Parker-Hannifin Corporation

Good day and thank you for standing by. Welcome to the Parker Hannafin Corporation's Fiscal 2022 First Quarter Earnings Release Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. And if you require any further assistance, please press star 0. Thank you. I would now like to hand the conference over to your first speaker today, our Chief Financial Officer, Todd Leonbruno. Sir, please go ahead.

Thank you, Rachel, and good morning, everyone, and thanks for joining our FY22Q1 Earnings Reliefs Webcast. As Rachel said, this is Todd Leonbruno, our Chief Financial Officer, and joining me today is Tom Williams, our Chairman and Chief Executive Officer, and Lee Banks, our Vice Chairman and President. If I could direct you to slide two, you'll see our disclosure statement addressing our forward-looking statements and non-GAAP financial measures. As usual, we've included all reconciliations for any non-GAAP measures in today's materials. Those reconciliations and our presentation are accessible under the investor section on Parker.com and will remain available for one year. The agenda is as usual. Tom is going to begin with some highlights on the quarter. He's got a few strategic comments that he'd like to add. And then I'll follow up with a very brief financial summary of our quarter and provide some color to the details on the increase in our guidance that we released this morning. Tom will close with a few closing summary comments, and then we'll open up the lines and take your questions. Just one reminder regarding the pending MEGIT acquisition. We are still bound by the requirements of the UK Takeover Code in respect to discussing certain transaction details. So that's just a reminder for everyone. With now, I'll ask you to move to slide three, and I'll hand it off to Tom.

Thank you, Todd, and good morning, everybody, and welcome to the call. We turned in an outstanding quarter, and it's a great start to FY22. My thanks to the global team for delivering such a record quarter against the backdrop of strong demand, inflation, and supply chain disruptions. So a couple of highlights. Safety performance continued to improve, 17% reduction in the global instance on a rolling 12-month basis. Very strong growth, in particular organic growth at 16% year-over-year. It was an extensive list of records. We had seven first quarter records, sales, total company operating margin, net income, and EPS. And then each reporting segment, all three of them had all-time operating margin records. EBITDA margin, you can see the reported number was 22.1% adjusted, or 210 basic points higher than the prior year. And then down at the bottom, Last row, segment operating margin adjusted was 22.0. Again, a 210 basis points improvement versus the prior year. Just a great quarter, very proud of the team, and thank you for your hard work. Going to slide four, there's really three things that drive the company. Living up to our purpose, being great generators and deployers of cash, and being a top quartile performer. If you go to slide five, I wanted to spend a minute, if you're familiar with our purpose statement, enabling engineering breakthroughs that lead to a better tomorrow. And we've been trying to show you examples of our purpose in action, how the company comes to life. And one of the secular trends that the pandemic is accelerating is digitization. And in Investor Day, we're going to highlight more of our content as you look at the whole digital supply chain. As an example, things like 5G, infrastructure, electronics, manufacturing, clean rooms, data centers, electronic devices, the shielding and thermal management that we do there, and of course transportation to get these products around the world. But the application that I wanted to cover today is semiconductors, given especially the importance of chip demand around the world. So if you go to slide six, there's going to be a significant amount of investment, as we're all aware of, in the semiconductor space, and that's going to drive for us double-digit growth over the next several years. Now, we have strong expertise in semiconductor manufacturing. About a quarter of our division ships some kind of content into the semiconductor space. So to orientate you on this slide, on the left-hand side are the applications that we go into, and the right-hand side are our technologists. For just a second on the applications, those six bullets that you see there really are made up of a combination of what we call fabs and tools. The fabs would be the the infrastructure or the transportation part of the process, and the various tools that are in the factory helping to make the semiconductors. On the left-hand side is a picture of a wafer, and on the center there, that is a picture of an etch tool, a six-chamber etch tool. So on the right are our technologies that we bring to create value for our customers. First segment is process control, so think of that as precise control of gases and liquids in the process. Fluid and gas handling provides the cooling system for the tools. Electromechanical is helping with the wafer movement. And the engineering materials is doing shielding and sealing. The shielding is helping to protect the wafer from electromagnetic static issues, which would destroy the chips. So we are essential to the digital supply chain. And this supply chain and the related technologies and markets around digital, if you combine that, it will be part of four major industries secular trends for the company driving long-term growth. That would be aerospace, ESG, electrification, and digitization. So you go to slide seven, speaking of the breadth of technologies, these eight motion control technologies, two-thirds, as you heard me talk about in the past, of our revenue come from customers who buy from four or more of these technologies. So again, it speaks to the interconnectedness of the technologies, the value proposition, the system and subsystem work that we do. But then coincidentally, two-thirds of our portfolio is also helping to enable our customers with their clean technology journey. And that two-thirds is going to continue to evolve to virtually 100% over time. I'll give you a classic example. The seal work that we do today on a combustion engine for transmissions or for piston seals eventually gets replaced for seals for motors and batteries in electric vehicles. So the takeaway on the bottom here is really our brand promise. helping our customers increase their productivity and their profitability. And we do that really in two ways. It's that interconnected tissue, the value proposition that we offer, and we're going to be a big part of helping our customers on their sustainability journey as we help with our clean technologies. Go to the next slide, slide eight, one of our favorite slides. It's going to, if you wanted to know whether PARC is really different or not, a picture is worth a thousand words. On the left-hand side is the EPS trend, and we've updated that now for our current guidance for FY22. And you can see that's virtually a 45-degree angle there. Tremendous amount of year-over-year improvement, and at 2.5 times EPS growth from the $7 that we were doing in FY16. Then the right-hand side is EBITDA margin. Again, you can see an almost 45-degree angle to that trajectory. And while we don't guide on EBITDA margin, Our performance in the actual quarter we just completed for EBITDA margin was 22.1%, so you can see that that will continue to show the expansion we're doing on margins. So the question might be how, and the how is really in the header there. It's been our people, their engagement, the ownership that they're taking, the portfolio changes that we made, and then the strategy changes, one strategy 2.0 and now most recently 3.0. You go to slide nine, just a quick update on the mega transaction. We had a very strongly favorable shareholder vote. We're working with the UK government on both economic and national security reviews. They're underway. The antitrust and FDI filings are proceeding as planned. And we still anticipate a Q3 calendar 2022 close. And this is, as we've described before, is a really compelling combination. It's going to double the size of our aerospace business And when you couple this with the other acquisitions we've done, Clarkor, Lord, Exotic, and now Megit, our portfolio is now much more long cycle, less cyclical, and faster growing. And with that, I'll hand it over to Todd for more details on the quarter.