Thank you for standing by, and welcome to the Parker-Hannifin Corporation Fiscal Year 2022 Second Quarter Conference Call and Webcast. At this time, all participants are in Listen-Only Mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star one on your telephone. As a reminder, today's program may be recorded. I would now like to introduce your host for today's program, Todd Leombruno, Chief Financial Officer. Please go ahead, sir. Thank you, Jonathan, and good morning, everyone. Welcome to Parker's Fiscal Year 2022 Q2 earnings release. As Jonathan said, this is Todd Leombruno, Chief Financial Officer speaking. Tom Williams, our Chairman and Chief Executive Officer, and Lee Banks, our Vice Chairman and President, are both with me here today for the webcast. I'd like to direct you to Slide number 2, which details our disclosure statement addressing Forward-Looking statements and Non-GAAP financial measures. Reconciliations for all Non-GAAP financial measures are included in today's materials. Those materials, reconciliations, along with this presentation are accessible under the investor section at parker.com and will be available for one year. As usual, today, Tom's gonna begin with highlights of the 1/4 and a few comments on the company's transformation. I'll follow up with a brief financial summary and review the increase to our full year guidance that we announced this morning. Tom is gonna handle closing comments, and then we'll open up the lines for your questions. Two comments before we begin today. First, as a reminder regarding the pending Meggitt acquisition, we are still bound by the requirements of the U.K. Takeover Code in respect to discussing certain transaction details. Secondly, we are announcing a date and time change to our upcoming virtual investor day due to a scheduling conflict with another company's investor day. Our meeting will now be held on Tuesday, March eighth from 9:00 A.M. to 12:00 P.M. Eastern. It will be a virtual event, and among the topics that we'll cover will be the release of our new Long-Term financial targets. With that, I'll ask you to move to Slide 3, and I'll turn it over to you, Tom. Thank you, Todd, and welcome everybody. Thanks for your participation today. I wanna start with the title of this Slide, which is Exceptional Execution in a Challenging Environment. When you look at the performance of the company in aggregate safety, sales growth, the margin expansion, EPS, it was an extremely strong 1/4. This is against arguably one of the most difficult operating environments that we've all faced in our careers when you add up the cumulative effect of inflation, supply chain challenges, and the Omicron virus. My thanks to the global team for just a great job, the execution in this 1/4 and related execution for many, many quarters, as we go through this presentation. Let's start with the first bullet. Focus on safety continues. It is our number one goal. We're leveraging our High-Performance teams, the combination of the natural work teams that we have in our plants and warehouses, as well as the Starpoint teams and Kaizen. It's really this combination, this team structure plus Kaizen that is driving an ownership culture within the company. Ownership of safety, but also ownership of quality, cost, delivery and engagement. Sales growth was 12% Year-Over-Year. Organic growth was 13%. It was nice across all the external reporting segments as well as every region participating. Total sales was the second 1/4 record as well as total segment operating margin. EBITDA margin was 18.2% as reported or 22.7% adjusted. It was 180 basis points. That's a big move versus prior year. A robust demand environment continues. We had over 90% of our end markets in the growth phase, which we're very excited about. In this execution, what you're seeing is really the cumulative effect of Win Strategy 2.0 and 3.0 driving this kind of performance. When you add the strategy changes on top of the portfolio things we've done, adding those great acquisitions that we've done over the last number of years and the powerful secular trends that I'm gonna talk about here momentarily, we see a future that's much longer cycle and more resilient and faster growth. If you go to the next Slide 4. I've touched on this before. This kind of frames all of our thinking and our strategies for the company. It's around trying to achieve these 3 key drivers, living up to our purpose, that higher calling, that North Star that we're driving for, to be great generators and deployers of cash, and to be a top quartile performer versus our proxy peers. If you go to Slide 5, which is the old expression that a picture's worth 1,000 words, this kind of sums up how the company has changed over the last number of years. We've updated this Slide for FY 2022 numbers, and I'm gonna just reframe the Slide for you. On the left-hand side is adjusted EBITDA, adjusted EPS, and on the Right-Hand side is adjusted EBITDA margin. If you look on the left and you go to FY 2016, so we worked real hard as a company for 100 years to get to $6.99 EPS. In the last 6 years, we've grown it by 2.5 times to a little over $18 in our current guide. If you just look at the gain that we've had since the pandemic, FY 2020 to FY 2022 guide, it's almost another $6 just in those 2 years. It happens to be, and I don't think it's coincidental that we launched Win Strategy 3.0 at the beginning of FY 2020. You can see what it's done to propel performance. If you look on the Right-Hand side, we don't guide on EBITDA margin, but we put in our EBITDA margin year to date at 22.4%. If you look at that from FY 2016 to that, it's 770 basis points improvement, just remarkable improvement. Really, the how behind these results, it's been our people, portfolio changes that we've done, and it's been, again, the cumulative effect of Win Strategy 2.0 and 3.0. If you go to the next Slide, give you a quick update on the Meggitt transaction. We continue to make progress. There's really four main work streams that we're working. There's the economic and national security review that we're working on with the U.K. government. I would characterize those as constructive and positive, and on track. Then the antitrust and FDI filings are proceeding as we had anticipated. We're still anticipating a Q3 calendar 2022 close, and we're really excited about this. This is obviously a compelling combination. It doubles the size of our aerospace business, highly complementary technologies, and we're at the beginning of a commercial aerospace recovery with great synergies as we put these 2 companies together. Again, bringing this on with everything else we've been doing, a much longer