Park-Ohio Holdings Corp.

Good morning and welcome to the Park Ohio first quarter 2021 results conference call. At this time, all participants are in a listen only mode. After the presentation, the company will conduct a question and answer session. Today's conference is also being recorded. If you have any objections, you may disconnect at this time. Before we get started, I want to remind everyone that certain statements made on today's call may be forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. A list of relevant risks and uncertainties may be found in the earnings press release, as well as in the company's 2020 10-K, which was filed on March 5, 2021 with the SEC. Additionally, the company may discuss adjusted EPS and EBITDA as defined. Adjusted EPS and EBITDA as defined are not measures of performance under generally accepted accounting principles. For reconciliation of EPS to adjusted EPS and for reconciliation of net income attributable to Park, Ohio common shareholders to EBITDA as defined, please refer to the company's recent earnings release. I would now like to turn the conference over to Mr. Matthew Crawford. Chairman, President, and CEO. Please proceed, Mr. Crawford.

Good morning, everyone. I'm joined here this morning by Pat Fogarty, our Chief Financial Officer. It would have been difficult to imagine during the spring of last year the speed of the industrial recovery underway. Our first quarter results demonstrated record levels of business in parts of our company. improved bottom-line performance due to operating leverage accelerated by our ongoing improvements in our cost structure, and an almost $50 million reduction in net debt year over year. Our success during the quarter was led by supply technologies. The combination of strengthening end markets and new business momentum propelled the business up 12%, and March revenue was an all-time record. In addition, despite significant challenges in logistics and supply chain, our team was successful in seeing impressive flow through at the margin line. Bottom line is that supply technologies had a great start to the year. While revenue and assembly components was flat, we continue to see the benefits of an increasingly flexible cost structure, which was beneficial during the quarter in responding quickly to changes and challenges in the automotive space. Perhaps the best sign of success in this segment was the steady stream of new business awards across the product portfolio which will underpin our next leg up in revenue and margin. We are well positioned to continue to benefit from the reengineering of vehicles globally, and in particular, electrification. Engineer products results were lower than anticipated during the quarter, which is not surprising given the weakness in some of their end markets. But new bookings suggest we have worked through the trough, and this traditionally mid to late cycle business is on its way back towards historical performance. These results highlight a few things. First, our diversity continues to be our strength. Second, our improved and more flexible cost structure has provided not only improved margin flow through, but also has enhanced our ability to react to an increasingly difficult operating environment. Lastly, we expect to see progress toward our margin enhancement goals as the business environment stabilizes and we see improvements in our traditionally highest margin segment engineer products. Thank you to all of our associates for leading our business through these challenging times. We're being rewarded for everyone's hard work, and we are ready to move forward confidently into a period of sustained growth, improved quality of earnings, and less leverage. With that, I'll turn it over to Pat to review the results.

