Christina Kmetko – Investor Relations Al Rankin – Chief Executive Officer, Hyster-Yale Materials Handling Colin Wilson – Chief Executive Officer, Hyster-Yale Group Ken Schilling – Senior Vice President & Chief Financial Officer.

Joe Grabowski – Robert W. Baird Mike Shlisky – Seaport Global Glenn Primack – Promise Holdings Joe Mondillo – Sidoti & Company.

Good morning. My name is Mariana and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 2017 Hyster-Yale Materials Handling Inc. Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session.

[Operator Instructions] Thank you. Christina Kmetko, you may begin your conference..

Thank you. Good morning everyone and welcome to our 2017 second quarter earnings call. I am Christina Kmetko and I’m responsible for investor relations at Hyster-Yale.

Joining me on today’s call are Al Rankin, Chairman, President and Chief Executive Officer of Hyster-Yale Materials Handling, Colin Wilson, President and Chief Executive Officer of Hyster-Yale Group and Ken Schilling, our Senior Vice President and Chief Financial Officer. Yesterday, we published our second quarter 2017 results and filed our 10-Q.

Copies of the earnings release and 10-Q are available on our website. Anyone who is not able to listen to today’s entire call, an archived version of this webcast will be on our website later this afternoon and available for approximately 12 months.

I would also like to remind participants that this conference call may contain certain forward-looking statements.

These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements made here today in either our prepared remarks or during the following question-and-answer session.

We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly conference call if at all. Additional information regarding these risks and uncertainties were set forth in our earnings release and in our 10-Q. Also, certain amounts discussed during this call are considered non-GAAP.

The non-GAAP reconciliations of these amounts are included in our earnings release and available on our website. Now let me discuss our results for the second quarter. I will discuss the highlights first and then get into the details. Global lift truck markets continue to be strong with double digit growth again in the second quarter of 2017.

Although, the year-over-year percentage increase is not as high as the first quarter. Excluding China the market did not grow substantially, but still saw 6% growth with increases in all of our geographic segments.

In the stronger market, we had a 5% increase in our second quarter lift truck shipments, driven primarily by strength in EMEA and we’ve built background during the quarter. On a consolidated basis, our revenues increased 6% to $685.5 million, up from $645.6 million last year.

Our operating profit increased over 60% to $18.3 million from $11.4 million last year and our consolidated net income increased 98% to $16.4 million from $8.3 million last year. I want to point out that a discrete tax benefit in 2017 versus discrete tax expenses in the prior year contributed to the increase in net income.

Excluding these discreet tax items, net income increased approximately 38%. Overall, the Lift Truck business’ results for better than we anticipated. Both Bolzoni’s and Nuvera’s results were than planned, although the Bolzoni mix was predominantly currency-driven, while order growth exceeded plans.

The truck lift business, second quarter 2017 revenues were up 6.3% to $647.7 million from $609.6 million in the prior year’s second quarter. We saw an improvement in all of our geographic segments revenues, mainly as a result of an increase in unit shipments in each area.

As our new products continue to sell well, especially our new Class 5 standard product and our electric product with battery side extract.

Operating profit also increased to 50.5% to $28.6 million this quarter, compared with $19 million last year and our lift truck operating profit margin increased to 4.4% over 3.1% in the prior year's second quarter. These improvements were mainly driven by the Americas.

Operating profit in the Americas increased substantially, primarily from an improvement in gross profit of $9.9 million. The gross profit improvement was the result of improved pricing net of material cost inflation and production efficiencies, driven by higher unit volumes, partly offset by a shift in sales mix to lower margin products.

The higher unit volumes in the Americas was driven mainly by increased sales of our higher capacity, 3.5 to 8 ton Class 5 internal combustion engine trucks. The new Class 5 standard trucks and Class 1 and Class 2 electric trucks. The increase was partly offset by fewer sales of Class 5 big trucks as a result of the timing of shipments.

Despite an increase in revenues, both EMEA’s and JAPIC’s operating profit decreased this quarter compared with the second quarter of 2016. In EMEA, benefits realized in gross profit from higher unit shipments and lower warranty expense were fully offset by unfavorable material cost.

A shift in sales mix to lower margin products, unfavorable manufacturing variances from increased spending, and unfavorable currency movements of $1.1 million. And JAPIC results declined due to higher operating expenses. Those were the significant factors affecting our lift truck operating results. Now let me turn to the Lift Truck business outlook.

I’m just going to describe the high level lift truck outlook; details regarding the outlook for our individual geographic segments is outlined in our earnings release.

In the first half of this year, the global lift truck market remained strong and with the stronger than expected market, we are focused on a carefully paced ramp up in production and achievement of price goals, while maintaining the healthy backlog to manage production efficiencies.

We have maintained a strong focus on account identification and industry strategies as a means to need to achieve sustainable shared gains. In addition, in the past we have discussed a number of headwinds in the market. Those headwinds are continuing to abate. We have been able to achieve better pricing.

We have seen greater demand for our higher value internal combustion engine trucks and we are seeing improved demand from traditionally higher share countries such as Russia, Turkey and Brazil. We have also realized an overall positive mix of bookings in the first half of this year.

Nevertheless in the first half of the year, we have seen an increase in dealer shipments and few fewer national account shipments than planned. As a result, a shift back toward national account shipments in the second half is expected to provide a second half headwind.

In the remainder of 2017, we expect the global lift truck market to maintain its strength. The pace of growth is expected to moderate compared with both the second half of last year and the first half of this year.