cycle, less cyclical, faster growing companies. On Slide 7, in addition to the strategic acquisitions that we've been making, we are uniquely positioned with our eight motion control technologies to benefit from the four secular trends that you see on this page. Now, I touched on aerospace and the recovery and momentum of Meggitt plus Parker. If you look at electrification, ESG, digitization, what you have here are Long-Term, Multi-Year growth enablers, and content growth for us is gonna grow both onboard as well as infrastructure. We're excited this is gonna be a big part of what we'll talk about on Investor Day, and we look forward to sharing more about these secular trends on March eighth with you. With that, I'm gonna turn it over to Todd for more details on the 1/4. Okay. Thanks, Tom. I'll ask everyone to move to Slide 9, and I'll start with our FY 2022 Q2 result. As Tom mentioned, this was just an outstanding 1/4, just another reminder that our operations leaders are really driving the company to significantly higher levels of performance. Our sales increased 12% versus the prior year. We did hit a record level of $3.8 billion. Tom mentioned this, but organic sales were very healthy at 13%. Currency was about a 1% drag on sales. That's how we got to the 12% reported sales increase. Demand just remains robust. Our backlogs are healthy. Growth remains very broad-based across all of our industrial businesses. If you look into the Aerospace business, commercial demand continues to trend positive, and we've talked about this before, but the acquisitions of CLARCOR, LORD, and Exotic continue to outperform our expectations. When you look at the segment operating margins, it's a Q2 record on an adjusted basis. We did 21.6% segment operating margin. That's 120 basis points improvement from prior year. Our teams are really managing through the well-documented supply chain issues, the inflationary environment. I really just want to commend them on our team's swift actions to manage these costs and inflationary actions, still while achieving record sales in the 1/4. Tom mentioned this, but adjusted EBITDA margin was 22.7%. That's up 180 basis points from last year. Both our adjusted net income and our adjusted EPS is improved by 29% versus prior year. Net income is $582 million or 15.2% return on sales. Adjusted EPS was $4.46. That's a $1.01 increase versus the prior year of $3.45. Just a really solid 1/4. If we jump to Slide 10, this is just a bridge on adjusted EPS, and I'll just detail some of the components that generated the $1.01 increase in EPS. As you can see, really, operating execution is the major driver in this increase. Adjusted segment operating income did increase by $132 million. That's 19% greater than prior year, and that really accounts for 80% of the increase in our EPS this 1/4. We did have some other favorable items. That was $0.19 favorable. There were some currency gains that were favorable. We did sell a few facilities that we restructured. Those closed in the 1/4, and we do have reduced pension expense versus prior year. All of that added up to $0.19. Then you can see the other items on the Slide that all netted to $0.04 favorable. But really the story here is just a very strong operating 1/4. If we go to Slide 11, I'll make a few comments on our segment performance. You know, Tom mentioned these, those secular trends. We are seeing growth from those trends across our segments. Every single one of the segments has a record adjusted segment operating margin this 1/4. We did maintain a cost price neutral position. We're very proud of that. Incrementals were 32% versus prior year. I just wanna remind everybody, that is against a headwind of $65 million of discretionary savings that we had in the prior year. If you exclude those discretionary savings, our incremental were 48%. Really, fantastic performance across the board from our teams. It really highlights the power of the Win Strategy and really demonstrates our ability to perform through this current climate. If you look at orders are +12%, and really the demand continues to be robust across our businesses. Just a little color on Diversified Industrial North America. Sales reached $1.8 billion. Organic growth in that segment was 15% versus prior year. Listen, we're really pleased with the performance in this region. We've talked a lot. I know everyone is familiar with the well-documented supply chain issues. Tom mentioned the Omicron spike. We are not immune to that, but we did keep operating margins at a very high level of 21.3% in this segment, and we're proud of that. Order rates continue to be very high at +17%. Our backlog is strong. You know, Tom mentioned this, 91% of our markets are in growth mode, so great things in the North American businesses. Industrial International is a great story. Sales are $1.4 billion. Organic growth is up 14% in this segment. I wanna note that across all the regions within our international segment, organic growth was Mid-Teans positive in every region. Really robust activity there. Maybe more impressive is the adjusted operating margins, 22.4%. This is an increase of 210 basis points versus the prior year. Certainly, we have volume. We've talked a lot about our growth in distribution internationally. We are benefiting from some product mix, and really, the team is doing a great job controlling cost. This has been a really Long-Term effort over a long period of time from that team, so I'm really happy that they're able to put up these continued high level of margin performance. Order rates there were +14%, ample backlog, and really solid international performance. If we look at Aerospace Systems, really continued signs of a rebound there. Sales are $618 million. Organic sales are positive at almost 6%, and we did see very strong demand in our commercial OEM and MRO markets. Great margin performance here as well. Operating margins have increased 270 basis points. They finished the 1/4 at 20.7%. Again, I just wanna remind everyone that that is still at pre-COVID volume levels, so great margin performance from our aerospace team. Aerospace orders on a 12-month rolling rate did decline 7%, but one item I wanna make clear for everybody is we did have a few large multiyear military orders in the prior period that really created a tough comp just in aerospace. If we exclude those orders, aerospace orders would be +Mid-Teans positive. We're seeing continued signs of steady improvement in Aerospace. Our ordered dollars in Aerospace in the 1/4 were at the highest level they've been in the last 3 quarters. Great 1/4 out of Aerospace. If you really look at the segments, it's really outstanding operating