Good day, ladies and gentlemen, and welcome to the Franklin Electric Third Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be followed at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Mr. John Haines, Vice President and Chief Financial Officer. Sir, the podium is yours.

Thank you, Bryan. And welcome everyone to Franklin Electric's third quarter 2017 earnings conference call. With me today are Gregg Sengstack, our Chairman and Chief Executive Officer; and Robert Stone, Senior Vice President and President of our International Water Systems unit. On today's call, Gregg will review our third quarter business results and then I'll review our second quarter financial results. When I'm through, we will have some time for questions and answers. Before we begin, let me remind you that as we conduct this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, many of which could cause actual results to differ materially from such forward-looking statements. A discussion of these factors may be found in the Company's annual report on Form 10-K and in today's earnings release. All forward-looking statements made during this call are based on information currently available, and except as required by law, the Company assumes no obligation to update any forward-looking statements. With that, I will now turn the call over to our Chairman and Chief Executive Officer, Gregg Sengstack.

Thank you, John. We are pleased with the overall performance of our Company in the third quarter, in which solid organic growth in both our Water and Fueling Systems segments drove record sales and earnings per share. In the U.S. and Canada Water Systems business, we had organic growth in all three product lines, groundwater, surface and dewatering. While we believe the overall groundwater market was essentially flat to up a couple percent, our groundwater business was strong. Due impart to share gains as we replaced products of our competitors, we've elected to not continue to supply our distribution company. Surface pumping equipment sales continued to show steady single-digit sales growth. Dewatering equipment sales nearly doubled and backlog continued to increase with the strengthening demand in domestic oil and gas fuel service. Outside the U.S. and Canada, the story continues to be mixed. Sales in Asia Pacific were down 4% as we continue to face physical comparable to the third quarter last year most notably in Southeast Asia. We are encouraged by sales growth in Australia, Korea and China during the quarter. Sales in Latin America were weak across the entire region principally due to continued weak the economic conditions. Southern Africa results were also below expectation for generally the same regions. However business in Europe, the Middle East and North Africa was up strongly across all product lines even with continued weak demand in the Gulf States. Switching over to Fueling. Our Fueling Systems business continued to have strong organic, delivering another record quarter. U.S. and Canada Fueling revenue 10% as we continue to gain share with major marketers. Last week, our Fueling team interviewed several new products at the Annual Petroleum Equipment Trade Show including an extension to our 10 gauge line and Europe water-type floor electrical conduit…

Thanks, Gregg. Our fully diluted earnings per share were $0.52 for the third quarter of 2017 versus $0.50 for the third quarter of 2016, an increase of 4%. In the third quarter 2017, the company's earnings per share was $0.53 before restructuring expenses compared to 2016 third quarter EPS of $0.48 before restructuring expenses , a 10% increase. Third quarter sales were $311.1 million, an increase of 30% compared to 2016 third quarter sales of 239.8 million. Water Systems sales were $196.5 million in the third quarter 2017, an increase of $14.5 million or about 8% versus the third quarter 2016 sales of $182.0 million. Water Systems organic sales were also up 8% compared to the third quarter 2016 as foreign exchange was not been significant factor in the quarter. Water Systems sales in the U.S. and Canada were up about 11 percent compared to the prior year third quarter. Sales of Pioneer branded dewatering equipment increased by about 90% in the third quarter when compared to the prior year resulting from the continued diversification of customers and strengthening in U.S. oil and gas end markets. Sales of groundwater pumping equipment increased about 10% on broad based strength in both residential and agricultural systems. Another contributor to the increase in the U.S. in the groundwater equipment sales in the quarter is the replacement of other OEM products and sales to Headwater. As Gregg noted, certain pump and motor suppliers has elected to the discontinued sales to Headwater and this is a result of an entire sales of Franklin Electric products as well as the products from other existing or new pump suppliers in the replace to the Headwater Companies. Sales of other surface pumping equipment increased by 4% primarily in irrigation and agricultural related products. Water Systems sales in markets…

Thank you. [Operator Instructions] Our first question comes from the line of Mike Halloran from Robert W. Baird. Sir, your line is now open.

Thank you, morning, guys.

Good morning, Mike.

Good morning, Mike.

So, could you just talk a little bit about the distribution channel right now, do you think that you found the right runway going to - run rate going to the second and third quarter here in terms of had some put and takes with who's supplying you guys the pump motor combinations. Do you think you found the right run rate of business here or do you think that there's a little bit more disruption in the channel but still ahead?

