Welcome and thank you for standing by. All participants will be in listen-only mode until the question-and-answer portion. [Operator Instructions]. This call is being recorded. If you have any objections you may disconnect at this point. I would like to turn the call over to Ms. Martie Zakas. Ma'am, you may begin.

Good morning, everyone. Welcome to Mueller Water Products' 2017 First Quarter Conference Call. We issued our press release reporting results of operations for the quarter ended December 31, 2016, yesterday afternoon. A copy of it is available on our website, muellerwaterproducts.com. Discussing the first quarter's results this morning are Scott Hall, our President and CEO, and Evan Hart, our CFO. This morning's call is being recorded and webcast live on the Internet. We have also posted slides on our website to help illustrate the quarter's results, as well as to address forward-looking statements and our non-GAAP disclosure requirements. At this time, please refer to Slide two. This slide identifies certain non-GAAP financial measures referenced in our press release, on our slides, and on this call and discloses the reasons why we believe that these measures provide useful information to investors. Reconciliations between GAAP and non-GAAP financial measures are included in the supplemental information within our press release and on our website. Slide three addresses forward-looking statements made on this call. This slide includes cautionary information, identifying important factors that could cause actual results to differ materially from those included in forward-looking statements as well as specific examples of forward-looking statements. Please review Slides two and three in their entirety. We sold our Anvil business in January 2017. As a result, Anvil's operating results for all prior periods have been reclassified as discontinued operation. This quarter's earnings release contains reclassified 2016 results for the first quarter. We will make available to you the reclassified results for the remaining quarters of 2016 and the full-year by February 15. During this call, all references to a specific year or quarter, unless specified otherwise refer to our fiscal year which ends on September 30. A replay of this morning's call will be available for 30 days after the call at 1 (888) 566-0639. The archived webcast and corresponding slides will be available for at least 90 days in the Investor Relations section of our website. In addition, we will furnish a copy of our prepared remarks on Form 8-K later this morning. I'm now pleased to introduce you to Scott Hall, our new President and Chief Executive Officer.

Thanks, Martie. First off, please allow me a couple of minutes to talk to you all about Mueller Water Products and why I thought it would be a great opportunity to join a great team. I watched Mueller Water Products and the water infrastructure space for some time and I believe that the company is uniquely positioned with a strong customer presence and distributor relationships to drive impressive long-term growth. I believe over the last several years, Mueller Water Products team has strengthened the balance sheet through a combination of manufacturing excellence and strategic divestitures and has positioned the company for a future with the financial flexibility and resources to be a force in the water infrastructure market. In particular, the Anvil sales takes our net debt position to near zero which gives us tremendous flexibility to pursue acquisitions and invest in organic development opportunities. That flexibility, when combined with the backdrop of an old leaky infrastructure and municipalities, the realities of water scarcity, and the monitoring imperatives from both water security and water quality points of view makes the water space one of the great market growth opportunities on the investment horizon. I believe Mueller Water Products brands, products, channel presence, relationships, and strategy all lend themselves to this company at this time being a great opportunity for me personally and for our shareholders. I have been encouraged by what I've found during my first two weeks. There is a solid team in place and the purpose and mission of the team is customer and product focused both necessary for future sale success. The Singer acquisition is a clear signal from the board and the team that they support expanding the product offering, through both a robust product development process and through acquisitions. Finally, let me say, I'm looking forward to meeting and working with you all. I believe that we have in front of us a great growth opportunity and I look forward to talking with you and sharing a very compelling growth story. Now on to the quarter. Before I hand it off to Evan, we are pleased to report on a good quarter, highlighted by solid execution by our manufacturing team, delivering year-over-year margin improvement at Mueller Co. and by our sales team delivering impressing growth at Mueller Technologies. The end result we delivered a solid quarter with 3% overall top-line growth and 25% adjusted operating income improvement. And for more color and detail on the quarter, let me turn it over to Evan.

