Jeff Frappier – Treasurer Gregg Sengstack – Chief Executive Officer John Haines – Chief Financial Officer Robert Stone – Senior Vice President and President-International Water Systems Unit.

Shane Rourke - KeyBanc Capital Mike Halloran - Robert Baird David Rose - Wedbush Securities Kevin Bennett - Sterne, Agee Ryan Cassil - Seaport Global Securities Ryan Connors - Boenning and Scattergood Nick Chen - Alembic Global Advisors.

Good day ladies and gentlemen, and welcome to the Franklin Electric Company Third Quarter 2015 Earnings 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 Mr. Jeff Frappier, you may begin..

Thank you Latoya, and welcome everyone to Franklin Electric’s third quarter 2015 earnings conference call. With me today are Gregg Sengstack, our CEO; Robert Stone, Senior Vice President and President of our International Water Systems Unit; and John Haines, our CFO.

On today’s call, Gregg will review our third quarter business results, and then John will review our third quarter financial results. When John is through, we will have some time for questions and answers.

Before we begin, let me remind you that as we conduct this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, many of which could cause actual results to differ materially from such forward-looking statements.

A discussion of these factors may be found in the company’s Annual Report on Form 10-K, and in today’s earnings release. All forward-looking statements made during this call are based on information currently available, and except as required by law, the company assumes no obligation to update any forward-looking statements.

During this call, we will also discuss certain non-GAAP financial measures, which the company believes help investors understand underlying trends in the company’s business more easily. A full reconciliation of non-GAAP to GAAP financial measures is included in today’s earnings release, which you can find on Franklin Electric’s website.

With that, I will now turn the call over to our CEO, Gregg Sengstack..

Thank you, Jeff. Third quarter revenue down 16% was a couple of percent weaker than anticipated due to two factors.

First, the translation impact from the further weakening of emerging market currencies; and second, the further weakening in the price of oil and gas, which depressed demand for Pioneer brand pumping equipment and for mud tanks manufactured in the U.K, our fueling business and used in the North Sea oil production.

However with reduced input costs, restructuring and other cost take-out initiatives, better mix in selling price, we were able to hold the reduction in adjusted operating income to 17% and our operating income margin of 12.7% was equal to Q3 last year.

This is a marked improvement from our second quarter on a sequential basis, while our third quarter revenue declined 6% from the second quarter, our adjusted operating earnings increased 18%, and our earnings per share increased 29% as compared to the second quarter. Now turning to end markets.

With more “normal weather” in the U.S., you have seen our groundwater business stabilized and you’re gaining traction with the reset of our distribution as residential pump sales are approaching last year’s level.

However, with a record rainfall in the second quarter, irrigation and pumping system sales while recovering a little from Q2 remained depressed down over 20% and inventory levels in the Central region of the country, while improved our – in our view it’s still above normal. Demand for our surface pumps in the U.S.

and Canada market continued to be weak. Our waste water and water transfer pump sales were below last year, in part due to a tough comparison and also due to a weak demand in Canada exacerbated by the weak Canadian dollar. We really didn’t see the normal season for this business this year.

In Europe, Water Systems sales in local currency continued to be flat till last year with no real catalyst driving the market. In the Near East, after a solid first half, our business in Turkey has been negatively impacted with the political unrest in the country. In Latin America, we continue to do well, up 8% organically.

As we move into the summer in the Southern Hemisphere, our business and results up in local currency, holding up well in a very weak economy. The integration of Bombas Leao is right on plan and through price actions and productivity gains; we have recovered some loss margin.

Our Southern African and to a lesser extent, Australian log of businesses are being negatively impacted by the reduction in metal prices, particularly copper. Copper mines are being shuttered and the mining activity in Southern Africa and Australia has generally not robust, impacting the sale of Pioneer brand products.

Excluding Pioneer’s sales, our Southern Africa and Asia-Pacific water businesses had another solid quarter of 7% organically. Turning to fueling, excluding the impact of foreign currency translation and reduced demand for storage tanks that support North Sea oil production, Fueling Systems sales grew organically in the quarter. In U.S.

and Canada, Fueling Systems sales growth accelerated from mid-single digits in the first half of the year to 8% in the third quarter. In the rest of world, sales were up slightly with weakness in China, India, and Europe being offset by growth in other regions.

