Altra Industrial Motion Corp.

Ladies and gentlemen, thank you for standing by. And welcome to the Ultra Industrial Motion Q4 2020 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this time, you will need to press star then 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your first speaker today. Brian Flame, please begin.

Thank you. Good morning, everyone, and welcome to the call. To help you follow management's discussion on this call, they will be referencing slides that are posted to the ultramotion.com website under events and presentations in the investor relations section. Please turn to slide three. During the call, management will be making forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are inherently uncertain, and investors must recognize that events could differ significantly from management's expectations. Please refer to the risks, uncertainties, and other factors described in the company's quarterly reports on Form 10-Q, an annual report on Form 10-K, and in the company's other filings with the U.S. Securities and Exchange Commission. Except as required by applicable law, Altra Industrial Motion Corp. does not intend to update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise. On today's call, management will refer to non-GAAP diluted earnings per share, non-GAAP income from operations, non-GAAP net income, non-GAAP adjusted EBITDA, non-GAAP operating income margin, non-GAAP adjusted EBITDA margin, non-GAAP organic sales, non-GAAP gross margin, non-GAAP operating working capital, non-GAAP net debt, non-GAAP free cash flow, and non-GAAP adjusted free cash flow. These metrics exclude certain items discussed in our slide presentation and in our press release under the heading Discussion of Non-Gap Financial Measures and any other items that management believes should be excluded when reviewing continuing operations. The reconciliations of ALTRA's non-gap measures to the comparable gap measures are available in the financial tables of the Q4 2020 financial press release on ALTRA's website. Please turn to slide four. With me today are Chief Executive Officer Carl Christensen and Chief Financial Officer Christian Storch. With that, I'll now turn the call over to Carl.