Mike, I said the second quarter was not maternally impacted because we had inventory on hand of both supplier that were going to leave us and suppliers how rejoining us hadn't yet shift. Third quarter was disruptive because we just turning on that much supply from that many suppliers in relatively short period of time giving a trading going at all was in the third quarter. We're seeing convergence now be increasing so I'd say that's pretty much behind us. I expect the fourth quarter, we're still going to see a little bit of drag, but we have these suppliers in place to move forward and a team is in place more forward as well.

So, it sounds like you're saying that the - from a channel partner perspective that it started to stabilize here and then from a cost perspective the headwinds you guys mentioned in the quarter feels like a little bit of a drag in the fourth quarter but that also should be normalized as you move past the fourth quarter?

That's a good summary.

Okay. Great. And then could you talk a little about pricing on the - in your water business that it stands today not only just in terms of pricing but then also the price cost side too?

That's okay, John. Otherwise speak to kind of the pricing and generally I would say alluding to the North American market, I've said we're seeing kind the typical cycle we see where there is quarter-end promotional activity, I said pricing and we were seeing the situation in the country where we see where we will have significant discounting and then it is based. And so that's what we're seeing in North America. I'll turn it over to John for general pricing and cost structures. John?

Yeah, my side, on the year-to-date basis, we still have price over the raw material inflation and put in place that we see our water business has achieved in the neighborhood of 170 basis points of price in the third quarter and that's a fusion of work fueling is as well. So we have - we continue to have a spread to the raw material inflation that we see but it's not a significant spread as we have seen in prior year. So as we look maybe that's how to fourth quarter that is we look out into 2018 that will be a more significant factor for our company.

Thanks. And then last one on my side, pretty robust dealing topline internationally, could you just dig in a little deeper on the drivers on that side, it certainly sounds like its sustainable going in the fourth quarter?

Sure Mike. What we're seeing in the domestic market is, to some degree we are benefiting, we've been there since quite just being at the trade show last week. We got some conformation. We seeing and benefiting from a factor that EMV push out is allowing a more steady rate of overall upgrade not just focused on card readers, which is generally good for us. In addition, there are increasing regulations around tightness of subs and under expensive subs for where you bring the fuel the tanks. And so that's helping and it's going to I think again drive some organic growth over the next several years as people need to upgrade in the normal course for passionate for maintenance purposes. We're continuing to see also share gains and fuel management system and we as I point out in my prepared market, we've expanded our fuel management lines with two additional products whether we now have a complete suite of on our new platform. For the market there was really a positive deposit out there as they show us well the cable type which you get as a way to feed more water out of these underground subs as new cable type system our team came introduced. Outside the United States, we saw strength really across the globe and we're seeing again this regulatory move in China for the upgrades the pipes with a double wall tightening and we build to do that. We are seeing increasing order at further activity, we started to continue to Q4 and beyond in China which means strengthen in Europe. So we full seeing strength out of a cost the markets with the exceptional Latin America in the Fueling space and expect that to continue.

Great, I appreciate the color. Thank you.

Our next question comes from the line of Edward Marshall from Sidoti & Company. Sir, you line is now open.

Hey Gregg and John, how are you?

Good morning, Ed.

Good morning.

Good morning. So last time you updated, I think you talked about pump and motor suppliers, grump business item kind of set the side. Are there any during the third quarter where there any additional suppliers that kind of decided not to supply for the distribution houses?

Sure Ed. Yeah, additionally Elgar continue to supply us and then later in the third quarter they like to not do. It wasn't as larger the supplier Xylem and you can think as largest with they are like discontinue supplying headwater. And then there is a smaller company Flint & Walling that's like they discontinued supplying headwater.

Okay, okay. And how much collective with these core suppliers make up of that Headwater distribution, do you have that?

Yeah, it's going to be in the neighborhood $30 million of annual purchases. Without question the largest one was the Xylem relationship with Western Hydro on western 49 states, one plus Flint & Walling were much, much smaller. So if Xylem is the low 20s last year in terms of total supply, so when you combine the other three, we would say it's in the $30 million up range.

Got it. Okay. So, I looked at the margin in the quarter and I just wanted to talk about maybe I guess last year maybe you all have earned, this year you under earned and then maybe not I mean talk about the fourth quarter looking at some higher operation cost. Just kind of give a senses to make what that margin might look at like it's on the normalized basis within the distribution unit?

