Welcome to ITT's Second Quarter 2016 Earnings Conference Call. Today is Thursday, August 4, 2016 and starting the call from ITT today is Melissa Trombetta, Vice President, Investor Relations. She is joined by Denise Ramos, Chief Executive Officer and President; and Tom Scalera, Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 12 PM Eastern Time. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. It is now my pleasure to turn the floor over to Melissa Trombetta. You may begin.

Thank you, Lorie. Please note that our earnings material and discussion this morning will primarily focus on non-GAAP measures. We believe that these measures provide useful information to investors by helping identify underlying trends in our businesses and facilitate easier comparisons of our performance with prior and future periods and to our peers. I'd like to highlight, this morning's presentations, press release and reconciliations of GAAP and non-GAAP financial measures can be found on our website at itt.com/ir. During the course of this call, we will make forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. No forward-looking statements can be guaranteed and actual results may differ materially from those projected. We undertake no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise. Forward-looking statements made on this call should be evaluated together with the risks and uncertainties that affect our business, particularly those disclosed in our SEC filings. So let's now turn to slide number three, where Denise will discuss our results. Denise Ramos - President, Chief Executive Officer & Director: Good morning, everyone. Thank you for joining us to discuss our financial results and strategic progress for the second quarter of 2016. Over the past two years, ITT has consistently driven solid operational results despite the ongoing challenging global economy. We are proactively addressing the headwinds in key end markets, including oil and gas and mining, by leveraging our balanced and diversified portfolio to drive growth in more robust markets, improved productivity through lean, and deploy capital to position us for the long-term. And the same held true in the second quarter. We delivered flat total revenue compared to the prior year reflecting the impressive organic share gain in our automotive brake pad business and…

Thanks, Denise. Now let's turn to slide four, for a detailed review of our second quarter results. Total revenue was flat in the quarter, while organic revenue declined 6% after adjusting for foreign-exchange and the $44 million benefit from our Wolverine acquisition. In the quarter, we delivered strong growth in our transportation end markets, which were up 28% in total and 11% on an organic basis. These gains were offset by a 39% organic decline in our global oil and gas and mining markets, coupled with softness in the chemical and industrial pump markets. Motion Technologies was the biggest contributor to our transportation strength as global automotive friction increased 19% organically. This dramatic improvement was the result of double-digit OEM market share gains in each of our key geographies. Our European core business grew 18%, while our growth accelerated in China to 42% and North America remains strong at plus 18%. In addition, Motion Technologies produced strong aftermarket results in the quarter, which were up 15% driven by execution in both the dealer and independent aftermarket channels. Moving on to oil and gas, the market continues to be significantly impacted by lower capital spending levels and longer than anticipated deferrals of maintenance activity, which impacted both IP and ICS revenues. In addition, we experienced declines in mining across all major geographies due to weak market dynamics and difficult prior-year comparisons. Shifting to orders, total orders increased 3% and organic orders declined 3%, excluding the negative impact from foreign exchange and the $45 million contribution from Wolverine. Organic orders at Motion Technologies were up 15%, including a 21% increase in global automotive brake pads due to new platform awards and recent wins that are now entering production. We also had solid chemical pump orders in the quarter at Industrial Process that…

The floor is now open for questions. Your first question comes from the line of Nathan Jones of Stifel. Nathan Jones - Stifel, Nicolaus & Co., Inc.: Good morning everyone.

Good morning, Nathan. Denise Ramos - President, Chief Executive Officer & Director: Good morning Nathan. Nathan Jones - Stifel, Nicolaus & Co., Inc.: I guess, I'll start in IP, seeing as that seems to be the biggest variance from the previous guidance. Can you talk a little bit about what's driven the expectation of lower project revenues in the second half, given I would have thought that was already baked into backlog or are customers telling you to slow down, delaying delivery, canceling projects, what kind of dynamics are going on in there, to say, just in the longer cycle business to start with? Denise Ramos - President, Chief Executive Officer & Director: So with that Nathan, really a couple of things happening there. We are seeing that the customers are delaying projects so they are getting pushed out from when we can make the delivery of those projects. And then the other thing because of what's been happening in the oil and gas markets, is we're seeing that orders associated with new projects is really slow right now. And so we were expecting some of that to flow through in 2016, which would have given us some revenues associated with that in 2016. And we're no longer banking on that, just because of what we've seen in the marketplace. Think about when we talked at the first-quarter earnings call, oil at that time was between $45 a barrel and $50 a barrel, and look where it is today at $40 a barrel. So we're seeing much more hesitancy on the part of our customers in terms of placing orders or taking delivery of some of the orders that we currently have. The other thing that's happening as you look at the GDP rate, and in the second quarter at 1.2%, much slower than we would have expected, and so all those things are factoring in into how our customers are placing orders and how that is impacting us and when they want to take delivery of it. Nathan Jones - Stifel, Nicolaus & Co., Inc.: Have you seen a hesitancy around your customers become more prevalent, increase, as oils come down from $50 a barrel to $40 a barrel, like, has that dynamic deteriorated for you over the last few weeks?