performance. We've got positive growth, strong order dollars, robust backlogs, record margins, and really just solid execution across the board, great segment performance. If I take you to Slide 12 and talk about cash flow on a Year-To-Date basis, we did exceed $1 billion in cash flow from operations. That is 13.3% to sales. Free cash flow is $900 million or almost 12% of sales, and conversion on a Year-To-Date basis is now 107%. We still continue to diligently manage working capital across the company. We really are just responding to these increased demand levels that we have. The working capital change did improve in the 1/4 as we forecasted. In the 1/4, it was a 1.9% use of cash versus last year, it was a 4.1% source of cash. For the full year, I just wanna reiterate, we continue to forecast Mid-Teans cash flow from operations and free cash flow for the full year will exceed 100%. If we go to Slide 13 now, I just wanna make a few comments on our capital deployment activity. I'm sure many people have seen this, but last week, our board approved a dividend declaration of $1.03 per share. That is fully supportive of our long-standing 65-year record of increasing dividends paid. I wanna give an update on the Meggitt financing. We continue to make progress on our financing plan. Our plan is flexible, it is efficient, it is risk mitigating. I did mention on the last call that we secured a deal contingent forward hedge contract in the amount of GBP 6.4 billion. Accounting rules require us to mark those contracts to market. That impact in the 1/4 was a Non-Cash charge of $149 million. We booked that in the other expense line, and we are treating that as an adjusted item. We now have $2.5 billion of cash deposited in escrow to fund the Meggitt transaction. That is listed on our balance sheet as restricted cash. That was funded from a combination of commercial paper and some cash on hand. A result of that, our gross debt to EBITDA ended up being 2.7 times in the 1/4. Net debt was 2.5 times. If you account for the $2.5 billion in restricted cash, net debt to EBITDA would be 1.8. Okay, so if we go to Slide 14, I just wanna give some details on the increase to guidance that we announced this morning, and of course, we're giving this on an as-reported and an adjusted basis. Full-year adjusted EPS is raised by $0.75. We did guide to $17.30 at the midpoint last 1/4. We have moved that to $18.05, and that is at the midpoint. We've also narrowed the range. Range is now 25 cents up or down. Sales is also raised. We're raising the midpoint to a range of 10% at the midpoint. We've got a range of 9%-11%, and the breakdown of that sales change at the midpoint is organic growth is 10.5%. Currency will be about 1% unfavorable. Of course, there's no impact from acquisitions. As Tom said, we don't expect Meggitt to close in our fiscal year. If we look at the full year adjusted segment operating margin, we're also raising that 20 basis points from the prior guide. Full year now, we expect that to be 22.1% at the midpoint. There is a 20 basis point range on either side of that. Corporate G&A and other is expected to be $656 million on an as-reported basis, but $435 million on an adjusted basis. Of course, there's a couple adjusted items in there. The acquisition related intangible assets, that is a standard adjustment. The realignment expenses, standard adjustment. The lower cost to achieve, standard adjustment. But we are adjusting these transaction related expenses for Meggitt. Year-To-Date, we've got $71 million worth of transaction costs and, of course, that $149 million Non-cash Mark-To-Market loss that I just mentioned. We're gonna continue to adjust for the transaction related expenses as they are incurred. If you look at tax rate, it is now gonna be slightly lower than what we had forecasted just based on first 1/2 activity. We expect that to be 22% now. Finally, guidance for the full year assumes sales, adjusted operating income and EPS all split 48% first 1/2, 52% second 1/2. Just a little bit more color, Q3 FY 2022 Q3 adjusted EPS guide, we have at $4.54. With that, Tom, I'll hand it back to you for closing comments, and I'll ask everyone to go to Slide 15. Thank you, Todd. We've got a highly engaged team around the world living up to our purpose, which is enabling engineering breakthroughs that lead to a better tomorrow. You've seen what 3.0 has done, as I referenced on that EPS chart, it's driving our current performance. What's gonna drive our future performance? It's the early days of Win Strategy 3.0, and I would characterize it as having long legs, lots of potential ahead with Win Strategy 3.0. The portfolio transformation continues. We've acquired 3 great companies. We're in the process of a fourth that will make us longer cycle, more resilient. If you put that on top of the secular trends that I highlighted and we feel very, very positive about the future. It's been our portfolio changes, it's been the strategy changes, but it really starts with our people. It's 55,000 team members that are thinking and acting like an owner. 55,000 owners that are driving this transformation. My thanks to all of them for what we did in the 1/4, but really for what we've done in the last number of years. Then I'm gonna hand it back to Todd for a quick comment just to set up the Q&A before we get started. Yeah, Jonathan, I just wanna ask the participants of the call, just as a reminder to ask one question, follow up if needed, and then jump back into the queue, just so we can try to get everyone on the call to have a shot at answering a question. We do appreciate your cooperation. Jonathan, I'll turn it over to you for Q&A. Certainly. Our first question comes from the line of Joel Tiss from Goldman Sachs. Your question please. Hi, good morning, everybody. Nice 1/4. Thanks, Joe. Tom, you mentioned in your prepared comments that 90% of your end markets are growing. I think that there's still some concern just around like this hypergrowth that we're seeing this year and that we're kind of closer to peak. Can you maybe just tell us a little bit more about kind of like the sustainability of growth even beyond this year and maybe some commentary around inventory balances as well? Yes. We've got what I would characterize as some rebound off the bottom, Joe. But you've got a lot of things that are positive. Those secular trends that I mentioned during my prepared remarks, aerospace recovery, ESG, electrification, digitization are all what I would call longer cycle. I mean, the whole electrification trend is gonna be years. You could suggest decades in terms of what's gonna happen there with that, ESG, digitization, et cetera. The content