Altra Industrial Motion Corp.

Thank you for attending today's Ultra-Industrial Motion Second Quarter 2022 Second Results Conference Call. My name is Jason, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you'd like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to our host, Ryan Flame with Sharon Merrow.

Thank you, and good morning, everyone, and welcome to the call today. 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, 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-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 2022 financial results press release on ALTRA's website. Please turn now to slide four. With me today are Chief Executive Officer Carl Christensen and Chief Financial Officer Todd Patriaca. I'll now turn the call over to Carl.

Thank you, Ryan, and thank you for joining us today. We delivered another strong quarter as the Altra team once again did an exceptional job executing our long-term business strategy while mitigating near-term supply chain, labor, and inflation headwinds. Although economic signals point to increased uncertainty, we believe that the underlying health of both our company and our industry remain very strong. We continue to see pent-up demand and CapEx investments being made across many markets, including late cycle segments and automation, and we expect this to continue. We're confident that Altra is well positioned to navigate through this period as we have demonstrated in the past. We have a clear strategy, an exceptional team, a proven operational playbook, and a track record of driving growth, margin expansion, and strong cash flow through a range of market conditions. This confidence is reflected in our 2022 guidance, which we are updating as Todd will review in more detail later in the call. Please turn to slide five for highlights from the quarter. Our second quarter results reflect the resilience of our business model as we continue to transform Altra into a premier industrial company and technology leader in power transmission and motion control solutions. We delivered double-digit sales and earnings per share growth on a pro forma basis, which excludes the contributions of the JVS business that we divested on April 8th. Order rates remain strong across the markets we serve with a very strong book-to-bill ratio and this resulted in a record level backlog for the fifth consecutive quarter. Pricing and surcharge initiatives offset the effects of inflation in the quarter. We have implemented additional pricing actions to continue to protect margins and we will take further action if necessary. We believe inflation is moderating and that we will experience margin expansion when commodity costs and the associated surcharges we charge our customers return to more normal levels. Todd will explain how surcharges affected the margins in the quarter. During the quarter, we made great progress with the integration of our Nook acquisition, which added to our portfolio of highly engineered products. We are on track to achieve targeted synergies and are thrilled with the caliber of the people, systems, and technology that came with the acquisition. This is a testament to our ability to implement our M&A playbook to effectively identify, execute, and integrate high-value M&A opportunities. We closed on the JVS sale early in the quarter and used proceeds to pay down debt and further reduce our leverage. We ended the quarter with net leverage of 2.3 times net debt to adjusted EBITDA. at the low end of our targeted leverage range. We remain committed to maintaining a strong balance sheet and allocating our capital in a balanced and thoughtful manner that optimizes value for our shareholders. Our capital allocation priorities are unchanged and include investing in organic growth opportunities, pursuing ultra-like M&A, retaining a healthy balance sheet, and returning capital to our shareholders. Due to our confidence in our ability to generate cash, earlier in the year, we increased our dividend and our board of directors approved a $300 million share buyback program. Now turning to slide six for a review of the markets in more detail. Starting with factory automation and specialty machinery, which represents about 15% of our business, Sales were very strong in Q2, up double digits both year over year and sequentially. We're seeing excellent demand in this market and expect continued strength in the second half of the fiscal year. We remain very optimistic about the long-term prospects of this market, which is driven by very attractive secular trends like global digitization, industrial IoT, supply chain management, and collaborative robotics. In turf and garden, ag and construction, which combined represents approximately 11% of our business, Q2 sales were up single digits year over year, led by strength in farm and ag with modest growth in construction and turf and garden. We're expecting turf and garden to start to slow in the second half of the year with continued strength from farm and ag. Longer term, this remains an attractive market play for us driven by trends like increased infrastructure spending and global population growth. Moving on to material handling, which represents about 8% of sales, and continued to perform well across all segments of the market, including conveyors, forklifts, and vertical lifting systems. Sales were up single digits year over year. We are very positive about our growth prospects in material handling as we leverage strong secular trends such as e-commerce, electrification, and warehousing efficiency improvements. Medical equipment, which is about 8% of our sales, is a very attractive long-term opportunity for Altra, driven by trends like aging population and the growth of non-invasive and robotic surgeries. Sales were down mid-single digits year over year and slightly lower sequentially as OEMs continued to rationalize inventory due to COVID surges this year. We remain positive about the outlook for this market in 2022, given the anticipated easing of COVID restrictions and a return to more normal levels of spending and investment. We also will have more favorable prior year comps as we progress through the year. Moving on to aerospace and defense, which combined is about 5% of sales. Sales were down slightly overall, with Commercial Arrow up low double digits. This strength was more than offset by lower defense sales. The improvement in Commercial Arrow is encouraging, and the defense outlook is positive as we head into Q3 with a strong backlog. Our A&D business is an important bottom line contributor with a very attractive margin profile, a strong competitive position, and high barriers to entry. Renewable energy, which represents about 4 percent of sales, was down double digits in Q2, primarily due to the continuation of lockdowns in China. This was slightly offset by a double-digit increase in sales to the oil and gas market. And finally, distribution, which represented approximately 28 percent of our sales in the quarter, was up double digits year over year as strong bookings momentum continued. Our sales in the distribution market track in line with the general industrial economy, and we anticipate a solid performance in this segment in the second half of the fiscal year. Turning to slide seven, as we manage through the day-to-day business activities, we remain focused on advancing our long-term strategy to optimize Altra's position as a premier industrial company. I would like to note a few strategic updates. On the organic growth side, we continue to leverage our ultra business system tools to win in high growth markets and align ultra with secular trends like the proliferation of digitization and automation, growth of aging populations, and the increasing importance of sustainability. In today's macro environment, we are seeing several of these trends take on growing prominence at unprecedented rates. and we are confident that Altra is in an enviable position to ride the wave as these take hold. As an example, during the quarter, we saw strong activity in the medical market with a multimillion-dollar order for a new customer in the home health care industry and also secured several prototype orders in the surgical hand tool and medical infusion system segments, which will generate approximately $5 million in future revenues at full fund rate. full-run production rates. On the M&A front, we remain focused on building the funnel to identify potential acquisition candidates that offer attractive market prospects and fit our defined and disciplined ultralight criteria. And finally, a key foundational enabler of our business strategy is ESG. As noted on our last call, earlier in the year we published our first sustainability report to provide more visibility on our ESG priorities and the progress we've been making. A top priority is to reduce the impact our business has on the environment. As a global industrial leader, we are committed to introducing innovative products to help our customers improve the sustainability of their equipment and processes while also implementing global energy management reduction strategies across the organization to help reduce our overall impact. We're in the early stages of establishing more robust data collection and reporting capabilities so that we can compile and assess critical greenhouse gases and energy consumption data across our global footprint. As you can appreciate, for a global manufacturer like Altra, this is a complex process, but it is one that we are committed to seeing through so that we can improve our transparency around this very important issue. We look forward to keeping you updated as we progress. With that, I'll turn the call to Todd to take you through our financial performance details and guidance update.