Unit shipments and unit and parts revenues are expected to increase during the second half of 2017 compared with the same period last year.

Despite an increase in revenues, we expect the Lift Truck business’ operating profit to decrease in the second half of 2017 compared with the second half of 2016, driven primarily by anticipated significant decrease in the third quarter, as higher unit volumes and anticipated benefits from favorable currency rates are expected to be more than offset by higher operating cost and material cost inflation, net of price increases.

Overall, we expect full year 2017 net income increased modestly over last year, as anticipated benefits from the improvement in full year operating profit are expected be partially offset by a higher income tax rate in the absence of tax benefits recognized in 2016. Moving to Bolzoni.

Bolzoni reported a net loss of $100,000 and revenues of $41.9 million for the second quarter 2017 compared with net income of $100,000 and revenues of $38.9 million last year. Operating profit was $500,000 for this quarter compared with $700,000 in last year's second quarter.

Despite improvements from an increase in sales, operating profit in net income declined primarily due to unfavorable currency revaluation of $1.7 million pretax. As we’ve previously stated, the majority of Bolzoni’s revenues are generated in the EMEA market, primarily western and Eastern Europe and to a lesser degree in the North America market.

As a result of anticipated growth in the EMEA markets, the recent major customer commitments and the implementation of sales enhancement program, we expect Bolzoni’s revenues in the second half of 2017 to increase over the second half of last year.

In addition to the anticipated increase in revenues and the expected operating leverage resulting from the sales growth, we expect the implementation of several key strategic programs to generate substantial growth in Bolzoni’s operating profit and net income in the remainder of 2017 compare with the second half of 2016.

Excluding the effects one-time purchase accounting adjustments of $2.6 million, recognized in last year's third quarter. Finally on Nuvera segments.

Nuvera’s operating loss increased in the second quarter to $10.5 million compared with an operating loss of $8.3 million in the 2016 second quarter, but this quarter the increase was not the result of development cost. The increase was predominantly the result of higher professional fees and other general operating expenses.

With key results improving over the second half of 2017 and next year after losses peaked during the second half of 2016. Progress continues to be made at Nuvera with a gradual build up of orders at first generation battery box replacements, growing customer interest and engagement of the dealer network.

During the second quarter, additional orders for first generation battery box replacements were received from both end users and Hyster-Yale dealers.

However, as a result of a shipment hold on a key supplier component, no shipments of the battery box replacements were made, but are expected to commence in the third quarter now that the supplier shipment issues have been resolved.

We expect Nuvera’s backlog to grow during this quarter as dealer training and ongoing customer demonstrations are completed.

As we have previously discussed, we are in the midst of an organizational realignment designed to enhance the overall strategic positioning and operational effectiveness of fuel cell business with Nuvera focused on fuel cell stacks, engines and associated components.

And the Lift Truck business focused on battery box replacement and integrated engine solutions. The realignment is progressing as expected and we are realizing improvements in the process. The net impact of additional of added operational expenses on the Lift Truck business is expected to be modest.

Design responsibility for the next generation of battery box replacements has fully transitioned to our Lift Truck business' development center and design work is progressing on 14-inch and 18-inch battery box designs, which are necessary for many high density warehouse applications and which are expected to be launched in the first half of 2018.

The dedicated design team is also expected to implement a design review of existing products to increase quality and reliability.

We expect the Lift Truck business to integrate fuel cell manufacturing, whether for battery box replacement solutions or fully integrated engine fuel cell solutions into existing manufacturing plants, initially in North America and eventually into other plants over the long term.

The transition of sales responsibility for the battery box replacements from Nuvera to the Lift Truck business has also been completed. At this time, the Lift Truck business' sales team is focused on applications for the current range of battery box replacements. Demand is expected to accelerate in 2018 as new products are launched.

During 2018, Nuvera expects to phase out of battery box replacement production at its 7.50/2 facility and focus solely on the manufacture of fuel cell engines with support for the engine business from the Lift Truck business' supply chain and quality enhancement units.

Plans for the European launch of battery box replacements are advancing and work continues on the development of the next generation of fuel cell stacks, an electrochemical compressor and the Nuvera Hydrogen Generator. Discussions with several third parties are encouraging and fuel cell engine orders from certain OEM's are in process.

We are seeing increased interest from China. Shipments of a modest number of these engines are expected to start this quarter. Nuvera continues to focus on lowering the costs of manufacturing its fuel cell engines and enhancing their reliability increasingly over future quarters.

We continue to work towards the objective of reaching quarterly breakeven during 2018 by achieving target costs and target fuel cell engine volumes. However, to achieve this we’ll require a significant ramp up in volume.

We plan to make an assessment during the third quarter about whether the target for 2018 is achievable or if 2019 is more realistic, given the slower pace of product introduction, resulting from a focus on developing superior solutions at target costs.

Securing one or more of the third party deals under discussion would accelerate achievement of the breakeven goal. Before I open up the call for questions, I wanted to make a comment about our cash position and cash flow expectation.

At the end of the second quarter, our cash position was $239.9 million, which was substantially higher than the year-end balance of $43.2 million. Our debt balance was also much higher than at year-end. These increased balances can be attributed to the new $200 million term loan facility we entered into on May 30th.

We entered into the term loan, to provide more appropriate long-term capitalization following the Bolzoni acquisition, which we completed last year using cash on hand and borrowings under our short-term revolving credit facility and to pay down our revolving credit facility.