that we've seen and the potential bill of material changes both on board and then adding the infrastructure that's gonna be needed to support that is big, and it's gonna allow us to grow differently, I think, than in the past. You've got a couple other things that are gonna underpin, I think, a more constructive industrial business cycle going forward. You've got, I think, the CapEx needs are 2fold. One, you're gonna need to reinvest in areas that you haven't invested in the last 10 years. Because I don't think we're any different than most of my industrial peers, especially the last 8 years where we've had 2 industrial recessions and a pandemic. You typically probably underinvested during that time period, so there's a need to catch back up to that. There's also the need around supply chain. Everybody's gonna need to put in more robust supply chain systems, add multiple sources, et cetera. That's gonna require infrastructure, extra equipment, et cetera. You're gonna have kind of 2 bites of the apple on CapEx needs, that's gonna happen. You're gonna need to get back to normal inventory levels in the system. Today, you know, inventory is basically nonexistent outside of the suppliers like us. But when you go into our customers and particularly our distributors, you're gonna need an inventory replenishment cycle. So there's a lot of things that are gonna foreshadow a much more constructive future. If you look at the companies we've been buying, we've been buying companies that are longer cycle with accretive growth rates to what we've done historically. So again, you add the things we've done with the balance sheet and capital deployment to help ourselves as well. So I think this is a different cycle. I mean, it clearly feels different to me. There's always all those unknowns, the geopolitical unknowns and the virus, et cetera. I think if we look at it, if we were able to look forward, the next 7 or eight years is gonna be better for industrials than the last 7 or eight. Yeah, that's super helpful. Thank you, Tom. Maybe my follow on there is okay, the standout from a margin standpoint this 1/4 was Aerospace. It seems like, you know, we're still so far off the bottom in that business. I'm just curious, maybe just kind of peel back the onion a little bit on what's really kind of driving those strong margins and then sustainability of those margins moving higher from here. Yeah, the big help with aerospace is 2fold. One, we were very aggressive in establishing, again, Joe, it's Tom, establishing a fixed cost structure that was gonna be designed to withstand the current conditions and flexible enough to withstand the commercial recovery. We've done that. We were probably, I'd say, one of the more aggressive and quick to do that of our other peers who are in the aerospace industry. So we have a fixed cost structure that is in a great position to leverage this additional volume. Then in the near term, you're seeing significantly higher volume from commercial MRO. That piece is obviously more higher margins. I mean, commercial MRO in the last 1/4 grew 47%. Those would be the 2 big things. We had, you know, moderate R&D in that low 3% type of level. You get additional volume over a great cost structure, and that additional volume being the higher margin piece of the portfolio is driving the margins. Just for people, I mentioned this the last 1/4, but it's even more pronounced now, we're guiding to 21.4% for the full year, and that's against an all-time peak Pre-COVID of 20.5%. That's fantastic. It's 90 basis points higher than our previous high, and we're nowhere near our previous high on revenue for Aerospace. What's gonna help, Joe, going forward, you've got ASKs are gonna recover. You got departures are gonna recover. Omicron is probably the silver lining to helping all of us get out of this pandemic. The aerospace industry will be one of the first to recover. You know, you can look at, there's a lot of different people forecasting the future when we get back to Pre-COVID. You know, I think you can say anywhere from 2023 to 2025 calendar year. If you kind of look at the median middle of that, what most forecasters saying, that puts you kinda in 2024. You have a lot of positives going forward. You've got the recovery, we've got Meggitt and the continued good things we're doing in aerospace as a whole. So we're very positive. If we weren't so positive, we obviously wouldn't have bought Meggitt. We think this is a great space to invest in. Makes a lot of sense. Thanks, Tom. Yeah, appreciate the questions, Joe. Thank you. Our next question comes from the line of Nigel Coe from Wolfe Research. Your question, please. Hello, Nigel. Thanks. Good morning. Hi, guys. Just wanted to maybe just pick up on your investment comments, Tom. You talked about CapEx, but I'm just wondering about OpEx investments. Just wondering if there's a need to, you know, catch up on, you know, engineering spending, you know, R&D within aerospace. Any comments there would be helpful. Yeah, Nigel, it's Tom. I think on the OpEx part of things, I think we're in good shape. What we've learned over the time is that innovation is not a function purely of dollars. Yes, you need to invest enough there. It's more a function of org structure, the talent, and the processes that you put in place to drive that innovation. We think we're at a very good level. We're focusing a lot of our R&D, if I just take Aerospace as an example, more on future component technologies and additive and trying to be ready for our customers when the RFPs come out. If you wait for the request for proposal to come out and start to do your R&D, you're too late. You have to look at where the market's going and anticipate those type of things. Our Simple by Design process is allowing us to innovate much more efficiently. Every new product that we develop is going through the Simple by Design process, so that's gonna help us as well. I think you know, you weren't asking about CapEx. I think we'll have to add a little CapEx, but it will be immaterial. It would be probably just getting us into the upper ones or closer into 2.0 on the CapEx side for productivity, for organic growth, and all those kind of things. A good example of this and how this has been happening. I don't disclose the total numbers, but if you look at we added a new metric with Win Strategy 3.0, called PVI, Product Vitality Index, and it's the percentage of our sales that are coming from new products, new technologies that have been developed in the last 5 years. That percentage in the last 5 years has doubled. The percentage of the portfolio that is more innovative has doubled. It's one of the things that's gonna