Kennametal Inc.

Good morning, everyone. I would like to welcome everyone to Kenna Middle's first quarter fiscal 2023 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. If you would like to withdraw your question, please press star, then the number two. Please note that this event is being recorded. I would now like to turn the conference over to Kelly Beyer, Vice President of Investor Relations. Please go ahead.

Thank you, Operator. Welcome, everyone, and thank you for joining us to review CannaMetal's first quarter fiscal 2023 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 Pat Watson, Vice President and Chief Financial Officer. After Chris and Pat'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 filings. 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 now turn the call over to Chris.

Thanks, Kelly. Good morning, everyone, and thank you for joining us today. I'll start today's call with a review of the corridor, our growth roadmap, and some recent strategic wins. Then Pat will go over the quarterly financial results and the outlook. And finally, I'll make some summary comments before opening the call for questions. Beginning on slide two in the presentation, The first quarter results highlight continuing growth and successful execution of our strategic initiatives, offset by macroeconomic factors such as high inflation, foreign exchange, and regional headwinds in EMEA and China. Sales increased 9% organically year over year, offset by negative foreign exchange of 7%, for a total sales increase of 2%. On a sequential basis, sales decreased by 7% from Q4 to Q1, in line with expectations and slightly better than the normal 8% to 10% season of decline due to the European summer holiday season and seasonal construction trends. Year over year, on a constant currency basis, all regions and end markets grew. The Americas led with double-digit growth. In Asia Pacific, rolling COVID lockdowns affected growth rates in China, but other Asia Pacific countries remained strong. And in EMEA, sales were negatively affected by disruptions due to the Ukraine crisis, as well as our exit from Russia in Q3 last year. By end market, aerospace, energy, and earthworks all reported double-digit growth, and transportation and general engineering grew mid-single digits. So, overall, end market demand is holding up well, and we expect that to continue through fiscal year 23. That said, I know there are diverging views on the direction of the global economy, especially when looking beyond fiscal year 23. The good news is that whatever direction the global economy may take in the short term, we believe we are well positioned in all our end markets for the long term. We have a strong position in aerospace and expect to continue to take share as aircraft build rates improve. We are well positioned in both renewable and traditional energy markets to take advantage of the investments that will be needed to meet growing energy demand. Our earthworks business will benefit from increasing government support for construction and elevated mining activity required to meet the immediate demand for coal and longer term to support the conversion to green energy. We see transportation remaining supply constrained with production at lower levels in the short term, but gradually improving. And we expect to benefit from the leadership position we are establishing in tooling for electric vehicles. Lastly, we expect general engineering to benefit from the continuing growth in industrial production and our fit for purpose strategy. So while we acknowledge the shorter term uncertainty, we feel quite good about the longer term underlying growth drivers in our end markets and in our ability to secure market leading positions. Now looking to profitability for the quarter. As we discussed our last call, Macroeconomic factors are masking the underlying piece volume leverage we are getting from simplification modernization and our focus on operational excellence. In Q1, this volume leverage benefit was offset by macroeconomic related factors, including a significant FX headwind and a decrease in pension income, which is non-cash, due primarily to changes in the assumption on return on assets. In addition, we experienced temporary supply chain disruptions which Pat will provide more color on later. In the meantime, I want to remind everyone that over the last several years, we have been successful at managing numerous supply chain and other operational disruptions resulting from the pandemic. So I'm confident we will fully mitigate these most recent challenges by the end of this fiscal year. As expected, operating expense as a percent of sales increased to 21.9% this quarter, with annual salary increases being one of the drivers. Another major driver is increased travel to customer sites and product trials as customers eased COVID-19 restrictions for supplier partner visits. This is good news for our commercial and engineering teams as it affords them the opportunity to demonstrate our latest product innovations across our entire brand portfolio. While obviously an expense, we see these costs as an investment in growth and gaining share. And I'll discuss on a later slide some examples of the returns we are getting on this investment. Taxes increased slightly year-over-year in the quarter to 27.5%, due mainly to regional mix. Adjusted EPS declined to 34 cents compared to 44 cents in the prior year quarter, with the majority of the decline driven by the macroeconomic factors I discussed. Our free cash flow this quarter is consistent with our typical use of cash in Q1, driven by payment of performance-based compensation. Also affecting cash flow this quarter was an increase in working capital, mainly inventory, due to higher raw material costs and increased safety stocks to mitigate supply chain related disruptions. Finally, another use of cash was the buyback of $19 million of shares, which brings the total amount bought back since program inception to $105 million. Our share repurchase program reflects the confidence we have to execute on our strategic initiatives for long-term value creation despite the current macroeconomic headwinds. Now let's turn to slide three to review our growth roadmap. As you can see, the roadmap outlines the share gain initiatives, megatrends, and other growth areas that comprise our commercial excellence strategy. First, of course, we are focused on growing our share of the current base business. In addition to innovative products and best-in-class customer support, The investments we made over the last few years on modernization and our ongoing operational excellence initiatives are enabling us to drive a larger share of wallet with existing and new customers. Beyond the base business, there are also mega trends that are well aligned with our technical expertise and market exposure, and therefore creating opportunities for growth in market segments such as electric vehicles, aerospace, digital, and ESG. Also, And still within the organic growth areas of focus, we are now able to cost-effectively reach segments of our end markets and application spaces that we historically were unable to serve. This is due to simplification modernization, as well as digital customer targeting and our digital customer experience platform. Examples of that platform include supporting small to medium-sized job shops, providing tooling for medical device manufacturers, and supporting micro-machining and fit-for-purpose applications. And finally, we have the opportunity to supplement our organic growth initiatives through acquisitions. Now please turn to slide four for some recent commercial wins that are great examples of our success in executing on this roadmap. Again, this quarter we had significant wins in aerospace, including providing tooling for a large aerospace engine supplier. Solving this customer's technical challenges has opened the door for additional business. We also had a win with an aerospace customer for high-performance tooling used in the creation of specialized components for space stations and astronaut backpacks. This quarter, we again gained a larger share of wallet with existing customers, including an oil field services customer, where we applied our material science and additive manufacturing capability to become the sole source supplier for the customer's new nozzle design, which cannot be manufactured using traditional manufacturing techniques. And in the process industry segment, we collaborated with an OEM and leveraged our technical and manufacturing expertise to provide a plastic extrusion die that significantly outperforms the competition in delivery, performance, and technical support. And finally, in the rapidly growing electric vehicle segment, where we have established a leadership position in metal cutting, we broadened our reach with a win in our infrastructure segment by providing a wear solution used in battery production. These are just some examples of impressive wins that demonstrate our ability to gain share and give us confidence that the investments we are making in commercial excellence, expense, and innovation are paying off. Now let me turn the call over to Pat, who will review the first quarter financial performance and the outlook.