The Eastern Company

Greetings. Welcome to the Eastern Company's second quarter fiscal year 2023 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Ernie Hawkins. You may begin.

Thank you, everyone, for joining us this morning for a review of Eastern's results for the second quarter of 2023. With me on the call are Eastern's President and CEO, Mark Hernandez, and Eastern's CFO, Nicholas Vlahos. We issued an earnings press release yesterday after the market closed. If anyone has not yet seen the release, please visit the investors section of the company's website, www.easterncompany.com, where you will find the release under financial news. Please note that some of the information you will hear during today's call 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 expenses, 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 review 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 SEC filings including Form 10-K filed with the SEC on March 14, 2023 for the fiscal year 2022 and Form 10-Q filed with the SEC on August 8, 2023. In addition, during today's call, we will discuss non-GAAP financial measures that we believe are useful as supplemental measures of Eastern's 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. With that introduction, I'll turn the call over to Mark.

Thank you, Ernie, and good morning to those who have joined us by phone as well as those participating via the web. I'm going to begin today's call with some high-level observations of our performance and actions during the second quarter. I'll then turn the call over to Nick, who will provide a more detailed review of our financial results. After that, I'll come back and update you on the progress of our plans to transform Eastern's operations and enhance our portfolio of businesses. I'll also provide some thoughts on what we are focused on for the rest of 2023. As you recall, when I became Eastern's CEO seven months ago, the company was facing severe supply chain disruptions, and increases in freight and material costs that hurt the performance of all three of our divisions. Our new management team immediately undertook a ground-up review of our businesses, their products, the markets in which they operate, and the conditions in those markets. Based on that review, we initiated a wide array of changes to our operations, several of which I described in the last earnings call. In the second quarter, we continued implementing those actions and realized some initial benefits from our many improvement initiatives to show that our strategy is beginning to take root. Let's take a quick look at some of the high points of the quarter. First, cash flow from operations for the first six months ending July 1st, 2023, increased by $16 million as compared to the same period in 2022. As Nick will discuss in more detail, our balance sheet continued to strengthen due to our operational actions during the quarter. which allowed us to pay down another $5 million in debt during the second quarter. On a year-over-year basis, our backlog was down 9% to $75.3 million as we continue to improve our supply chain, transition from old to new programs with our vehicle and automotive customers, and increase shipments to our customers. Our backlog is now in line with our current level of business, and we are focused on every order every day to make sure the backlog remains consistent to enable optimum performance. We took steps to enhance our portfolio of businesses, including closing Associated Toolmakers, our European mold tooling service facility, and acquiring assets of SureFlex, a manufacturer of tractor-trailer electric connection cable assemblies, which will vertically integrate our trailer hose business and enhance the LVAX production facility. We also made asset allocations to install a tube laser, plate laser, and a five-axis CNC machine in our facilities. These projects have met the new MPV payback and internal rate of return thresholds that are embedded within our new Eastern strategy. On a sequential basis, our gross margins rose to 22% in this year's second quarter from 21% in the first quarter of 2023 as a result of focusing on margins within the commercial segments. We are very optimistic that our team's hard work will become more evident in the second half of 2023. We established a new $90 million five-year senior credit facility with expanded lender room. The new credit facility provides us with increased flexibility and will allow us to continue to drive improvements across the company, execute our growth strategy, and increase shareholder value. Finally, demand as a whole remains consistent and in line with previous quarters. Although we do expect headwinds from macroeconomic factors, we are now better positioned to deal with these headwinds and to take advantage of tailwinds that may arise. With that overview, I'll turn the call over to Nick.