The remaining term loan proceeds are available for future acquisitions and strategic investments.

For the full year, consolidated cash flow before financing is expected to be positive and increased substantially compared with 2016, excluding the cash paid for Bolzoni and adjusting for the unfavorable effect of an unplanned systems related acceleration of supplier payments in December 2016.

However, it is expected to decrease significantly in the second half of 2017, compared with the first half of the year and the second half of last year after excluding the 2016 acceleration of supplier payments. That concludes our prepared remarks; I will now open up the call to your questions..

[Operator Instructions] Your first question comes from the line of Mircea Dobre with R.W. Baird. Your line is open..

Good morning guys. It’s Joe Grabowski on for Mic this good morning..

Good morning, Joe..

So, backlog looks great and according to my model lift truck units in dollar backlog are at a record high, up over 15% year-over-year and sequentially.

How do you see that backlog flowing through shipments at the back half of the year? I mean I would think that just based on where the backlog is now that shipments would be up strongly in the second half.

Kind of where do you see the backlog at year-end and again how that backlog converted to shipments in the back half?.

Well, I guess, I just say that we do expect shipments to be up in the second half and we also expect our bookings to be up in the second half, I kind of believe that might say that we never tried to push the shipments too hard because there are always mixed questions in the backlog and we really want to be sure that our plants operate efficiently.

That's far more important to us than the particular month in which the units are shipped. But I think the answer to your question is we do see a continued year-over-year increases quarter-by-quarter in our shipments..

Got it. Okay and you know related to that, dollar booking in Q2 were up 15%, unit bookings were up 27% in Q2.

Was there something unusual about the quarter? Did you get a large order or large project or anything like that that drove those very strong bookings in the quarter?.

Yeah, there's always amount of lumpiness from quarter-to-quarter because a good portion of our bookings do relate to larger national accounts. But that's true and sort of in all quarters I think the market is doing a little bit better and that's encouraging.

Colin, do you have anything you want to add?.

Mix has a big impact on the dollar value, particularly the timing of big trucks and as Christie called out, we have fewer shipments of the very large trucks. But having said that our booking is where we’re quite strong. So, our backlog there is healthy.

And I think I’ve mentioned on a previous call, when you're looking at the biggest units, we’re looking around $700,000 a unit, whereas we’re talking about Class 3 trucks they can be as large as $2,000 a unit.

So, looking at the absolute numbers of units shipped and looking at the dollar values can quite often be misleading, particularly when we’re talking about bookings on one hand and shipments on another. That’s why Al said, it can be very lumpy..

Yeah, the version of shipments in the revenue too can be different between quarters, as we shift to more of the national account shipments, the timing of when we recognized a shipment as revenue was longer, its delayed compared to when we ship to a dealer. So, that will also affect kind of the lumpiness of converting shipments into unit revenues..

All right. Bookings into shipments and revenues, yeah..

Got it. Okay. Economic question, in the Americas segment, forecast for a decrease in year-over-year operating earnings in Q3 is attributed to higher SG&A material costs. Can you drill down into that a little further, what's driving the higher SG&A. I assume the material costs are steel costs.

But maybe just drill a little deeper into that?.

Yeah, I mean I think our gross profit numbers are going to be moving up because the volumes are moving up and it's always difficult to predict exactly what that percentage is going to be because there are a lot of things going on in terms of the mix of national accounts and dealer accounts and different profitability.

Don't forget that the third quarter, it's a vacation month from a manufacturing facility point of view around the world and that does help in a normal time an effect. On the operating expense, it's kind of a – it’s easily a confusing story because part of the story is last year's story.

Last year, and a lot of this is associated with incentive compensation accruals. Last year we had some reversals of accruals and the third and fourth quarters and this year we’re continuing to do them at fairly high levels. So, the swing between those two has a big impact on the observed GS&A number.

It doesn't necessarily mean that the true running rate is a lot different. But that's a significant factor from our point of view as we look at the numbers..

Got it. Okay. A couple of more questions, EMEA has been on a roll lately, 15% organic growth, into the last quarters, nicely profitable. It seems like FX is no longer a headwind to earnings.

So, what drives the anticipated earnings losses in the second half of the year?.

Compared to last year?.

No, I think the press release issued said that they were going to be absolute earnings losses in the second half of 2017 in EMEA unless I'm reading it wrong..

So, third quarter is really more dramatically affected by the seasonal shut downs in Europe in EMEA. Actually you’ve got that effect in Europe. We're also seeing of course that material cost inflation affect that Colin has mentioned. As well as, pricing has been pretty more difficult in that environment than in North America..

Got it. Okay, two more questions. Nuvera has averaged about $11 million per quarter loss for last four quarters. It sounds like those losses are going to improve in the back half.

Can you kind of quantify it any more than that, where are the losses in the back half of the year versus recent run rate?.

I think there are certainly at least as we're looking at it now likelihood of some moderation and it will improve quarter-by-quarter. But I don't want to say a lot more about it than that at this point..

Got it. Okay, last question for me. Bolzoni had nice sales growth in the quarter, but it got impacted by $1.7 million currency revaluation, which raised a lot of the potential earnings in the quarter.

Was that revaluation more below a one-time event or kind of how does that accounting work?.

It was primarily a one-time event. We have now looked at and implemented some hedging strategies up also on that should buffer, won't eliminate, but should buffer some of the impact of currency on a reval perspective. Going forward, of course they're going to be, they sell product into the U.S. at zero cost.

