on June 22. Thanks so much, bye-bye.

Bye-bye.

Thank you.