Good morning. I would like to welcome everyone to Kennametal's Fourth Quarter Fiscal 2023 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Michael Pici, Vice President of Investor Relations.

Thank you, operator. Welcome, everyone and thank you for joining us to review Kennametal's fourth quarter and fiscal 2023 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 Pici, Vice President of Investor Relations. Joining me on the call today are Christopher 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'd 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 Kennametal's 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 8-K on our website. And with that, I'll turn the call over to Chris.

Thank you, Mike and good morning and thanks for joining us. I'll start the call today with a review of the year, then the quarter and a few recent customer wins as well as an example of the industry-leading innovation we're bringing to market. Then Pat will cover the quarterly financial results as well as the fiscal year '24 outlook. Finally, I'll make some summary comments and then open the call for questions. Beginning on Slide 3. Fiscal year '23 presented us with several macroeconomic headwinds that the team successfully navigated to deliver results in line with our full year expectations. Sales increased year-over-year at 9% organically, offset by negative foreign exchange of 5% and unfavorable business days of 1%. At the segment level, Metal Cutting reported 10% and Infrastructure reported 7% organic growth. Price continued to be a significant part of the sales increase and is one of the strategic levers we use to offset inflation. On a constant currency basis, all regions grew with EMEA leading at 11% and Americas at 9%, both driven by growth in all end markets. And Asia-Pacific grew at 3%, which continues to be affected by a slower China recovery. Moving to our end market results. You may have noticed that we have reclassified some of our end market sales in the press release and slides. Beginning this quarter to better align with the Company's strategic goals and growth initiatives, certain end markets that we report externally had been redefined. The changes include the following. We've created a new aerospace and defense end market, which includes defense sales mainly powder sales and ammunition cores within our Infrastructure segment and certain metal cutting tooling sales to defense contractors. This change results in certain defense sales being reclassified from general engineering in both segments to…

Thank you, Chris and good morning, everyone. I will begin on Slide 7 with a review of Q4 operating results. The quarter's results demonstrate our ability to execute our initiatives in the face of continued headwinds from inflation, foreign exchange and the slower pace of recovery in China. Sales increased by 4% year-over-year with 7% organic growth, partially offset by headwinds from foreign currency of 2% and unfavorable work days of 1%. As Chris pointed out, price remains a large portion of the sales increase. On a sequential basis from Q3, sales growth of 3% was at the lower end of our normal Q3 to Q4 seasonal pattern of up 3.4%, driven by a lower-than-normal volume increase. Operating expense as a percentage of sales increased 70 basis points year-over-year to 20% driven by the effects of inflation. Adjusted EBITDA and operating margins were 16.7% and 11.4% respectively, versus 19.1% and 12.3% in the prior year quarter. As in prior quarters, higher pricing substantially offset higher raw material, wage and general inflation in the quarter on a dollar basis. Lastly, foreign exchange headwinds from the strong U.S. dollar were approximately $2 million. The adjusted effective tax rate decreased year-over-year to 19.7% primarily due to adjustments related to valuation allowances and reserves related to certain tax positions. Adjusted earnings per share was $0.51 in the quarter versus adjusted EPS of $0.53 in the prior year period. The main drivers of our EPS performance are highlighted on the bridge on Slide 8. The year-over-year effect of operations this quarter was negative $0.03, due to lower volume and litigation settlement charge related to legacy operations. You can also clearly see the effects of the tax rate. Foreign exchange, which improved slightly from last quarter and the reduction in pension income on EPS with taxes…

Thanks, Pat. Turning to Slide 15 let me take a few minutes to summarize. Overall, we're pleased with our strong free operating cash flow in the quarter and remain confident in our ability to continue to return cash to shareholders, while investing in our strategic initiatives for growth and profitability improvement. We see additional opportunities to drive greater operational efficiencies from our modernized plants and drive share gain by optimizing our investments in commercial excellence and technology. Looking ahead to fiscal year 2024, volumes associated with key end markets such as airline build rates and light vehicle production still remain below peak pre-COVID levels. And our oil and gas customers expectation that spending will remain durable in a volatile commodity environment provides us with confidence that as the year progresses into the second half, we will see growth accelerate. We are looking forward to providing more details on these end market conditions, as well as an update on the company's growth and innovation strategy and operational financial targets to fiscal year 2027 at our upcoming Investor Day. See Slide 16 for more specifics and a registration link to the event. And with that operator, please open the line for questions.

[Operator Instructions] Our first question comes from Julian Mitchell from Barclays. Please go ahead.

This is Kiran Patel-O'Connor on for Julian. I just wanted to ask on your fiscal 2024 guidance. It looks like it implies an EBIT margin of around 11%. So the margins are up year-on-year more than 100 basis points on our math. I just wanted to check if that was roughly correct. And just any differences to call out in terms of margin expansion by segment embedded within your guide?

