Good day, and welcome to the Regal Beloit Third Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Rob Cherry, Vice President-Investor Relations. Please go ahead.

Thank you, operator. Good morning, and welcome to Regal Beloit's third quarter 2017 earnings conference call. Joining me today are Mark Gliebe, Chairman and Chief Executive Officer; Jon Schlemmer, Chief Operating Officer; and Chuck Hinrichs, Vice President and Chief Financial Officer. Before turning the call over to Mark, I would like to remind you that the statements made in this conference call that are not historical in nature are forward-looking statements. Forward-looking statements are not guarantees, since there are inherent difficulties in predicting future results and actual results could differ materially from those expressed or implied in forward-looking statements. For a list of factors that could cause actual results to differ materially from projected results, please refer to today's earnings release and our SEC filings. On slide 3, we state that we are presenting certain non-GAAP financial measures in this presentation. We believe these are useful financial measures to provide you with additional insight into our operating performance and for helping investors understand and compare our operating results across accounting periods and in the same manner as management. Please read this slide for information regarding these non-GAAP financial measures, and please see the Appendix for reconciliation of these measures to the most comparable measures in accordance with GAAP. Now, I will turn the call over to Mark.

Thanks, Rob. Welcome, everyone. Thank you for joining our third quarter call, and thank you for your interest in Regal. We'll follow our normal agenda. I'll make a few opening comments. Chuck will provide a financial update. Jon will provide color on markets, operations and the performance of our three segments. After that, I'll summarize and we'll move to Q&A. Before I get started today, I would like to announce that Regal's Chief Financial Officer, Chuck Hinrichs, announced his planned retirement effective March 31, 2018. In conjunction with Chuck's announcement, Regal's Board of Directors has approved the appointment of Mr. Rob Rehard as Chief Financial Officer of Regal effective with Chuck's retirement. Chuck will be with us through the end of March, so I will save my comments of appreciation until later and focus instead on introducing and welcoming Rob. We are excited to have Rob on the Regal team. Many of you may have already met Rob during recent investor events. But if not, please allow me to briefly share his background. Rob Rehard joined Regal in January of 2015 as Vice President, Corporate Controller and Principal Accounting Officer. In January of 2017, Mr. Rehard was appointed to his current role as Vice President, Financial Planning and Analysis with responsibility for Regal's global finance organization. Prior to joining Regal, Rob served in various roles of increasing responsibility with Eaton Corporation, Cooper Industries, Masco Corporation, Emerson Electric and Deloitte & Touche. Rob is a veteran of the U.S. Navy and is a former Navy SEAL. For further information on Rob's background and career accomplishments, please refer to the 8-K filed earlier today. As I said earlier, we are very excited about having Rob on the Regal team. Rob is sitting in with us on today's call. I'll now continue with…

Thank you, Mark, and good morning, everyone. Sales in the third quarter 2017 were $856.9 million, up 5.8% from the prior year. Foreign currency translation in the quarter was a positive 0.7%. Therefore, organic sales increased a strong 5.2% from the prior year. We were pleased that all three of our reporting segments had solid organic growth in the quarter. Our adjusted operating margin in the third quarter was 10.8%. Sequentially, our margin improved by 40 basis points. Compared to the prior year, our margin was down 30 basis points. This decline was driven by the increased commodity inflation, which drove a $2.7 million LIFO expense and the price/cost headwind in the third quarter. Our pricing did improve in the quarter, driven by our material price formulas. We partially offset this inflation with benefits from the simplification initiative and cost controls. In summary, we posted strong organic growth, and partially offset a LIFO expense and price/cost headwind. Our third quarter 2017 earnings per share reported on a GAAP basis were $1.39. There were two adjustments to GAAP EPS in the third quarter. The first adjustment was restructuring and related costs of $1.6 million or $0.03 per share. And the other adjustment was the gain on the sale of closed facilities of $3.1 million or $0.05 per share. Net of these adjustments, the adjusted EPS for the third quarter was $1.37 representing a 4.6% increase from the prior year. Now, I'll summarize a few key financial metrics. Our capital expenditures were $15.3 million in the third quarter. We expect our full year 2017 capital spending to be approximately $70 million. Also, our full year 2017 depreciation and amortization expense is expected to be approximately $142 million. Our restructuring activities resulted in a $1.6 million of restructuring and other costs in the…

