Good morning, and welcome to the Rexnord Second Quarter Fiscal 2018 Earnings Results Conference Call with Todd Adams, President and Chief Executive Officer; Mark Peterson, Senior Vice President and Chief Financial Officer; and Rob McCarthy, Vice President of Investor Relations for Rexnord. This call is being recorded and will be available on replay for a period of two weeks. The phone numbers for the replay can be found in the earnings release the company filed in an 8-K with the SEC yesterday, November 1. At this time, for opening remarks and introduction, I'll turn the call over to Rob McCarthy.

Good morning, and welcome, everyone. Before we get started, I need to remind you that this call contains certain forward-looking statements that are subject to the Safe Harbor language contained in the press release that we issued yesterday afternoon as well as in our filings with the SEC. In addition, some comparisons will refer to non-GAAP measures. Our earnings release and SEC filings contain additional information about these non-GAAP measures, why we use them and why we believe they're helpful to investors, and contain reconciliations to the corresponding GAAP data. Consistent with prior quarters, we will speak to core growth, adjusted EBITDA, adjusted earnings per share, and free cash flow as we feel these non-GAAP metrics provide a better understanding of our operating results. However, these measures are not a substitute for GAAP data, and we urge you to review the GAAP information in our earnings release and 10-Q. Please note that the presentation of our operating results includes adjustments to GAAP reporting for the impact of the RHF non-core product line in our Water Management segment that we exited during our fiscal 2017 in order to enable investors to better understand and assess our continuing core operating results. Today's call will provide an update on our strategic execution, our overall core performance for the second quarter of our fiscal 2018, and our outlook for our fiscal 2018. We'll cover some specifics on our two platforms, followed by selected highlights from our financial statements and our cash flow. Afterwards, we will open up the call for your questions. With that, I'll turn the call over to Todd Adams, President and CEO of Rexnord.

Thanks, Rob, and good morning, everyone. As you hopefully saw in our release last night, our second quarter results sustained the positive momentum that we began to build a couple of quarters ago with our core growth accelerating, our adjusted EBITDA continuing to expand year-over-year, and year-to-date free cash flow up 50%. We continue to see improving end market demand across most of our served end markets, and the strategic growth initiatives we've been driving are starting to read through. Activities associated with our supply chain optimization and footprint repositioning initiatives wrapped up in the quarter, and we're positioned to fully capture the targeted structural cost reduction of $30 million annually. At the halfway mark of our fiscal year, we think it's prudent to take up our outlook for both core growth and EBITDA, and we'll cover that in a few minutes. From a strategy standpoint, we've made excellent progress in the rollout of our DiRXN strategy. It's still early, but the customer feedback and adoption has been terrific, and the very practical point-of-impact approach we've taken with the solution is something we think is a game-changer. Finally, in early October, we closed on the acquisition of World Dryer in our Water Management platform. It adds additional content to our already market-leading level of content per square foot in a commercial building when it comes to water safety, flow control and conservation. There's a lot to cover, and we'll try to move through it quickly so we can get to your questions. Our second quarter sales of $511 million included core growth of 4% and were at the high end of our expectations for the quarter. It's notable that this year's second quarter has actually two fewer days compared to the prior year quarter. We've sustained positive core growth in…

Thanks, Todd. Please turn to slide number 6. On a consolidated basis, our second quarter of fiscal 2018 financial results were broadly in-line with our expectations. Our core sales increased 4% on a year-over-year basis, our adjusted EBITDA increased 9% from the prior second quarter to $98 million, and our adjusted earnings per share was $0.32. Our effective tax rate when calculating our second quarter adjusted EPS was just over 32%, and compares with the roughly 22% adjusted tax rate we reported for last year's second quarter. As Todd indicated earlier, we are increasing our outlook for fiscal year 2018. After a solid second quarter and taking into consideration the fact that we have another six months left in our fiscal year, we are modestly increasing our outlook for core growth to a low to mid single-digit range from our previous outlook for low single-digit growth as the midpoint of our expectations is now just a bit too high to continue to call it just low single-digit. At the same time, we are adjusting our outlook for adjusted EBITDA to be in a range of $375 million to $385 million, which takes the low end of our previous range off the table and moves the midpoint of the adjusted EBITDA range up by $5 million. The revised range implies year-over-year growth in adjusted EBITDA to 8% to 11% from the comparable $347 million we delivered in our fiscal 2017. Slide 7 summarizes our consolidated results in the quarter. Let's move on to slide 8 and discuss the first of our two operating platforms, Process & Motion Control. Total sales increased 5% year-over-year in PMC, with core sales growth of 3% constrained by having two fewer selling days in this year's second quarter. Currency translation added almost 2%. For the second…

Thank you. Our first question comes from Charley Brady from SunTrust.

Thanks. Good morning, guys.

Hey, Charley. You're really breaking up.

Better?

I don't think so.

I'll try this. Okay. Just quickly, on the $5 million adjusted on the Indiana cost that's $5 million you referenced that is essentially done, right? There's no carry through into the second half on that facility, it's out.