With tight expense control, our Fueling Systems operating margin expanded even with a 4% decline in the reported revenue. Looking forward, we anticipate fourth quarter revenue to be down 10% to 12% as compared to the fourth quarter last year.

Similar to the third quarter, we expect the decline to be directly attributable to the impact of exchange rates, and weak demand for oil and gas drilling. Outside of these two factors, we are expecting continued organic growth across both segments.

With this revenue profile and with cost improvements, more favorable mix and some price, we believe adjusted operating income will be up significantly, and adjusted earnings per share will be in the range of $0.34 to $0.37. I would now like to turn the call over to John Haines, our CFO..

Thank you, Gregg. Our fully diluted earnings per share as reported were $0.43 for the third quarter of 2015 versus $0.46 for the third quarter of 2014. As we note in the tables in the earnings release, the company adjusts the as-reported GAAP operating income and earnings per share for items we consider not operational in nature.

We believe presenting these matters in this way gives our investors a more accurate picture of the actual operational performance of the company.

Non-GAAP expenses for the third quarter 2015 were $1.7 million, and included $1.3 million in restructuring costs, primarily related to the continuing European manufacturing restructuring and realignment in Brazil.

There were $0.4 million of other non-GAAP expenses related to business realignment cost, primarily severance, in targeted fixed cost reduction action and retired executive pension cost. The third quarter 2015 non-GAAP adjustments had a net EPS impact of reduced earnings by $0.02.

There was a $0.04 reduction in EPS for non-GAAP items in the third quarter of 2014. So after considering these non-GAAP items, third quarter 2015 adjusted EPS is $0.45, which is down 10% compared to the $0.50 adjusted EPS the company reported in the third quarter of 2014.

It is worth noting that the company estimates its 3Q 2015 adjusted earnings per share was negatively impacted by $0.06 due to the translation impact to loan of foreign exchange. As Gregg noted, we saw a significant deterioration versus the U.S.

dollar of many key currencies, which we do business in, including the euro, the Brazilian real, the South African rand, and the Turkish lira during the quarter. This deterioration causes the earnings of these units to be translated back to fewer U.S. dollars.

Water Systems sales were $173.5 million in the third quarter of 2015, a decrease of $43.1 million, or about 20% versus the third quarter of 2014 sales of $216.6 million. Sales from businesses that were acquired since the third quarter of 2014 were $2.4 million or about 1%.

Water Systems sales were reduced by $24.2 million or about 11% in the quarter due to foreign currency translation. Excluding acquisitions and foreign currency translation, Water Systems sales declined about 10% compared to the third quarter of 2014.

Water Systems operating income, after non-GAAP adjustments, was $24.5 million in the third quarter of 2015, down $6.5 million versus the third quarter of 2014. The third quarter operating income margin after non-GAAP adjustments was 14.1% down 20 basis points from 14.3% in the third quarter of 2014.

Fueling Systems sales represented 25% of consolidated sales and were $59 million in the third quarter of 2015, a decrease of $2.5 million or about 4% versus the third quarter 2014 sales of $61.5 million. Fueling Systems sales decreased by $3.2 million or about 5% in the quarter due to foreign currency translation.

Fueling Systems sales were up about 1% after excluding foreign currency. Fueling Systems operating income after non-GAAP adjustments was $15.4 million in the third quarter of 2015 compared to $15.7 million after non-GAAP adjustments in the third quarter of 2014, a decrease of about 2%.

The third quarter operating income margin after non-GAAP adjustments was 26.1%, an increase of 60 basis points from the 25.5% of net sales in the third quarter of 2014.

The Company’s consolidated gross profit was $76.8 million for the third quarter of 2015, a decrease of $12.4 million or about 14% from the third quarter of 2014 gross profit of $89.2 million.

The gross profit, as a percent of net sales, was 33% in the third quarter of 2015, an increase of about 90 basis points versus 32.1% during the third quarter of 2014. The gross profit margin increase was primarily due to low addressed material costs and an improved sales mix of Water Systems products.

Selling, general, and administrative, or SG&A, expenses were $47.7 million in the third quarter of 2015, compared to $55.6 million in the third quarter of the prior year, a decrease of $7.9 million or about 14%.

