Kennametal Inc.

Good morning. I would like to welcome everyone to Kenna Metals second quarter fiscal 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 the star, then the one key on your telephone keypad. If you would like to withdraw your question, please press star, then the number two. Please note this event is being recorded. I would now like to turn the conference over to Kelly Boyer, Vice President of Investor Relations.

Thank you, Operator. Welcome, everyone, and thank you for joining us to review Canada Meadows' second quarter fiscal 2022 results. Yesterday evening, we issued our earnings press release and posted our presentation slides on our website. We will be referring to that slide deck throughout today's call. I'm Kelly Boyer, Vice President of Investor Relations. Joining me on the call today are Chris Rossi, President and Chief Executive Officer, and Damon Audia, Vice President and Chief Financial Officer. After Chris and Damon's prepared remarks, we will open the line for questions. At this time, I would like to direct your attention to our forward-looking disclosure statement. Today's discussion contains comments that constitute forward-looking statements and, as such, involve a number of assumptions, risks, and uncertainties that could cause the company's actual results, performance or achievements to differ materially from those expressed in or implied by such statements. These risk factors and uncertainties are detailed in Kenna Metal's SEC file. In addition, we will be discussing non-GAAP financial measures on the call today. Reconciliations to GAAP financial measures that we believe are most directly comparable can be found at the back of the slide deck and on our form 8K on our website. And with that, I'll turn the call over to Chris.

Thanks, Kelly. Good morning, everyone, and thanks for joining us. For today's call, I'm going to start with some general comments on our continuing strong results and highlight some recent strategic wins, followed by comments on our expectations for Q3 and the full year. Damon will then go over the Q2 financial results and outlook in more detail. And finally, I'll make some summary comments before opening the call for questions. Getting on slide two of the presentation, we posted strong results again this quarter by executing our commercial and operational excellence initiatives. Underlying demand continued to improve in all our end markets this quarter, with the exception of transportation. Our sales performance was within the range of our expectations as discussed on our last quarterly call, increasing 11% organically year over year and in line with our normal sequential seasonal trends. despite challenges in transportation and China. By end market, the strongest year-over-year performance was in aerospace and energy, both at 24% growth, followed by general engineering at 14%. Transportation decreased by 10% year-over-year, which was worse than we expected. While we believe underlying demand remains strong in transportation, supply chain availability is still an issue due mainly to chip shortages. And it's our expectation that chip shortages will likely continue through the balance of our fiscal year. On a regional basis, we saw year-over-year growth in all our regions, led by the Americas at 16% and EMEA at 9%. Asia Pacific also grew, but at a slower pace of 3%, reflecting weakness in China, mainly in transportation and energy related to wind turbines. The rest of Asia Pacific performed well during the quarter. Despite these isolated end market and regional challenges, our commercial and operational excellence programs drove strong operating leverage once again this quarter. Adjusted EBITDA margin improved by 320 basis points year-over-year to 16.2%. Operating expense as a percentage of sales was effectively flat as compared to the prior year at 22%. Our target for operating expense remains at 20%. Adjusted EPS improved significantly to $0.35 compared to $0.16 in the prior year quarter, and free operating cash flow was $22 million. We also bought back $23 million of shares this quarter, up from $13 million in the previous quarter, reflecting the confidence we have in our growth and margin improvement initiatives and free cash flow generation. Looking ahead, we believe market demand is strong in all end markets, However, in transportation, while the underlying demand for vehicles remains strong, the majority of our customers' production continues to be affected to varying degrees by supply chain bottlenecks. And we believe this effect is likely to continue for the balance of our fiscal year. Nevertheless, overall, we expect Q3 sales to be up 3 to 7 percent year-over-year, which is above our normal sequential growth pattern of 3 to 4 percent, and highlights the relative strength of our end markets outside of transportation. Inflation, supply chain bottlenecks, and other uncertainties present some challenges to our own operations, but we believe to a far lesser extent than some of our customers and other manufacturers. In that regard, we benefit from our in-region, floor-region, local supply chain setup. In addition, our proactive pricing approach continues to dampen the effect of inflationary pressures. For example, we saw approximately a $12 million increase year-over-year in material costs but still maintain positive price versus raw in the quarter, which Damon will provide more details on later. As always, we are focused on what we can control, and despite the market uncertainties, we remain confident in our ability to drive strong underlying operating leverage for the full year. Now let's turn to slide three for an update on our commercial excellence initiatives aimed at gaining share. Some of our recent wins are shown on this slide, underscoring that our initiatives are continuing to deliver results by leveraging our application engineering expertise, product innovations, and improved customer service. We posted another major win with a large auto manufacturer in the EV space, further strengthening our leadership position. We also saw excellent performance with an aerospace supplier, leveraging our product innovations and technical support to convert customers to counter metal solutions. We continue to see share gain in the renewable space in wind energy. due to our innovative products focused on increasing customer productivity. And finally, in infrastructure, we posted a large win in process industries. Our proprietary pelletizing die design and manufacturing technique beat the competition in supporting the customer's large expansion project. Those are just a few examples of how our product innovations and commercial excellence initiatives are driving share gains. Together with our operational excellence initiatives, we are confident we will continue to drive growth, strong operating leverage, and improve margins. And with that, I'll turn the call over to Damon, who will review the second quarter financial performance in more detail.