The Eastern Company

Good morning, ladies and gentlemen, and welcome to the Eastern Company third quarter fiscal year 2022 earnings call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Nicholas Vlahos. Sir, the floor is yours.

Good morning, and thank you, everyone, for joining us. Speaking today will be Eastern's president and CEO, Gus Black, and our CFO, Peter O'Hara. After that, we'll open the call for questions. Please note that some of the information you will 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. We undertake no obligation to revise or update any forward looking statements to reflect events or circumstances that occur after the call. For more information regarding these risks and uncertainties, please refer to risk factors discussed in our form 10K for the fiscal year filed with the SEC on March 17, 2022, and our other filings with the SEC. In addition, during today's call, we will discuss non-GAAP financial measures that we believe are useful as supplemental measures of Eastern performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. A reconciliation of each of the non-GAAP measures discussed during today's call to the most directly comparable GAAP measure can be found in the earnings press release available on our website at www.easterncompany.com under the Investor Information tab. With that, I'll turn the call over to Gus for opening remarks.

Thanks, Nick. And good morning to those who have joined us on the phone and those participating via the web. We released Eastern's third quarter numbers in our Forum 10Q yesterday afternoon. Before Peter reviews the detailed results with you, I'd like to take a few moments to reflect on the quarter. This was another strong quarter for Eastern with solid revenue growth. Net sales from continuing operations grew to 71.6 million in the third quarter of 2022. That's an increase of 12% over the third quarter of 2021. And it's another quarterly sales record this year over a 164 year history. Customer orders were strong and importantly, our backlog at the end of the third quarter was 85.7 million. That's up 3% from where it stood at the end of the third quarter last year, as well as the beginning of 2022. A strong backlog positions as well for the coming quarters. Sales growth underscores effective execution by each of our businesses to benefit from favorable demand trends across our core markets. For example, our Big Three position team remains well positioned for the anticipated growth in returnable packaging over the remainder of this year and beyond as the pace of new vehicle launches accelerates. IHS Market, an S&P global research firm, predicts that there will be 130 electric vehicle models by 2026. And according to Bank of America, GM alone will be releasing 17 new models between 2023 and 2026. Sales of our returnable transport packaging products grew nearly 24% in the quarter compared to the prior year. At the same time, sales of our truck mirror programs that launched early this year continue to gain momentum as truck builds for these programs ramp up. According to FDR Transportation Intelligence, demand for new Class A trucks is expected to remain robust well into 2023. While raw material cost increases began to moderate for certain key commodities in the third quarter, we continue to operate at a much higher material cost structure than in previous years. We also still experience labor shortages and supply chain constraints. As such, we've implemented price increases, most of which took effect towards the latter half of the second quarter and into the beginning of the third quarter. But where costs continue to increase, we're taking further pricing actions. I'm pleased to announce that subsequent to the end of the third quarter, we divested our interest in Argo EMS. which was the final step in our work to streamline our portfolio of businesses. With this transaction, we've now completed the sale of all non-core businesses, and we will be able to focus our efforts exclusively on our three largest businesses characterized within the financial statements as continuing operations. Moreover, in the 2022 third quarter, We divested our corporate headquarters building located in Naugatuck, Connecticut, and later this month, we will be relocating to office space in Shelton, Connecticut. That will be both substantially reduce our operating carrying costs and also avoid the capital repairs that were otherwise needed for the 120-year-old facility in Naugatuck, a true win in my book. Finally, our balance sheet remains solid with a very strong current ratio of 2.9 times for the third quarter of 2022. It's noteworthy to mention that we repaid $3 million of debt within the third quarter and subsequent to quarter end in the month of October 2022, we repaid another $5 million from the proceeds of the sale of Argo. We were able to deploy capital to repurchase over 10,000 shares of common stock in the quarter and We believe we are prepared for a rising interest rate environment with nearly 55% of our term debt now locked in at a fixed interest rate of 3.19% through an interest rate swap agreement. We've clearly sustained our momentum from the last quarter with strong sales, a healthy pipeline, and growing end markets. Solid execution by our teams and a focus on our core businesses. We believe we are well positioned to finish 2022 in record territory. As I outlined last quarter, we are closely monitoring the macroeconomic warning sites that are out there. Global inflationary pressure and the reaction of central banks across the world may trigger a natural cyclical contraction, which could depress demand in many of our North American markets. And we will be prepared. For example, we're focusing our efforts on inventory reduction opportunities. Inventory, as you know, increased in part due to the protracted supply chains from Asia, our desire to protect our sales during the pandemic with greater safety stocks, and general inflationary cost increases that are capitalized while the product remains on hand. We're also establishing very specific plans at each of our businesses for operating cost reductions should we see certain factors change in a market. At this time, our order intake and backlog across most of our businesses do not suggest the need to deploy these plans on a company-wide basis, but we will be vigilant and ready for such a scenario. Peter will now take us through a more detailed commentary on the second quarter results.