The company’s SG&A expenses decreased in the quarter primarily due to lower marketing and selling-related expenses as well as lower cost for incentive compensation, approximately half of the lower SG&A expenses were related to foreign exchange.

The tax rate before discrete events was 27% in the third quarter of 2015, and we believe 27% is a good estimate for the full year 2015. The company ended the third quarter of 2015 with a cash balance of $84.9 million, which was $25.8 million higher than at the end of 2014.

The cash balance increase was attributable to cash generated from operations of about $60.3 million, or 105% of the year-to-date reported net income. The company has about $20.5 million of borrowing on its revolving debt facilities at the end of the third quarter 2015, and had about $45.7 million of borrowings at the end of the third quarter of 2014.

The company purchased about 1.3 million shares of its common stock were approximately $37.1 million in the open market during the third quarter of 2015. Currently, the total remaining authorized shares that may be repurchased is about 2.5 million. This concludes our prepared remarks and we would now like to turn the call over for questions..

Thank you. [Operator Instructions] And the first question is from Joe Radigan of KeyBanc Capital. Your line is now open..

Good morning. This is Shane Rourke on for Joe..

Good morning, Shane..

Hi, Shane..

Good morning.

I guess the first in the water business, how much of the decline was agriculture versus the residential business?.

Yes, as we've discussed a little bit earlier, the residential is down single-digit, ag is down a little over 20..

Okay..

And that's in the U.S. market, excuse me, and then I think your question is related to U.S., not the U.S. market..

Yes, that was what I'm most interested in. And then I understand typically you see some pull forward into the end of the year as distributors look to hit volume and discount targets.

What are your expectations there this year? Do you think that could be a little softer since it's been a weaker year?.

Sure. At the end of the year, people are looking at their overall volume and targets. But as you point out, certainly for this year, it's not been robust in the market. It's just purely less incentive for people to do that..

Okay. And then I guess the last one I have here, you know, you had some really strong fueling margins.

I'm curious, how much of that is mixed versus what's kind of sustainable going forward? How should we think about that?.

Yes. Shane, this is John Haines. The fueling business as we've been discussing for the last several quarters has done a really nice job of leveraging their fixed costs. And so even though their revenues, after the impact of currency are up significantly this year. It hasn't grown their fixed cost in a dramatic way.

So, we would say that the margin improvement that you see there is a combination of some mix shift for sure, but it's also a combination of leverage on fixed cost. I'd remain cautious about fueling margin above 25%. That's not where we think for the long-term they will be.

But that – somewhere in the low-20s is a reasonable expectation for that business unit..

Okay. That's really helpful. Thanks a lot..

Thank you. And the next question is from Mike Halloran of Robert Baird. Your line is open..

Morning, everyone..

Hi, Mike..

Hi, Mike..

So, on the fourth quarter here, the underlying trend expected to turn positive on a year-over-year basis excluding FX, excluding the oil and gas side for your water segment. Maybe you could talk about what you're seeing underneath the portfolio that would suggest some growth there as you hit the fourth quarter.

And maybe parts of that by some of the end markets, that it seems like your – is it better than normal sequentials or are we just at a point where it's normal sequentials as you get to next quarter? Just a little more color there will be helpful..

Yes, Mike. I think, yeah, maybe a little better than normal, I'd say it was better than normal of last year. As we're going into the fourth quarter of last year, currencies were changing dramatically and markets were changing for us in the U.S. marketplace.

And so, that's what we're saying, the business is really stabilized now, and we'll see here recovery of our North America residential business. We're seeing ag is not down as much. It wasn't down as much as the [indiscernible] guys are talking about.

For us, again, we're more of a replacement market there, seeing European business stabilizing or relatively flat. But in the Middle East, there's been a lot of disruption over the years. And so, again, if there's kind of near normal conditions there, we expect that to kind of continue to be okay. Brazil slowed down in the second quarter.

We're beginning to see that picking up a little bit, activity coming in the back half of the year. Our groundwater business in Brazil has continued to post record revenue; the one we acquired, Bombas Leão. Again Southern Africa has been relatively soft because of the commodities. We would expect that to – again to be balanced to recovering slightly.

So, really what we're doing is we're lapping a lot of the headwinds in currency. We're lapping the headwind in oil. We're lapping the headwind in our distribution reset, and we're expecting something more of a normal weather year next year..

And when you look at that distributor reset, I know you mentioned inventory levels still a bit above normal.

