Donaldson Company, Inc.

Thank you for standing by and welcome to the Donaldson Company first quarter fiscal year 2025 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'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. I'd now like to turn the call over to Sarika Dodwell, Senior Director of Investor Relations. You may begin.

Good morning. Thank you for joining Donaldson's first quarter fiscal 2025 earnings conference call. With me today are Todd Carpenter, Chairman, President, and CEO, and Brad Pogel's Chief Financial Officer. Also on the call is Scott Robinson, former CFO and current Strategic Advisor. This morning, Todd and Brad will provide a summary of our first quarter performance and reaffirm our outlook for fiscal 2025. During today's call, we will discuss non-GAAP or adjusted results. For first quarter 2025, non-GAAP results exclude pre-tax restructuring and other charges of $3.3 million, primarily related to cost reduction initiatives in the life sciences segment. 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 will now turn the call over to Todd.

Thanks, Arka. Good morning. Before we get started, on behalf of the Board of Directors and Donaldson Company, I want to thank Scott Robinson for his contributions over the past nine years. We are better as an organization because of him. He led us through several significant global initiatives, which undoubtedly resulted in improved financial performance and shareholder value creation. He also built a world-class finance team, the best Donaldson Company has ever had. So Scott, enjoy your retirement, You've earned it, and we look forward to hearing stories about your continued adventures, hunting, fishing, traveling, and the like. With that, I also want to formally acknowledge Brad Pogals, our current CFO. Many of you already know Brad from his former positions, including as head of investor relations for Donaldson. He's been with the organization for nearly a decade, and I'm confident his experience and deep understanding of our business will enable his success in his new role. Now, onto the first quarter results. Our record first quarter earnings mark a strong start to fiscal 2025. We increased sales in all three segments, gained share in key business units through our technology-led solutions, and maintained strong gross margins. Also, As part of our ongoing work to optimize and elevate the margin profile of the company, we took actions to focus our expense structure within the life sciences segment in response to continuing market pressures. This work is part of the footprint and cost optimization program we began last quarter. In summary, this quarter, we executed and laid the foundation for higher profitability. Now some highlights from each of our segments. In mobile solutions, we delivered strong sales growth and improved profitability with the backdrop of weak end market conditions, including in agriculture and transportation. We achieved this through higher volumes and mixed benefits from our aftermarket business. To support our growth, we opened a new distribution center in Olive Branch, Mississippi, strengthening our ability to deliver aftermarket products with speed and reliability to our customers. In industrial solutions, our aerospace and defense business performance continued to be excellent, driven by a notable increase in both new and replacement parts sales as end market conditions remained strong. Connected solution sales, while still a small part of the industrial segment, rose significantly year over year as we increased the number of connected machines and connected customer facilities. In life sciences, sales increased double digits from share gains and improved market conditions in disk drive, as well as strength in our food and beverage business. Early in the quarter, we expanded our presence in food and beverage markets with the launch of filtration services in France, Germany, and Austria. This expansion brings Donaldson specialists and product and process integrity directly to customer locations. It also sets the stage for further expansion and share gains across Europe. With respect to our bioprocessing acquisitions, we are making progress in our work towards penetrating the market through product launches. Universe Cells Technologies launched the ScaleX Nexo bioreactor, a miniature fixed bed system designed for efficient cell culture process development across multiple modalities. Our solution reduces media and reagent consumption and makes biomanufacturing more cost effective. Isolair Bio announced the availability of its research-grade Isotag AAV reagent. This latest addition to the IsoTag reagent platform represents a significant leap forward in AAV purification for gene therapies, accelerating the purification process, enhancing yield, purity, and quality. Our manufacturing grade reagent is on track to be available in calendar 2025. These technologies are just a few of the exciting solutions our bioprocessing businesses have been developing. We are optimistic about our growth prospects in these markets and remain focused on scaling our acquired businesses. Now I'll cover some consolidated company highlights. Sales of $900 million were up 6% year over year, driven primarily by volume growth. Pricing added 1% and currency was a 1% tailwind. Adjusted EPS in the quarter was 83 cents, up 11% versus prior year. Our operating margin improved versus 2024 through leverage on higher sales. We delivered our products and services to our customers, worked on our backlogs, and improved on-time delivery rates. While supply chain constraints continue in some areas of our business, overall, we are benefiting from more normalized conditions. During the quarter, we continued to thoughtfully invest for future profitable growth through CapEx and R&D investments. Capital expenditures included investments in talent recruitment and retention, new products and technologies, including in our life sciences segment, and capacity. Our R&D investments increased year over year, driven in large part by life sciences projects. Looking ahead, Donaldson's strong free cash flow generation and robust balance sheet puts us in a great position to continue to strategically invest and remain the leader in technology-led filtration for years to come. Now we'll provide some detail on first quarter sales. In mobile solutions, total sales were $572 million, a 6% increase versus 2024. Similar to recent quarters, interest segment performance was mixed. Aftermarket sales of $451 million were up 11% year over year. Within aftermarket, OE channel sales were up mid-teens as we continued to cycle against destocking in the prior year period. Beginning in the second quarter, we will compare against more normalized levels of demand a year ago. Independent channel sales grew mid-single digits from market share gains and high vehicle utilization rates. Off-road sales of $89 million were down 6% due to sustained weak end-market conditions, largely in the global agriculture market. Sales in on-road were $32 million, down 15%, driven by lower equipment production, predominantly in the U.S. and China. Now I'll touch on China as a whole within mobile solutions. Sales increased 4% versus 2024, driven by double-digit growth in aftermarket. On the first fit side, weak on-road sales were partially offset by off-road performance, which turned positive after five quarters of declines. Over the long term, we are committed to growing our business in China, which, importantly, has been and will continue to be largely supported by our in-region manufacturing. Turning to the industrial solutions and life sciences segments. Industrial sales increased 5% to $258 million. As noted earlier, aerospace and defense sales had very strong growth and rose 27%. Industrial Filtration Solutions, or IFS, sales grew 1% to $212 million, driven by power generation project timing. Life Sciences sales were $70 million, up 17% year over year. As previously mentioned, disk drive and food and beverage sales were the drivers. Overall, I am pleased with our first quarter results. This year, we expect, once again, to deliver value to our shareholders through record fiscal 2025 sales and earnings. Now I'll turn it over to Brad, who will provide more details on the financials and our outlook for fiscal 2025.