Good morning, ladies and gentlemen, and welcome to the Modine Manufacturing Company's Second Quarter Fiscal 2017 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 follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Ms. Kathy Powers, Vice President, Treasurer and Investor Relations.

Thank you and thank you for joining us today for Modine's second quarter fiscal 2017 earnings call. With me today are Modine's President and CEO, Tom Burke; and Mick Lucareli, our Vice President, Finance and Chief Financial Officer. We will be using slides for today's presentation. Those links are available through both the webcast link as well as the PDF file posted on the Investor Relations section of our company website modine.com. Also should you need to exit the call prior to its conclusion, a replay will be available through our website beginning approximately two hours after the call concludes. On slide 2 is an outline for today's call. Tom and Mick will provide comments on our second quarter results and update on our Strengthen, Diversify & Grow strategic initiative and review our revenue and earnings guidance for fiscal 2017. At the end of the call, there will be a question-and-answer session. On slide 3 is our notice regarding forward-looking statements. I want to remind you that this call may contain forward-looking statements as outlined in our earnings release, as well as in our company's filings with the Securities and Exchange Commission. With that, it is my pleasure to turn the call over to Tom Burke.

Thank you, Kathy and good morning everyone. On today's call I will discuss our second quarter results and provide an update on our Strengthen, Diversify & Grow strategic transformation including the pending acquisition of Luvata HTS announced in early September. After that Mick will provide a more detailed review of our consolidated financial results and review our revenue and earnings guidance for fiscal 2017. I will then provide a few closing remarks prior to opening the call for questions. Like many other global industrial companies, we experienced a continuation of weak market conditions last quarter especially in North and South America. Global off-highway markets continue to pose significant year-over-year declines except in China where recent infrastructure investments are driving meaningful improvements in construction equipment volumes. Commercial vehicle markets are mixed with Asia and Europe seeing solid growth while North America continues to be weak and forcing run expectancy improvements in the North America heavy-duty truck market until the second half of calendar 2017. On a positive side, global automotive markets continue to be strong particularly in Europe and China. Building HVAC markets have remained flat from the prior year with weaker than expected pre-season stocking sales of heating products in North America. Overall, our sales in the second quarter were down 4% from the prior year on a constant currency basis while largest decline was in our Americas segment driven by two things; market weakness and heavy-duty trucks and then the off-highway market and slower than expected new program launches. Our adjusted operating income was $3.6 million, down $4.5 million from the prior year. Adjusted loss per share was $0.01 for the quarter, down $0.05 from the prior year. Let me be clear upfront. I am disappointed with the performance of this quarter. In addition to the volume decline, we…

Thanks, Tom, and good morning. Please turn to Slide 12. Our financial results on this page have been adjusted to exclude the non-cash charge of $39 million related to a voluntary pension lump sum payout, which occurred in the second quarter of last year. This payout was done to reduce the size, risk and costs associated with our U.S. pension plan and we succeeded by reducing our pension obligation by over $60 million. Our U.S. GAAP income statement is included in the appendix of this presentation and our earnings release. Starting with the top line, our second quarter sales decreased due to the continued weakness in certain end markets and program wind downs in Europe. Sales decreased 4% on a constant currency basis excluding an unfavorable currency exchange impact at $2.6 million. In our Americas segment, we continue to see lower sales in the North American commercial vehicle and off-highway markets. We also saw temporary decrease in our aftermarket sales in Brazil, but expect these volumes to come back in the second half of the year. Lower sales in Europe were primarily driven by decline in off-highway sales and the planned wind down of certain programs. These declines were partially offset by market growth across our automotive business. We also experienced strong growth in Asia due to higher launch volumes of our automotive engine products and some recovery in the China construction market. The gross margin decline of 120 basis points was somewhat higher than we would have normally anticipated, but we believe the dip is temporary in nature. We had a normal fixed cost absorption impact due to the decline in sales volume. In addition, as discussed last quarter, we passed along lower material cost to our customers. Last, there was an additional impact from temporary production inefficiencies in…

Thanks, Mick. We continue to experience challenging market conditions in certain of our key end markets. As Mick outlined, we are holding our guidance despite a difficult second quarter and are confident that our performance will improve significantly in the second half of the year. In addition, our management team remains committed to the objectives we set out one year ago when we announced our Strengthen, Diversify and Grow strategic framework. The acquisition of Luvata HTS is a key component of achieving these objectives and we are pleased that we’re on track to close on this transaction during the third quarter. As we previously reported, we expect this transaction will be accretive immediately with targeted annual cost savings of approximately $15 million anticipated over three to four year timeframe. As we are very deep in integration and planning process, I'm confident we will be able to achieve these targets. Of course, we will provide an update after closing, as Mick said, likely in connection with our Q3 release. Very excited about the benefits of this acquisition as we to deliver on the commitments of s Strengthen, Diversify and Grow strategy while transforming Modine into a more diversified thermal management company. And with that, we will take your questions.