How close are you guys do you think bleeding through the remaining of that inventory so that whatever incremental demand is out there starts flowing to you a lot more quickly?.

Well, I think that generally, distribution, given the year has been pretty cautious about buying. And so there is still demand that's flowing through, I think, outside of the center of the country, inventory levels are normal. So, it's really at the center. And would I think that would bleed through here this year.

There is a carryover the first quarter. It's a little tough for us to have that visibility, but I think – as everybody with the dramatic decline in irrigation and I think everyone has been cautious, so I don't think there's a whole lot of interest in building inventory. I do think this will normally bleeds out of it..

That's very helpful. Thank you..

Thank you. And the next question is from David Rose of Wedbush Securities. Your line is open..

Good morning, gentlemen. Thank you for taking my call.

I was wondering if you can walk us through the cost savings for 2015 so far, and 2016, if you can kind of quantify the benefit from the cost actions and give us an update on what's your expectations are for the savings in 2016?.

Yes, David, what we've said on the fixed cost as you saw – when we talked about fixed cost in the corporation, we're talking about the combination of those fixed cost that were in our cost to goods sold, fixed manufacturing cost plus SG&A. That unit entirely is down about 14% when you look at it in the third quarter, quarter-over-quarter.

That improvement is the combination of some of the restructuring actions that we've taken, including discrete fixed cost actions. So some of our business units have the most significant revenue challenge have taken actions relative to their fixed cost, selling and marketing and other costs. And then, of course, a portion of it is FX as well.

So, we estimate around 50% or thereabout, so that 14% reduction is related to FX. As we look forward for the full year and then beyond, we're hopeful to be in a fixed cost range of combination again of those two categories, somewhere in the $302 million to $305 million annual run rate is kind of how we see ourselves ending this year.

So, now, there's going to be some giveback in 2016, right. There's a portion of that that's variable compensation that we'll have to add back, you’ll start to lapse some of those FX that will have some impact.

But when you compare that to the 2014 total of about $324 million, we're significantly below, and we feel like we'll be positioned significantly below that.

So, the key question for us is, what will – what are the right things to add back? Perhaps, for example, on R&D, we cut back a little bit on some of the R&D efforts that we had intended this year simply because of the year we were having, some of that will come back, and that's – but we still – the point is we're still – we feel like in a much better run rate position as we end 2015 and enter into 2016 on that total fixed cost base..

That's helpful. And then maybe kind of quantifying a little bit more as we think about next year. I know you haven't provided any guidance, and you won't provide a ton of guidance on that matter, but how should we start thinking about the assumptions to get to revenue growth next year excluding FX? You need to recover in oil and gas.

Maybe you can kind of walk us through some of the same items that you talked about the fourth quarter but think about next year..

one, we are going to lack some FX, specifically the euro, right. We've seen the euro drop, but maintain or be pretty steady. The developing region currencies are a little more difficult, as you know, to try to predict. But we will lapse some of that FX in 2016.

We can't imagine that we would have a weather quarter or a weather year in the United States like we have this year. As we've discussed it, it was extreme from our perspective. So, hopefully, we're not going to see that in 2016. Fueling, we have a lot of confidence in. There's some choppiness this year in terms with China, India.

But that business is well positioned for organic growth, at least in the mid single-digits. It's not the upper single-digits. And then the final thing that you asked about was oil and gas and we're not – we're not really confident there.

We don't see an inflection point that is going to drive that – drive the growth of that Pioneer branded equipment significantly higher in 2016. So, that remains a headwind for us.

So, after giving you any specific advice, I would say, it was very [indiscernible] those are the key things that are coming in our minds right now as we're thinking about 2016's top line..

Okay.

And then, lastly, with that said, is your thinking then you'll take additional cost actions above and beyond what you've already discussed?.

I don't think we'll initiate new cost actions, Dave. But I think what you'll see is sequentially, I'll skip that or – in cost of goods sold on an input material basis as we sequentially move through the balance of this year and then into 2016. Both of the restructuring efforts that we have announced will start to pay back more.

We'll complete what's happening over in Europe with the final move of a couple of areas, manufacturing areas to the Czech Republic. As Gregg said, the integration and the actions that we're taking in Brazil are on track and every quarter that we go into the future, we'll get a little bit more benefit from that.

