CNH Industrial

Hello and welcome to the CNH Industrial second quarter call. My name is Judy and I'll be the coordinator for today's event. Please note that this call is being recorded and for the duration of the call, your lines will be in listen only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad at any time. If you require technical assistance at any point, please press star zero and you'll be connected to an operator. I will now hand you over to your host, Noah Weiss, to begin today's conference, Head of Investor Relations. Thank you.

Thank you, Judy. Good morning and good afternoon to everyone. We would like to welcome to the webcast and conference call for C&H Industrial's second quarter results for the period ending June 30, 2022. This call is being broadcast live on our website and is copyrighted by C&H Industrial. Any other use, recording, or transmission of any portion of this broadcast without the express written consent of C&H Industrial is strictly prohibited. Hosting today's call are C&H Industrial CEO Scott Wine and CFO Adoni Nchiza. 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 risks 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 20F and EU annual 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. We finished the first half of 2022 with record second quarter revenues, up 17.5% year over year, in spite of a 3% currency headwind. I am proud of the team's resolute performance in the face of the dynamic and challenging global economic and geopolitical environment. Their efforts exemplify our commitment to meeting our agriculture and construction customers' needs as their customers depend on us to feed and house an ever-growing population. Our solid performance and even our optimistic near-term outlook contrast with the extremely precarious macro environment and a steady stream of recessionary signals. Whether we face a global recession in 2023 is up for debate, but we are preparing for this eventuality. It is worth noting, however, that historically we are more impacted by the ag cycle than recessions. Soft commodities were down notably in the second quarter, but have rebounded of late and remain at or above historic levels. Dealer sentiment and orders also remain positive. We generated an impressive double-digit industrial activities margin of almost 12%. Raw material, labor, and freight cost escalations are sadly familiar to us, but we are finally starting to see signs of their impact diminishing. During the second quarter, farmer sentiment deteriorated as increased pressure on the cost and availability of fertilizer and other inputs met an easing of soft commodity prices. The ag cycle nonetheless still appears to have legs as our order backlog for new equipment continues to grow. We remain compelled to restrict order windows in order to consider future cost and availability issues. Supply chain constraints, while modestly improving, are a complex variable in our forecasting process, and they continue to hamper our production capacity in the second quarter. This elevated factory inventory was the primary driver of our $380 million year-over-year decrease in free cash flow. Thanks to our otherwise strong operating performance, we did generate more than $400 million in cash in the quarter and are confident we will deliver our full-year cash target by reducing plant inventory in the second half. Part of the solid progress we are making with the Raven integration involves completing the divestiture of their non-core divisions, including the sale of Aerostar Business, which we closed this week. The teams in Sioux Falls and Scottsdale are now completely dedicated to solving great challenges for our farming customers by coupling great technology with our great iron. Momentum remains strong entering the back half of the year, allowing us to reconfirm guidance while tightening up the bottom of the net sales range. Net sales for agriculture business were up 22% year-over-year on a constant currency basis. as we sold a better mix of products at higher prices, particularly in North and South America. For the quarter, Derek Nielsen and his ag team drove pricing up 13%, again, more than offsetting rising costs, and we expect this dynamic to continue through the back half of the year. Our plants finished the quarter with far too many tractors and combines waiting for components. Reducing this fleet inventory in the second half will enable us to better serve our customers and improve our cash procedures. position. Dealer inventories of new equipment remain very lean, especially in North America for row crop machinery and in Europe where supply constraints are most critical. While overall ag demand remains strong, especially with high horsepower tractors, we did begin to see diminishing demand in the hay and forage sector. Low horsepower tractor demand is also starting to deteriorate after several strong years as the small hobby farmers who comprise this segment are beginning to plan for a tougher economic environment. Our overall tractor order book was up 5% year over year, driven by strong growth in EMEA and Asia Pacific, and combined backlogs very healthy as well. We waited until the beginning of June to open orders so that we could secure the best pairing of cost and price. We also limited the window for orders only into the first quarter of 23 for North America, and even shorter for Brazil as inflation and cost volatility are complicating projections of future machinery pricing. Stefano Pompiloni and his construction team continue to execute their impressive turnaround of our construction business. We closed the quarter with net sales at $891 million, up 12% on a constant currency basis, mainly driven by pricing, volumes in South America, and the addition of Semperana in our business. Adjusted EBIT in the quarter was $34 million at a 3.8% margin, a continuous quarter-over-quarter improvement in line with the trajectory we outlined at our capital markets day. The Sampirana acquisition is delivering ahead of plan and is playing a pivotal role in accelerating profitable growth in Europe, where we saw market share gains in all major product categories aside from large excavators. We are currently integrating the dealer networks and will be increasing Semperana's manufacturing capacity to better support the light end of our excavator range. Border books continue to build up more than 20% year-over-year in both heavy and light, with increases in all regions, excluding heavy equipment and APAC. In North America, our 2022 production slots are essentially sold out. On Tuesday, August 2nd, we will be breaking new ground with the launch of a revolutionary new product that will create its own category within the construction market. All I'm allowed to say for now is that this unique machine combines ripping, dozing, and loading functionality, and we are very excited to deliver it to our customers. While we continue to make such a substantive progress across all of our five strategic priorities, Today I want to highlight some notable advancements in brand and dealer strength. Scott Harris and Carlo Lambro, global brand leaders for Case IH and New Holland respectively, are developing joint product and go-to-market plans which are engendering cooperation and coordination between the two brands. This work is inspired by dealers and employees and also investors, and it is rewarding to see it coming to fruition. Early efforts include complimentary product, network, and programming decisions, all designed to strengthen our dealer network and enhance customer support and experience across the company. We are leveraging our broad knowledge base and channel partnerships to improve areas such as service standards, warranty procedures, and performance expectations. The truly meaningful change here is effective cooperation, which is positioning our network, our brands, and ultimately our company to win. Our net promoter score, which has increased over 3% in the first six months of 2022, attests to our progress. All of this is forging a clear path to profitable growth while simultaneously improving dealer engagement and ultimately customer satisfaction. These same benefits accrue from Titan Machinery's recently announced acquisition of Heartland Ag Systems. Heartland is the largest case age application equipment distributorship in North America, and with customer-inspired innovation accelerating across our sprayer portfolio, this transaction should unlock value for all stakeholders. We made a related acquisition with the acquisition of Specialty Enterprises, North America's largest premium aluminum spray boom manufacturer. Specialty is known for its advanced engineering and high-quality workmanship as a world-class aluminum welding operation. The direct ownership of spray broom production is the latest step in Case IH's strategic roadmap for our industry-leading sprayer production platform. As the company works to enhance its application product offering, the inclusion of longer, lighter booms enables the accelerated development and deployment of new technologies. I will now turn the call over to Adone to take us through some of the key financial results.