It's interesting, Nathan, one of the points is, we did experience a lot of quota activity on projects in June. And you can't triangulate that back to kind of higher price of oil. And I think, overall in the quarter, our sequential orders for projects did improve 46% compared to Q1. So what we're really looking at now going forward is, the activity that we saw it kind of increase at points in Q2 started to really die down when oil came back from kind of that high-$40s a barrel, mid-$40s a barrel into the low-$40s a barrel. So as we are looking into the back half of the year, we are really kind of looking at the price of oil as a key indicator of whether those orders will pick back up, and I think it makes a lot of sense right now to be very cautious given where oil has moved so quickly since in the last couple of weeks. Denise Ramos - President, Chief Executive Officer & Director: Yeah. And I think the other thing to remember with these projects, they've got lower margins associated with them than the short-cycle and the aftermarket part of the business for us. And so that's where we're also seeing a slowdown occurring there from what we've seen in the past, again associated with the same factors and the same dynamics. That's impacting both the revenues and the operating income associated with IP. Nathan Jones - Stifel, Nicolaus & Co., Inc.: The margins was where I wanted to go next. So you have some lower projects, lower aftermarket pricing pressure, volume deleverage going on in here plus savings from the restructuring actions that you've already undertaken. How should we be thinking about IP margins in the back half of the year? Can they be up from here? Down from here? And what kind of – if we settle in at this kind of volume level, how should we be thinking about margins in IP longer-term? Denise Ramos - President, Chief Executive Officer & Director: Yeah, I think we have to be very sensitive to what's going to happen with the short-cycle business and how that's going to cycle through Q3 and Q4. We actually saw some timing associated with short-cycle business that fell into Q2. We think it will be a little bit less as we get into Q3. So that will have somewhat of an impact, but our goal is that on a full-year basis, our goal is to hit double-digits with IP on a full-year basis. But again that's going to depend on the aftermarket and the short-cycle business that we have there. We have been aggressively doing the restructuring in IP and that will give us continued benefits as we go from the first half of the year into the second half of the year and so that will help from a margin perspective. Nathan Jones - Stifel, Nicolaus & Co., Inc.: Okay. That's helpful. Thank you.

Thanks, Nathan. Denise Ramos - President, Chief Executive Officer & Director: Thanks, Nathan.

Your next question comes from the line of Matt Summerville of Alembic Global Advisors.

Good morning. Couple of questions. First, with similar question, I guess, on the Interconnect business, how should we sort of parse the anticipated margin progression there? You had a step function Q1 to Q2, should we expect something similar Q3 to Q4? And maybe Denise, if you're willing to give, kind of, a full-year margin target at this point now that it sounds like you might have a little bit of wind at your back? And then maybe if you could throw some numbers around some of the metrics you're tracking there, whether it be on-time delivery, first pass yield, utilization rates, et cetera, to kind of let us know where you were and where you are now? Denise Ramos - President, Chief Executive Officer & Director: Okay. In terms of ICS and margins, we're very happy with the increase that we saw from Q1 to Q2. We do expect to improve as we go throughout the year. The thing to recognize with ICS is, they've also had a strong oil and gas business that has been impacted by what's been happening with oil price. So we've seen a decline in that business, for them from where they were in 2014 to where we are today and we continue to see declines in that business. That is our highest margin product line within ICS. So when that goes down, that really impacts the kind of margins that we have in ICS. So we were happy to see the improvement in Q2 because that was despite the decline that we've seen in oil and gas revenues, and is associated with the fact that we've had a relatively good business in our transportation and industrial segment and ICS, and then we've been seeing these improvements in our aerospace and defense business with what's been happening in Nogales. From an operational perspective, in Nogales, we've been seeing increasing weekly production rates as things get better as we go forward. In terms of on-time delivery, we're still working through some of those challenges that we have there. But we've been able to effectively lower some of the overhead costs and really working hard on some of those inefficiencies that we've had in that operation. So it's going to be gradual increases associated with that as we continue to chip away at some of these issues that we've had and the teams have been working very hard in addressing those.