So, while ongoing there will be dissidence between their cost and their revenue streams..

Got it..

What I would say more in the abstract is if anything Bolzoni is ahead of plan that we had when we made the acquisition. We feel that the programs that we have to enhance their profitability are going very well and we're very pleased with the acquisition..

Great. Okay. Thanks very much for taking my questions. Good luck in the second half of the year..

Thanks..

Your next question comes from Joe Mondillo with Sidoti & Company. Your line is open..

Hi guys, good morning..

Good morning..

I wanted to ask a question regarding the Americas gross profit as far as I can tell that was the strongest gross profit that you saw in at least four years. You’ve seen this kind of revenue before, you did not say that product mix was a big benefit in fact you said that pricing and production and efficiency is based on volume.

So, have you changed anything regarding your processes, your operations to our garner these efficiency improvements. I suppose you increased prices beyond rising material costs that was able to help as well.

Could you just help me understand how you saw sort of these near term record close margin without seeing a bump in favorable product mix?.

Well, let me, it’s a helpful question in terms of addressing a broader issue and understanding our earnings from quarter-to-quarter. We have said in the past that on selected individual deals that as part of our program of establishing an enhanced market position.

We're willing to have some lower margins at least on a temporary basis because in many times we were able to change the cost structure and due course of the trucks that we’re selling and improve the margins. But we have to be competitive in the marketplace and in areas where we've not had the applications before.

So, we didn't have much of that in the first and second quarters So, in addition some of the national account business is going to fall more heavily in the second half of the year than the first half of the year.

At least at the margin level, the structure of the business is that the national account business can have some slimmer margins and a different GS&A structure, but it shows up in gross profit as a slimmer margin. And again we had quite a bit of dealer activity relative to national account activities.

So, the first two quarters we're pretty favorable from both of those points of view. Now in the last second half of the year, we're going to have more national account shipments. There may be shipments from time-to-time in different quarters of some of these special deal accounts that are not embedded in our general or gross profit structure.

So, that's the way I’d answer the question..

Okay.

And then regarding sort of the material pricing and inflation that you're seeing has anything - has something - has that gone worse since the second quarter because you sighted the second quarter as net pricing, being a benefit at the Americas segment and you're citing that as being a headwind in the back half of the year?.

Well, one of the reasons that it's a headwind in a delayed basis is that we've got a terrific group of people in our purchasing and supply chain organization. They’re often able to enter into contractual relationships with our suppliers. They’ve committed to suppliers to call out prices, specific prices for a certain number of months into the future.

But eventually and understandably, that sort of protection against material cost increase runs out. So, I think what's been happening a little bit is material costs have been going up and our suppliers haven’t been able to pass it on to us. So, there'll be a catch up period when we come into the certain fourth quarter.

We're not exactly sure how much, but they will probably be some..

Yeah and there are signs that some of the pressures on material costs are starting abate. So that may provide an opportunity against our forecasts in the back part of the year, for the reasons Al said..

Okay. And can you address the product mix, how that's been trending within the backlog. It looks like your backlog on a $1 per unit basis has actually declined over the last couple of quarters. So, it looks like maybe the mix is becoming a little more unfavorable regarding lower priced units and such.

Could you just talk about product mix and what you're looking at there?.

Yeah, I think when you look at mix in particular our 1 to 3 ton standard truck is selling extremely well. But in terms of mix compared to the higher capacity, ICE trucks, as well as, against our premium product that is a mix unfavorability. We want to continue to gaining and hold our share of the premium truck market.

But we’re also gaining in the standard truck market and that makeshift is causing us to have some negative impact on an overall basis..

As we said earlier, I mean big trucks is positive in terms of the backlog. The Class 3 market continues to be strong and we continue to do quite well. So, those units have much lower value. So, it’s very difficult to look at it and draw one conclusion, we have a multiple reasons why the backlog is the way it is.

Suffice to say, we’re very pleased – very satisfied with the shape of our backlog at this moment in time.

I would say that as look through the second half in comparison to the second half of last year that we're seeing some - we're expecting some strength in some of our Class 3 shipments and some lower levels of some of our counter-balanced shipments, particularly, the smaller internal combustion engine trucks of our cushion type.

But on balance as Colin said, it's a pretty strong backlog and we’re rather pleased with it..

Yeah we manage our backlog to manage our production lines as efficiently as possible at the same time as meeting customers’ needs fall Bob delivery of the products. I've always tried to do as you know we have various production lines, so we look at our backlog and how many weeks of backlog we have for each of our production lines.

Then we can initiate a program. There is some flexibility in terms of how long a customer is willing to wait, but only willing wait so long. So, once backlogs get too long then we take action either by ramping our production or trying to get more price for the product.

Likewise when the backlog of particular line gets too short then we go out with programs to try to accelerate demand. Or we have to back our labor on those lines. So, again, we manage our backlog to manage our production lines as efficiently as possible. At the same time, as meeting customer’s needs for the delivery of the products..

I guess, one of the things that I'm trying to understand is over the last couple of years the pressure within big truck ICE premium trucks, which you - would carry the higher margin for your company, really pressured your earnings overall. So, I'm trying to understand, have orders for those particular types of trucks started to accelerate.

Heading into 2018, do you think that’s going to be a benefit to your overall earnings as the mix returns more favorably to that side of the business that was really pressured over the last couple of years?.