Thanks, Chuck. Good morning, everyone. I'll walk through each of the segments and get more details on organic sales and operating margin performance. In Commercial and Industrial Systems, sales were $408 million with organic sales increasing 4% from prior year. In the quarter, sales were up in several of our North America end markets with particular strength in commercial HVAC and pool pump. We had another quarter with sales up in our Asia businesses with strong demand continuing in China. We also saw strength in our oil and gas businesses. Price improved sequentially and was up over prior year. Adjusted operating margin was 7.5% of sales, up 80 basis points sequentially, but down 150 basis points from prior year. We had two key headwinds that impacted our margins in the quarter. The first and largest was the impact of commodity inflation. The second was the impact of mix, as OEM sales growth outpaced distribution sales. Partially offsetting these headwinds were the positive impact of volume and a number of cost improvement actions. Chuck mentioned earlier that we're estimating $14.5 million of restructuring costs for 2017. I'll remind everyone that 70% of that restructuring has focused on improving our performance in the C&I segment. And finally, as we look forward to the fourth quarter, we expect margin improvement both sequentially and year-over-year in the C&I segment. In Climate Solutions, sales were $256 million with organic sales increasing almost 2% from prior year. In North America, sales to our residential HVAC OEM customers were up low single-digits in line with the market. HVAC aftermarket sales declined versus prior year. We believe weather was a factor on our aftermarket demand with a considerable decline in cooling degree days. Outside of North America, we saw sales strength in Europe, Middle East and Asia. Price…

Thanks, Jon. Now, before we go to Q&A, I would like to briefly summarize our third quarter results. Organic sales growth was up 5.2% and we are encouraged that overall orders are up as we enter the fourth quarter. Adjusted earnings per share were up 4.6% as compared to prior year. Our free cash flow to net income was 114% for the quarter. We paid down $87 million in debt and repurchased $23 million of our shares. Our total debt to EBITDA now stands at 2.6. Year-to-date, we have repatriated $154 million in cash and we are working on other repatriation opportunities. We narrowed our 2017 full year adjusted earnings per share guidance to $4.80 to $4.90. And finally, we expect to finish the year with solid organic sales growth, margin expansion and at the guidance midpoint a 9% increase in adjusted earnings per share. We will now take your questions.

We will now begin the question-and-answer session. The first question comes from Julian Mitchell with Credit Suisse. Please go ahead. Lee Sandquist - Credit Suisse Securities (USA) LLC: Hi. Good morning. This is Lee Sandquist on for Julian.

Good morning, Lee. Lee Sandquist - Credit Suisse Securities (USA) LLC: Good morning. In the slide, you mentioned that orders are up entering Q4. Can you give us a little bit of color on the progression of order trends throughout Q3, and then, also entering November?

Lee, sure. This is Jon. I'll try to address that. So I'll kind of walk through each of the segments and talk about how orders progressed through the quarter and as we enter the fourth quarter here, what it looks like. So in Climate, certainly, we believe that weather had a factor on our Climate business here in North America. And we did see as the temperature has cooled, we saw a fall in the HVAC sales, both in the OEM side and the aftermarket, as we exited the quarter. In C&I and PTS, we saw demand actually improved through the quarter and was relatively strong going into the fourth quarter. Overall, we would kind of size our orders that were up about mid-single-digits right now as we enter the fourth quarter.

And I'll just add back in residential HVAC. We're entering our normal heating season and orders in the heating side are what we would normally expect for this time of the year. Lee Sandquist - Credit Suisse Securities (USA) LLC: Understood. And regarding price/cost, was the improvement in pricing Q3 solely a function of the two-way material price formula or were you able to push through extra price in addition?