Yes. That sounds reasonable, Kiran. I think if we think about the margin in terms of the segments, just a couple of things to kind of think about as we talked about on the call. First off, start with Infrastructure. Infrastructure will have some material headwinds here in the first half in Q1 as we talked about, price basically being ahead of raw material costs in the prior year and the additional APT headwind as we move into the second quarter. Those being the negative items, the positive items affecting the year for us is at the midpoint. Volume will be up slightly. We will get the benefits of about $15 million from our restructuring initiative, as well as in predominantly within the Infrastructure segment, again, we had absorption issues in second quarter and third quarter in Infrastructure and in Q1 we had some supply chain disruptions that approximately $15 million. We'll see come back and we'll also see some productivity come through our plants given our operational excellence initiatives. Overall, I think will have - both segments will be - margin will be up on a year-over-year basis at the midpoint.

Got it. That's helpful. Thank you. And then just my follow-up would be just kind of thinking about the EPS cadence through the year. It sounds like EPS is a little more 2H weighted this year than maybe it normally is. And I know some of the factors you called out like restructuring, better topline growth as the year progresses, maybe narrower raw material headwinds in the second half. So I just wanted to check if you could give us any rough split on EPS in the first half versus the second half of fiscal 2024? Thanks.

Yes. I think if you think about that, you're right, it's going to be weighted towards that second half a bit more. We would normally think about 40% of the EPS will be coming through in the first half. I think it will be less than this year. We'll get a bit more in the back, pick up the benefits from restructuring in the back half obviously get the relief on the raw material as we get out to the fourth quarter as well. Raw material should be a net positive for us.

Great. Thank you.

There are no more questions in the queue. This concludes the question-and-answer session. I would like to turn the conference back over to Chris Rossi for closing remarks.

Thanks, operator and thanks everyone for joining the call today. I hope that you will be able to join us next month at our Investor Day on September 8th at the New York Stock Exchange.

We have a call in the queue. A question in the queue.

We have a question from Steve Barger from KeyBanc Capital Markets. Please go ahead.

Thanks. Busy morning. Sorry, I forgot to punch into the queue. But --

Good morning, Steve.

We've seen - good morning. We've seen the Metalworking Index declined for most of the year and year-over-year IP just printed negative for June. Just given Kennametal's historical relationship to the cycle, how confident are you in the volume outlook, especially in the back half of the year? Can you just talk about how you see that?

Yes. I think what we're seeing is maybe a few data points. As Pat said in his comments, we kind of see the first half progressing - certainly, the first quarter kind of progressing at the levels we saw in Q4, so not really deteriorating. And then the second half of our year which of course is the first half of calendar year 2024, we see some improvements. And a couple of things are driving that. If you look at aircraft OEM build rates, according to Boeing and Airbus, first half versus second half, they're going to be up about 12%. We also look at light vehicle production, that's going to increase globally about 2% from first half to second half. And then we think there'll be a gradual improvement in industrial production in Europe as the year progresses. And also the China recovery has been slow, but we understand the Chinese government is looking some stimulus measures, which we think will help the acceleration of China. And then also on the oil and gas front, the rig count at its current level is pretty low and it's expected to increase by the time we get into Q4. And then I finally say on U.S. manufacturing, as I said, it will stay about the Q4 levels in the first half, then it will improve from there and there's a couple of data points we've got. We look at the National Association of Manufacturers forecast of manufacturing production and that's expected to be about 1.2% year-over-year for calendar year 2024. So we think that will accelerate some of the benefits in the second half of our year. And then we also look at the PMIs, I think the S&P U.S. manufacturing PMI in June was at 46.3% and it's - in July it's at 49%. So it's still in the contraction territory as you know. But it's moving in the right direction and we think that once we get through the first half of our year that we see that the industrial production should start to ramp up overall. And we don't have a huge increase in volume year-over-year implied in these - in our forecast. If you look at infrastructure it will probably be for the full year flat to slightly down and metal cutting be slightly up. So at the midpoint of our guidance, we're not assuming a huge amount of volume improvement. If you're more optimistic about the second half of the year that will take us to the high end of the range. If you're a little more pessimistic that could be at the lower end of the range.

Yes. Thanks. That's great color. I appreciate that. In terms of the volume expectations, for a while now volumes has been kind of hard to come by in, in an environment where the end markets have been pretty resilient. And you make a good case for how you see the back half. But are you expecting that your volume guidance is a function of the cycle itself? Or can we really start to expect commercialization to drive some outgrowth, because you often spend time talking about the new business wins. But something must be offsetting that on the other side.

Yes. This is a combination of - I would say that for the most part, we're not counting on the markets to give us very much. A lot of this is driven by the commercial excellence initiatives.

So you think the commercial excellence initiatives will drive more volume than the cycle itself, as you go through the year?

As we go through the year, I think in Infrastructure, the commercial initiatives are going to drive a good portion of that and in Metal Cutting, it's probably a little bit of a 50-50 split, roughly.

Got it. And Pat, you expect - you talked about growth picking up as the year progresses. But you have that $10 million unfavorable impact from tungsten in 2Q. Does that mean 2Q generally looks more like 1Q? Or can you kind of help us with the first half cadence, just given some of the puts and takes in 1Q and 2Q?

Yes, I think you're right, Q2 is going to look much like Q1.

Got it. Okay. Thanks very much.

Thanks, Steve. Take care.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Chris Rossi for closing remarks.

Okay. So just a reminder, we have our Investor Day on September 8th at New York Stock Exchange. Hopefully you all - we'll be able to see you all there. And if you have any questions, don't hesitate to call, Mike. And as usual, we certainly appreciate your interest and support. Thank you.

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