Yeah, Matt, just to give a couple more...

I'm sorry. Yes.

Sorry. Just quick couple – labor productivity in Nogales has been trending up significantly from Q1. We've also seen a nice improvement in our overall utilization rates and machine efficiency is certainly going in the right direction. So we have some good underlying performance results that we track with the team on a regular basis. And I think there's kind of two sides, we're seeing really good improvement in the throughput and the scheduling and the planning. We have new leadership in place that's really driving some of these actions and I think the other big category that Denise was touching on too is that we have a much tighter control of our cost and spending, particularly in the overhead freight and other categories were we've had some inefficiencies that have piled up over the year. So we're working through those pretty well.

And then just as a follow-up, I was wondering if you could describe what's driving the sooner than anticipated build-out if you will of your needed North American capacity? And given that the rate of new wins is coming in faster than you would have thought, I guess what is that initial capacity going to look like? And from – and if you can quantify that? And then I guess, how quickly will it take you to double your market share and do you now have a firm line of sight to actually doing that? It sounds like things are going much better than you would have anticipated? Denise Ramos - President, Chief Executive Officer & Director: They are going well for us, particularly with the new awards that we're winning there and we're happy to see that they are ahead of schedule from what we had even anticipated. This is very similar to what happened to us in Wuxi, when we started building that facility there and it was really local for our customer base. We started out slow – you'd only build as you see the volumes coming in and as you see the awards coming through. This initial build out for Phase 1 is about 8 million brake pads. And then we will just continue to increment up from there and when we see that we need more capacities. We'll do what we did with Wuxi and we'll get approval for that and put that into place, so that we can make sure that we hit the ramp up that's necessary. We decided to put this facility in place now because we saw that they were going to be many new platforms in 2018 and 2019 that were going to be coming through. And so we needed to start building the facility now and winning the awards now because it typically takes that period of time before you actually are going to start seeing the production happening through that facility. So, you know what's nice about it is these are share gain opportunities that were going after here. We only have a 10% market share today in North America, in China only 13%, and so this is not based on market growth in North America. This is based on market share gains which we have been gaining market share in Europe and in China and we expect to do it in North America, at a rate of three times or four times the market growth. And so we expect to continue to do that in North America.

Great. Thank you, guys. Denise Ramos - President, Chief Executive Officer & Director: Thanks, Matt.

Your next question comes from the line of Mike Halloran of Robert Baird. Mike P. Halloran - Robert W. Baird & Co., Inc. (Broker): Hey, good morning, everyone.

Hi, Mike. Denise Ramos - President, Chief Executive Officer & Director: Hi, Mike. Mike P. Halloran - Robert W. Baird & Co., Inc. (Broker): So, on the aftermarket short-cycle side, obviously, some incremental weakness in the back half of the year. Is that just talking year-over-year growth rates worsening, or are you expecting sequentially things to worsen a little bit as you get through the back half of the year? And then in the context of that, maybe just give a little bit more background on how customers are looking at turnarounds today and the maintenance repair piece, as you go out in the field? Denise Ramos - President, Chief Executive Officer & Director: We were hopeful at the last earnings call that we would see some improvement in the aftermarket and the baseline short-cycle business as we went throughout the year. Unfortunately, we're not seeing that, and we're not seeing it in the order rates. And so we decided to forecast that there will be no improvement. As we go into the back half of the year, in fact, when you look at the second half versus the first half, we expect our short-cycle business and this forecast to be down about 6%. We are back – after the first quarter earnings call, we actually expected to see some improvement as we went through the back half the year. And this is really predicated on looking at where order rates are, thinking again about what's happening from a macro economic perspective, that we just think it's prudent to be able to forecast it this way. And if it turns out better that's great, but we just think things are going to stay pretty low from what we've been seeing in the marketplace today. Mike P. Halloran - Robert W.…

Thanks Mike.

Your next question comes from the line of Jeff Hammond of KeyBanc Capital Markets.