help us with sustainable growth, and it's one of the things that is helping us with margins because the new products are designed with a more attractive value proposition and higher margins. I think that's a good indicator, Nigel, that as long as you invest efficiently, you can get nice rewards for that. Okay. It sounds like no big investment cycle on OpEx. Then just my follow-on is, you know, industrial versus North American, international versus North American industrial margins. You know, having Parker-Hannifin handle it for a long time, industrial's always lagged North America. Within the guidance, you know, international is 50 basis points above North America. I'm just wondering, you know, going forward, do we think that international and North American structural margins will be very similar going forward? Yeah, Nigel, it's Tom again. Yes. Yes. I mean, they're there now, and we think they basically should run the same. The great positive about this, and for all my international colleagues that are listening, this has been years in the making, a fantastic run rate, really from all the regions outside of North America have contributed to this. We're seeing margin expansion across all 3 regions. The short answer, Nigel, is yes, North America and International should basically be about the same. Great. Thanks, Tom. Thank you. Our next question comes from the line of Joel Tiss from BMO. Your question please. Joe, we welcome Joel. Congratulations on your retirement. Yeah. Glad you made it. Thanks. Well, you'll see after I ask my question, you might not feel that way. No, just kidding. I have one short-term one about net pricing for 2022. Do you think that's gonna be positive, or you think it's gonna continue to be neutral? Yeah. Joel, it's Lee. Also congratulations. You know, maybe just taking a step back for everybody on the call, I think the one thing that we've established inside this company is a great culture of value-based pricing, so always pricing products for kind of the how we make or save money for our customers. When we have times of inflation, you know, we've got great processes internally to gauge pricing, but also what's happening with material costs. As you know, and I've said in the past, our goal is always to be margin neutral, and we've been able to accomplish that for a long period of time. I will tell you, what's happening now is just looking at material costs is not enough. Inflation is incredibly broad-based. We've just had to take a very comprehensive look to maintain that margin neutrality. You know, we were very active in this last 1/4. I mean, we saw things ramp up quickly. To answer your question, I expect, you know, to maintain that margin neutrality going forward. A longer term question, you know, probably maybe beyond Tom's scope or whatever, when we're on Win 5.0. Do you think by 2030 we could see 30% EBITDA margin potential? The reason I'm asking the question is maybe just a little bit of thought process about some of the big strides you have in front of you to get the margins higher than where they are now. Thank you. Joel, it's Tom, and I'll add my congratulations as well. You know, and I'm gonna maybe just expand for a second. We have always appreciated your honesty, your intelligence, and your sense of humor, just like how you started this, your questions. That's refreshing, and it's not always, you don't always get that. On be1/2 of all of us, we thank you and congratulate you for a great career. On the long side, so 2030, you're right, Joel, that will be beyond my time. But you know, we're not a company that views that there's any kind of mile marker we can't go past. I won't say that that's a number we could never achieve. We're gonna give you the first look at our 5-year when we get together on March 8. I think that'll give you visibility of where we think we can take the company. You know, just as you've seen that chart at the beginning of my remarks on what's happened with EBITDA margin, you know, it's at like a 45-degree line. As long as we keep developing technologies and products that create the distinguishing value that Lee referenced, you know, we can attract that kind of margin attainment. That's not an overnight, and you weren't suggesting it's an overnight at 2030. I view this as we go down the highway of continuous improvement, there's no exit ramps. We're just gonna continue to go and keep trying to get better and aspire to, you know, as I mentioned at the beginning, aspire to be the best industrial company that we can. Well, thank you very much. Joel, we greatly appreciate it. You have a wonderful retirement. Thank you. Our next question comes from the line of Jamie Cook from Credit Suisse. Your question please. Hi, good morning, and congrats on a nice 1/4. You know, Tom, I guess my question again, it relates to the margin performance in the first 1/2 of the year and what's implied in the back 1/2 of the year. I'm just sort of wondering, while you're putting up better margins than everyone expects, can you sort of talk through, you know, the supply chain, the labor inefficiencies, you know, some of the headwinds that you're seeing in the margins? Because it just makes me think the obviously the underlying margins could be much stronger as some of these short-term issues go away. I guess as I think about that, does that set up Parker, you know, to put up above average incrementals as we think about 2023, assuming sort of the world goes back to normal? Thanks. Yeah. Jamie, it's Tom. I'll start and Lee can tag on because Lee's living this as we speak. I mentioned this in the beginning that arguably the toughest environment in my career, and I've been around a long time. This is really a tough environment. If you're a general manager, you're an ops manager, supply chain leader, between inflation, COVID, supply chain disruption, really difficult to schedule the shop. It's difficult to schedule your suppliers. It's difficult to schedule your team members and apply them. Omicron has been, while I think it's gonna be a blessing overall. It's been a blessing we didn't have any of this. It's gonna get us out of it. It's really kind of peaking in January, and will start to decline hopefully here as we go through February. It has impacted absenteeism rates significantly. We felt some of that in the second 1/4. We're feeling much higher absenteeism rates in the beginning of Q3. The reason why I go through that is it just to your point, Jamie, it underlines how impressive these numbers are. If you run a factory and you're trying to hire a bunch of people, train them, and you've got absenteeism significantly higher than you're used to, and you're having to redeploy people, retrain them, cross-train them. You can imagine how difficult it is in any given day, you're not sure whether material you want is coming in. You can just guess how hard that is. These numbers are impressive to your point, as we get through this and it becomes more normal times, that's helpful, and we'll kind of indicate that when we get to IR day. The implied guidance in our second 1/2 is quite a bit better than the first 1/2. 