CNH Industrial

Good morning and good afternoon to everyone. We would like to welcome you to the webcast and conference call for CNH Industrial's first quarter results for the period ending March 31, 2022. This call is being broadcast live on our website and is copyrighted by CNH Industrial. Any other use, recording, or transmission of any portion of this webcast without the express written consent of CNH Industrial is strictly prohibited. Hosting today's call are C&H Industrial CEO Scott Wine and CFO Adani Njiza. They will use the material available for download from the C&H Industrial website. Please note that any forward-looking statements we might be making during today's call are subject to the risk and uncertainties mentioned in the safe harbor statement included in the presentation material. Additional information pertaining to factors that could cause actual results to differ materially is contained in the company's most recent Report 20F and EUN report, as well as other periodic reports and filings with the U.S. Securities and Exchange Commission and the equivalent authorities in the Netherlands and Italy. The company presentation may include certain non-GAAP financial measures. Additional information, including reconciliations to the most directly comparable U.S. GAAP financial measures, is included in the presentation material. I will now turn the call over to Scott.

Thank you, Noah, and welcome to everyone joining our call. In our first quarter as a pure play agriculture and construction business, we delivered strong sales growth of 13% year over year. This demonstrated the tremendous execution of our team who successfully navigated significant supply chain challenges, raw material cost inflation, and a volatile geopolitical environment. I'm incredibly proud of what they've accomplished and for their deep commitment to making C&H Industrial better every day for our customers. We are spending more than normal on expedited freight and we continue to adjust production schedules to accommodate for part shortages. Unfinished machines in our factories and in transit inventory between our overseas locations were notably above plan at end of quarter. April production improved and we are confident that we will be able to deliver more for our customers in the second quarter. Judging from conversations and other insights, our customers and dealers are managing fairly well in this difficult environment. as increased soft commodity prices help balance farm income, which has been hurt by rising input costs. For construction, we are seeing high demand in all of our regions. Overall dealer inventories of both new and used machines are at historic lows, and service work and part sales are robust, providing reasonable support to our midterm outlook. In addition to positive progress with our Ray-Ban integration, We are also pleased to announce last week the successful divestiture of their engineered films division. While we no longer expect meaningful supply improvements in the second half and other external risks will likely endure, our original guidance included contingencies for such events. We remain confident in our execution and expect our ag and construction end markets to have more incremental resiliency than the general economy, so our outlook for the year remains unchanged. As a reminder, our ag segment now represents 70% of CNH industrial revenue and slightly more of our earnings. Derek Nielsen and his team are deftly managing their business and brands through the storm, driving net sales up 13% on a constant currency basis, supported by favorable price realization and positive mix in North and South America. For the quarter, ag pricing was up 12%, again, more than offsetting rising costs. Order books also remain strong, up 40% year over year for tractors and combines, and this number will certainly be improved in the coming weeks when we open up our order books for model year 23. The war in Ukraine is a humanitarian tragedy, and its ramifications have global reach. The impact on food supplies is concerning, and we are closely watching the volatility in commodity prices and various farm input costs. It is the repercussions of energy inflation, especially escalating fuel costs, that is most concerning, as they may have an even more adverse effect. We have suspended all operations in Russia and are offering financial and housing assistance for our employees based in Ukraine. We are supporting our Ukrainian dealers and have been able to redirect shipments, minimizing the war's financial impact on our business. Precision ag take rates continue to increase with our combination of factory fit and aftermarket digital offerings up almost 15%. With AFS and PLM Connect performing well and our overall precision offerings expanding rapidly with Raven, we are