Hey good morning. Denise Ramos - President, Chief Executive Officer & Director: Good morning.

Good morning Jeff.

Hi. So, just as you see some of this incremental weakening in Industrial Process and kind of the more cautious view into second half, how are you thinking about additional restructuring actions or accelerating actions?

Yeah. Jeff, as Denise mentioned, we're ahead of schedule on the 25%, particularly in Industrial Process that we had identified. So we're happy about that. We're also managing head count through attrition and other activities. So net positive to where we expected to be which I think is a good indicator, based on what you're seeing as projecting of second half of the year, we are continuing to look for other actions as we kind of go through this reset. None of which were kind of factored in yet, but we're certainly continuing to evaluate incremental actions as we go through the back half the year.

Okay. And then, Motion looked pretty good in Europe, but any early signs of any kind of slowing in Europe around Brexit in Motion or any of the other businesses? Denise Ramos - President, Chief Executive Officer & Director: No. With Brexit, our revenues in Europe are minimal to us. There are only about $35 million or so. And part of that – it's across all value centers, about 40% of that is on the automotive side. But we're not seeing any impact associated with that really again it's so insignificant to us. That it's not impacting our results at all.

Okay. And then just finally on the incremental share repurchase, what's informing that? Is that a function of what's in your pipeline or kind of how you're feeling about your stock price just a little more color there? Denise Ramos - President, Chief Executive Officer & Director: Yeah. I know, Jeff, I think it's the intersection of the two. So we've been working in the pipeline. There have been some acquisitions that we have pursued that are close to core in our typical categories that we've been looking at. And we didn't see the right price opportunity there from a valuation perspective. So we have exited some activities and remained disciplined through the cycle and based on the velocity that we've seen in the pipeline up to this point. As we've said in the past, if we don't see actionable M&A, then we would want to return incremental capital to shareholders. And that's why we felt it was the right time and certainly given all relative valuation, we thought it was the right time to do some additional share repurchases and that's what we announced today.

Perfect. Thanks.

Thanks Jeff.

Your next question comes from the line of Shannon O'Callaghan of UBS

Good morning.

Good morning, Shannon. Denise Ramos - President, Chief Executive Officer & Director: Hi, Shannon.

Hey. On Motion, I mean, can you just help us frame I think, Denise, you talked about three times or four times market growth, and obviously it was 19% overall this quarter. I mean, how do we think about market outgrowth for that business based on all these wins you've had, maybe within the different regions where are you in China versus North American and you talked about the low share. I'm just trying to get a sense of how much you think you really can outgrow auto-build in each of these regions? Denise Ramos - President, Chief Executive Officer & Director: We think about two times to three times the market growth. We should be able to continue to do that. And again it's based on the awards that we've been winning. And it's also because we're able to go in where we might have a competitor that has won a platform and we come in and we have better technology, we come up with a better solution and we're able to be able to get that business. It's really how MT operates in terms of the footprint that they have which is similar across the globe, it's the R&D capabilities, it's our ability to prototype, it's our on-time delivery, which is almost 100%, it's our defect rate which is less than 1 ppm. All those things really create this very powerful model that we have in MT. We're able to continue to outpace the market because we meet the customer's needs that we have. So we look about two times to three times that we should be able to outpace the market growth and we continue to believe that going forward.

Okay, great. And then, just maybe a follow-up on the buyback versus M&A. As well as Motion is doing and it's tough as IP has been, you know you have this dynamic where Motion is becoming bigger and bigger part of the company. I mean, as you think about M&A is there a threshold of portfolio mix that you concern yourself with or is that not a factor? Denise Ramos - President, Chief Executive Officer & Director: We look to – when we look at acquisitions, we just think about where we can add value in the portfolio. And as you've seen the acquisitions that we've done, we did one in IP a couple of years ago. We've done one in aerospace. We did the Wolverine which was associated with the automotive business. But we go across the different end markets that we have and we look at where we think we've got the biggest opportunities. Now from a Motion Tech perspective and automotive perspective, our strategy there has been growing it organically, because we've got such a powerful model in terms of how we can take – how we operate today and just transplant it like we've done in China and like we're doing in North America. So we like from a brake pad perspective, doing that from an organic perspective and that works well for us because we can replicate the model that we have today. So, we go again, we go across various end markets. We'll continue to do that. And our Motion Tech business is really a unique business. It is not a typical automotive business and it needs to be valued and recognized that way in the marketplace.