Yeah. I think, Charley. We're having a tough time hearing you. But I think the question was: is the $5 million related to the final frictional transition costs behind this? And the answer is absolutely yes.

Okay. Thanks. And just can you comment on input costs that you're seeing? I think you started touching on it a little bit in the prepared remarks, but some of the raw materials and maybe potential pricing to offset some of that?

Yeah. I think the issue as we've said, we think we've been very successful each of the first half of managing that balance between rising input costs, as it relates to various commodities, but also working I think diligently with smart strategic pricing and so far, it's really net positive to the gross margin, and we think we're going to continue to manage it quite well over the second half, so really no pressure at this point beyond what you'd expect and I think we're managing effectively with the way we're taking cost out of the business and as well as pedaling in some price increases as appropriate.

Okay. Just one more from me. On World Dryer, is the distribution channel the same as what Zurn is currently doing or is there some differences there?

They go to market through third-party reps. Obviously we think we have the sort of best-in-class or best-in-business reps at work, and so our ability to sort of leverage that on a go-forward basis we think is a substantial growth opportunity, as do we think that marrying that with the suite of water conservation products that we already have and bringing more specified content and even more savings to a building owner and in some cases a contractor, we think that's a homerun for us as we go forward.

Thank you.

Next, we have Jeff Hammond from KeyBanc Capital Markets.

Hey. Good morning, guys.

Good morning, Jeff.

Good morning, Jeff.

So, I think the SCOFR savings is starting to hit. Can you just remind us kind of what the ramp is into the second half to get to the better margins, particularly in PMC? And then, Todd, you talked about kind of a longer-term margin runway from these actions. Can you maybe just elaborate where and when you think those happen, and is there a number to think about from a quantification standpoint? Thanks.

Sure. I'll let Mark answer the first and I'll take the second.

Yeah, Jeff, the cadence of that is the savings of this project really has been pretty consistent, so we're extending on the first half of the year you're looking at $25 million year-over-year, you get about 30% rolling through. So 70% coming in the back half. So as you can appreciate obviously the margin step-up in PMC will be quite good going into Q3 and it's going to get a little more incremental as we go into Q4. So the mix doesn't change too much, but we'll see our first real material step-up as we go into our third quarter here, Jeff, and you'll see that in the PMC margin.

In terms of longer term, Jeff, I think as we've I think frankly told people over the last couple of years, we think mid-20%s is sort of where we can get to in the next couple of years without any, I would say, significantly different market environments that we're seeing now. So as Mark said, we'll get a good down payment on the incremental margin in the second half of the year now that the move is completely behind us, and we really do feel like this is call it a 24% to 26% business within the next couple of years.

Okay, very helpful. And then it seems like in PMC North American industrial distribution is stubborn. Can you just talk about what you're seeing in that channel and just kind of comment order rates trending in PMC into this current quarter? Thanks.

Sure. It has been I would say stubbornly low relative to what you'd expect. The sell-through is picking up. The inventory levels are at sort of record lows. So what we're seeing is really the end market demand. And we see that continuing to improve. But in terms of any additional bump that you'd get from maybe right-sizing inventories to fulfill demand closer to the point of impact, we haven't seen that yet. We really don't have it in our second half. But to the degree that that starts to occur, obviously that's helpful. But at this point, it's still very, I would say, a little bit disappointing, right. The amount of inventory being carried in the channel is, in our view, simply not enough. I don't think we're the only ones that would feel that way. And I do think as that improves, which I think we're somewhat optimistic that it will, we haven't baked it in, we'll see that as an additional leg of improvement.

Okay. Thanks a lot, Todd.

Thanks.

Thank you. And next we have Julian Mitchell from Credit Suisse. Ronnie Weiss - Credit Suisse Securities (USA) LLC: Hey, guys. Ronnie Weiss on for Julian.

Hey, Ronnie.

Good morning, Ronnie. Ronnie Weiss - Credit Suisse Securities (USA) LLC: And the free cash flow in the quarter was down versus a year ago despite the better EBITDA and lower CapEx. I think we're sitting a little bit below the target for the year. Wondering if you could provide a little extra color on what drove the weakness in Q2 and what reverses it in the second half to hit that guide?

Yeah. Ronnie, actually from a target standpoint, we're actually a little bit ahead of where we thought we'd be in the first half of the year, so first our target of $175 million, we're tracking a little bit above that. The difference this year is really our first quarter was a little heavier, free cash flow than normal. So, therefore, the second was a little bit lower. And the issue was just the timing of some of our large distributors when they take their rebates, so rebates are taken as credits against receivables. So last year they took more of those credits in our first quarter. This year they took more in the second quarter. So that really impacted that. Certainly focusing on the first six months, if you pull that timing element out of it, (32:26) in the first six months. As I said, it's a little bit above where we wanted to be. And, obviously, substantially above where it was last year in the first six months.

