Donaldson Company, Inc.

Hello and thank you for standing by. My name is Tiffany and I will be your conference operator today. At this time, I would like to welcome everyone to the Donaldson Company Q4 FY25 earnings webcast. 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 that time, Simply press star, then the number one on your telephone keypad. I would now like to turn the call over to Sarika Dogwal, Senior Director of Investor Relations and ESG. Sarika, please go ahead.

Good morning. Thank you for joining Donaldson's fourth quarter fiscal 2025 earnings conference call. With me today are Todd Carpenter, Chairman, President, and CEO, and Brad Pogels, Chief Financial Officer. This morning, Todd and Brad will provide a summary of our fourth quarter performance and our outlook for fiscal 2026. During today's call, we will discuss non-GAAP or adjusted results. For fourth quarter 2025, non-GAAP results exclude pre-tax charges of $9.5 million for restructuring and other charges primarily related to footprint optimization and cost reduction initiatives. A reconciliation of gap-to-non-gap 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, Sarika. Good morning. Fiscal 2025 was a record year for Donaldson Company as we did what we do best. help our customers solve critical filtration challenges through the delivery of our high-tech solutions, which protect precision equipment and help maintain a cleaner work environment, increasing efficiency, mitigating risks, and reducing downtime. We did this through consistent execution of our strategy and created value for our shareholders. I will start with some full year highlights, discuss our fourth quarter performance and touch briefly on our expectations for fiscal 2026. Brad will then detail our financials. Lastly, I will provide some closing remarks before opening the call to questions. In fiscal 2025, we grew sales to an all time high of $3.7 billion with growth across all segments. expanded operating profit margin to a record 15.7% with an incremental margin of nearly 30% delivered earnings per share of $3.68. Towards the higher end of the guidance range we laid out at the beginning of the year. returned $465 million to shareholders largely through the repurchase of 4% of our shares outstanding while increasing our dividend 11% and focused our cost structure, including in life sciences, and made progress towards footprint optimization, strengthening our foundation for future profitability while still investing for growth. Our team accomplished a tremendous amount in fiscal 2025 through macro uncertainty and cyclical headwinds. We ended the year on a high note, and I will provide some details on the fourth quarter, including by segment. In mobile solutions, our strength in aftermarket is contributing to record results as we continue to win and gain share. In our independent channel, which eclipsed $1 billion in sales this year, Partnerships like NAPA allow us to expand our reach and we continue to build these types of relationships. For example, in the fourth quarter we signed a new partnership with Mighty Distributing System of America. Donaldson is Mighty's sole heavy duty filtration supplier of Donaldson branded products and we are pleased with the early results. With respect to our largest first fit business within mobile, off-road sales grew after eight consecutive quarters of declines as we see tangible signs of trough or moving out of trough conditions in the agriculture market for industrial solutions ifs sales grew double digits through our create connect replace service model i would like to touch on each piece briefly create In dust collection, we are building new customer relationships and our OE channel sales hit record levels. Our generation sales were also strong as we continue to benefit from the PowerGen super cycle. Connect. We are deploying our connected solutions. This quarter, we increased the number of connected machines and connected facilities, and in fiscal 2026, we expect to grow the number of connected machines over 30%. Through this, we are strengthening our customer relationships and building this revenue stream for the future. Replace. Our razor to sell razor blade model is working with almost 50% of our quarterly industrial segment sales now driven by higher margin aftermarket sales. Service. This quarter, we acquired our third service business, RPS Associates of New England. RPS brings 40 years of experience in dust collection services with customers in aerospace, defense, and other metal manufacturing industries and also adds a new geography to our service footprint. Moving to life sciences, food and beverage sales grew over 20% both in new and replacement parts sales. We are winning share through key OEMs and channel partners in this high margin business. In bioprocessing, through our downstream PureLogic business, we announced the availability of the first manufacturing-grade product within the PureXA portfolio to support customers' GMP or good manufacturing processes. The Purexa membrane chromatography products enhance productivity with their high dynamic binding capacity, fast cycle times, and efficient and scalable format, allowing users to process their product more quickly and reduce process costs. Now I'll cover some consolidated company highlights for the quarter. Overall, sales increased 5% year over year to $981 million, driven by volume growth, currency translation benefits, and pricing. Adjusted EPS was $1.03, up approximately 10% year over year. I'm proud of our results and would like to give a special thanks to our global operations team who, once again this quarter, navigated the difficult macro landscape, including the ever-changing global tariff dynamics. Brad will talk a bit more about the impact from tariffs, but I want to emphasize my confidence in the muscle we have built to address challenges quickly and effectively. Also in the quarter, we progressed on our footprint and cost optimization initiatives. We remain in the heavy lift phase of this work and expect to be mostly complete by the second half of fiscal 2026. Through this, we have stayed focused on our customer needs. On-time delivery rates remain high and our backlogs support our outlook over multiple quarters. I'm also pleased with our thoughtful expense management. While we lay the groundwork for a more efficient operating structure, it is important to note that we are making disciplined growth investments in strategically important areas through our R&D and capital expenditures, including in areas such as solvent recovery and new disk drive technologies and life sciences, and air and alternative fuels filtration in mobile solutions, cementing our leadership position in diversified technology-led filtration. Now I'll provide some detail on fourth quarter sales. In mobile solutions, total sales were $588 million, a 2% increase versus prior year. Aftermarket sales were $468 million, up 3%, driven by strong demand in the OE channel from larger customers and market share gains in the independent channel. On the first fit side, off-road sales of $95 million increased 5% as we cycled against weaker agriculture market conditions in the prior year. On-road sales of $26 million declined 20% as a result of cyclical declines in global truck production. Now, on our mobile solutions business in China. Sales grew 14% year-over-year with increases in first fit and aftermarket. marking the fourth consecutive quarter of growth. While we are still cautious in the near term on the overall market in China, we are encouraged by the traction we are gaining with local customers. This quarter, we won another hydraulics program with a local manufacturer in the agriculture market, a sign of customer confidence in the Donaldson value proposition. Turning to industrial solutions, Industrial sales rose 8% to $310 million. IFS sales of $262 million grew 11% from new equipment sales in dust collection in Europe and North America and power generation project timing. Aerospace and defense sales were $47 million, a 6% decrease driven by a decline in defense sales following the completion of a few large projects. In life sciences, sales of $82 million rose 14% compared with prior year. Double digit growth in food and beverage and disk drive was partially offset by a decline in bioprocessing sales. In total, our results this quarter capped off a tremendous year for the company. Looking ahead, Donaldson is well positioned to further strengthen our foundation and capitalize on improving market conditions and cyclical trends. As such, we are forecasting at the midpoint of our guidance ranges, another record year in fiscal 2026 with total sales of $3.8 billion inclusive of sales growth in each of our segments. An all time high operating margin of 16.4% ahead of the fiscal 2026 target we laid out one year ago. And record earnings of $4 per share. Now I'll turn it over to Brad, who will provide more details on the financials and our outlook for fiscal 2026. Brad.