Thanks, Scott, and good morning everyone. I'll first review our first quarter consolidated financial results and then discuss segment performance. As a reminder, I'll only be discussing results from continuing operations. Increased shipment volumes at both Mueller Company and Mueller Technologies, delivered net sales for the 2017 first quarter of $167.2 million, an increase of $4.1 million or 2.5% from 2016 first quarter net sales of $163.1 million. Next, gross profit improved at both Mueller Company and Mueller Technologies and was $51.7 million for the 2017 first quarter compared with $47.6 million for the 2016 first quarter. Gross margin increased 170 basis points to 30.9% in the 2017 first quarter from 29.2% in the 2016 first quarter. Selling, general and administrative expenses were higher year-over-year due primarily to personnel-related expenses. Selling, general and administrative expenses were $36.5 million in the 2017 first quarter compared with $35.4 million in the 2016 first quarter. SG&A expenses as a percent of net sales were 21.8% essentially flat with 21.7% of net sales in the prior year. Adjusted operating income for the 2017 first quarter increased $3 million to $15.2 million compared with $12.2 million for the 2016 first quarter. Mueller Company improved its operating performance by $2.2 million or 9.2% and Mueller Technologies improved by $1.1 million or about 33%. Adjusted EBITDA for the 2017 first quarter increased to $25.5 million compared with $21.8 million for the 2016 first quarter. For the trailing 12-months adjusted EBITDA was $159.9 million or 19.9% of net sales. Interest expense net for 2017 first quarter increased 300,000 to $6.4 million compared with $6.1 million for the 2016 first quarter. Income tax expense for the 2017 first quarter of $2.1 million was 28% of income before income taxes which is fairly comparable to 24.5% last year. Adjusted income…

Thanks, Evan. I would like to provide a few additional comments on our 2017 first quarter results and end markets and then discuss our outlook for the second quarter and full-year. First, Mueller Company. As Evan mentioned, we again delivered excellent operating performance at Mueller Company. Operating efficiencies and productivity improvements drove 130 basis points improvement in adjusted operating margin in the first quarter. Looking at our latest 12-months, Mueller Company's adjusted EBITDA margin was 27.8% or 130 basis points improvement from the prior trailing 12-month period. Mueller Company's first quarter domestic net sales grew a modest 2% primarily due to a less favorable mix of products and we also believe that the new administration's promise to increase funding for infrastructure has impacted the timing of municipal spending in some parts of the country. As we look at our municipal and residential end markets, all indications to us are that the fundamentals for a healthy demand environment remain very good. At Mueller Technologies, the first quarter's 14% net sales growth was driven by increased AMI shipments at Mueller Systems. AMI shipments now represent about half of Mueller Systems net sales. Both Mueller Systems and Echologics continue to win new business. At the end of the first quarter, Mueller Systems backlog was up $10.4 million or about 70% from the prior year due to AMI bookings. As a reminder, larger AMI projects are often deployed over several years. Echologics added $5.1 million of projects under contract, an increase of $1.4 million compared with the first quarter last year. Mueller Technologies adjusted operating loss of $2.2 million for the first quarter was an improvement of $1.1 million from the prior year, due to higher shipment volumes and more favorable mix in some cost savings. I will now discuss our outlook for the…

Thank you. [Operator Instructions]. Our first question is from Mr. Seth Weber from RBC Capital Markets. Your line is open.

Hi good morning and welcome Scott.

Thank you, good morning.

I just wanted -- Scott I want to get your view on the technologies business in particular, how you're thinking about balancing growing that business, growing the top-line versus attaining some sort of profitability levels because that's been an area where, it's been hard to handicap frankly and I think people would like to see some traction towards profitability there. So may be just your big picture view on how you think about that business?

Okay. Well let me start by answering somewhat philosophically in that. My experience with technology businesses is that you have to put meaningful amounts of investment upfront into the research and development to make sure you have some basis for differentiation. I don't want to -- I don't want to get myself into a box because I haven't been there yet. But I also suspect that reads over into how they think about manufacturing, how they think about the cost structure and the plan for. I mean the reality is we're manufacturing meters and at the same time, we are manufacturing meters, we need to continue to invest in kind of the higher tech side of it whether it would be in the software side or certainly the leak detection side at Echologics. And so there are two very different cultures. And so what I will be looking for is I'll be looking for the base core manufacturing in meters to start to drive margin expansion through productivity projects by looking at the materials they're using, by looking at their labor content, by looking at their insourcing versus outsourcing activities, and start to get meaningful productivity there and at the same time try and take the parts of the business that I think we can differentiate ourselves on and we continue to invest in them. I would like to say to people go down the road five years in the technology business kind of look back, tell me what you're known for, tell me how you're differentiated, why do people buy your meters or your solutions instead of someone else's. Whatever those reasons are you need to hold those at your core, you need to do those in-house, you need to make investments in those, and the other things are kind of context and make sure you're not confusing the two. As for the second part of your question, Seth, I was pleased it's only been two weeks, so I was pleased to see the $1.1 million of improvement. But my expectation with Keith and his team is that that we will be breakeven or slightly positive by the end of this year. Obviously we would like it to be positive but I don't want to have people go in and just start cutting expenses to make it profitable while it's still in this nascent development stage. I hope that answers the question.

