Kennametal Inc.

Good morning. I would like to welcome everyone to Kenna Metals' fourth quarter and fiscal 2024 earnings conference call. Today, all participants will be in a listen-only mode to prevent any background noise. After the speaker's remarks today, 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 today's event is being recorded. I would now like to turn the conference over to Michael Pisi, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Operator. Welcome, everyone, and thank you for joining us to review CannaMetal's fourth quarter and fiscal 2024 results. This morning, 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 Michael Pese, Vice President of Investor Relations. Joining me on the call today are Sanjay Chaubey, President and Chief Executive Officer, Pat Watson, Vice President and Chief Financial Officer, and Franklin Cardenas, Vice President and President of Infrastructure. After Sanjay 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 statements. 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 Canada Metal's SEC filings. In addition, we will be discussing non-GAAP financial measures on the call today. reconciliations to gap financial measures that we believe are most directly comparable can be found at the back of the deck and on our Form 8K on our website. And with that, I'll turn the call over to Sanjay.

Thank you, Mike. Good morning, and thank you for joining us today. It is an honor and privilege to lead this company and to work with our team members around the world. Before I get into the main portion of my remarks, let me say that it has been a very busy two months since I took on the CEO role. During that time, I visited numerous facilities around the world, talking to our team members, investors, customers, and other stakeholders. So much of what I'm hearing from them aligns with and reinforces what we are focused on by way of our value creation pillars. And I'll be speaking more about those in a minute. Earlier this week, we announced the hiring of our metal cutting president, Dave Bersolini. He is a strong business leader with a growth mindset and results orientation. I'm very pleased to have Dave on our team. I've also established a team to implement value creation business systems and tools that will help us drive above market growth, operating margin expansion, and free operating cash flow. In the spirit of true lean, We are making this investment primarily through existing resources and some new talent, almost all of it funded by reallocation of funds. During these first couple of months, we also dealt with the aftermath of a tornado at our Rogers, Arkansas plant. The safe, speedy, and successful restart of that facility was made possible by our local Rogers team and experts from across our organization who came in to help. Those teams work nonstop to safely resume operations and meet customers' expectations. And I just want to take this opportunity to say thank you to them. Now let's turn to some of the details on the quarter on slide three. Overall, I'm very pleased with how we performed in the quarter. Despite market softness and other challenges, sales were at the upper end of our expectations with organic sales declining 1 percent. During the quarter, infrastructure's organic sales declined 2 percent, and metal cutting's organic sales were flat. It is worth noting that metal cutting has consistently outperformed our public peers over the last two years. In-market conditions were mixed. We continue to see strength in aerospace and defense, with sales increasing by 23 percent from the prior year. This was driven by market growth, execution of our strategic initiatives, and project timing. General engineering sales were flat, with favorable project and order timing in the Americas offset the lower economic activity in EMEA. Transportation sales were down 1% year-over-year, mainly from project timing and lower volume in Americas. Energy was down 6% due to the continued year-over-year declines rig count, and wind energy project delays in Asia. Competitive market pressures, especially in road construction, continue to impact our earthworks business, which declined 6 percent. Moving beyond the end markets now, our adjusted EBITDA margin increased 100 basis points from last year, despite lower sales volume and approximately $4 million charge from the tornado. Additionally, as we expected, margins normalized in the infrastructure business, improving 490 basis points from the third quarter on an adjusted basis. During the quarter, we bought back $22 million worth of stock, completing our original $200 million authorization. Overall, let me say that I'm quite pleased with how the business performed in the quarter. Now let's turn to slide four to briefly talk about the full year performance. Fiscal 24 presented us with persistently soft market conditions, foreign exchange headwinds, and the impact of the tornado that I previously mentioned. But even in a year with lower sales volume, we were able to move the business forward. Adjusted EBITDA margin was essentially flagged despite lower volumes, price raw material timing effects in infrastructure, the tornado, and the foreign exchange headwind. We also delivered the highest free operating cash flow since fiscal 15, and the cash flow from operations as percent of sales was the highest in over 25 years. This performance enabled us to return $129 million worth of cash to our shareholders through our dividend and share repurchase programs. End market results for the year were similar to the fourth quarter, with a few differences in the transportation and general engineering end markets. Aerospace and defense grew 13 percent, driven by strategic initiatives and market growth. Transportation increased 1 percent for the year, driven by project orders in EMEA, which were offset by lower production in the Americas and lower Asia-Pacific volume. General engineering declined 1 percent for the year due to lower production in EMEA and the Americas. Market conditions that impacted earthworks which declined 4 percent, and energy, which declined 9 percent, were consistent throughout the year. In summary, we feel good about delivering a solid year end quarter. We managed through many challenges, drove performance improvements, and