22.3% is what we're implying for total op margin in the second 1/2. We did 21.8% in the second 1/2 of 2021, so it's 50 basis points higher than prior year. Ironically, it's the same 50 basis points higher than what we did in the first 1/2. You see some of that sequential growth. I would just help to remind you guys cover so many companies. When we started the pandemic, we were very aggressive on taking out cost. It kind of falls into the no good deed goes unpunished. We were one of the best companies putting up MROs at the beginning of the pandemic. We now have to compare against those years, and we've been trying to give you apples for apples. You know, this last 1/4, the apples for apples was a 48% incremental. The guidance for the second 1/2 is around 40% for Q3. This is making apples for apples, taking out those discretionary costs, and Q4 around 35. Again, a full year, not counting those things, turns out to be 30. I think that's a great number. In this kind of environment, if you can put up a 30 incremental, you're doing some spectacular work. Again, I want to emphasize, Todd said this earlier, a big thank you to Lee and Jenny and all the group presidents and all the people around the world that do such a great job running our factories. We'll get more, Jamie, into what we think we could do in a more normalized world when we show you the targets in IR day. Okay. Thank you. I appreciate it. Thanks, Jamie. Thank you. Our next question comes from the line of Mircea Dobre from Baird. Your question, please. Thank you. Good morning, everyone. Tom, I remember on the last earnings call, you were talking about supply chain disruptions, maybe not so much impacting you, but impacting your customers and their ability to frankly produce and thus purchase or get deliveries of components from you. I'm wondering if you can maybe give us an update here in terms of how things have evolved, and as you're looking at the back 1/2 of your fiscal year, how you think your own customers' output throughput is going to progress. Yeah, Mig, it's Tom. Yes, that is still the case. If you look at the whole value chain, our customers, us, our suppliers, and our supplier suppliers, everybody's feeling it. Everybody's feeling it. I would say our customers are feeling it the worst because they're the top of the food chain. Our customers are the OEMs. They have the more complicated build material. They have more chip dependency, and so they have a more difficult time. That is still, while everybody's feeling it, and we are clearly not immune, we're feeling it as well, and our suppliers are feeling it, the long pole in the tent is still our customers and their ability to manage a more complex build material coming their way. That's part of what makes forecasting sales difficult for us is we look at our own inputs, our AI model and feedback from customers and divisions and et cetera, but we do have to factor in, our customers are careful that they're not able to take everything that we can provide them because and I understand why they would do this. Why would they want to take our material if they can't put it to use? We're doing the same with our suppliers. That really hasn't changed much, Mig, since our last conversation. I think in a lot of cases, the chip issues, at least the chips that our industry, our customers and our products use are still feeling the pinch point. As a matter of fact, probably got a hair worse as we started Q3. We're not forecasting any help on that. Of course, we have the benefit of being a different fiscal year company. We've only got 5 months left to talk about, but we don't see any help within our fiscal year. Help's gonna come on that, it's gonna be more towards the end of this calendar year. Understood. You talked earlier about the robustness of this industrial cycle, but I guess one of the concerns out there is that the robust orders that you've seen thus far could potentially be a factor of customers trying to make sure that they do have available components in an environment in which there are shortages out there. So what is your sense as to whether or not this resulted in some unnatural boost to demand or double ordering, however you wanna characterize it? Yeah. Again, Mig, it's Tom. I would say that from what we can tell, it's still predominantly all underlying demand and not people trying to worry about getting in line or double ordering, to your point. Is that happening? I would guarantee it probably is happening somewhere because there's no way we can 100% predict that. But my comment at the beginning of the Q&A was more longer term, this industrial cycle feels like it has stronger legs from just the recovery dynamics, CapEx, and the underlying, for us, the underlying linkage to those secular trends. I think most of what our customers are doing now is just trying to be pragmatic. They're laying in orders that are over little multiple time periods than they historically would have done, which I think net-net is a good thing for the whole supply chain. Thanks for the call. Appreciate it, Mig Dobre. Thank you. Our next question comes from the line of David Raso from Evercore. Your question, please. Hi. Thank you for the time. One question a little longer term and one more near term. With the meeting coming up, last meeting, the margin expansion was really focused on simplification and then a better mix as distribution grows. Within simplification, you know, within simplification, obviously, we had, you know, org structure, operational complexity, and particularly Simple by Design. I was just curious, can you give us at least a little insight on how to think about approaching this meeting? Is this the ability to drive those initiatives further, get a further update on those? Are there some other things that we should consider? Then I'll follow up with my near-term question. Yeah, David, it's Tom. It's gonna be a combination of the latest on 3.0, and really giving you an update on all the changes to 3.0. You know, it's very hard on an earnings call or in just even a normal roadshow that we might be doing to take people through all the different elements of Win Strategy 3.0. We're gonna try to do a more comprehensive job of taking you through that and how it can help