Donaldson Company, Inc.

Good morning. My name is Chris and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Donaldson First Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. And to withdraw your question, please press star one again. Thank you. Now we'll turn the call over to Sarika Dodd-Wall, Donaldson's Director of Investor Relations.

Good morning. Thank you for joining Donaldson's first quarter fiscal 2022 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 first quarter performance and details on our outlook for the balance of fiscal 2022. 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. Additionally, 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 turn the call over to Todd Carpenter.

Good morning, everyone. I am pleased to report record first quarter results. We grew our sales to $761 million. Sales were up 20% and EPS was up 26% versus last year. It was an encouraging quarter for Donaldson, particularly given the backdrop of well-documented supply chain disruptions, labor shortages, and significant cost inflation. In the face of these challenges, Our team rose to the occasion and delivered, and I am proud of what we accomplished. As we look to the remainder of the year, we expect the macro headwinds to persist. While we are well positioned to deal with these challenges, there is no doubt that we will feel near-term impacts. To address these macro challenges, we are pulling many levers, including raising prices to mitigate the impact of cost increases, utilizing our geographically diverse manufacturing and distribution footprint to meet the needs of our global customers and to mitigate labor constraint issues, particularly in the U.S., and aggressively recruiting and competing for talent to expand our strong team of dedicated employees. As we navigate the year, we are also investing for future organic and inorganic growth. We continue to spend on our R&D to ensure we remain the leader in what we do best, technology-led filtration. I'm also pleased to have two new acquisitions under our belt. First, we recently announced the acquisition of Solaris Biotech. Solaris is a designer and manufacturer of bioprocessing and filtration equipment used in food and beverage, biotechnology, and other life sciences markets. We've been working hard to expand our reach into life sciences, and this acquisition is the first step in our string of pearls strategy to get there. We can now leverage Solaris' technology and customer relationships to advance our capabilities in this space. I am confident in our ability to scale the Solaris business with our commercial capabilities and strong balance sheet. Our second recent acquisition was that of PA Industrial Services. We closed this transaction on November 1st with a purchase price of $4 million. While the company only generates a little under $4 million in revenue today, this acquisition allows us to support our industrial segment with the addition of a services business. Donaldson and PA Industrial share the vision of delivering superior service along with great products to help our customers' operations run better. We believe we are heading into the balance of the year from a position of strength, and we feel good about our ability to navigate the near-term challenges while still building our business for the future. With that said, we are raising our top and bottom line guidance for fiscal 2022 based on a few factors. First quarter results, higher sales expectations driven in part by incremental pricing, and operating expense leverage. We will share more details about our fiscal 22 outlook later in the call, so I'll now provide some context on our first quarter sales. Total sales were $761 million, which is up 20% from last year, due in part to last year's softness related to the pandemic. In engine, total sales were $527 million, up 21%, with our first fit businesses leading the charge once again. Sales in off-road were $94 million, up 45%. Nearly half the first quarter growth was driven by exhausted emissions, reflecting a production ramp-up related to new emissions standards in Europe. As we've talked about before, the strength in this business does create mixed pressure on margin. Beyond exhausted emissions, First quarter sales in off-road also benefited from increased levels of equipment production across end markets and geographies. The exception was in the Asia-Pacific region where we compared against a sales increase of nearly 40% in the prior year. In on-road, first quarter sales were $32 million or down 1.5% year over year. North America had the biggest decline reflecting the discontinuation of some directed by equipment to a large OEM customer. Importantly, excluding this impact, total on-road sales would have been up about 12% globally and up 7% in North America. As we look forward, we believe on-road will be under additional pressure for the remainder of the year as many customers continue to struggle with supply chain issues, including the persistent chip shortage. In engine aftermarket, sales in the first quarter were $374 million, an increase of 18% from the prior year. Aftermarket sales were up in all geographies and both channels. Independent channel sales grew in the mid-teens, and OE channel sales were up in the low 20s. Our innovative proprietary products are always a big piece of the aftermarket story. These products accounted for about 30% of total aftermarket sales and grew about 20% year over year. Our independent channel is benefiting from continued strength in less mature markets. Brazil, Russia, and South Africa put up impressive growth rates in the first quarter, and we are excited about our prospects in these geographies. In the OE channel of aftermarket, proprietary products are again contributing to our growth. In the first quarter, sales of these products were up in the mid-20% range, and they now account for nearly 40% of our aftermarket OE channel sales. Included in these figures is PowerCore, which achieved another quarterly record for aftermarket sales and increased more than 18%. Moving to aerospace and defense, first quarter sales of $28 million were up 23% year over year as the commercial aerospace industry rebounds from the pandemic-related pressure a year ago. Activity remains below pre-COVID levels in aerospace, so there should be more growth to come as the industry continues to recover. Lastly on engine, I will quickly talk about China. Engine sales were down about 6% in the quarter, However, this is against a 40% increase last year. The increase last year reflects a faster rebound in China from the pandemic than we saw in other parts of the world. Overall, we remain pleased with our progress in the region. We are winning new business with local Chinese manufacturers, and over time, we continue to expand our share in this massive market. Now on to industrials. The industrial segment had another solid quarter, with total sales increasing 17% to $234 million. Sales of industrial filtration solutions, or IFS, grew 22% to $166 million, with two-thirds of the increase coming from industrial dust collection. We had strong sales growth of new equipment and replacement parts, which reflects more investment and industrial capacity utilization. Process filtration sales also contributed to first quarter growth in IFS. Process filtration sales, which served the food and beverage market, grew over 30% due to growth in new equipment and replacement parts in Europe. First quarter sales of special applications were $52 million, up 23% with strong contributions across our product portfolio, including notable increases in our disk drive and membranes businesses. Also within special applications, first quarter sales of venting products grew 19%. We continue to build share in strategic markets, including high-tech vents for batteries and powertrains in the auto industry, and expect venting solutions to contribute to our growth for years to come. First quarter sales of gas turbine systems, or GTS, were approximately $17 million, down 28% to almost entirely to timing of orders. Our outlook for the year has not changed, and we expect to make up first quarter revenue shortfalls in the second quarter. Overall, we are off to a strong start for fiscal 2022, and I feel confident about our ability to successfully navigate this uncertain and volatile environment. With that, I will turn it over to Scott for more details on our financials.