Well, it was a little bit of both. So we did have material price formula as we mentioned in our prepared comments and we did have some benefit from a general price increase that we had announced earlier in the year. And then, as we commented, in most of our businesses, we announced general price increases for the fourth quarter. Lee Sandquist - Credit Suisse Securities (USA) LLC: Okay. Thank you. I'll leave there.

Thanks, Lee.

The next question comes from Jeff Hammond with KeyBanc Capital Markets. Please go ahead.

Hey, good morning, guys. And Chuck, congratulations on the pending retirement.

Thanks, Jeff, but the congratulations go to Rob. He'll do a great job for us.

Good morning, Jeff.

Good morning. So it looks like you're raising your top line guidance pulling forward a little bit of restructuring and kind of tightening the guidance range. Is there – and it seems like the offset is this material inflation. is there a way to kind of quantify what you think the incremental inflation is and how you're thinking about that incremental inflation into 2018?

Well, I'll take a pass at it, and then, if Chuck or Jon want to add into it. You have it exactly, you have it right. We did pull forward some of our restructuring in, as Chuck mentioned, about $1.5 million into the year. We do have four major programs from a restructuring perspective that we kind of discussed at our earlier earnings calls, but have to do with consolidation of our manufacturing facilities, most of which are in the C&I segment. So we do expect that our material price formulas are going to continue to help offset inflation, as you know, there's always a little bit of a lag from the material price formulas, and then, as we mentioned earlier, we have the price increases that we announced. Anything else you guys?

Jeff, I would add that, price/cost was clearly the headwind in the third quarter. We expect it to be a headwind in the fourth quarter, to a lesser degree, but still a headwind. And looking forward into 2018, we do see commodity inflation at least through the first half of next year based on our estimates on what's happening right now with commodities and what may happen over the coming months. Obviously, we have the portion of the business that, with timing, will reflect that with the material price formulas, and then, we have a number of price increases that have already been announced here in the fourth quarter for our non-contracted business. So that's kind of what we are expecting going into 2018.

Yeah, Jeff. I'll just add that, clearly, the expected increase – slight increase in our LIFO in the fourth quarter is an indication of that – in that commodity inflation. In the last 90 days, we've seen copper and aluminum go up 15% over that period of time. So a little higher than we had stated about 90 days ago, but as we've talked about the combination of the MPFs and our price actions will address that.

Okay. And then, on Power Transmission, I think you said distribution up high single-digits. It looks like your peers are kind of running more low single-digits in that business. Do you think you're driving share gains there or is that more of the oil and gas mix, maybe just a little more color?

Yeah. It's a little bit of all those things. So number one, oil and gas came back. Number two, we've talked earlier about our renewable energy business being large projects. It can hurt in one quarter and help in another. It was certainly helpful this quarter, but our distribution which is what you focused on, we were up high single-digits, which was nice to see. We think some of that is a result of some of the actions we took very earlier in the year where we took the steps to add salespeople in targeted markets where we did not have good representation. So we think it's a little bit of everything.

Thanks, guys.

Thanks, Jeff.

The next question comes from Christopher Glynn with Oppenheimer. Please go ahead. Christopher Glynn - Oppenheimer & Co., Inc.: Thanks. Good morning, guys.

Good morning, Chris. Christopher Glynn - Oppenheimer & Co., Inc.: Hey, I'm wondering if you could talk a little bit about the expected restructuring payback in 2018 in general and for C&I in particular.

Sure. Our history, Chris, is that we have a typically a two-year payback on projects that may get into the restructuring. So that is our headset. So we communicated $14.5 million, of which 70% is in the C&I segment. So a couple of the projects completed just in the third quarter itself, so those will start to show benefits in the fourth quarter and carry over into next year. So that would be the way I would think about it.

And the other two, look, we've had four active projects that we've been working this year. The other two that are still active, they'll be completed in the first quarter of 2018. So they'll have – it'll start to impact 2018 results and they have carryover into 2019.

And those are just major restructuring programs. Those are number of ancillary programs that make it all up. Christopher Glynn - Oppenheimer & Co., Inc.: Okay, great. And on the D&A guidance $142 million for the year, I think, implies about $39 million in the fourth quarter, a little above, it's been $34 million a quarter. Is that right that the D&A spikes in the fourth quarter?