continuously developing better solutions for our customers. During the first quarter, we were excited to introduce the new Holland T6 methane tractor in the U.S., reinforcing our commitment to advance sustainable farming practices. This incredible machine is the culmination of a multi-year development project to build a tractor that runs on sustainable fuel, naturally generated by farming operations. Construction equipment may be the smaller of our two divisions, but the successful turnaround that Stefano Pompiloni and his team are delivering makes them a vital part of our future. Net sales in the quarter increased 23% on a constant currency basis to $803 million. Encouragingly, This was the segment's most profitable first quarter in over a decade, delivering $32 million in adjusted EBIT at a 4% margin. Pricing was up high single-digit to construction, which contributed to their improving profitability without deterring market share gains across various product categories in North America and promising results in Europe. Our improving CE performance is fundamentally sound with a strong focus on product quality and design and expanding our market reach to the Semperiana acquisition. Commensurate with this progress, order books continue to build up year-over-year for both light and heavy equipment across all regions. In North America, we are practically sold out for our 2022 production slots. As Case Construction Equipment celebrates its 180th anniversary, We're even more convinced that there is a profitable future ahead, both for it and our new Holland construction brand. Precision technology is an ambitious journey of transformation and growth, and it is exciting to see the highly capable team Parag Garg is assembling to accelerate our progress. We are partnering with customers to further enhance how our technology is used in the field, unlocking value with each software upgrade and expanding the number of connected vehicles in our new product launches. We're also optimizing auto guidance performance and releasing more tillage prescription features to increase farm productivity and reduce fuel and other input consumption. RAVEN is catalyzing further progress, supplying more robust architecture that satisfies the rigorous requirements for future ag features while enabling much faster progress for our advanced autonomy and automation developments. During the first quarter, we opened a new advanced engineering center in Scottsdale, Arizona, focused on artificial intelligence, and data science for our autonomous vehicle platforms and precision agriculture applications. Along with our new technology center in India, we are positioned to efficiently code to cab on an almost 24-hour basis. These and other initiatives have expanded and accelerated our software development capability and set the stage for future progress, and we look forward to seeing our customers reap the rewards. In February, we laid out five strategic priorities that will be critical to our long-term success. Much of our current energy goes towards solving ongoing supply chain challenges, but we also invest heavily to ensure we're making consistent strategic progress. Each quarter, I plan to provide highlights from a subset of these initiatives. Customer-inspired innovation informs all that we do. I was able to spend quality time with some of our largest customers and best dealers during March. Of course, product availability is top of mind for them right now, but with input costs rapidly rising, their comments centered on how we can enhance their productivity. Not long after those discussions, our board of directors and I visited Sioux Falls to see the advanced autonomous vehicles in operation, which was timely and rewarding. Field testing with customers will validate our technology and provide assurance their expectations will be met. Our dealers are as eager as we are to serve customers and earn new ones, and our CRM enhancements are making that easier. While the topic of brand government is not exciting, it is important to our dealers, and the improved profitability and progress it is driving is noted and appreciated. Operational excellence is about accelerating productivity, enhancing quality, and keeping our employees safe. Tom Verbotten and our supply chain team did that in the first quarter, while also accelerating executing creatively and often miraculously to ensure material was available to our factories and finished goods were shipped to our dealers. They've really delivered on our ambition to be the best for our customers. Executing on these priorities will continue to make us better for our customers, dealers, investors, and employees, translating into market share gains and higher profitability. I will now turn the call over to Adonay to take you through some of our key financials.