Thank you. [Operator Instructions] And our first question comes from David Leiker from Baird. Your line is now open.

Hi, good morning. This is Joe Vruwink for David.

Hi, Joe.

I wanted to start, Tom, with some of the new business wins you discussed on the call and just a couple questions. Is it possible for us to say since the global product strategy was put in the place or since you started thinking about quoting from Mexico, Hungry, the low cost centers, whether your win rate or the pace of bookings have stepped up meaningfully from historical levels? Just trying to get a sense of whether over the past year since that strategy was put in the place, whether growth rates in the backlog have stepped up?

Great question, and clearly, yes. Our global product strategy has had a direct impact just kind of at a high level. Being at Modine, we are in the best position of really understanding our product portfolio and aligning our cost strategy with that includes manufacturing footprint and our procurement strategy. So, yes, we’re better positioned than we’ve ever been before that’s been reflected in our win rate that we are very confident in this, especially as you look at engine products where we have what we think a very significant position and that we have confidence, so we can grow with a win rate that we have confidence in and a more improving power train cooling win rate on the vehicular side. So clearly there’s been an improvement and expect to see that will drive higher incremental organic growth. Mick, do you want to add anything to that?

No.

And then with the lower cost footprint, are you able to expand what you're betting on, so let's say there's a particular customer that typically is very tough on pricing, Modine certainly this cycle has walked away from a lot of business in order to bring returns up. Given the cost savings you've achieved, can you essentially go back to some of those programs and customers and now bid on them profitably?

I feel confident, yes, that we can. I mean, clearly, it’s – the market pressures are continuing to increase, but clearly the cost reduction, the scale we put into our plans, the location, the low cost footprint, the product designs themselves have really been aggressive on evolutionary improvements to take material cost out and improve performance has given us that confidence, so we can go back and win against any competitors out there.

And then I wanted to shift to cadence of this fiscal year, obviously, this is a tough quarter for certainly people in my seat to model. It sounds in your seat there's things that can launch or not launch that creates some volatility. So any help maybe you can provide in thinking about the quarterly cadence going forward of whether this ends up being a very back end weighted FQ4 type year, anything that can help may be smooth the quarter to quarter modeling of your earnings?

Joe, it’s Mick. I will take that question. Last year, as you recall, we had a very similar situation, I think, almost identical. Last year in the first half of the year I think we were about $22 million of operating income and nearly double that in the second half of the year and this year the first six months are about $22 million of operating income and looking at a same ramp, similar ramp rate. When we look at it to help with the outlook and modeling the run rate of the quarters, we do see it having similar to last year still running from Q2 to Q3, we see volume and sales increasing as we come out of the slow – our weakest, typically our slowest quarter in Q2, we see some revenue increasing into Q3 and then further increasing in Q4. And then same with resulting in operating income. We see sequential improvement from Q2 to Q3 and then further improvement from Q3 to Q4. So not fair step function, but probably more of a linear look rising all the way from Q4 with the expectation of Q4 being the highest quarter of the year similar to last year.

And my last question related to this, it seems like achieving a 7% operating margin maybe by FQ4 is possible given where the guidance stands and that would obviously be the low end of the SDG targeted range by the – I think it was the end of fiscal 2018. It seems like end markets haven't helped you at in being able to deliver volume needed to get to that margin level, so the fact that you might be on track anyways seems like maybe the plan is running ahead of schedule or you’ve been able may be to uncover more than you expected? Am I thinking about this right or forgetting something in the equation?

I will start and then Mick add to it. Clearly, as I mentioned, that 70% sustainable is really depending on some top line growth as I mentioned in my comments, so to your point that is dependent. However, our targeted $40 million to $50 million in savings is starting to come into fruition. So we are at the low end of that range now that we feel will be hitting, get a run rate as we get through fiscal 2018. So that’s encouraging. And, yes, I’d say, our – as we look at the new organizational structure, that’s going to be a little bit leaner and meaner and yet more focused on strategically managing our portfolio globally on the vehicular side and the changes we are looking at the building HVAC side and of course with the added – on top of that, the acquisition opportunity, we feel strong about that. But clearly overall in vehicular side, we need markets to kind of come our way to really hit that on a sustainable level. Mick, you want to add to that?