Yeah. I wouldn't call it a spike, Chris, but there would be an increase from the trend we've seen. And again, some of it is due to the fact that our amortization is lower year-over-year, as some of the intangibles from previous acquisitions have reached the end of their accounting life. But depreciation on the projects has been declining, because we're reducing our footprint and simplifying our operations. So that has a negative push. But then, at year-end, we'll see some new projects come on that will impact the timing and the amount in the fourth quarter. Christopher Glynn - Oppenheimer & Co., Inc.: Okay. And then just longer term, wondering if you could give a comment on what's an appropriate margin level for C&I to run out? What's kind of conceptual aspiration there for that segment?

Well, we had communicated at an Investor Day that we expected 200 basis points to 250 basis points of margin improvement over the next three years, and that we felt that all segments would participate in that improvement. So I mean that would be the way I would try to get at that, Chris. Christopher Glynn - Oppenheimer & Co., Inc.: Got it. Thanks, Mark.

Thank you.

The next question comes from Scott Graham with BMO Capital Markets. Please go ahead. Mr. Graham, your line might be muted.

Hi, Chuck. First of all, congratulations for a good run. Very straightforward, easy to work with. Thanks for your time.

Thanks, Scott.

Good morning, Scott.

Good morning, Mark. I wanted to go a little bit deeper on an earlier question. I think that you answered Jon. We were talking about the progression of orders through the quarter. Was that an answer on a dollar basis or on a percent basis?

We would be looking at it on a percent basis, as we look at how we're performing versus prior year.

Got you. Okay. Thank you. So you did see a progression in the other two businesses as the quarter and through October progressed, yes?

That's correct.

Got you. Thank you. The other question is really more specifically on PTS which looks like you had a very good quarter. I know you've got some upstream exposure there in North America. Jeff's question earlier about industrial distribution you answered. You're running into some really easy comps and you're executing well with margin. Could you kind of tell us what's going on there, because that's a – this business has stepped up in the last couple of quarters and maybe you can kind of color that in for us a little bit more particularly on the sales side?

Well, I think a couple of things have come together. We've discussed our efforts to try to drive organic growth across the whole company. In the PTS space, we did significantly increase the number of sales reps we have covering North America. And so, we think we're getting some benefit from that where in the past we hadn't. So that would be my first comment. We haven't talked about it much, but when we acquired the business back in February of 2015, we set a target to get $30 million of synergies in four years and we actually delivered it in three years. And so, some of the benefit we're seeing in our margin line stems from the synergies we're getting. And we did get some synergies on the selling side where, normally, we discount that pretty heavily going into an acquisition, but we did get some nice synergies on the selling side, particularly in renewable energy that have paid dividends over the last two years.

Okay. That's very helpful. Thank you. And if I could just sneak in one last question here. And it's regarding pricing. This is my estimate, but it seems like the MPFs had more to do with the positive pricing than the actual price increases. And materials has been up kind of all year, steel, copper, everything on the metals side. And I'm just kind of wondering the timing of the price increases in the fourth quarter, is there any way that that could have been done sooner? I know it's kind of a loaded question or is that just essentially that's what you think the market will bear?

So your comment is right. And in terms of this – we had a second step-up in inflation that occurred in the third quarter, as Chuck mentioned, just in the last 90 days, up 15%. We were dealing with inflation, before that, we did increase prices earlier in the year and went ahead and announced a second one for later in the year. So you're right that we have been facing inflation all year and we're taking the appropriate actions to offset the inflation.

I would add, in a number of our international businesses, we've had multiple price increases this year, in particular, in Asia where we've seen a lot of steel inflation. So it's we talk about it when the fourth quarter increases are predominantly our North America businesses, but we've had some international businesses that have had multiple increases throughout the year.

Got you. Thank you, all and good luck, Chuck.

Thanks, Scott.

The next question comes from Josh Pokrzywinski with Wolfe Research. Please go ahead.