When we look at big trucks, I would say, we have three categories of big trucks, it’s between 4 and 9 tons, which is sort of just bigger standard type of counter balanced trucks. Then there were the 8 or 16 ton and then there were what we call jumbo trucks, which is everything above 16 ton. I would say all three were a headwind in 2016.

Those headwinds have abated and we’re seeing increased demand, certainly in the second quarter, it was a driver behind our results. We had very good shipments of the 4 tons to 9 tons and we have very good bookings in all of the three categories that I've mentioned. So, we’re very positive about the outlook for those.

We see demand continue to increase and then continuing further in 2018. But still not getting back to prior peak levels. And the very big jumbo trucks, we’re seeing a pickup in demand from the ports again, that went very quiet for a period of time. We’re seeing ramp up demand increasing.

We’re seeing a little bit more increasing coming out of the mining industry for tire handling type products. We’re seeing pretty good demand coming out of Latin America, out of Europe, out of Asia Pacific. So, again not back to prior peak levels, but certainly significantly better than they were in 2016..

Yeah, Christie did note your sales of the Class 5 big trucks that was predominately as Colin had pointed out, predominantly just in the jumbo line. The backlog is strong; it's just beginning of the timing of fulfilling those orders. We were down this quarter compared to last year's second quarter, but the book is strong on the jumbo segment..

And overall this 4 to 9 tons through jumbo type trucks, is that up year-over-year at this point in an overall perspective, if you look at total units or …?.

Yes..

Okay.

And just one last question regarding this, the smaller trucks are outpacing still in terms of growth than compared to these big trucks, is that correct?.

Yeah, generally speaking that’s correct. The clash for cushion market in the United States is a little bit different from the pneumatic and those volumes are a little weaker. But the other categories are doing pretty well..

Okay. Just last –.

They are driving a lot of our volume in those smaller trucks..

Yeah. I know that’s in focus..

Class 1 product in the XCMX the standard ICE truck. The volumes in our Class 1 electrics have been pretty good and we’re very encouraged about that..

Okay. And last question for me, related to Nuvera, so there's a lot of different dynamics going on here. It seems like the biggest dynamic is really just volume at this point. It sounds like most of your production line is in place; you know maybe you had still have to do some work with your parts and sourcing of parts and materials.

Maybe that'll help a little bit, but at this point it sounds like volume.

The more volume you'll be able to, so are you at this point, opening the floodgates and taking as many orders as possible? Are you still being sort of slow in terms of that, slowly ramp up, if so why? Just give us an idea of how orders have been trending if you can quantify anything that would be great too?.

Well, I don't know that we're going to quantify it, but what I would say that it is this that there are two major factors that will determine profitability as we look forward. One of them is a question you asked that's volume.

Volumes are beginning to ramp up and we see that happening increasingly during the third and fourth quarter? We have some products that are ready to go. We've got a couple of battery box replacements that are delayed a little bit. So, we're not pushing the sales of those until we are a little further down the completion.

We're not talking about large numbers of quarters here we're talking about two or three quarters before those products are already..

As we said, first half of 2018..

So, say, first half of 2018 and so there are some different pacing, depending on which product you're talking about. But we have significantly ramped up in the last quarter or four or five months. The effort to sell battery box replacements and we feel that that’s going well.

The second piece of the challenge is probably not so much the manufacturing side, which as you point out is pretty well in place now. It is really the cost of the purchased components that are going into the battery boxes. That's from two points of view. One is designed where there is still a focus on fewer more robust parts.

And two is simply getting our suppliers down the cost curve and in some cases making sure we have the right suppliers for the components. And that is a process, which is going to improve quarter-by-quarter.

So, the two pieces have to come together for us to meet the breakeven point, which we said we're going to assess again sometime during that the third quarter here to see exactly where we are from two points of view.

One is the fuel cell engine, which is now a focused responsibility of the Nuvera team and two as the other components that are wrapped around the engine, but contained within the battery box structure. Those are the responsibilities of the Hyster-Yale Group and our design team there.

We expect those to come down the cost curve in a reasonably rapid way. We got – are very focused on that and it's reasonably rapid because it's familiar territory. In the sense that we've been in the business of packaging engines of various different kinds, engines or motors or whatever for a long time.

So, those too have to be driving forward to reduce the cost so that we can actually meet our breakeven as we move down the track. But there's nothing that has come up that says that that process isn't working. That we're going to reevaluate exactly the timeline in which it all comes together.

We, as Christie said in her remarks, we do have a determination or a point of due that we would rather wait and be sure of the reliability and the quality of the product we're putting in the marketplace because we think that can be a tremendous competitive advantage for us.

So, we're focused very heavily on that and we'd rather take a little bit more time coming to the volume levels because of that. So, that's kind of the overall perspective on how we look at Nuvera at this point..

Okay. And just to clarify it sounds like a large part, maybe not the whole thing of the component issue is volume.

So, as volume does ramp up that component issue will dissipate as well and you'll be able to get better margins just on the big larger volume, you’ll be able to go to your suppliers, get better pricing on the cost side?.

Yeah, absolutely, that's an important factor because as you can imagine the volumes we've been at so far, some of our suppliers would consider experimental volumes much more than large scale production volume. So, as we move to production volumes and they too are up for it and have their processes in line, the cost should come down..

Okay. Great. Thanks a lot. I appreciate you taking my questions..

