Donaldson Company, Inc.

Thank you for standing by. Welcome to the Donaldson Third Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will 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.

would now like to hand the conference over to your speaker today charlie brady director investor relations you may begin good morning thank you for joining donaldson's third quarter 2021 earnings conference call with me today are todd carpenter chairman ceo and president and scott robinson chief financial officer this morning todd and scott will provide a summary of our third quarter performance along with an update on key considerations for fiscal 2021 During today's call, we will reference non-GAAP metrics. A reconciliation of GAAP to non-GAAP metrics is provided within the schedules attached to this morning's press release. Finally, please keep in mind that any forward-looking statements made during this call are subject to risks and uncertainties which are described in our press release and SEC filings.

With that, I'll now turn the call over to Todd Carpenter. Todd? Good morning, everyone. I'm very pleased with our third quarter results, which exceeded our expectations and was the highest sales quarter in our company's history. Third quarter highlights include sales increased 22% year over year and 13% sequentially from second quarter, the largest second to third quarter increase in over 10 years. Gross margin improved 50 basis points year over year, and earnings per share grew 32%. This could not have been accomplished without our dedicated Donaldson employees who come to work every day, whether at home or in the office, to ensure we are meeting our goals and serving our customers. Thank you to all of my fellow teammates for the work you do. Now let me provide some insights on our third quarter sales. Total company sales increased 22% in third quarter from prior year. In local currency, sales rose 17%. While we acknowledge this is a soft comparison to last year when the pandemic slowed things, we also note this result is 7% above the strong pre-pandemic third quarter of fiscal 2019. We are pleased with this level of growth and believe our momentum will continue. Engine sales recorded strong year-over-year growth of 26%, 22% in local currency. Our 51% off-road business growth was widespread with all regions experiencing an increase in sales. In particular, local currency sales in Europe and Asia Pacific were up 78% and 42%, respectively. China's sales increased almost 50%. Several factors give us confidence in the outlook for off-road. Global demand for construction and agriculture equipment remains high, and mining is also seeing increased demand. PowerCore continues to gain traction in China, and we are on track to deliver two times as many PowerCore air cleaners in 2021 compared to 2020, and our backlogs continue to build as we exited third quarter. On-road sales experienced a sharp rebound from the 1% year-over-year decline in second quarter, increasing 58% from 2020. Order and bill rates for Class A trucks in the U.S. have risen significantly over the past few months and are projected by external data sources to remain at a high level over the next several quarters. In China, our on-road sales more than doubled, driven by increased heavy-duty truck production and market share gains. With a favorable economic backdrop, our strong market position in North America, and the significant opportunity to grow in China, we are optimistic on the outlook for our on-road business. Aftermarket sales increased 23% in third quarter, including a 4% currency benefit. Utilization rates for construction and agriculture equipment and heavy-duty trucks remain at a high level, which is driving increased demand for replacement products. In local currency sales, Latin America increased by over 40%, and Europe and Asia Pacific were up 17% and 18% respectively. Aerospace and defense continues to be pressured. primarily due to a weak commercial aerospace market as a result of the COVID-19 pandemic. A bright spot in aerospace and defense is rotary aircraft, where sales increased due to previous program wins now coming online. Looking at the industrial segment, sales in third quarter increased 12% or 7%, excluding the favorable impact of currency translation, and growth was widespread across geographies. Industrial Filtration Solutions, or IFS, saw a significant sequential uptick in quoting activity for dust collection systems in third quarter. IFS benefited from increased sales of dust collection products on both a first-fit and replacement parts basis. This is a nice turnaround from the declines experienced in second quarter, which we believe was the trough. We have seen this business move from the if it breaks, you fix it cycle to the if it breaks, you replace it cycle, and now move to the investment and expansion cycle where we see increased purchases for new projects. We also saw increased sales in first-fit and replacement products across the rest of the IFS businesses, including greater than 50% growth at BOFA and mid-20s percentage growth in process filtration sales. These growth rates indicate to us that not only are we winning share in targeted growth areas, we are also retaining the replacement business, which should only increase as our installed base becomes larger sales of gas turbine systems or gts declined about 13 percent year-over-year due to a decline in demand for gas turbines used in the oil and gas market a slowing of retrofit activity and the timing of projects sales and special applications saw double-digit growth in integrated venting solutions and membranes which was partially offset by a high single-digit decline in our disk drive business. These broad-based positive company results give us increased confidence in our ability to have a strong finish to our fiscal 2021. Finally, we believe supporting the communities in which our people live and work and where we do business is the right thing to do. Therefore, in third quarter, Donaldson contributed $1 million to support our local community and help rebuild areas in Minneapolis and St. Paul that were damaged from the unrest over the last year. With that, I'll now turn the call over to Scott. Scott?