Altra Industrial Motion Corp.

Good day and thank you for standing by and welcome to the Ultra-Industrial Motion Q2 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to our speaker today, Mr. David Kalustyan. Please go ahead.

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 and 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, Ultra-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 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-GAAP financial measures and any other items that management believes should be excluded when reviewing continuing operations. The reconciliations of ALTRA's non-GAAP measures to the comparable GAAP measures are available in the financial tables of the Q2 2021 financial results 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. I'll now turn the call over to Carl.

Thank you, David, and thank you for joining us today to review our Q2 2021 results. And please turn to slide five. Our business is firing on nearly all cylinders as we capitalize on demand strength across the vast majority of our end markets. We delivered Q2 revenue of $488 million and earnings per share of $0.62 on a GAAP basis and $0.89 on a non-GAAP basis, results that not only exceeded the year-ago quarter but also outperformed Q2 2019 pre-COVID levels. I would like to start today's call highlighting five themes that have continued to play out for Altra through 2021. First, the combination of our high-quality portfolio of diverse brands and businesses with our team's ability to remain nimble, manage the supply chain, and reliably deliver products to our customers has continued to be a powerful differentiator for Altra. In addition to supporting our strong top-line results, This combination positions us to benefit from several secular tailwinds in markets like electronics assembly equipment, general factory automation, medical and robotics in the near term, and mid and later cycle markets such as mining, metals, ag, and heavy machinery. Second, our incoming order rate remains extremely strong. In fact, our backlog grew significantly to a new all-time high for Altra, and our book-to-bill ratio in Q2 was 117%. This positions our company very well for the coming quarters, gives us confidence to again raise our 2021 guidance, and further validates our belief that there is a long runway ahead for both ultra and the general industrial market in 2022 and beyond. Third, operationally, the business is performing very well, despite the supply chain and labor constraints impacting our customers and our operations. We attribute this to outstanding execution by our operational teams in conjunction with Altra's world-class business system. Fourth, we have continued to make exceptional progress advancing our strategic priority to pay down debt and de-lever our balance sheet. We are now within our target leverage range and remain committed to reducing our debt by an additional $100 million in 2021. And finally, while we manage the business today, we continue to make tremendous progress advancing our future growth initiatives. We're very excited by the level of business development happening across our businesses to create innovative solutions with customers and attractive verticals. such as medical, factory automation, and robotics. In fact, we are already seeing many of these efforts take hold. For example, we're experiencing significant growth in highly customized components with an existing customer that is developing compressors for hydrogen fueling stations. Over the next several years, we expect to receive orders for this new environmentally friendly application supporting reduced vehicle emissions. Additionally, we are diligently and patiently exploring potential bolt-on M&A opportunities that strengthen our market position and expand our exposure to attractive markets. Now, please turn to slide six for an overview of Q2 performance highlights. Christian will take you through details of our financial performance, but I wanted to touch on a few high-level points. Our top-line performance was really strong. Q2 revenue was up 21.9% from the prior year and nearly 5% compared to Q2 2019. This reflects the strong demand we're seeing across nearly all of our end markets and our team's exceptional management of the supply chain to minimize production disruptions and deliver product to our customers. We are also very pleased with our operating performance, particularly given two notable dynamics that we face this quarter. The first relates to increasing material costs and wage inflation that are impacting manufacturing companies like ours. In response, we have implemented several pricing initiatives and have several more in process. However, given the rapid increase of input costs, the typical notice period we give our customers regarding price increases, and the fact that the existing backlog is at lower price, there was and will be a lag in flow through. Therefore, even though we took substantial pricing action, the realized price increases did not fully offset the cost increases in the quarter. We do expect to benefit from these pricing actions to ramp up through Q3 and fully catch up with costs in Q4. The second point to note is that on year-over-year basis, our operating performance comparables were impacted by the exceptional level of cost management in Q2 2020 related to COVID-19. which did not repeat this year. As a result, while 2021 non-GAAP adjusted EBITDA margins decreased by 120 basis points compared to last year, margins were up 50 basis points when compared to Q2 2019. Now turning to slide seven for a market review. As noted last quarter, we are simplifying our market discussions to focus on the core markets and trends that we believe are most relevant to Altra's performance and growth prospects. Transportation, which represents approximately 16% of our business on a last 12-month basis, was up low-level digits in the quarter, reflecting broad-based strength across heavy-duty trucks, automotive, and marine applications. In line with expectations, Class 8 truck revenues were strong in the first half of the year, but we are starting to see some deceleration in China. This aligns with our expectations for the broader transportation market to be flat to slightly up in 2021. Longer term, as the world's leading engine braking supplier, we expect Altra's transportation business to benefit from new technology initiatives that support future global safety and emission mandates. Factory automation and specialty machinery, which represents about 12% of our business, was up over 20% as we again benefited from strong tailwinds in both the specialty machinery and automation categories, notably food and beverage, packaging, robotics, AGVs, and general factory automation. Our expectations for a strong 2021 remain intact with several favorable trends driving growth, including strength in the electronics markets, driven by global digitization and industrial IoT, as well as macro trends in robotics. Turf and Garden, Ag and Construction, which combined represents approximately 10% of our business, had a very strong quarter, up mid-double digits, in part due to favorable comps in the year-ago quarter, but also reflecting stronger-than-expected tailwinds across the board in all key segments. We now expect to see positive growth in most of these markets for the full year. Longer term, we remain very positive on our growth prospects given ultra strong position and attractive secular tailwinds, including increased infrastructure spending and where we are in the ag cycle. Medical equipment, which is about 8% of our sales, was up low double digits year over year as the decline in COVID related sales was offset by a rebound in elective surgeries and hospital capital expenditures. Although the comps for COVID-related spending this year will remain challenging, this is a very exciting long-term growth market for us, as several secular trends are expected to drive growth, from aging population demographics to growth of noninvasive and robotic surgeries. Material handling, which represents about 7% of sales, was up double digits due to strength across all key segments, including conveyors, forklifts, and vertical lifting systems. Although a cyclical market, this is an attractive growth opportunity supported by several exciting tailwinds, from strong growth in warehousing driven by e-commerce to advanced technology to improving warehouse efficiency. Aerospace and defense, which combined is about 6% of sales, was up low single digits. Notably, while our defense business remained solid, our sales into commercial aerospace showed some signs of improvement in the quarter, an encouraging indicator for our anticipated recovery. Despite near-term headwinds, we remain excited about this market. Namely, our A&D business has very attractive margin profile with a strong competitive position and high barriers to entry. We continue to expect this market will rebound at some point in 2022. And finally, renewable energy, which represents about 5% of sales, was down low double digits in the quarter due to supply chain logistics and labor issues impacting turbine OEMs and resulting in order pushouts. In addition, we're experiencing the hangover from China's policy-induced production surge last year as their version of the PTC expired in December 2020. We expect 2021 to be flat to slightly down, barring any new administration policies or accelerating wind industry supply chain issues. Longer term, renewables remains an exciting growth play for Ultra as global demand for increased usage of renewable energy favors our strong position in both onshore and higher growth offshore wind. And with that, I'll turn the call to Christian to provide a detailed review of the quarter and our 2021 guidance. Thank you, Carl, and good morning, everyone.