Our view Ed, is not really changed in terms of the margin expectations for the Headwater units when we first did the analysis the transactions, we said that we would expect kind of 4% through 6$%, we were kind of on the high end of that in the second quarter, we're below that and the third quarter. I think the factors that we are pointing out which are transitionary in our minds are you know as we go through the supply changes, it creates a tremendous amount of end market disruption and that disruption really is impacting the top line. So we're trying to convince contractors to stay with all distribution company and convert to products. Our competitors are trying to say well switch your distribution company and stay with the products that you have historically bought. So especially in a place like California that is an ongoing battle. That's going to lead to price pressure of course and it's going to lead to volume uncertainties. The other thing that that drives is the fact that you know to win that competitive situation in the marketplace, we're going to have to spend more from an SG&A perspective. We're going to spend more things like training, sales people, promotional type of activities, advertising type activities, all those kind of things are going to go into that. So we see that you know as transitionary through the third quarter through the fourth quarter. I think the other thing is how our third quarter margins that we're - we got a little bit of leverage in the Southeast, our unit that we call Drillers Service, Inc. or DSI is primarily based in the Southeast and part of the United States. And it was untreatable conditions there from a weather perspective and really its three end post hurricane. So from a revenue and a leverage perspective, we lost a little bit there that I think also contributed to those third quarter results.

Got it. I think when you acquired these business, I think conversation was looked at - sales representative in distribution unit was more than the OEM, talking about I guess about Western Hydro or maybe some of the discussion you have there, is there any - are you finding that still to be true and is there any way you can talk about a retainment rate, how these customers you actually retaining versus market share loss potential?

Sure Ed. And again with the Franklin Motor that product is available outside of Headwater as so it can be purchased from other distributors and for preferences around Franklin Motor, people can get that a number of locations. So we're seeing on the pump side and with the Headwater customer base and again and the Western Hydro was pretty diverse customer base beyond just submersible products that Franklin is most of unfold. We're seeing convergent rates we estimate in the high 60%, the low 70% volume and growing. We're feeling - we're retaining a fair number of customers. It's not as very difficult and better exactly we have factor from couple of ways and we're confident that our convergent rates now are moving to 70s. And as we now have more products sells from other pump suppliers that we are going to feel convergent rates continue to enroll.

What's your target for that rate?

Well, it should be over a 100% right, we want to get to the customers back and get more. So the team out there is interesting growing the business, they are growing with Franklin, they are growing with the other products. So their focus is to grow their business and this channel is supporting also commercial activity and other business part from that.

Okay, I'll set back in queue. Thanks.

Our next question comes from the line of Ryan Connors from Boenning & Scattergood. Your line is now open.

Great. Thanks, good morning. I wanted to talk a little bit about the margin in the water business, you mentioned quite a bit of the mix shift there in order to not going on with Pioneer growing like it is and lot of puts and takes there. Can you just kind of walk us through Gregg a little bit of the details of that mix shift and how we should think about you know the margin there going forward once the mix if this ever happens, is the mix quote unquote normalizes?

Ryan, given the current question and your request, I am going to turn it over to John.

Ryan, the adjusted operating margin for the quarter drop by about 60 basis points, a big part of that is due to product, what we call product and I guess to some extent of geography mix shift. You're right Pioneer has an outstanding quarter not only in the United States but internationally as well. That's a great thing from a growth perspective, but the Pioneer businesses doesn't have the same type of core margins, operating income margins that rest of our water segment does. So we're looking at meaningful differences there. We've targeted 16% to 18% of water operating income margins, we think that doable, but it will be sensitive around these types of mix shifts. So Pioneer is the big driver in the quarter. Other big drivers through are we had a great quarter in the Europe, Middle Eastern and Africa that Gregg mentioned, a big portion of that was in Turkey. Our business in Turkey continues to be really, really well and kind of same story just not the same margin, profile margin environment there in that market that we see another key groundwater markets around the world. We had a nice growth rate in pump product and pump components in Europe in a quarter as you know again driving part of that 20% organic growth. Again like we talk about really everywhere around the world, pump products don't have the same type of margin profile at the electro or motor products has. So that was an issue as well. So we saw nice organic growth. We saw big portions of that organic growth coming from products or coming in geographies that just aren't has higher margin. Now, there is improvement efforts going on. I think the key factor is what we were talking earlier about is offset this inflationary pressure that we see with price many more international business units have raise price and are actively achieving higher pricing and that's really the best opportunities we have to do that. With that that's a little bit on what's going on with the water margins in the quarter.

Okay. Okay, that's super. Thanks. Thanks for that, John. My next question was kind of a bigger picture question. But I wanted to give you a chance to address it on the call because it seems to come up more and more, it just has to do with the long term impact of electric vehicles and so forth on the fueling systems long term outlook. Can you just give us your perspective on that issue, Gregg?