Yes, that's very helpful. Thank you for all that color. Appreciate that. And then may be just one for Evan, how are you thinking about the material cost environment, rising input cost, is that baked in your margin guidance for the year. I gather from your commentary about the first quarter profitability at Mueller you didn't mentioned pricing, you sort of talked about volumes and efficiencies, are you able to offset from a higher material cost with pricing in the current environment? Thank you.

Thanks, Seth, and as you know about 50% of our cost of goods sold is raw materials and purchase components. And in 2016 we did have a nice tailwind from the scraps deal and brass ingot cost. When I look at forecast out for the balance of fiscal 2017 and calendar 2017, scraps deal and brass I think are expected to raise 7%, 8%. And so we have incorporated that in our guidance as we look forward and as you know, we have announced a price increase as we mentioned in our prepared remarks on our brass. I mean our valve and hydro products, so that should more than offset we think any expansion in raw material cost.

We also think it will give us good support for the price increases as we start to see the upward pressure.

Sure, sure. Okay. Thank you very much and good luck Scott.

Thank you very much.

Our next question is from Jim Giannakouros from Oppenheimer. Your line is open.

Hi, good morning.

Good morning.

And welcome again Scott. Looking forward to working with you as well. On the lower sales outside the U.S. can you remind us of sources of weakness specifically there and when you lap those, meaning when should we be incorporating those sort of easier comps.

When we look at sales outside the United States, we do have some international shipments in our Mueller Company business into -- in Middle East where American standards are utilized in the oil fields I would say that's probably the biggest area and where we saw a little bit of softness and I think as we look out to the balance of fiscal 2017, I think we'll see that that weakness moderate a bit when we look at our comps compared to the previous year.

So I think overall we see the weakness in the international market as you said in the Middle East. But really when you take outside of Canada, the international sales are relatively small and the impact of the quarter was relatively de minimis as well I would say. I think the comp question actually gets to what has been a heating up municipal market and the year-over-year increases have been relatively modest after what was a pretty good increase in municipality spending last year.

Got it. And Canada specifically I mean that how should we be thinking I mean it's been weak for several quarters now I mean is that on the comp basis is that flattening out or are you still seeing a negative progression there.

Sales were down in the quarter, close to the 5% year-over-year. And I can tell you that the economy is so oil driven that municipal spending, it's almost the manufacturing sector is relatively small in Canada now. And so as goes the oil sands and the Newfoundland and Labrador offshore oil stable line when the oil basically going to the economy, and I think it's flattening out we believe it's flattening out because we started to see some recovery in the oil sector and in the energy sector and that will be good for municipalities and industry pulp and paper and the like to start the investment cycle again. If we see the energy sector soften again and you see that oil price drop back into the 40s I think it will continued to be soften, I think the comps will continue to be difficult.

I appreciate that. And one follow-up if I may on -- on the muni side I mean you guys are signaling, we see North America all in, in Mueller Co. strong solid tailwinds. How would you describe the spending environment I guess over the last few months versus what you're expecting in the next few months and do you see a pause or relative pause just given the new administration and uncertainty there or no pretty steady as she goes?

Well, I think we were expecting more uplift through our Q1, I think the election kind of throws some municipal spending because certainly there was a lot of discussion around infrastructure spending. I will be frank I don't think Mr. Ryan helped us yesterday by saying they were going to push the infrastructure bill out into the spring because I think there are some municipalities that are wondering is this going to be step change in the funds available to municipalities for clean drinking water or is it just going to be an incremental increase over what has been in the federal programs in the past. If it's going to be a step change, I think there is a lot of people that are pausing to see whether they would qualify and should they make their plans based on their current bond offering mentality or will there be more assistance from the federal government. And so I think that there has been a pause in Q2 somewhat, I kind of expect municipality in Q2 now to look similar to what it looked like in Q1 because there are some let's call it a pauses, your word a pause going on in the market in the muni space. I do believe though that the fundamentals about the led content in water, the leaking infrastructure that the non-rev situation in many of the specially North Eastern and Mid Western large communities are facing dictate that we're going to have to face into this problem as a country soon or rather than later. So while it made posit for Q1 and Q2 everything I look at would indicate Q3, Q4 and beyond should be good healthy spending environments in our space.

Thank you. Our next question is from Mr. Joe Giordano from Cowen & Company. Your line is open.