Thank you, Scott, and good morning, good afternoon, everyone. First quarter net sales of industrial activities of 4.2 billion were up 13%, mainly due to favorable price realization, despite the FX headwinds of around 1.5%. Gross profit margin was 22.2%, up 60 basis points versus last year, primarily thanks to mix and pricing. A RAC segment delivered 24.1 gross margin, 80 basis points better than the first quarter of 2021, As better mix and price realization, many in the Americas were stronger than the increase in product costs from raw materials inflation and expedited freight. CE gross profit margin was 13.3%, down 1% from the first quarter of 2021, and higher than any of the last three quarters. Adjusted EBIT of $429 million, up $36 million from Q1 2021, with an adjusted EBIT margin of 10.3%, down 30 basis points versus first quarter last year, on the back of higher sales and higher R&D expenses. Triggered flow from industrial activities was negative, 1.1 billion. This is higher than usual seasonal working capital cash absorption in the first quarter of the year. Late delivery from our plants and higher manufacturing inventories of raw material and partially finished goods led to higher than anticipated increase in overall inventories. Q1 adjusted net income was $378 million, or $0.28 adjusted below the DPS, up $0.02 from $0.26 in Q1 of last year. Reported net income $336 million reflects a one-off adjustment of Russian assets for $71 million net of taxes. This is the immediate impact of a CNH industrial suspending activities in Russia. Industrial activities net debt ended at $2.1 billion, an increase of $960 million from December 31st, 2021, largely due to working capital absorption. At the end of 2021, our available liquidity stood at $9.4 billion, down $1.1 billion from December 31st, 2021. Turning to slide nine, let's look in more detail at the performance for the quarter, with the usual walk of the industrial activities adjusted either by driver and by segment. We see that volume and mix was positive for both segments, while increased production costs were more than offset by positive pricing. A G&A variance reflects increased activity levels and R&D expenses increased as we are investing more on our precision agri-portfolio. Agricultural adjusted EBIT increased 27 million with a margin of 12.6% driven by favorable mix and price realization with positive contribution for the Americas partially offset by higher raw material and freight cost, and growing R&D expenses. Again, adjusted gross margin was 24.1%, up 80 business points from the same quarter last year. Higher volumes in construction equipment, liquid drastic input of 32 million, with a margin of 4%, thanks to favorable volume and mix and positive pressurization, partially offset by higher production cost. Gross margin for construction was 13.3%, that 1%, primarily due to raw materials and partially offset by better mix and favorable price realizations in our regions. For our financial services businesses, here on slide 10, net income was $82 million, up $4 million compared to the first quarter last year, mainly as a result of a higher recovery of used equipment sales in North America and a higher average portfolio in South America and EMEA. These were partially upset by additional risk costs in Eastern Europe, mainly because of the Ukrainian conflict and 15 million of one-off charges of Russian receivables, which is adjusted for net income when looking at the consolidated figures. For the quarter, retail originations were $2.1 billion and the managed portfolio, including JVs, at the end of the period was $20.8 billion. Delinquencies were again down year over year to 1.3% and remained at historically low levels. Next on slide 11, we have the free cash flow and exponential position performance of our industrial activities. Free cash flow of industrial activities was negative 1.1 million, largely due to seasonal working capital cash absorption. In the first quarter, we typically overproduced retail. Why this happened also this year? Due to the no supply chain disruption, we produced less than planned and later within the quarter. This created a situation of higher inventory of finished goods many of which are in transit on March 31st. These inventories were in fact lower than the already low levels of Q1 2021 in tractors and construction equipment, and only marginally higher in combines. In addition, we had again a large fleet of semi-finished equipment waiting parts before being shipped for numerous flights. Based on current visibility of our production schedule, we expect to sell through a large portion of this inventory in the second quarter. Total debt was $21.3 billion at March 31st, and industrial activities net debt position was $2.1 billion. Liquidity remained strong at $9.4 billion, although slightly down from a year ago, as we have funded working capital with available liquidity. During the quarter, we made progress on many of our capital allocation priorities, outlining during capital market day two months ago. Organic growth accelerated in the quarter with capex of 53 million, up 47% year-over-year, and already up 39% for the same period as we increase our digital technology spend. In February, Moody's Investor Service upgraded the company senior unsecured rating from BAA3 to BAA2 with stable outlook. This follows the Fitch upgrade of a long-term rating by two notches to triple B plus in early January. Additionally, during the quarter, the company repurchased 1.5 million shares for a total cost of approximately $18.4 million. The shareholders have authorized the additional purchase of up to 10% of the common-income shares and extended the period for an additional 18 months. While we have a spending program in place to opportunistically buy up to $100 million in shares. At the annual meeting in April, shareholders approved the proposed dividend of 28 euro cents per outstanding share, for a combined return of 380 million euros, which will be paid on May 4th to shareholders of record on April 20, 2022. In terms of inorganic growth, as Scott mentioned on the outset of the call and announced last Friday, we have divested Raven Films' business for $350 million and have invested parties for the sake of Raven business we want to divest. I will now turn the call back to Scott.