Yeah, I guess, two points. When we get to Q4, I think, yes, we can touch the low end of that range Joe. Hopefully at that point, we can be talking about Luvata combined with Modine which we know is going to help margin Modine up, that business runs a couple of hundred basis points higher in margin so that will be an additional benefit. But without that, we can touch that and you're right it's really driven by we frankly have taken more cost out and we pushed harder on the cost as the markets have been a challenge. We really see it when we built their goals and across last year about SDG we really felt that Modine running at a 1.05 billion [ph] run rate with the cost-savings is a good model to get to that operating margin. So we do need some support here from the end markets. And I went back and I’ve looked, you asked about the win rate, the order book - the win rate is there. In the last few years, just from the global off-highway and truck market, just on unit volumes, I estimate that’s at least the $200 million impact of Modine that we’ve been battling up despite the win rate of new programs. We’ve had a lot of headwinds in especially the heavy equipment market, partially offsetting those launch volumes.

That’s great color. I’ll step back in queue. Thank you.

Thank you.

Thank you. [Operator Instructions] And our next question comes from Mike Shlisky from Seaport Global. Your line is open.

Hey guys, good morning.

Hi, Mike.

I wanted to talk - talk quickly here about maybe calendar 2017 already. Some of the major customers that you have across off-highway and on highway are both put out some outlook for 2017. And when you map it out, I wonder if you'll be able to - if you're thinking maybe you'll be in the same range as you are for fiscal 2017 and fiscal 2017 if everyone looking flat to down modestly. Are you thinking roughly in the same band this next year potentially with some organic growth and new product launches, is that the way to look at it right now for calendar 2017?

Mike, it’s Mick. I think early for us to comment on that. We were in the middle of our – while we are beginning - with the March year end, we are beginning our planning season and then as usual we'll do in our next quarter the January communication as we’ll provide some outlook to calendar 2017 as we normally do. I think from what we see and you’re referencing especially the off-highway, the heavy equipment, construction side, commercial vehicle North America, I think we are expecting flattish type market in that area. I think where we see potential growth is clearly continued growth on automotive in Asia, launching a lot of automotive engine products in North America and in Europe, and expecting further growth in building HVAC, and then we have to model Luvata on top of that. So not to point your question, I think certainly we would have the same concerns with some of the large OEs comments about next year, but we also have to model in some of the growth opportunities we see coming before we can net all of that out for you.

Got it. That’s excellent color. Thank you. Also wanted to touch on building HVAC, I was wondering if you could tell us if you have a reason why it was somewhat weak here in the fiscal second quarter and whether already in October, now we’re getting closure to the wintertime, are you seeing any improvement there just over the last couple of weeks at least?

I think we spoke about this before Mike. We came off of last winter with people having stock on their shelves that are distributors. So the restocking was lower and I think there was a fear building up too much stock going into season again. So we’ve anticipated that we should see an improvement with the winter season coming on. This is the quarter to do it. October sales are up, okay from prior quarter and prior month. So we are hoping that, that trend continues on for the rest of this quarter, but the biggest dynamic is just the inventory management, our distributors, and of course the cold snack that generally occurs in this quarter going forward.

All right. Also I asked about, in the Americas segment, the Brazilian agonist at least got emissions related changeover starting at the first of the year and I was wondering – and of course that market also seems to be on – at least flatting out and improving for the rest of this year. I was wondering if you have any kind of view whether that emissions changeover is helping your business in Brazil this year and/or if you think it will help you next year if there is some higher needs for cooling technology there.

It’s definitely helping now. We're winning – just about everything quote on in Brazil his words being very satisfied with our targeted in construction and in growing commercial vehicle, but clearly the products we brought down there are to support that transition. We are winning the business. Obviously the markets are extremely low, so it's not really turning into the revenue that we would like to see. But when it comes back, we are gaining market share significantly in Brazil.

Okay. And then also I wanted to see if anything is changed for you since you announced it with respect to financing terms or interest rate for the Luvata deal. Is everything the same as when you first set it or are you seeing anything better on the interest rate side if you have debt?

No, everything has been proceeding just as planned, Mike, no changes and we expect to complete all of those financing agreements very shortly.

Okay. I’m going to squeeze in one last one here, back to building HVAC, is the outlook for Luvata the same as or similar to your current building HVAC segment or do you see that is having a whole different set of factors which it will be watching over the next 12 to 18 months?

I think they are similar factors but clearly cover a much broader market than building HVAC folks, which tend to focus on heating ventilation and the air-conditioning. These supply a lot of refrigeration and everything else is out there as far as food storage and industrial applications as well. And those applications that are similar to building HVAC to drivers are similar. Clearly, the tech drivers are significant with getting from the field to market, single on a food storage, that really we feel is a great tech driver that they're well-positioned for another similar type of things, but right now we aren’t really involved in. So refer to those key markets that will join, we will be able to benefit from going forward.

Okay, great guys. I’m going to hop back in the queue. Thank you.

Thank you. And I'm showing no further questions from our phone line. I would now like to turn the conference back over to Kathy Powers for any closing remarks.

This concludes today’s call. Thank you for joining us this morning and thanks for your interest in Modine. Good bye.