So, I wouldn't characterize it though as incrementally new initiatives to take fixed costs out..

Okay. Thank you, John. I appreciate that..

Thank you. The next question is from Kevin Bennett of Sterne, Agee. Your line is open..

Hi. Good morning, guys..

Good morning, Kevin..

Gregg, first question and hopefully, this is the last time we have to ask this. On the distributor reset, I was wondering if you're pretty much done there and then if you also if you would regain the lost market share that you had in the Central U.S..

Yes. Kevin, certainly it will be, hopefully, the last time you ask the question. Where we have seen pockets of weakness, which were the upper Midwest, we now have covered and also in – so that's in place. And then Central Texas was kind of the last piece and we're working on some things there that will be in place we expect by the end of the year.

So, yes, we have the geography covered to our satisfaction and our team is now focused on regaining some share. We mentioned in our second quarter that we had seen a little bit share loss. We're seeing the recovery in residential. Ag will come but it's been clouded obviously with the weather conditions that we've had this year..

Sure. That's perfect and good to hear. Secondly, on Brazil, your sales were up I guess organically about 3% which is certainly nice to see given the well-publicized macro headwinds going on down there.

I was wondering if you could provide some more color on what's going on with Franklin specific to kind of offset the economic weakness that Brazil is seeing..

Sure, Kevin. We have a really good business in Brazil. We started in Brazil – well, back up. Franklin has been in Brazil through other pump companies back in the 1980s and the 1990s.

Matter of fact, one of the reasons that we're very interested in acquiring Motobombas Schneider in 2008 is because they had at one point about 20% of the Brazilian groundwater market, residential market with Franklin Motors. So, they had distribution reach. And Motobombas Schneider has a great residential and surface water business.

And again, they have about 5,000 dealers that they do business with around the country. And so we knew that we could very quickly bring in our products from offshore and take them through that market. So, we're gaining share of the Brazilian market with Motobombas Schneider's branded products.

I would say that we did see that checkup meaningfully in the second quarter. And that's where, I think, we said that we got the Brazilian economy caught up with us. But we are seeing Schneider beginning to get more traction – we're moving this summer – and that that product line is doing very, very well.

Leão, the company we acquired last year, is right in our fairway. The groundwater business, we saw the opportunity that with our leadership team in Brazil operate that business that we could take what has been recognized as a leading brand in Brazil in Bombas Leão and really driving it forward. And so, we're seeing that today.

With the integration and the coordination between the two businesses, two brands, and one operating team, we're seeing really strong results with Leão bucking the economy. I don't know details about the agricultural business in general in Brazil, but we're finding our Leão our business is doing very well..

That's perfect.

And so, Gregg, is that something that you're worried about going forward just given the economy in Brazil or do you think you guys will continue to be able to buck the trend?.

Well, gravity catches all objects. But with that said, I think that we're going to see that the residential business will follow the economy. We're believing that we are through market share gains, softening that effect on the residential side. With the water business, we had a company; again, that has a great brand, 50 years of tradition.

It just needed some leadership and some capital and some investment in inventory, and we're doing that.

And I think that that, along with the macro trends that Brazil has got this enormous agricultural economy, they have enormous access to underground water – groundwater, so, it's a natural export for Brazil, the water through agricultural goods and also through beef and so on.

So, we think that we're in a pretty good situation and – with our businesses where they are today..

Great. And then, last question for me is on M&A, it's been a quiet year, I guess. And I'm wondering if you can have any update if things are progressing, if your pipeline remains full or if that's kind of cooled off a little bit..

We have an accurate pipeline. Many of the opportunities we look at are in countries outside the United States and Western Europe. And when you have a major change in exchange rates, people in those countries are often thinking kind of a U.S. dollar terms. So that makes valuations very difficult to have a meeting of the minds.

And we expect that that will – it's going to take a more while for people to kind of readjust their thinking to what are the new exchange rate realities. So, we have deals in the pipeline and we were – I mean, we have an active pipeline. We continue to look – it has been a little quiet this year with everything else has been going on..

That makes sense. Thank you guys..

Thank you. The next question is from Ryan Cassil of Seaport Global Securities. Your line is open..

Good morning, guys..

Good morning..

Good morning, Ryan..