Hi, good morning, guys.

Good morning, Josh.

Just to maybe follow up on some of the C&I margin questions. Chuck, is the right way to look at this kind of bridging off of the third quarter or I know the year-over-year issue with the LIFO charges in 2016 become a little hard to compare, but I guess the way I'm reading this is you say LIFO will be a little higher in the fourth quarter, presumably that's very C&I based. I'm just wondering if this 7.5% margin is kind of the right run rate, give or take, some of the price/cost and LIFO issues and normal seasonality on revenue.

Well, I think your comments about the LIFO are appropriate. So we had more, the majority of the LIFO expense from the third quarter was in C&I and we would expect that same kind of relationship in the fourth quarter. But again, we have fewer MPFs in the C&I business relative to Climate. And so, we'll start to get the benefits of the MPFs in C&I and the general price increase both in the international operations as well as the North American businesses that will help offset that inflation. So we're not pleased with the margins in C&I, but expect it to grow particularly with the accelerated restructuring projects that we're implementing.

And Josh, I'll just add that Jon did comment that we expect adjusted margin improvement both sequentially and year-over-year in the fourth quarter in the C&I segment.

Got you. I guess if that's the case though, it still seems like you guys are going to be down a couple million bucks year-over-year if I back out the LIFO adjustment from 2016. Is that just price/cost?

Well, probably that is the headwind. I don't have that math in front of me. But certainly, price/cost is the headwind in the quarter.

The largest.

Right. Okay. And then, just shifting over to Climate. I apologize if you already answered this, I missed some of the comments on it from the first question. But the comp does get quite a bit tougher here. It doesn't seem like weather has really been super cooperative in the early part of furnace season. Is Climate expected to be up in the fourth quarter?

So from a margin perspective, we commented that commodity inflation would pressure margins in the Climate more – in the fourth quarter, especially as you look at it on a year-over-year basis.

And I'd say on the top line, our general assumptions in the quarter are relatively flattish to prior year for Climate.

Okay. So there was no impact of destocking maybe from like a cool end to the third quarter. I'm just – it just looks like everyone kind of performed in line with this, down low singles? And maybe the OEMs had higher aspirations, but there's no inventory hangover effect from that?

We don't believe so.

Got you. And then, just maybe one last one to sneak in here, on the Power Transmission side, you mentioned some bigger project activity. How much does that normalize or how much is the current top line kind of the run rate given the cross-current of maybe that some of the bigger projects fall off, but oil and gas kind of maybe built for a momentum from here?

So the comment on the big project was specifically related to renewables. But as we commented, we expect improvement in the PTS space in the fourth quarter.

Got you. All right. Thanks for the color, and congratulations on the new role, Rob.

Thank you.

Thank you, Josh.

The next question comes from Robert McCarthy with Stifel. Please go ahead. Robert Paul McCarthy - Stifel, Nicolaus & Co., Inc.: Good morning, everyone.

Good morning, Rob. Robert Paul McCarthy - Stifel, Nicolaus & Co., Inc.: I wanted to echo previous people's comments. Good Luck, Chuck and best wishes, Rob. I look forward to working with you. In any event, I don't want to start off with a Debbie Downer, but just looking back and stepping back of the C&I business as a whole, I mean you've been anniversarying several years of pretty weak organic growth declines. You have a long-term target of kind of charitably what 2% to 4% organic growth through the cycle where in a period it looks like from the ISM, which would suggest that we're in a pretty robust growth cycle right now. If you back out the strong PTS growth that we saw in the quarter, this is pretty pedestrian growth at this stage of the cycle for your businesses, particularly for C&I and Climate. Could you just comment on how are you going to look to structurally improve the organic growth of these businesses? And do you feel like you're losing share or do you feel like the market is under-growing the broad industrial market? How would you typify kind of the growth you're seeing right now, because if we're at the time of the cycle where we start to see what we would expect to see acceleration and strength in underlying economic growth, particularly in North America, it really hasn't borne out in your businesses right now.