Sure Ryan. Those get a lot of press, a lot of tension, obviously with the decision recently to again to find as certainly you're going to be pretty sure, you look at that information is available out there. The number of cars that are on the road today is going double maybe to triple if you look at various sources like the IMF over the next 25 years-35 years, the vast majority of those cars are going to be in places like China, India and other developing regions. And those regions already struggling with having insufficient infrastructure to support demand for electricity. So as we look at it, even though the cars going to give more efficient, there just going to be lot more cars on the road and these kind - the liquid fuels is the best way to power a vehicle. I mean pulling the issues about CO2 emission and side of things, you look at all energy sources where they are going to be a applied, liquid fuels did very well in rolling stock as close to maybe electricity being for heating or cooling ability and so on. So, as we've looked at various profiles for demand, for growth of energy, energy growth from the summer outlook up 25% to 50% any on, what numbers you look at over the 25 years to 35 years. All utilities resources are going to required even with renewable gaining additional attraction and coal being only the, not the growth in coal, but we see it in renewable. But the automobile is going to be powered by liquid fuels as we see it and kind of the industry sees it and I think people look at this on a global basis for a number of years.

Got it. That's helpful perspective, Gregg. And then my last one is more of a housekeeping for John, I guess why no buyback in the quarter John, you know the stock got a real nice dip after the last quarter which ended up to be transitory, so it's no surprise that that you hadn't jumped in there a little bit, any color there?

Yeah, this is, - I'm sorry excuse me, Ryan, as we've discussed in the past, we have idea of where we want to buy and as based on our view of the forward multiple and we just didn't - we didn't reach that point in the quarter. It's not for reason that we're thinking strategically about it, we absolutely want to buy or offset our dilutive share impact each year, but we also are thinking about it in terms of where the prices relative two or two multiple and that's the primary reason.

Got it. Okay, thanks for your time.

And our next question comes from the line of Matt Summerville from Alembic Global Advisors. Sir, your line is now open.

Thanks, good morning.

Hi Matt.

Maybe just some of the dewatering business up to 90%, I know that's against an easy comp but just to help put it in perspective, can you parse out how much of that growth is being driven by number one, sort of the rebound in drilling activity particularly sale; number two, what you've done internally to grow the business from a geographic and marketing customer diversification sort of initiative; and then three, if that business saw a measurable upticks related to those things?

Matt, couple of things, one is that that we're seeing the growth in Pioneer both domestically and internationally. So that gets to the diversification of the customer base. The sales of Pioneer when the sales are at lower run rate, we maybe a little over 55% close to 60% domestic and then over 40% international. Yes, it seem a little bit more surge in U.S. market but our international component Pioneer is significant and growing in several of markets overseas. With respect to domestic activity, we are as John point and as we point out in our earning release, we are seeing a stabilization oil and gas, we're seeing more end market demand for Pioneer, as now companies are expanding their fleets. We saw its oil and gas because of the type of mix of products that people are buying can be the larger products which before oil and gas. With respect to the hurricane, there was really, that's really for us because we're not in the rental business in the U.S. The rental companies when they see in about like that they start moving equipment and anticipation of the event. So they would benefit from that. We would benefit from kind of the after effect of having equipment heavily used in period of time for potential partner and additional equipment of fleet over the next say 12 to 18 months, but we've no immediate path from - about like that that we could measure. John you have…?

Yeah, all of that Matt is that we saw Franklin U.K., we saw Franklin South Africa, we did win a tender in U.K. that was worth about USD 1 million from an environmental agency there for pump products that shift in the core. I think the other point I'll make about the international market is you know we've been cultivating relationships in many of these international markets for the many, many years relative to the Pioneer products and you know some of those are just coming now to provision, it's a fairly long stable cycleconvincing cycle that those product makes sense and its virtual and reliable and all those kind of those kind of things. So, it's not that surprising job that in places like Australia and South Africa and Europe where we've been pushing Pioneer for a while that we're starting to see some fruits from that effort.

And then just the follow-up, maybe can you give a bit more of a detailed assessments in terms of what you're seeing in Latin America and South Africa in your traditional sort of non-dewatering business, I know you mentioned South African dewatering, so kind of looking at the end markets that those businesses are participating in, how you are growing relative to those so, as you can talk about market share in a component to answer. And then I guess what sort of gets the Brazilian business free invigorated things for lack of a better term of still pretty messy down there from a government standpoint? Thank you.