Hey guys this is Tristan for Joe in today, hope you are doing well. Scott, I've just a question for you to start what are the top two or three things that excite you about Mueller and then perhaps one thing that you would like to change or improve.

Well, I'm going to kind of doc your second question because it's been two weeks and really what I want to do on the change improve front is, I want to get out of Chattanooga I want to go Albertville, I want to get to Cleveland, I want to get all of our facilities including Toronto and want to meet people and I want to see what we do well and it's the part I'm the most excited about to be quite honest with you. So I'm -- if you know anything about my background, I've been making stuff for 30 something years and it excites me. I used to joke; I love to smell a cutting oil in the morning, machine shops, and forges and foundries. And so that's what I want to get. When we get there I'm sure we'll find areas for improvement and I'm looking forward to working with Gregory Rogowski and keep building up on setting their priorities for those manufacturing facilities. I'm looking forward to engaging with the customers. I've known Mueller for many, many years, it's such a great brand, iconic brand, in the industry I think that the City I've ever lived in has Mueller fire hydrants and gate value. So I knew it and I knew the space somewhat so that excited me. I think what is, I think though the thing that I want to say that excites me the most is I think this team did a great job in the last 10 years, taking a heavily levered company, de-levering it, driving great EBITDAs and they got the manufacturing cash flows. And now we're at a point, we're out of nexus I believe where we have to stop thinking about the debt reduction and all of that and start finding now that we no longer have Anvil we're in the water space, we've got an iconic brand. How do we grow from here? And how to we become extraordinarily successful in a space that I think has tons of growth left in it. And so that is probably what excites me the most.

Thanks. And then a second just squeeze just a quick second one on capital deployment is there a market to a specific technology that you would like to focus on I know you talked before about treatment is that still an option?

Yes, I think that, we are going to be spending some time in the coming months, looking at the three big segments, if you will. I think that whether it's drinking water, waste water, sewage, water reclamation -- water scarcity as a, water reclamation as it relates to water scarcity I think are going to be huge investment opportunities for the world in general. And I want to get our strategic thinking aligned with where we think the largest growth opportunities are going to be both in the short-term, medium-term and long-term. I think we're very North American centric. So I want to understand is that by design, is that by something that was just circumstance and is that appropriate for us going forward. So when you think about the strategic implications of what's happening in water and then what's happening from a geographic basis? Those are areas that I think that Greg and Keith and I will sit down and kind of hammer out the strategic framework for how we want to think about those things. And I expect to have that kind of in that May, June timeframe to complete it so that we're in alignment of how we're going to go forward.

Well thank you and welcome and good luck.

Thank you.

Our next question is from Mr. Ryan Connors from Boenning & Scattergood. Your line is open.

Great, thanks for taking my questions. I wanted to continue on the theme of capital deployment, Scott and my question is why rush the buyback, I mean it seems like you said you kind of joined the company at a potential inflection point, you got a considerable war chest. Does the fact that the buyback is going to be accelerated? I mean I recognize the desire to make a statement of value in the stock but does that suggest that you want to do bolt-on deals rather than something transformational. I mean certainly there are assets of scale out there or you could put that whole war chest to work if they would come to market. So could you just give us your thoughts on the buyback versus capital deployment and size of deals whether you would be willing to go out and do something fairly sizable?

Well let me say the buyback, the dividend increase and the Singer Valve acquisition were all -- Singer Valve acquisition were all kind of meant to display to the market that we -- when we see opportunities and we see ways to create value for the shareholder we're going to take them. And I don't want to be just like hoarding the cash if we haven't got something better to do with that obviously we have to return it to the shareholders. With that said, absolutely transformational acquisitions are in the wheelhouse. Absolutely bolt-ons are something we're going to look at. I started the 23rd, I think the Board Meeting would be 25th where we approved a bunch of these things and I'm completely comfortable that our war chest after 50 million of the 250 repurchase authorization leaves us with more than enough cash and a strong enough future cash flow earnings that we could do something transformational. So I thought it was a token at 50 but it preserved our power to do something big if that's what we choose to do. But acquisitions for the sake of acquisitions we are not going to do that, we want as I said earlier provide outstanding long-term value to our shareholders.

Got it, understood. Well thanks so much and good luck.

Thank you very much.

Thank you. [Operator Instructions]

Well thank you very much and I look forward to meeting you over the coming weeks and months and look forward to talking with you. We will say good bye for now. Thanks.

Thank you. That concludes today's conference. Thank you for participating. You may now disconnect.