The Eastern Company

earnings call. All lines have been placed on a listen-only mode, and the floor will be open for your questions and comments following the presentation. If you should require assistance throughout the conference, please press star zero to reach a live operator. At this time, it is my pleasure to turn the floor over to your host, Chris Moulton, Head of Corporate Development. Sir, the floor is yours.

Thank you. Good morning, and thank you for joining us today. Speaking today will be Eastern's President and CEO, Gus Flack. and CFO John Sullivan. After that, we'll open the call for questions. Please note that some of the information we'll hear during our discussion today will consist of forward-looking statements about the company's future financial performance and business prospects, including without limitation statements regarding revenue, gross margin, operating expenses, other income and expense, taxes, and business outlook. These forward-looking statements are subject to risks and uncertainties that could cause actual results or trends to differ significantly from those projected in these forward-looking statements. For more information regarding these risks and uncertainties, please refer to risk factors discussed in our Form 10-Q file on Thursday. In addition, during today's call, we'll discuss non-GAAP financial measures that we believe are useful as supplemental measures of Eastern's performance, because non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. With that, I'll turn the call over to Gus for opening remarks.

Thanks, Chris, and good morning to those of you who have joined us on the phone and those participating via the web. We released Eastern's second quarter 2021 results on our earnings press release and our Form 10-Q last Thursday afternoon. The second quarter capped off a historic 12 months. Over this period, we've delivered record sales and record sales growth. I want to emphasize how proud we are of the collective effort of the approximately 2,000 people in each of our businesses. We thank them for their resilience and dedication and their agility to cut through many of the challenges associated with executing during a global pandemic. The way they've stepped up is impressive, taking care of our customers, our people, and our communities. They have a lot to be proud of. We can summarize our quarter with three points, strong sales and even stronger demand, margin pressure from raw material and shipping costs, and a commitment to continue to streamline our company and focus on our best core businesses. First, sales from our continuing operations grew by more than 55% compared to the last year, following a solid start in the first quarter. Strong sales were the result of the economic recovery across a broad range of commercial vehicle and industrial markets, as well as the impact of our product launches, including a new integrated cable lock that we produced for the incredibly popular KUA bike rack, a new cover locking system for retracts tunnel covers, as well as the ramp up of several new Class A truck mirror programs. According to FDR, North America Class 8 net orders for June were up 13% month-over-month and 71% year-over-year, with Class 8 orders now totaling 431,000 units for the previous 12 months. Across all commercial vehicle markets, demand continues to strengthen with strong GDP growth, capacity constraints across multiple shipping modes, at near-record truck freight rigs, and record used equipment valuations. As a result, order rates were red hot in the second quarter, and the ending backlog remained near record levels. Our backlog at the end of the quarter reached 89 million. That's an increase of 61 percent over the end of the second quarter last year. We're excited about the full potential of these opportunities to support strong revenue growth in the back half and beyond. Now, we believe that the growth in our sales could have been even more robust if not for delays. OEM production delays related to electronic component shortages, supplier shipping delays to our own facilities, and OEM delays of new passenger car vehicle launches. Yet, despite these challenges, we posted strong sales in the second quarter. In the quarter, we also experienced a continuation, and in many cases an acceleration, in the cost of key raw materials and freight rates, which pressured our margins. Just to provide you with some perspective of the magnitude of the rising costs, over the last 12 months, the price of hot-roll steel increased by 236%, and the price for cold-roll steel grew by 174%. These are examples of key raw materials that we use in many of our products. Similarly, spot shipping rates between several Asian and US ports increased from approximately $5,000 per container in May to more than $18,000 per container in July. Our businesses have been able to pass on some of these price increases to our customers, but we've had to absorb or share some of these costs. And there's frequently a lag in the realized price increases relative to the rapid escalation in costs. As a result, We estimate that our margins in the second quarter were compressed by several hundred basis points. That said, although the supply chain remains disrupted and many material prices are still volatile, we are cautiously optimistic that we're beginning to see signs of moderation in the rate of price increases across many of our key raw materials. And we're working with our customers and suppliers to ensure that we return to more stable, normalized margins in the coming quarter. Finally, we continue the execution of our long-term strategy to drive growth in our core businesses. And therefore, we're now reporting our diversified product segment as discontinued operations. As these legacy businesses are no longer aligned with our strategy and as such, we're exploring strategic alternatives for each of them. We believe that this change in reporting signals our commitment to focus 100% of our time and resources to ensure that each of our core businesses the resources that they require, and the people and capabilities in place to drive growth and profitability for years to come. With that, I'll turn the call over to John to go over the details of our financial results.