Yes, on the Pioneer side, I think you said you're not really expecting too much of a change in demand there, but perhaps you could talk a little bit about pricing, whether you're seeing any pressure there, or whether it's getting incrementally worse as we drag through this period..

Yeah. This is Robert Stone. I'll speak to that. There has been some pricing pressure on Pioneer as – particularly as rental fleet – companies that tried to liquidate some of their product. Initially that was outside North America. Now, some of that is coming back into North America.

So, that put some pressure on those products, but in truth, those products really are not in high demand now because most of those were oil and gas-related. So, that business wasn't really going to be there for us anyway..

Okay. And then on the groundwater side, perhaps you touched on this already, so I apologize, but I know you talked about the inventory and distributor reset but just on the end-customer demand, are you sensing things are turning the corner there? And things are improving in the residential side.

Any color you could give us there for the fourth quarter?.

Yeah. Sure, Ryan. We're seeing the gap, the weakness in residential has diminished in Q3. Again, we saw a pretty abrupt decline in demand in Q2 with both ag and residential particularly in the center of the country. So, residential, we're seeing is moving back in there – more normal rates for us.

We have addressed a couple holes in our distributions, and we're seeing that's helping us. With the ag business, again, the decline was as dramatic as Q2. It's still down. We're hoping for a little bit more of the season.

But effectively, there just wasn't a lot of demand for irrigation as compared to last year particularly because it's in the center of the country. With that said, one advantage we have relative to capital equipment providers in this industry, the ag industry, is that we are a replacement item.

So, when pumps get turned on, the ones that are already installed and they fail, then we're going to get that replacement business. And as for John's comments earlier that till we get some kind of more near normal weather, people may now be putting new systems per se, but they're still going to maintain their existing systems.

And we've always used it as a target, our [indiscernible] about 80% of our business replacement. So, we would expect to see more normal volumes next year..

Okay. Okay. Thanks.

And then just last question, your inventories picked down here sequentially and as we get through this distributor reset, should we expect to see those inventories continue to work their way down here over the next couple of quarters?.

Ryan, I think we've seen a nice move as you pointed out whist sequentially we went from $220 million in the second quarter of combined consolidated inventories to about $209 million in the third quarter. I don't know that the inventories are necessarily going to be that impacted by the distribution reset.

As I'm sure you know, the inventories are a bit seasonal, so you see a run-up in the second quarter and third quarter, generally, to accommodate the Northern Hemisphere businesses.

I think the more significant thing that you're going to see is that just a better job in terms of managing input, managing our finished goods inventories, this concept of availability and emergency replacement parts is very important to the value prop that Franklin has.

But I think we all agree that we can manage these inventories a little bit better. And I think you're seeing that in a variety of different ways across the company.

So, we'll continue to see incremental inventory improvement, but I don't know if I would attribute it to particular end market as much as I would just management's attention and effort to manage it a little bit better..

Got it. Okay. Thanks, guys..

Thank you. And the next question is from Ryan Connors of Boenning and Scattergood. Your line is open..

Great. Thanks for your time this morning. I wanted to get your take on kind of a strategic question for the industry having to do with kind of the supply and demand environment in the energy-related, call it, fluid handling space. Obviously, the market's collection of niches, but there's some fungibility between applications.

And now that we've seen this kind of dramatic decline in volumes, if we assume that the lower energy price environment hangs around for a while, maybe even a number of years, and the industry have been built up to serve a larger market.

Will we get to a point where there needs to be supply curtailment industry-wide or is that something that can be managed through shift changes and things like that?.

Ryan, as you're talking about energy, I'm thinking about, you're talking about oil and gas and you're talking about the exploration side. So, I'm not going to address this from the fuel dispensing part of our business where we are....

Correct..

Underground systems related to – use a lot of fields. So, then you look at the oil and gas sector and you say okay, within – where Franklin touches that space, it's principally through our Pioneer brand product line. And we had some challenges actually, scaling in our case last year. We saw some cost in scaling last year to address the surge.

So, in our own case, we sacrificed margins to deliver revenue because we didn't want to expand our footprint beyond what we have in place already. So, that our footprint is pretty well-sized with the business it is today. So, that piece is now, as you pointed out, Ryan, it may be years before that the industry recovers.