both growth and margin expansion. We'll talk about some incentive changes that we've made that are gonna help change the behavior and motivation for our team. We're gonna give you an update on the secular trends, which are really unique. I mean, when Lee and I started in our respective jobs, this whole ESG phenomenon, the electrification, digitization, they were there, but not at the same kind of extent with the same kind of momentum and CapEx investment that's gonna happen around there. We really wanna try to give people a better understanding of how our portfolio is gonna change and how the content changes because of those trends. There's gonna be a lot of time on that. Then it'll all come out in a forecast of what we think the 5-year goals are gonna be. That, that's in a nutshell kind of the high level timeline of or agenda for the meeting. That's helpful. Thank you. Just real quick, I know the guide. We can debate conservative or not on the revenue, but in particular, the international revenues for the back 1/2 of the year are implied only growing 1% despite the order just came in 14, and I suspect some of it's currency weighing on it. Anything we should be thoughtful about on why, if you look at where the guide in the back 1/2 seems a little, at least, you know, raises an eyebrow, why would international slow that much? Okay, David, it's Tom. Todd, can tag on if I miss something here. I'll give you what I have. I don't know where you're getting the 1%, but I'll give you what we're seeing for the second 1/2. I'm gonna give you the organic numbers. We are raising the guide, what was 6% for the second 1/2, all in to a company to 7%. Just to kind of provide context, that 7% is against the 10% that we did in the prior second 1/2. Again, it's kind of the 2-year stack. It's 7 percent on top of 10%. If I split out the segments for you to get to the 7%, North America second 1/2 is around 8.5%. International is 5%. It's not 1, it's 5% organic. Aerospace is approaching 7, and that's how you get to the total number of 7%. I don't know, Todd. Yeah, David, I would just add, you're right. You mentioned currency. You know, we're forecasting between 3.5 and 4 points of negative impact in the international segment just from where the currency rates are today. We're not trying to forecast those going forward. It's just a Year-Over-Year comparison. You know, to kind of put that in perspective, we had less than 1 in the first 1/2, so that's probably a little bit of a That's the gap between the 5 Correct. the one, essentially. Correct. Yeah. Okay. I appreciate it. Thank you so much. Thanks, David. Thank you. Our next question comes from the line of Jeff Sprague from Vertical Research. Your question, please. Thank you. Good morning. Good morning, Jeff. Morning. Hey, Todd, you laid out how your FX hedge on financing for Meggitt. Could you just update us on what, if any, interest rate risk you have just on the actual financing cost itself? Yeah. You know, we've got a very flexible plan here. You know, we've talked a little bit about that. It's gonna be a mix of commercial paper, a mix of cash. We did take out a deferred draw term loan, and then the remaining of that is yet to be determined. We've looked at it. We feel good with the rates that we're seeing. You know, I guess we could give you more info on that as we get a little bit closer to taking action on that. We've got the team looking at it, and we feel really good with the total cost of debt for this transaction. You're not proactively locking anything else in front of the transaction? No, we've looked at that. You know, because the close timing is uncertain, you know, the breakeven on that just becomes a little bit challenging. Understood. You know, Lee, you mentioned, you know, we need to think more about raw materials, and I totally agree. I just wonder if you could address labor a little bit more. Tom mentioned how, you know, how hard people are working in the factories and the like. Can you just maybe give us a little bit of a context of how significant labor is in terms of, you know, your direct cost and COGS or any other kind of way to frame up the labor component of the cost structure? Yeah, I'm not sure I can be that specific for you. You know, I think the one thing I was thinking about when Tom was talking, the one reason we've been able to come through this 2 years of pandemic is really the culture around our High-Performance teams driving all these processes that are embedded inside the company around lean talent, supply chain, and the way there's just this culture of ownership. What's been rewarding for me to see is, you know, we have had a spike in absenteeism rate, but our teams figure it out. They prioritize what needs to get done. Our local teams figure it out. There's certainly an increase in cost in different markets, inflation. You know, to sum it all up in one number, I can't do that for you. I can tell you costs are going up and all the support costs that go with it. Bottom line is, it's really our team that keeps working all the way through this to help us achieve these results. Thanks a lot. I'll leave it there. appreciate it, Jeff. Thank you. Our next question comes from the line of Joe O'Dea from Wells Fargo. Your question please. Hi. Good morning, everyone. I wanted to start on supply chain and experience over the past few months and your confidence in kind of stabilization of peak pain, if you think we see that kind of this past 1/4 and the 1/4 we're in right now, anything you have in terms of visibility on things getting better. Within that, any characterization of differences you see on the North America side versus the international side on supply chain. Yeah, Joe, it's Tom. I would say that I don't see it getting better, as I mentioned earlier, within the fiscal year. If I had to say, it's probably this current 1/4 we're in is probably the toughest that we're gonna experience, at least I'm hoping it's the toughest, with all things considered. I think we've weathered it pretty well, and probably the best indicator of our ability to weather it has been that incremental margin conversion and our margin expansion. That's really the punchline. Are you able to digest inflation, supply chain disruptions, absenteeism, everything? That all ends up in, well, how are you doing on margins? Are you expanding margins? Are you converting incremental revenue at the right kind of pace? We've been able to do that. Part of our success on supply chain is historical. We've taken the approach historically that we wanna make, buy and sell local for local. Yes, we have global supply chains, and we look at, you know, augmenting local sources, but we've always