Okay, great. Thanks. Denise Ramos - President, Chief Executive Officer & Director: Thank you.

Your next question comes from the line of Joe Ritchie of Goldman Sachs. Joe Ritchie - Goldman Sachs & Co.: Thanks. Good morning, everyone. Denise Ramos - President, Chief Executive Officer & Director: Good morning, Joe. Joe Ritchie - Goldman Sachs & Co.: Maybe just a comment on your auto growth. I mean, the two times to three times number, Denise. Is that just a conservative estimate at this point, because you guys are smashing global auto production. So is that just conservative or how should we be thinking about it? Denise Ramos - President, Chief Executive Officer & Director: We like to be able to beat some of the numbers that we've put out there. But I think if you just look at it over time, two times to three times is probably the right way to think about it. The other thing to remember is, Europe, we're at a 50% market share in Europe, maybe a little bit more than that, little bit less than that. So, there's not as much opportunity in Europe as we see in China and then North America. So we think two times to three times is the right metric to think about. At any one point in time it could be more than that, but that should be a good ballpark for you.

And, Joe, if you look back to the churn rates, so in Europe, even in tough markets, we're focus in on conquering share. So we have been outgrowing Europe market rates one and a half times, two times on average, based on our competitive positioning in Europe. And in North America and China, the rates of growth would be certainly in excess. So we're looking at, depending on where we are in the cycle, three times to five times growth in those regions in some cases. Our goal as we've been talking about for China, North America, is to double our share in those regions over the next five years. So we see the share wins that we've already generated and the opportunities that we have giving us the opportunity and the entitlement to go for that level growth. We'll do everything we can to position ourselves that way, but I think the opportunity set, the wins that we already have, give us some good visibility into significant outgrowth in North America and China, and above average performance in Europe, which is what we've been able to do over the years. Joe Ritchie - Goldman Sachs & Co.: Yeah. That makes sense, Tom. I guess, maybe switching gears and just talking about Industrial Process for a second. I'm going to ask Shannon's question slightly differently. If you think about just your portfolio longer-term, how are you thinking about Industrial Process? Does it have to be – is it something that has to be part of the portfolio? I mean there are a lot of multi-industry companies right now that are interested in those types of assets. And clearly, when you bought Bornemann, I know GE was interested in it at that point in time. Just curious, like how are you…

Yeah. And I would just add to that, Joe, that our view is, we would like to grow our Industrial Process business. From an M&A perspective, right now, it's important that we have clarity from a strategic perspective of where these end markets are going and how are we going to realign ourselves to be best positioned for those organically. And I think it's a critical first step in rethinking through the M&A pipeline as well. So we're making sure that the M&A pipeline that we're building for the future at IP aligns with where we think the businesses are going. And that will allow us to kind of target some opportunities that we consider close to the core that we're establishing for the long-term. But as you know right now in this space, I think valuations are very complicated and it's very difficult to have meaningful conversations even on small targets that fit into some of the strategic areas of focus. So for all those reasons, we're still looking at IP as a way to grow our portfolio, but we're going to do it with the right pacing and sequencing that makes sense for the creation of long-term value, and we're kind of in the middle of that process right now, given all the market dynamics. Joe Ritchie - Goldman Sachs & Co.: Got it. If I can just maybe sneak in one more on Industrial Process – the petrochem orders that you got this quarter is – since you're seeing a step down in second half versus second half, is it safe to assume that those orders are going to ship in 2017?

Hard to say Joe. They're not as big as some of the petrochemical projects we've seen as far as the size of the orders. But we did see a nice uptick. I think some of that will fill in to 2016. But we were expecting more to be coming through. And given the nature that they're not as large – if we ship them out the door this year, it would benefit 2016 most likely more than carry into 2017. But we are seeing, as we mentioned, some customer delays once we even have orders kind of on the books as to when they want to ship these. So I wouldn't draw too much from it other than it's nice to see that there are some increased activity in petrochem. And I think we're going to go through the cycle with hits and misses around the different end markets. So a project here are there gives us a very nice variant, but it doesn't necessarily mean that there is a dramatic change in where things are going. But I would say what we're seeing in petrochem, in particular, this Group is probably a 2016 shipment category more than a 2017. Joe Ritchie - Goldman Sachs & Co.: Okay got it. Thank you, guys.

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.