But for us, in the case of our Pioneer business, we are looking through the diversification and getting Pioneer deeper into mining, which has also been a little bit weak as we pointed out and as you all have commented too. But Pioneer also has evolved in municipals through our bypass and these are businesses in the U.S. that are pretty upbeat.

I think that there's been others in the industry who have talked about the municipal investment that's required over the next decade. So, for us we're feeling pretty good about the business, where it stands today.

I think your broader question related to oil and gas, it probably it's better served the – they're asking people a little deeper in that business because we're going to continue to put out, again, new products. And we're going to continue to innovate across Franklin and including Pioneer to address our underlying demand.

But we're scaling, and you pointed out the niches that people play, I think it's probably are we redirecting, or somebody gets deeper in that space, we'll have a better answer for you..

Okay. So, John, I mean just to – if I could paraphrase, for yourselves, you feel like there's enough alternative avenues to kind of redirect your volume that shouldn't be an issue..

Oh, absolutely. And again, in case of Pioneer, we had a tremendous volume run in the last couple of years, and the top going up with that. But now we've got a business that because of the lack of revenue in the oil and gas space, it is a much more diversified business.

And it's a sustainable base that we can grow from, and we're going to grow with it across the globe and – and as I said municipal and the construction industry and mining industry. And again, we have a number of new products. Robert's not here, [indiscernible] we have at Pioneer as well..

Okay. Great. Well, that's great. And then the other question I had was regarding FOREX and exchange rates. You mentioned you used the term new exchange rate reality when you were talking with Kevin a minute ago about the M&A environment there.

And I wonder a lot of these, yourselves and others are kind look – you kind of back out the FOREX stuff to give us a better picture of the organic run rate of the business.

But if we truly are in an environment for a number of years where the dollar is going to be a lot stronger, how does that structural shift in the currency environment impact your business or your strategy or how you're running the company, if at all?.

Well, I think there's a couple of things. John pointed out earlier, I mean, from a standpoint of comps that we're lacking of many of these comps, from our point of view that may be developing regions less expensive to buy businesses going forward. Again, there's got to be meeting of the minds.

But we're patient, and we know a lot of people in this industry and people know us as a good acquirer. So, it makes little businesses less expensive in dollar terms potentially they require.

It also reduces the cost base for our company because you may know that in practice for a couple of years, we know that we've moved a lot of our manufacturing in the lower cost regions that made it even more competitive. So, we don't have as data cost footprint in the U.S. or even Western Europe. So, that helps us from cost of point of view.

But at the end of the day, 5 billion people are in the developing or growth regions of the world. They need water. They need fuel. They're going to move into middle class over time. When they do that, they consume more water, they consume more fuel, and that's all good for us.

So, I don't know if it's going to be in a year or five years or 10 years, but we feel we're well-positioned. We have a good cost base that's been helped by the situations consensually moves manufacturing around, even further help it, and we're inside these countries doing business not trying to import into them. And that's also good for our business..

Okay. Well, that's very, very helpful. Thanks for your time this morning..

Thank you..

Thanks, Ryan..

Thank you. And the next question is from Matt Summerville of Alembic Global Advisors. Your line is open..

Good morning. This is actually Nick Chen for Matt this morning. Thanks so much for taking our question. You guys already talked about....

Hi, Nick..

Thank you. You guys had already provided some commentary just surrounding the new preferred footprint. I was hoping you could give a little bit more color about how the company has actually been received by the new distributors and just sort of what that relationship is like..

I think that you're talking about our new distribution footprint..

Yes, absolutely..

Is that your question? Yes – because we're no longer doing business with preferred. So, we are doing business with other distribution. And if you go back in history, these are individuals that have – owners or operators that have known us over the years. We've done business with them in the past.

We maintained relationships with these people in the past and they have maintained relationship with the end market. In this industry in the U.S., there's not a whole lot of examples of exclusive distribution. Distributors carry often more than one line and the contract is often by for more than one distributors. So, we maintained these relationships.

We reestablish business with several partners. We expanded business with several partners and we believe that they've also expanded their business. We're seeing our numbers with the end-contractor. So, the short answer is that it's been well received..

That's great. Thank you so much. I'll jump back into the queue..

Thank you. And there are no further questions on queue at this time. I'd like to turn the call back over for any closing remarks..

We thank you for following the company and look forward to speaking to you after the first year on our Q4 results. Have a good day..

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day..