Okay, so Matt, you've identified one of the bigger issues in Brazil, Latin America. And the political situation there is not very stable then drives a lot of economic uncertainty. People will buy if they don't know what their future looks like. Clearly the distribution network we have in Brazil allows us to point many products in and everywhere in Brazil and the economy is just or that this - and we are coming in to the irrigation season, we should see a pickup there seasonally. From a share perspective, we're doing just fine, we don't see us having lost any share as we probably gain some share. Over this past year, the integration on this and it's fully integrated now and to our business in Brazil. Argentina is very soft for verity of reasons also some political instability. We have good share there but that's off I think that they come back in the next year or so. And Africa, we talk about a place with some political instability that's only driving a lot of uncertainty. Our end markets there are Ag and mining. Mining has recovered a little bit in Southern Africa not very much but very little was a year ago. We've got a lot of headroom growth opportunity for share gain in Africa well side of the country itself Africa, there is a lot of opportunity there. The challenge is getting to the buyers, we got to build out some distribution in that area and just get after. The economies are very soft right now.

Got it. And then just maybe one final follow-up just on Fueling business, I think this was made in the second quarter in a row, you sort of called out the double wall pipe initiative that the country is undertaking. Gregg, how long do you anticipate that being a tailwind for Franklin? And then I guess in terms your success, what's your flow share been if you are track that thus far associated with that specific initiatives?

Yes, so we would say that is a multiyear initiative. With China that we always cautious that they can turn these things off as quickly, by this regulation around they are building out throughout the country, there is a though that it need to be done. In three years, I don't think if you talk to people around in China that they think they can get all that done in three year, get a little sessions this is maybe after kind of five year initiatives. And it's going to I think continue to ramp during that period as a nice pace with hopefully above 10% pace. The share, I mean right now, double wall requirement as there are many people in the world that have the product line that could qualify. So we are in good position there, but I don't want to speculate on what initiatives but we are in meaningful position.

Great, thanks guys.

[Operator Instructions] Our next question comes from the line of Walter Liptak from Seaport Global. Sir, your line is now open.

Alright, thanks, good morning, John, good morning, Gregg.

Good morning.

I had just a couple of follow-ups you know maybe first of all from Matt's question on the double wall. Have you talked about a market opportunity over that five years, what's the total market size outstanding?

Yeah, we have on that, I am always a little caution on these major initiatives. We had a tremendous run off in California for those people to follow the company back a decade ago. We saw convergent and then the financial crisis hit are basically you know stop the convergent. So - but you know the market size here is in the tens of millions of dollars and overall size over these five year period will be north of a 100 million, maybe more than that. So it's certainly encouraging, we're getting nice traction, we're seeing good growth, but it is a country that could kind of turn on and turn off initiatives rather quickly and roughly. So I off course have that qualification. But it is a multiyear tens of millions, especially hundreds of millions of dollars on a billion opportunity.

Okay, alright, great. Yeah that is good color. The second thing is just a follow-on on the fueling business and you know the comments about it is continuing into the fourth quarter and into 2018. You know I wonder about you know the projects and the pipeline, you know what kind of visibility you get from your engineering firms or from your customers about you know along the tail could be for that business?

You know Walter, it's difficult. We have visibility of anywhere from the few days and few weeks to few months. Obviously our sales people are out talking to our customers, we are getting some sense for their build rates through upgrade rates and stations. And normally to say about half of our businesses what we do is significant builder upgrades, more than half and the other portion is maintenance type items or replacement items are smaller. So we have some visibility out few months, it's really straight from the North American market more specifically U.S. as the trade show last week it seems to be a lot of optimism about this year being better than last year and next year looking to be even stronger. There seems to be a fair amount of capital available to appropriate for precision upgrades which is all actually a good news for us. I point out earlier in the call the ENV push out takes a little focus off of the need to upgrade just a credit cards or the card readers and sensors and can look more broadly at the gas stations and also stay this have - this is my own view a secular opportunity here because you know lot of tanks were lot upgrades, lot of stations were upgraded last - back in the late 90s. Those stations are now approaching 20 year lives. There are stations that's tanks in the ground they are older than that. And so demographics change in the U.S. market as people going to bigger stations. You see the major marketers are getting bigger and better thing buying and that's also good for us. The visibility we have to answer your question directly is limited to few weeks to a few months is limited to you know our conversations with these end market and we think in here your capital plans for 2018. But we remain very optimistic with 2018. It's going to be a good year domestically and internationally driven by traction in the Europe and traction in China we talked about earlier.

Okay, sounds great. Thank you.

And I'm currently showing no further questions. I would now like to turn the call back to Gregg for closing remarks.

Thank you, Bryan. We appreciate everybody listening in our conference call today. And we look forward to speaking to you after the fourth quarter results. Have a great day. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program and you may all disconnect. Everyone have a great day.