continue to advance our strategic initiatives. That said, there is more work to do to deliver sustained performance on growth and profitability, and we are committed to continuing that work in fiscal 25. Turning to slide five for the value creation pillars I mentioned a few minutes ago. I'm pleased to share with you our three value creation pillars. These pillars are built on a strong foundation and will be guiding us in fiscal 25 and beyond. First is delivering growth. This is exactly as it sounds. We are focused on growing above market and will do that through innovative solutions and application support, best-in-class customer service, and commercial excellence. As a brief side note, many of you will remember that we talked about several strategic pillars last fall at the Investor Day in New York. Innovation advantage, commercial excellence, and operational excellence. Those concepts have also been embedded as part of these value creation pillars. You can see innovation and commercial excellence in pillar one, and operational excellence in pillar two. principles to everything we do, increasing value at work and removing waste from our processes. This is not just for our manufacturing plants, but also applies to all parts of our business. The value creation systems team will build our capabilities and drive adoption of continuous improvement tools with the full engagement of the broader team. Now moving to the third pillar, portfolio optimization. This pillar is how we will systematically review and optimize our product and business portfolio to generate value for all our stakeholders. This is a critical, ongoing process to ensure that we're generating attractive returns from our current mix of investor capital and resource allocation. In addition, we'll work towards improving our sales mix, emphasizing markets and applications with a higher growth and margin profile as well as businesses that are less cyclical than our traditional mix. While I'm on this topic, let me say this. Buying a third leg of a stool is not a part of our strategy. Our primary focus is driving above-market growth, margin expansion, and cash flow improvement through organic actions. But we will consider bolt-on acquisitions to fill product or coverage gaps for attractive applications and markets aligned with our strategic focus. For example, medical, ceramics, and aerospace and defense, as we had mentioned during Investor Day also. Finally, these pillars are supported by a strong foundation of engaged employees, our core values, and a winning culture. Now, there is more to come on these value creation pillars in the future, but for now, let me say this. We are focused on serving our customers, providing a great place to work for our team, and delivering above-market growth operating margin expansion, and improved return on invested capital. The growth and continuous improvement pillars will be our primary focus on this journey, especially in the near term, while making systematic progress on portfolio performance over time. Now let's turn to slide six. Here I will provide a quick overview of market trends. The top section of this slide provides directional context on end market sales performance reflected in our fiscal 25 assumptions at the midpoint. The lower section includes the key macroeconomic factors reflected in our outlook. Given the short cycle nature of our business, backlog is not a meaningful component of our business model and has minimal impact on our outlook. As such, to set our outlook range, we rely on external market indicators and customer inputs, plus the expected impact of our strategic initiatives. You can see the data points on the slide, so let me provide you with a little bit more color beyond the numbers. Overall, fiscal 25 is expected to be a continuation of mixed market conditions, softer markets in the near term, and a modest improvement in the second half of our fiscal year. In aerospace and defense, we expect continued growth, but at a slightly lower rate, as the major OEMs have revised their bill rates for the rest of calendar year 24 and then improving in calendar year 25. Aircraft build rates are still 35% below pre-pandemic levels. But with our strategic initiatives, we are well positioned to win market share and capitalize on market growth as quality and supply chain constraints ease over time. Defense-related orders are expected to stay strong for the year. This market tends to have significant quarterly fluctuations due to the lumpy nature of customer buying patterns. Transportation is expected to experience slight growth in production for the current IHS light vehicle forecast, but most of the improvements are projected for calendar year 25. In the near term, we see indications of a softer transportation market, especially in EMEA. In fiscal 24, we continue to be successful in winning projects on battery and hybrid programs, a strategic focus area for us, at a higher rate versus our traditional rate in transportation. As you may have seen, several manufacturers have commented about the pace of new battery platform investments in production, which are slowing. As a result, in the near term, this slowdown could provide for some tougher comparisons for us, especially in EMEA. In any case, we are very well positioned to grow with all engine types for the long term. General engineering is expected to be flat. IPI in the U.S. continues to remain flat near term with a slight improvement in the first half of calendar year 25. Eurozone remains consistent with slight improvement in the first half of calendar year 25. We anticipate China to be flat as per market indicators. In energy, RIC counts are projected to increase moderately with a growth anticipated to occur in the first half of calendar year 25. Customer feedback also indicates a cautious outlook for the second half of calendar year 24, and rig output productivity remains a key focus. Considering these factors, we anticipate this end market to remain down slightly, especially in the near term. Finally, earthworks, including mining and road construction, is expected to be soft in the near term and also experience competitive pricing pressure. Now, let me turn the call over to Pat, who will review the fourth quarter financial performance and fiscal 25 outlook.