Kennametal Inc.

Good morning and welcome to the Kenna Metal third quarter fiscal 2022 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. And I'd like to turn the conference over to Kelly Boyer. Please go ahead.

Thank you, operator. Welcome, everyone, and thank you for joining us to review Kenna Metal's third 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 Metals' 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 today's call. I'm going to start with an overview of the corridor. highlighting some key points on our continuing strong results despite the changing macroeconomic environment, followed by our expectations for Q4. Damon will then go over the Q3 financial results and Q4 outlook in more detail. And finally, I'll make some summary comments before opening the call for questions. Beginning on slide two in the presentation deck, we posted strong operating leverage again this quarter, as well as improving margins through the disciplined execution of our commercial and operational excellence initiatives. We delivered sales of 512 million, an increase of 8% organically year-over-year, and 5% sequentially. This was slightly above our normal sequential trend, despite continuing challenges in transportation, China, and stopping sales in Russia late in the quarter. By end market, the strongest year-over-year performance was in aerospace at 29% growth and energy at 25%, followed by earthworks at 13% and general engineering at 8%. Transportation decreased by 7% year-over-year, however, was better than expected. All end markets increased sequentially. Transportation continues to be affected by supply chain challenges, most notably in China due to COVID-19-related lockdowns, as well as more recent disruptions due to the Ukraine conflict. We continue to believe underlying transportation demand remains strong, and as such, we expect that a recovery will follow the resolution of supply chain issues. On a regional basis, we saw strong year-over-year growth of 15% in the Americas and 9% in EMEA. Asia-Pacific declined at a rate of 4%. As was the case last quarter, outside of China, the rest of Asia-Pacific performed well. Despite these challenges, our commercial and operational excellence initiatives drove strong operating leverage and improved margins. Adjusted EBITDA margin increased significantly by 300 basis points year-over-year to 18.3%. Adjusted operating expense as a percentage of sales declined by 160 basis points year-over-year to 20.7%, close to our target of 20%. Adjusted EPS improved to 47 cents compared to 32 cents in the prior year quarter, and free operating cash flow was $13 million. We bought back $15 million of shares, reflecting the confidence we have in our strategy to drive growth and margin improvement over the long term. So in summary, Q3 was a solid quarter despite the significant and unexpected macroeconomic disruptions created by the Ukraine conflict. and the China COVID-19 lockdowns that transpired after the quarter began. Looking ahead to Q4, we believe the macroeconomic environment will remain dynamic and difficult to predict due to continuing supply chain issues, the effects of COVID-19 lockdowns in China, which have already significantly limited sales thus far in Q4, and the repercussions of the Ukraine conflict, especially in Europe. These disruptions are masking what would otherwise be strong revenue growth due to the strength of most of our end markets, particularly aerospace, energy, and earthworks. Overall, we expect Q4 sales to be in the range of approximately flat to positive 3% year over year, including a negative effect of 3% from foreign exchange. We expect cost inflation to continue in Q4. However, our proactive pricing actions and productivity improvements are helping dampen the effect on margins. Damon will go into more detail on the outlook later in the presentation. Now let's turn to slide three, where we have highlighted a wide range of recent wins that were made possible by leveraging our strengths in sales, application engineering, and product innovation, as well as efficient and consistent manufacturing performance to drive higher levels of customer service. We posted another major win with an electric vehicle manufacturer. In this case, we provided a solution on an additional family of EV components thus broadening our leadership position in the space. We also saw share gain in wind energy by expanding into other turbine components, reflecting our ability to deliver innovative products for improving customer productivity. In mining, we won incremental share of wallet with an existing customer after helping them drive productivity improvement in other areas of their business. In the energy space, a large oil field services company selected us as a sole source supplier due to our ability to optimize a complex product design and consistently manufacture it. And finally, in process industries, our expertise in additive manufacturing and material science allowed us to shorten lead times and provide greater design flexibility in flow control devices, which drives increased productivity for the customer. These wins give us confidence that our commercial and operational excellence initiatives will continue to drive growth, share gain, and improve margins as we demonstrated this quarter. And with that, I'll turn the call over to Damon.