Our next question comes from Mike Shlisky with Seaport Global. Your line is open..

Hey, good morning guys. I just wanted follow-up first with the last question on the component issue at Nuvera. It sounds like that was going too resolved in the quarter, but is there a chance to happen again. It's just kind of like a component where you only have one single supplier.

Have you locked up a second supplier in case there is issues with shipments going forward? It’s the kind of high tech, and only one company can produce and supply to you. Thanks..

Well, on the particular issue that you're referring to we were from time-to-time we have stopped shipped on components and trucks and our port with truck business too. So, on the one hand you're right, these are less. But to our supply relationships, but these are things that do happen in the business overall.

As we indicated that was resolved and hopefully we're not going to have those issues going forward. As our suppliers become more and more robust, everything is tested out but it wasn’t something that was a terribly serious problem, it just had to be fixed before we were ready to release it. That’s all..

Yeah, I don’t think, I think that we’re sourced on any components what happened was the supplier changed the process, delivered some components to us that were a result of the changed process, hadn’t told us and that the components were acceptable.

So, that issue is being fixed and we’ll continue to do business with our supplier, but there are other alternatives to that supplier of the same component..

Okay. Great. Further along on the fuel cell side. Last few weeks, one of your “competitors” in the fuel cell business. That doesn’t obviously make the whole lift truck, but they did announce the pretty good sized deal for its lift trucks, it powered the trucks at Wal-Mart. I was wondering if you know, if Nuvera was in the running for that business.

Or was your competitor sort of about our first mover advantage with that account. It kind of appears though, they’re already working with the Wal-Marts, the Amazons, the Home Depots.

Is it possible you can get some kind of Nuvera presence in those larger retail customers over time in a mix feed scenario? Or are you actually pursuing other many more industrial or higher tonnage customers there..

But it’s an important question and I think through experience our views on, they have probably changed a little better in the last several quarters. We have had extensive discussions with the big customers like Wal-Mart and Amazon. Our commercial situation with them is extremely demanding and in terms of support and price.

We'll have our opportunities there in both of those accounts. But I think our choice is to do that down the track when our cost structure is somewhat more mature than anybody's is in this industry when the opportunities to make go money are greater.

I think our point of view is that the interest in fuel cells is coming along so quickly that we're going to have plenty of business without committing ourselves to the kind of performance requirements and conditions that people like Wal-Mart and Amazon might require. So, down the track we’ll be doing that, but we're not in any hurry on those.

Now I will say that your conclusion was probably correct that there were at least some of the trucks where we felt that they needed where we felt we were last mature and we were simply not willing to have the risk of hurrying that process up. So, we think there are a lot of other customers out there. We've had a great experience with [indiscernible].

We’ve other accounts where we're introducing the fuel cells. From a longer term point of view we’re not so worried about the what you call the first mover advantage. We think our technology is different and better and we think we have significantly greater power density.

That our fuel economy, which translates into the number of refueling that a forklift truck will have to go through in a shift is better than our competitors are likely to be. So, we feel pretty good about it. Want to add anything, Colin..

Just as we look to the future, I mean, technology that can be serviced by our dealer network. So, we're going to have in excess of 5000, 6,000 technicians able to support this product in the field, as we’ve rolled out. Many of our dealers are actively engaged with us in terms of promoting our solutions. They’re acquiring demonstration units.

They're partnering with us and with third parties, with regard to different means of hydrogen supply. So, we're playing the long game. So, as I said in terms of getting the reliability up. We already feel that where our primary competitor is, but that’s not get enough of us.

We want to, our mean time between failure significantly higher approaching another of our lift trucks.

And that's what we believe our customers will expect in the long-term and that's what we're devoting our design efforts towards coming up with a higher quality, a better performing unit that will deliver significant value for us in the medium to long-term..

It's also worth noting that and I don't pretend to have anything like full knowledge of the arrangements surrounding the commercial agreements that you mentioned. However, I would just note that they are not straight-forward agreements. In effect on the one hand there's a commitment to supply at a pretty sharp price.

On the other hand, are right on the part of the purchaser of the units to invest in the business of our competitor. So, those transactions are highly dilutive from the point of view of the current shareholders of the company.

There also appear to be a method of financing working capital needs in a situation where the cash requirements have been pretty significant. So, I think there’s much more to that story than perhaps we really understand..

We continue to wish them well and hope they're successful because they're helping to develop the demand for fuel cells and we think that's a very positive thing..

And that's really an important point because and it’s especially good that the big companies like Wal-Mart and Amazon are adding the sense of legitimacy to fuel cell business. We think that's going to benefit us and that it just reinforces our desire to focus on other parts of the market for the time being..

Sure. Absolutely. Great. I want to turn to two questions on lift trucks as well if I could. I just wanted to have sort of back to your guidance from I don't know a few quarters now. What you said you get to the full 115,000 unit production level over the next couple of years, I think it was between 2018 and 2020.

To me that kind of require double digit shipment growth pretty much every single year between now and then. In the first half, did they really got there. They didn’t quite get 10%.

I don’t want to pint you to a back half number as far as shipments, but do you think you can get enough shipments in the back half to at least cover a 10% growth rate in shipments for the full year?.

I wouldn’t really want to comment on that at this point, but I would say that what we said was we like to be at that level, at the peak of this cycle. Cycle is still moving up, our market is still growing, that’s been beneficial to us. I would say that well some of our share gain programs have had an effect the bigger effect is still to come.