And just to reiterate, I think we don't see any risk running for the full year sort of targets that we've outlined and Mark sort of provided in his guidance outlook. Ronnie Weiss - Credit Suisse Securities (USA) LLC: Got it. Makes sense. And then the water margin's up 200 basis points in the quarter. Obviously, very strong. If we're looking at a similar top line for the rest of the year, I guess, what are the moving parts there and why that margin wouldn't stay at that type of elevated level margin expansion.

Well, yeah. I think in the script we said, we had some really strong volume levels within our water infrastructure group. We levered that. Some of the project mix that we had was favorable. I think as Todd pointed out, we've gone to these projects that are not as large in total. We're seeing some better margins there. As you think about the back half of the year, you'll see some incrementals in water. We said we got – we talked about 25% to 30% incremental margin range in that platform. I think in the back half of the year you'll see us tracking towards the higher end of that. So we expect some nice incrementals in that platform and continued in the back half. Ronnie Weiss - Credit Suisse Securities (USA) LLC: Got it. Congrats on a good quarter, guys.

Thank you.

Thanks, Ronnie.

Thank you. Next, we have Mig Dobre from Robert W. Baird. Mircea Dobre - Robert W. Baird & Co., Inc.: Yes. Good morning, everyone.

Good morning.

Good morning, Mig Mircea Dobre - Robert W. Baird & Co., Inc.: If I may go back to PMC for a second, I guess, Todd, can you comment at all as to the tenure of demand or orders through the quarter?

In terms of the accelerated? Mircea Dobre - Robert W. Baird & Co., Inc.: Yeah. Exactly. How did you see demand progress through the quarter? That's really my question.

Yeah. I think demand was relatively stable throughout the entire quarter. I don't think we saw any demonstrable difference in the improvement or the sell through. It sort of ran a reasonably decent rate overall and obviously sort of what we're portending into the second half of the year. Mircea Dobre - Robert W. Baird & Co., Inc.: Great. Well, so what I'm wondering here is looking at your comps, your comp is getting considerably easier in the third quarter on a year-over-year basis, and I presume you no longer have any distortions from selling days, correct me if I'm wrong, but if demand has remained pretty good and obviously you moved up your guidance up a little bit, how should we think about this organic growth in the third quarter versus what you've done in the first half on easier comps?

Yeah. Mig, this is Mark. You're right. The days is not a headwind in our third quarter, so think about our organic growth in our third quarter in PMC is in the single-digits. We're being a little more cautious as we look at our market outlook if you think about the fourth quarter and it's still little ways away for us. And our fourth quarter, and the point you made is right, our third quarter is an easier comp than our fourth quarter when you look back at the growth impact last year. That's true, our third quarter is an easier comp, fourth quaarter is a little tougher. But that's how we – we think the third quarter (35:27) number for PMC. Mircea Dobre - Robert W. Baird & Co., Inc.: Okay. And then on Water Management, maybe a little more color on the VAG business. How is backlog progressing there, maybe year-over-year sequentially, however you want to talk about it? And any color about your business in Europe. There's a yellow light over there. I'm wondering what the challenges might be in that market or region.

Sure. In terms of the overall Water Management, we had a record quarter from a margin standpoint. It's a combination of I think very good performance inside of Zurn. That's sort of net of some of the hurricane impact that we think will wind its way into future quarters. On the VAG side of things, as we've outlined, we've been de-risking the business for a while. I think we've taken some cost out of the business, we've worked through some of the larger lumpier projects that impacted shipment timing, and we're executing a little better. So relative to how we're doing, I think we're doing better. We think that the business is additive to our core growth, we think the backlog's in good shape, and the margins are going to clearly come up. So overall I wouldn't say that we're done. I think there's more work to do obviously, but we think we've put it on a much steadier path for growth, as well as improving margins over this year and into next. In terms of the yellow light, I think it's more of a sign of look, we're not going to call it wide-open and blowing and going; I think it's not bad. But we wouldn't call it out as unusually good. I think it's more thinking about it as stable than anything else. Mircea Dobre - Robert W. Baird & Co., Inc.: I see. And if you were to maybe unpack growth in Zurn versus the infrastructure business, what sort of differential are you seeing this year?

I think taken as a whole, because I think relative to any given quarter in the past you're going to have variability because of that shipment timing, but I think we're going to see mid single-digit growth with the platform for the entire year, and we think that there's an opportunity to do that again next year. And obviously, Zurn is probably right there and water is maybe a little bit above that – the water infrastructure side in this given year. Heading into next year, we think about it as much more even in terms of their contribution to the overall core growth of the platform. Mircea Dobre - Robert W. Baird & Co., Inc.: All right. Thanks.

Thank you. And we have no further questions at this time. I will now turn the call back to Rob McCarthy for closing remarks.

Thanks, everybody, for joining us on the call today. We appreciate your interest in Rexnord, and we're looking forward to providing our next update when we announce our fiscal year 2018 third quarter results in early February. We hope you have a great day.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating, and you may now disconnect.