Thank you, Ryan, and thank you all for joining us today to review our Q4 and 2020 full-year results. What was abundantly clear through the events of 2020 is that our people are our greatest asset, and I would like to begin by expressing my sincerest thanks to every member of the Altra team, I'm incredibly proud of the resilience and agility that you all demonstrated throughout the year as you served our customers, maintained business continuity, and delivered exceptional financial results, all while navigating through the unprecedented circumstances we faced. Since the onset of the pandemic, we've remained disciplined in our focus around four top priorities, putting the safety of the altar team first, managing our operations to minimize customer disruption and ensure continuity of supply for our customers, including those responsible for supplying critical components and equipment to help in the fight against COVID-19, prudently managing costs to maintain a strong balance sheet and manage our leverage, and playing offense to position Altra to emerge from this period a stronger company. As a result of our team's focus and efforts, we ended a solid year with very strong fourth quarter. Now please turn to slide six. By leveraging our market position and demand improvements in several markets, including wind and Class 8 trucks in China, we exceeded our revenue expectations with sales of $453 million in the fourth quarter and a total of $1.726 billion for the full fiscal year. Through our focus on applying Altra's world-class business system to drive efficiencies, carefully manage costs, we exceeded our bottom line expectations. Non-GAAP adjusted EBITDA margin by 100 basis points and achieved excellent working capital performance. On a full year basis, 2020 net income was a loss of $25.5 million or a loss of 39 cents per share. Full year 2020 non-GAAP diluted EPS was $2.88, the strongest EPS in Altruist history. A testament to the value of the broad diversity of our portfolio as a result of the A and S combination and our ability to act nimbly to control costs since the onset of the pandemic. We also generated a record $229 million in non-GAAP free cash flow in 2020, which allowed us to pay down $160 million of debt and make tremendous progress delivering our balance sheet. We exited the year with net debt to non-GAAP-adjusted EBITDA leverage below 3.2 times, far exceeding our expectations and advancing us towards our goal of reaching the historical leverage levels of two to three times. Now turning to slide seven for an update on our strategic initiatives, We remain committed to our strategic priorities of leveraging our world-class business system to create sustainable competitive advantage, managing costs and drive margin enhancement, and de-levering our balance sheet. The highlights I just shared clearly demonstrate that we are making terrific progress across these three priorities. We also remain focused on directing resources to opportunities that position Altra to grow and thrive as a premier industrial company for the long term. This includes making targeted organic investments in innovative new technologies, as well as customer collaboration initiatives that move us further up the technology spectrum. In 2020, for example, we formed a strategic partnership with a manufacturing software company mtec industry a b to expand our capabilities within our agv business and factory automation offerings another top priority for ultra is to further advance our environmental social and governance journey critical esg priorities have long been ingrained in the ultra business system as an extension of our culture and the way we conduct ourselves this includes a robust robust set of tools and processes designed to systematically identify and eliminate waste and reduce emissions, as well as strategies and systems to foster a work environment that stimulates and fully develops the capabilities of our people. The Altra business system serves as a compass for our ESG journey, and I'm proud to share with you today a few highlights demonstrating the progress our team has made in this area. To ensure that diversity, equity, and inclusion is ingrained into our culture, in such a way that is enduring and true to our company, we recently formed a D&I committee. I'm also proud to have recently signed the CEO Pledge for CEO Action for Diversity and Inclusion, which is aimed at rallying the business community to advance diversity and inclusion within the workplace. Another focus for Altra is ensuring a safe and healthy work environment while also advancing our efforts to manage our business in an environmentally responsible manner. We recently appointed a new director of EH&S who will be instrumental in advancing our efforts in this area. We also remain committed to providing our customers with innovative solutions that help make the world a better place. For example, in support of the effort to help reduce greenhouse gas emissions, our Jacobs Vehicle Systems business is developing innovative technology that will reduce emissions and improve fuel efficiency in heavy-duty Class 8 trucks. Our solutions also help the move towards alternative energy through the installation of engineered power transmission products in solar, tidal, and wind energy applications. And our electromechanical power transmission products help wastewater equipment manufacturers and treatment facilities worldwide increase their efficiency while reducing costs and downtime. With our people as our most valuable asset, employee engagement is another top focus area. We conduct annual engagement surveys to solicit candid and actionable feedback from our teams. On average, we had 78% participation in these surveys, which have validated that the vast majority of our employees feel supported by leadership, have a clear understanding of expectations, and are engaged as part of a team. We believe that a foundation of understanding and commitment to change is what supports lean growth and continuous improvement, and we are using the valuable and targeted input from these surveys to drive improvement across the organization. We also support our employees in efforts to get involved in organizations and activities that improve their communities. In the coming year, we plan to implement our first materiality assessment to ensure that we are focusing on the ESG priorities that are of greatest interest to our shareholders, align best with our business, and drive our strategy forward. We're looking forward to updating you as we continue forward on our ESG journey. Before I turn the call to Christian, please turn to slide eight for a review of the markets in more detail, starting with those that performed well in the quarter. Transportation was up high single digits as Class 8 truck demand in China and North America finished the year strong. On balance, we expect the market to be slightly up to flat in 2021 as demand in China, which remained strong through January, returns to more normal levels, while demand in North America is expected to improve as the pandemic subsides. Turf and Garden had another strong quarter, up low double digits, As the housing market remains strong and our customers continue to accelerate purchasing after delaying builds earlier in the year, we expect the market will slow in 2021 due in part to tough comps. Medical equipment was up low double digits year over year and flat sequentially. Demand remained very strong for COVID-related medical equipment, such as ventilators and respirators. We expect demand in the medical market to moderate in 2021 as requirements for COVID-related components are not expected to repeat and elective surgeries and hospital capital expenditures don't rebound to pre-pandemic levels until 2022. Renewable energy was up low single digits and down sequentially in line with expectations due to a tough comp and some anticipated industry supply chain issues, which are unrelated to ultra. On balance, we expect 2021 to be flat unless the new administration implements policy changes that could have a positive impact. Distribution was up low single digits, and we continue to expect the distribution markets to track in line with general industrial economy. The ag market was up double digits for the quarter, as well as sequentially driven in part by improving net farm income, which drove increased equipment spending. On balance, we expect modest, albeit lumpy, demand this year. Defense was up double digits and is expected to remain strong going forward as we continue to see strong performance with many of our OEM customers. Commercial aerospace, which remains the smallest piece of our overall A&D business, was down mid-single digits due to the ongoing struggles facing the airline industry. We expect this market will rebound at some point, but not likely until 2022. Factory automation and specialty machinery was flat year over year and down low single digits sequentially. We began to see softening in the semiconductor market, which offset the strengths in robotics, AGV, and general factory automation. Overall, we expect the market will improve in 2021 with particular strength in technology markets. Other markets facing headwinds in Q4 included metals, which was down low double digits but up sequentially as capacity utilization in the mills continued to improve. Overall, we are increasingly positive for 2021. We expect manufacturing and automotive markets to improve in the later part of the year, and that will support demand for metals. In mining, demand was down double digits for the quarter as a continued result of low commodity prices last year. We're seeing iron ore starting to come back, but coal remains down, and we expect the market to be flat to slightly off in 2021. Oil and gas, which remains a very small component of our business at well less than 5% of overall sales for 2020, was down double digits for the quarter and up low single digits sequentially. We expect the market to be flat in 2021 with some possible modest demand improvements towards the end of the year if the price of oil continues to go up. With that, I'll turn the call over to Christian to provide detailed review of the quarter and our 2021 guidance. Thank you, Carl.