Thank you, Matt. Our first quarter results reflect continued positive sales trends in most of our businesses despite supply chain constraints and weather-related disruptions that affected several of our operations. The positive sales momentum throughout the quarter was most notable in supply technologies, where sales were at an all-time high during the month of March. Also, assembly components, despite the semiconductor chip shortage, which caused production delays throughout our automotive customer plants, perform well during the quarter and continues to launch more than 30 new programs in various facilities. Although we are not pleased with the results in our engineered product segment, which was challenged by low end market demand from the oil and gas commercial aerospace and rail markets, we began to see increasing new capital equipment orders and strengthening backlogs in our forge to machine products group. Also during the quarter, We continue and implement margin improvement initiatives across each business segment, which we believe will drive higher operating margins as revenues increase. Our first quarter consolidated net sales were $360 million compared to $366 million in the first quarter last year and equal to our fourth quarter 2020 revenues. Consolidated gross margins in the quarter were 14.5% compared to 14.7% a year ago. Excluding charges in the quarter related to plant closure and consolidation activities, margins were essentially the same year over year, as the cost reductions implemented last year and higher margins in supply technologies offset the impact of lower margins in engineered products. SG&A expenses were $39.7 million compared to $40.9 million a year ago, a 3% decrease reflecting the benefit of cost reductions implemented during the past year. On an adjusted basis, operating income was $13.6 million in the first quarter compared to $13.5 million a year ago as a result of improved margins in supply technologies and assembly components and lower corporate costs, which more than offset the decline in operating income in engineered products. Interest expense was $7.4 million in the first quarter compared to $8 million a year ago the decrease driven by lower average borrowings and lower interest rates. Our first quarter effective tax rate was in line with our expectations at 26%. First quarter gap earnings per share were 45 cents, and on an adjusted basis, earnings per share was 53 cents compared to 13 cents a year ago. The impact of the lower effective tax rate benefited the quarter by 30 cents a share year over year. On an adjusted basis, our pre-tax income increased 18%. EBITDA's defined was $27.2 million during the first quarter compared to $25.5 million a year ago, an increase of 7%. Our liquidity continued to improve in total $264 million as of March 31, up 5% compared to a year ago, and up $12 million from year end. During the first quarter, we generated $10 million of operating cash flows compared to a use of operating cash of $3.9 million a year ago. The significant year-over-year improvement was driven by higher net income and our continuing efforts to manage working capital in response to current market conditions. Capital expenditures during the quarter were $6.6 million, primarily in our assembly component segment, and related to new equipment purchased to support new business, which will launch during the current year in our aluminum and molded rubber products businesses. Turning now to our segment results, in supply technologies, net sales were $158 million, up 12% from $141 million a year ago. During the quarter, year-over-year and sequential growth occurred in the majority of our key end markets. The significant year-over-year sales increases were driven primarily by the heavy duty truck power sports, medical, and defense markets. Average daily sales in our supply chain business were up 14% compared to a year ago and are expected to remain strong throughout the year. In addition to the strong demand seen in our supply chain business, our fastener manufacturing business also had a strong quarter, achieving their highest quarterly sales number in recent years. Key to this business is our proprietary self-piercing and clinch products, which are receiving wide acceptance from both domestic and European automotive OEMs. We expect this trend to continue as a result of lightweighting and electrification initiatives being implemented in the automotive industry. Operating income in this segment increased to $12.2 million, and operating income margin was 7.7%, both significantly above last year's 9.2 million and 6.5%, respectively. The higher margins in the first quarter were driven by the higher sales levels and the positive impact of cost reduction actions implemented in 2020. Moving to our assembly component segment, sales were $126 million compared to $128 million last year. While sales have substantially recovered from the pandemic lows of just over $50 million in the second quarter of last year, sales in the current year were negatively impacted by the semiconductor chip shortage affecting certain automotive platforms in many of our plants. We estimate that the chip shortage reduced our first quarter sales by $5 million and first quarter operating income by $1 million. We expect the shortage of supply will most likely remain a headwind for our auto related businesses throughout the year. Although it is difficult to project the full year impact at this time, we estimate that the sales impact in the second quarter will be approximately $10 million based on current customer shutdown schedules. Segment operating income was $6.4 million in the current year compared to $6.3 million a year ago, and segment operating margins were 5.1% in the current quarter compared to 4.9% a year ago. On a sequential basis, operating income was lower caused by the chip shortage and its impact on production schedules, as well as startup costs on new products being launched in several of our facilities. We continued our margin improvement initiatives during the quarter, including various plant consolidations in this segment. In the first quarter, we expense $600,000 related to these activities, and we expect to incur additional one-time costs of $2.6 million throughout the remainder of the year. In our engineered product segment sales in the first quarter, were $76 million compared to $97 million a year ago. The decrease in sales was due to the continued slow recovery in certain end markets, including oil and gas, aerospace and defense, and rail markets. In our capital equipment business, sales of new equipment and aftermarket parts and services exceeded our expectations during the quarter and helped offset the low demand for our forging-related products. On a positive note, new equipment order activity, primarily for induction hardening and melting applications, continues to strengthen. First quarter new equipment orders increased 38% compared to fourth quarter levels. In addition, our backlogs in our forage to machine products business increased from year-end levels, and we are optimistic that the pace of recovery will begin to improve. The operating loss in this segment, which totaled $1.3 million in the current year, current quarter was driven by the lower sales which impacted profitability we continue to take actions to improve future profitability in this segment in the first quarter we expect seven hundred thousand dollars related to plant consolidation activities and we expect to incur additional costs of approximately 1 million dollars throughout the remainder of the year and finally corporate expenses were five million dollars in the quarter compared to $6.3 million last year. The decrease in expenses was due primarily to lower professional fees and employee-related costs. Overall, in spite of the first quarter sales volatility caused by the supply chain constraints and weather-related issues, we exceeded our internal expectations based on the strong results from supply technologies and assembly components. Although sales levels in our engineered product segment continue to lag the overall recovery seen in our other two segments, we are starting to see positive trends in demand. Our previously communicated 2021 financial targets remain unchanged, which include revenue growth of 8% to 12% over 2020 levels, improving adjusted EBITDA margins by 150 to 200 basis points year-over-year, capital expenditures of $28 to $32 million, and free cash flow conversion greater than 75% of adjusted net income. And finally, effective April 1st, we completed the acquisition of NYK Component Solutions, our first acquisition since the pandemic began. NYK, which is headquartered in the UK, is a leading distributor of electrical components for use primarily in the commercial aerospace marketplace, but also in other industrial applications. NYK's products and services are highly complementary to our existing portfolio of electrical products and provides additional product lines and new customers throughout Europe and North America. We expect annual sales from NYK to exceed $10 million and their results to be immediately accretive to earnings. Now I'll turn the call back over to Matt.