Christie mentioned a focus on individual industries and meeting the needs of the customers in those industries. From our vantage point that process it is still at a point where it hasn't had nearly the impact that we think it’s going to have.

So, much lies ahead in terms of the impact of our share gain programs and in the meantime the market has been moving up..

All right. I also want to touch on your JAPIC segment as well for 2018. I mean, is there a chance you think that can get to an positive operating profit in 2018.

Can give an outline maybe just a little bit more detail on the backlog you've got there right now as far as the mix and perhaps are there any efficiencies we got going in Asia that might be impactful on the positive side to 2018..

I think they fair answer to that question is it going to take us a little while. The reason for that is pretty straightforward. The market in China has been changing considerably. The importance of the purchase of western type product or developed country type product by developed country customers for use in China has moderated.

At the same time some of the Japanese. I mean the Chinese product has become more aimed at what we would call the standard segment and are certainly the upper end of the utilities segment. So, we’re in the process of localizing production of product, to reduces cost, to have more cost that is China based.

We’re also focused on ensuring that we have the right products to offer. We're doing a lot of work on our China strategy and that's probably – that’s say a significant source of the shortcoming that you’re focusing on.

I think the other comment we'd probably make is that the numbers associated with our Japanese business, which is doing quite well and what you may remember is a 50/50 joint venture did not show up. Unfortunately and the JAPIC like. They show up below the line because its equity accounting not a consolidated to entity.

But that business is doing quite well and so it's not the whole story in terms of the numbers if you're looking at as I say. Unfortunately, that's the way the accounting count has to be handled..

Sure. So, one last one for me on your cash balance and I'm not surprised you went to the market for some additional debt. I mean, in a very, very favorable loan market for the borrower in the last few months. But can you kind of give us - kind of a share with us, I mean, is there a major M&A target that you're pursuing right now.

Or are you close to a dealer, or you’re just kind of like just, kind of admiring the market and just trying to hold on to cash here in case something comes along?.

Well you know, what I have to tell you as what you already know, which is if there were something we couldn't tell you about. So, that’s not a question that I really can get into one way or the other.

I would just say that we felt very good to have the cash availability under our revolver and our cash position to be able to buy the Bolzoni businesses that worked well for us.

Certainly, one thing we can say is that by readjusting for the impact of the Bolzoni purchase by issuing debt we’re back in the position that we were in before we bought Bolzoni in terms of our flexibility to do whatever it is that may make the most sense. So, I’d just leave it at that..

Okay. That’s fine. Fair enough. Thanks so much guys..

[Operator Instructions] Your next question comes from Philip Lorraine with Sharon Burke [ph]. Your line is open..

Thank you very much for taking my question. I have basically just a follow-up on the cash that you’ve taken onboard now and the option of doing more M&A.

And appreciate that you wouldn’t share with us in detail, what you aim to do, but perhaps if you could give us a guidance on what kind of activities you would be ready race to go on chase, if it’s about your vertical integration in what you are doing in the fork lift business? Or if you are thinking about let’s say, white box in geographical term, that would be quite helpful.

Thank you..

I think if you look at what we've done in recent times, everything that we did we believed had significant synergistic potential.

We felt that way about Bolzoni and its ability to not only be a good business on its own, but to help us to gain share position in industries where they’re attachments are used and for us to be able to help them generally speaking in the Americas where we’re strong. It’s just a good step from our point of view.

And we made a small acquisition as a company in the telemetry business. Telemetry is a critical element of the lift truck going forward, it’s at a very attractive impact.

Nuvera as you know, was on the one hand the different kind of acquisition, but on the other hand we felt, continued our quest we have the flexibility and power sources for lift trucks and to be a leader.

Would help propel the Lift Truck business, we’ve made a small investment, I think just this last quarter in a company called Balyo in the automation side because we already have some significant contracts in providing automated lift trucks.

And so I think the answer to your question is we are focused on synergistic acquisitions and that's where our emphasis is from our point of view..

Okay. Thank you. I appreciate it. So, that means you're already focusing still on the fork lift side of operations and every kind of technology that we have to do with the fork life itself. And not with, let’s say, also make them so whatsoever..

We're interested in the warehouse automation activities to the extent that it is core to the forklift truck business, that's the way I would answer that question..

Okay. Thank you very much..

But, not as a general abstract matter. In terms of warehouse automation that's not something that at this point we have a focus on..

Okay. Thank you. I appreciate. Thanks..

Your next question comes from Glenn Primack with Promise Holdings. Your line is open..

What’s the margin differential between dealer and like national account?.

It depends on product, it depends on geography. Sometimes it depends on account. We have some business at same level and some that’s not. But we have some business or dealers at very low prices, so it’s very much - you can’t just come up with single number –.

Let me say in addition that that's a very complicated question to answer because at the one level Collins comments I think are aimed mainly at sort of the gross profit observable impact level. But if you think about the GS&A structure we have a large set up costs that are associated with serving dealers and a very strong and very capable play.

That's not - a part of the cost structure in serving national accounts. So, it isn't just a question of the gross profit. It's also a question of how it flows to the bottom line and what's in GS&A relative to the other and – so I just note that that job..

No, I figured the cost of service is a lot less, but I’m just wondering at an operating margin level.

Is that different?.

I consider it also a point the revenue cycle is a little bit different both in the shorter term because national accounts extends out and we can incur cost in periods before the revenue is actually booked.