been, from a service and a customer experience standpoint, trying to be local, too, and speed to market, et cetera. That localization has helped us a lot. Because a lot of the pain points are tied to logistics, as we're all aware of. We've had a pretty good risk mitigation strategy around dual sources, but we're spending a lot of time on that. I would tell you going forward, we're gonna add more dual sources, which I'm not the only CEO in the world that's thinking that. That's a good infrastructure thing for us, equipment needs, et cetera, building needs. We're gonna do that. We're also gonna be deploying Simple by Design at our suppliers, 'cause as we help them with designs that are easy for them to make, obviously that makes it easier for them to produce and at a better cost, et cetera. North America is more challenged in general because it has tougher logistic challenges. That would be first. Second, it has tougher labor challenges. I think Europe, in particular, did a better job of retaining people during the pandemic through various different number of programs that they had, varied by country, but where they didn't lay people off and retained people, and we did a lot of that as well. I think their labor availability and their logistics are running smoother than North America, and that's how we characterize the differences. Got it. A related one on the incrementals. When you talk about adjusted incrementals and a stronger first 1/2 of the year than a back 1/2 of the year, what within that change is operational versus how much of that is more a function of comps, and mix and factors like that we would consider, you know, more Non-operational elements of a step down in the incremental in the back 1/2? Well, incrementals are incrementals based on operating margins, so they're all operating. The difference would be, well, I mentioned at one of the questions that we put out some incredible incrementals in that first year of the pandemic. You could go back and benchmark. We were clearly top quartile, maybe not one of the best incrementals of any industrial company. We're comparing against that. That's a difficult comparison. Of course, we've tried to take you through making it apples to apples. We had discretionary One-Off savings. All the people taking pay cuts at the beginning of the pandemic, that's not repeating. The apples to apples, I mean, our first 1/2 this year is in the upper 40s% when you do apples to apples incrementals, which is absolutely fantastic. That's fantastic in normal times when everything's running smoothly, and to do it in these kind of times is just incredible. Yeah, Joe, I would just add, you know, it does get, because those discretionary savings kind of ramped down as we went back to normal operations, the adjustment does get lower in the second 1/2. We're the comparable is $25 million in Q3 and goes down to $10 million in Q4. You know, Q1 was $125 million, Q2 was $65 million. You can see that start to ramp down there. you're not saying that, you know, there's something about supply chain that's getting tougher or that labor is driving some meaningful change within those incrementals- No, not at all. in the back 1/2? Nope. All right. Thank you. Thank you. Our next question comes from the line of Scott Davis from Melius Research. Your question, please. Good morning, guys, and congrats on a great another big result here. Thanks, Scott. We appreciate that. I've got no problem. I got a couple things. I first, just hearing all these questions, I mean, it kind of raises the bigger question. I mean, does working capital need to almost be permanently higher the next 2, 3, even potentially 4 or 5 years because of all these dislocations and such, and that kind of throw a little bit of a monkey wrench into some of your traditional lean practices? No, Scott, we don't believe it is. We believe that this is a short-term response to the, you know, the spike in demand. If you look at us over, you know, the longer period of time, you can see that we have done a wonderful job managing working capital. You know, it still is early days on some of the recent acquisitions, so I do think we have some upside there as well. You know, the other thing I would say is, if you look at our second 1/2, historically, the second 1/2 is really where we've started to get a little bit more leverage from the working capital side of the fence, and that's exactly what we expect to see in second 1/2 of 2022. You know, it's always a little bit tougher in a growth environment, but that's a good problem to have. You know, I'm really happy with the way the teams are managing this across the entire company. Scott, it's Tom. If I would add on, our inventory levels, right now, we have lots of opportunity. As we go forward, that will be a source of cash for us, you know, once we get through to more normal supply chain conditions. Okay, that's helpful. Then this is kind of a little bit big picture. I mean, if you went back and you looked at your original deal models in CLARCOR, LORD and Exotic, I mean, where? Hate to have you rank your children, but where have you been most kind of pleased with the upside? I know there's a little bit different duration on each of these, so it's a little unfair to compare. When you think about trying to normalize the trajectory, I mean, you know, what's standing out, anything in particular that you would note on those 3 big deals? Scott, I'll try. I'm recognizing I'm up against the time, for sure, try to be quick with this. We could not be happier with all 3. You're right, it's kind of like, well, picking for your 3 children, which do you like best? You like them all. They've all achieved their margin targets that we wanted. They've all done what we expected as far as growth resilience and being accretive growth. I think, LORD in particular brought some unique best practices, around how we do commercial strategies, which we're applying across the company. They've all been accretive on growth, accretive on margins, and accretive on EPS. The design intent when we started, they lived up to their billing. A lot of times that's not the case. We were happy about that. Yeah. Hey, Jonathan, just to be respectful of everyone's time, I don't think we have time for another question, so I apologize to those that didn't get on the call. This really concludes our FY 2022 Q2 earnings webcast. As always, Robin and Jeff are gonna be available for the rest of the day if you need any clarifications or questions. I just ask everyone to try to stay warm, stay safe, and have a great afternoon. Thanks for your interest in Parker, and thanks for joining us today. Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.