So a lot there. I'm going to try to pick them apart and try to answer them one at a time. So clearly, we saw a 4% organic growth in the quarter and we talked about what was helping in and what was hurting earlier. From a margin perspective, as we mentioned earlier, just in the last 90 days, we had significant inflation from copper and aluminum. If you look at it on a year-over-year basis, it's much higher. So yeah, when you have that kind of volatility in copper and aluminum and steel, there's going to be a timing issue for us on margins. There's no question. It's happened before and it happened again this time. In terms of what are we doing structurally, I think we commented that we started earlier this year focusing our attention from a restructuring perspective on the C&I segment. Prior to this year, a lot of our attention had been in the Climate segment and you can see the kind of improvement we've made in Climate over the last number of years. We think we'll get the same kind of improvement in C&I going forward. So we're optimistic that margins in that business will get better and as we mentioned, we expect the fourth quarter to be the start of it.

Yeah. And I wanted to comment just a little bit on the organic growth side of it. So we had overall 5% organic growth in the third quarter that was slightly up over what we saw in the second quarter. So we feel very good about the overall organic growth performance of the business on a year-to-date basis and we're expecting another solid fourth quarter on organic sales growth. You're right, PTS led the way in the third quarter, clearly, with 13% organic growth, but we felt very good about 4% organic growth in the C&I segment given how global that business is. And Climate, the 2% was lower than what we would have liked to have seen. We had a pretty strong third quarter prior year, so we're coming off a pretty solid third quarter prior year for the Climate business. And as I mentioned, we believe that weather had certainly had some impact on our performance in the quarter. On a year-to-date basis, Climate is performing very well on organic sales growth. So we don't believe that there is any share loss that's impacting our business this year. We believe that we're performing at least as good as the market if not a little better, given our focus on organic sales growth, the new people that we've hired in our sales organization to focus on distribution. All the focus that we put on in the digital what we call the digital customer experience to grow our distribution businesses, the focus on energy efficiency and the new products, we believe all that's contributing. So my view, our view is that we're off to a good start this year from an organic sales growth perspective. Robert Paul McCarthy - Stifel, Nicolaus & Co., Inc.: Any update on – I think you've identified at least, internally, a portion of your business maybe $250 million of sales in the reserves up for divestiture that's perceived as non-core. Any update on divestiture activity, particularly given the robust M&A market?

So we're always keeping in front of us those things that are non-core, as well as those things that are future opportunities. So nothing to report right now, nothing pending to report right now, but it's certainly still in front of us. We have haven't changed our point of view on that topic at all. Robert Paul McCarthy - Stifel, Nicolaus & Co., Inc.: And then, finally, and then, I'll leave it there. Thinking about 2018, obviously, there's going to be question about where the organic growth is going to be for 2018. I mean you have not guided, but in the context of kind of a low single-digit organic growth for 2018, kind of looking at the cadence of what we're seeing right now, could you just stack rank what would you think – what do you think qualitatively your incremental margin lift could be among your businesses? Obviously, C&I, we could probably see some payback on that restructuring and PTS, there's probably room for improvement. But any kind of latest and greatest in terms of what we should think about for planning for incremental margin lift in 2018?

Well, we haven't changed our view on incremental margins, unless you have the kind of inflation we're having right now. But normally, our incremental margins are 25% to 30% in the Climate space, 30% to 35% in C&I and 35% to 40% in the PTS segment. That's typically the way it bears out, if we're not dealing with significant volatility in inflation. Robert Paul McCarthy - Stifel, Nicolaus & Co., Inc.: So given the inflation we might think about – thinking about something on the low end of those ranges just given the price/cost kind of headwind.

That's fair. Robert Paul McCarthy - Stifel, Nicolaus & Co., Inc.: Yeah. All right. Thanks for you, guys. Thanks for your time, guys.

Thanks, Rob. Robert Paul McCarthy - Stifel, Nicolaus & Co., Inc.: All right.

This concludes our question-and-answer session. I would like to turn the conference back over to Mark Gliebe for any closing remarks.

Thank you, operator, and thank you, everyone, for your questions and your interest in Regal. Have a great day.