Just because of the way the contracts work, also a lot depends in the longer term on whether they're full service contracts associated with these and the parts and service businesses are locked in or not locked in. There are an awful lot of factors. So, it’s a hard question to answer is the answer to your question..

Okay. It must take a while internally to do your – budgeting on an annual basis..

From an observable point of view, I think what we were saying earlier was you're likely to see a greater mix at gross profit of the national account business in the second half of the year than in the first half that I think is kind of a factual perspective on it. But if you look at it, we can't lock them in terms of one quarter, another quarter.

But if you look at it on a yearly cycle things don't vary a whole lot of the whole equation comes together in the more normal basis..

Okay, that’s more important anyway..

Yeah..

With procurement, is that centralized globally or is it Europe has its own and the U.S.

has their own and ...?.

Centralized globally and it’s a extremely effective process and our low cost country sourcing is running now what Colin –.

About 30, between Europe and Americas it' a bit higher in Europe, but its over – about 32%. So, and I should say procurement is centrally led. We have a centralized team and then we also have geographic feet on the ground locally. But they’re part of a global organization..

So, in another words we have European suppliers for the U.S. and that we've Asian suppliers for the U.S. and for Europe and so. But it is a global system where we are managing it by type of component, by commodity and by people who are very expert in managing that..

Okay. So, with the material cost increases, is that a function of, you your blanket order and that kind of expired and as you put like something else out there with those suppliers, it’s at a higher cost..

They can roll through price increases at some point, yes..

Okay. With Bolzoni what was the return target, when you purchased it.

I mean, what was the goal for return on that capital?.

Well, I'm not sure we've ever given a public goal, Ken, have we..

No, I don't think we don't really disclose that. We look at it and we have obviously our hurdle rates on our return on our investment and the business case clearly met that and Bolzoni is performing approximately, comparable to our business case although a couple of the [indiscernible] have not accelerated at the rate we had hoped.

But the sales have been very strong. The sales growth and we’re very happy with the business..

What was your hurdle rates that you put in place there, is it safe to assume that you wanted a positive NPV type outcome with Bolzoni?.

It’s safely to – it’s only one of the very substantial positive outcomes..

Let me say that we’re very aware when you purchase a company on the outside as opposed to do something yourself. That you're buying two things; one, the tangible assets of the business. And two, the goodwill that the marketplace is associated with those tangible assets. Obviously, if you start a business and have no acquisitions, you have no goodwill.

The chance that you're going to earn the same return on the goodwill that you earn on the tangible assets, means if you have to think a little bit differently about the returns on the business. Having said that, I assume you're listening to the comments that we made a bit earlier when we said if we focused on opportunities with synergy values.

Because the only way you can really get goodwill piece that have a good return for the buyer is to have a synergy value that the seller doesn't have. And that's what allows us to get back up to the levels of our hurdle rates in total..

Okay. I mean, I was impressed when I saw the display at ProMat, and seem like there was a big opportunity for Bolzoni to grow into the United States, which is something of the –.

We think there is a pickup in [indiscernible] worldwide, it’s an excellent business and we think it'll do well over the long-term..

Okay. And then lastly on Nuvera. I appreciated your comments with the unnamed competitor and Amazon and Wal-Mart because it seems like whoever sells to those guys is the big loser. I saw the structure of those deals that you kind of talked about, it was just confusing.

To me it seems like a huge opportunity is in Europe and Asia, given – I mean, China wants to clean up their environment. So, I was wondering within that big port show in Europe. What kind of turn out did you see for your kind of Nuvera inside Hyster..

Let me answer the question just a little bit differently we agree with your assessment. We think there are going to be significant opportunities in Europe and we think they're going to be significant opportunities in Asia. We are exploring opportunities in both of those areas and making plans in two ways.

Number one, the extension of our lift truck, battery box and integrated solutions business around the world, first in the U.S. than in Europe on a fast follow basis and Asia.

Second, we are also looking at the expansion of our fuel cell engine business into other industries, in many cases probably through joint ventures or direct sales to other OEMs around the world including both Europe and probably particularly Asia because as you point out they have something of a central mandate to reduce.

CO2 emissions and this fits right into that. So, we see significant opportunity and it's one of the things that we can now capitalize on better with the restructuring that we undertook because the forklift truck business is focused on taking the engine and putting it into a forklift trucks.

The engine business, the Nuvera business itself is now focused on maximizing the opportunities for its engines. But taking into account that there are many markets where we may provide technology and core capabilities.

But at the end of the day, we’re not going to be the primary driver of those businesses and the obvious candidate would be the automotive business. So, we’ve got a lot of conversations under way and opportunities that we think will come to fruition over time..

Okay. That's great because it seems like there's, I agree that’s a giant opportunity in China and if you can license that or do whatever with Nuvera now that the restructuring in the [indiscernible] got the battery and the box on their side. So, just, there’s a lot of, probably missing value with your equity..

A lot of opportunity..

Given what’s fallen in your lap. All right, I think that was the end of my questions. Thanks..

Thanks a lot..

There are no further questions at this time. I will now turn the call back over to the presenters..

Hey, Al, do you have any closing comments. Okay. Thank you for joining us today. We do appreciate your interest and if you do have any follow-up questions, you can reach me at 440-229-5168. Thanks and have a great day..

A replay of this call will be available today at 2.30 PM Eastern Time. You may access this replay by dialing 800-585-8367 and entering code 32260975. This concludes today's conference call. You may now disconnect..