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spk04: gentlemen thank you for standing by our conference will begin momentarily once again thank you for standing by our conference will begin momentarily Thank you. © transcript Emily Beynon We'll be right back. Thank you. Good morning and welcome to the Park Ohio fourth quarter and full year 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 or 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 will now turn the conference over to Mr. Matthew Crawford, Chairman, President, and CEO. Please proceed, Mr. Crawford.
spk07: Good morning, and thank you for joining our fourth quarter call. There are many challenges in the fourth quarter of 2021. But I want to begin by highlighting the continued momentum of our revenue growth. Despite significant demand volatility from our customers and the ongoing restructuring work within our business, our revenue was up 3% for the quarter and 11% for the year. More importantly, though, our revenue outlook will benefit from growing backlogs and new business activity in each of our three segments. In fact, we expect 2022 to provide record or near record revenue levels. These relatively strong fourth quarter revenues came at a steep expense and resulted in an adjusted loss of $13 million. This loss overshadows a tremendous amount of work which has been done over the last 18 months to increase profitability and lower our overall expense structure. Extraordinary costs related to premium freight, raw material inflation, and labor, as well as unpredictable customer production schedules, led to unreimbursed expenses and inefficiencies particularly during the reemergence of COVID. While these costs affected all of our businesses, the assembly products group accounted for the vast majority of these challenges. Reduced or erratic production schedules at customer assembly plants made managing operations efficiently extremely difficult and resulted in increased costs, especially related to premium freight. Additionally, the spike in aluminum and related raw material in our casting business and some of the labor challenges that were unique to our Midwest U.S. footprint in our casting business amplified these issues dramatically. We anticipate ongoing improvement in this segment as some incremental raw material pricing benefits the 2022 results and more normalized customer production levels occur as we move into mid-year. We also anticipate that more normalized production schedules will create sizable operating leverage due to the restructuring that has occurred in this segment. As a reminder, in this segment, we've reduced our manufacturing footprint over the last two years by approximately 20% and continue to see positive new business awards. Given the strong product portfolio related to lightweighting, electrification, and powertrain agnostic parts, we see this segment as providing meaningful contribution towards the end of 2022. We also anticipate the benefit of growing backlogs in engineered products. While supply chain challenges will provide some level of uncertainty to the timing of these revenues and earnings, we are pleased the robust order activity, especially in the new energy space. We will also benefit from improvements in some of our traditional end markets. Rail car builds, aerospace, and, of course, oil and gas investments have been weak on a sustained basis during this recovery, and we expect solid incremental improvements in each. We anticipate that these revenue improvements will provide significant operating leverage as Engineer Products has been undergoing significant restructuring during the last 18 months, which include the closure of multiple high-cost facilities and the expansion of one of our forging facilities. Despite the solid revenue outlook, we are reluctant to give earnings guidance due to the ongoing challenges in the global industrial market. While we anticipate there will be an important restocking cycle and underlying end market demand is strong, production schedules are particularly vulnerable even at the last minute due to some supply chain issues up and down the value chain. While we have some but limited direct exposure to Russia and the Ukraine, it is clear the war will only put more pressure on these challenges globally and may add some additional expense. Additionally, it's difficult to understand the full impact of inflation to end market and particularly consumer demand. Regardless, we expect 2022 to be a year where we benefit substantially from pricing initiatives, reduced manufacturing overheads, which will provide improved earnings under almost all scenarios. In short, we expect at a minimum to return to solid adjusted profitability. With that, I'll turn it over to Pat to review the quarter.
spk00: Thanks, Matt. Before I speak to the details of our fourth quarter results, I want to make a few comments about our full year 2021 results. Overall, our consolidated sales met our expectations, and customer demand continued to recover from 2020 levels, as revenues for the full year were up 11%. We expect strong in-market demand to continue throughout 2022. Our supply technology segment, which saw a full-year sales growth of 21% and a year-over-year operating income increase of $13 million, or 42%, continue to perform well in a difficult supply chain environment. Our capital equipment and forging backlogs increased in our engineered product segment at year end, and we expect increasing demand in the oil and gas, rail, and aerospace end markets this year. In our assembly component segment, volatility in demand, labor shortages, and commodity inflation continue to be challenging, most notably in our aluminum casting business. During the year, our losses in our aluminum business negatively impacted our full year adjusted EPS by approximately $1.38 per diluted share. Our ongoing restructuring efforts in our assembly components and engineered product segments, which have included several plant consolidations to reduce our fixed cost footprint, will help drive improved profitability in 2022. Now I'll review our fourth quarter results. Consolidated sales in the quarter were $370 million, up 3% compared to $360 million a year ago, with higher year-over-year sales occurring in our supply technologies and engineered product segments. Sales in our assembly component segment were lower year-over-year as a result of the continued impact of the semiconductor chip shortage, which has caused production volatility throughout our automotive customer base. Gap EPS for the quarter was a loss of $1.48, and adjusted EPS, which excludes one-time non-recurring items, was a loss of $1.08. On a GAAP basis, our fourth quarter operating loss was $16 million. On an adjusted basis, excluding the one-time items related primarily to restructuring, the gain on the sale of real estate, a goodwill impairment charge related to our aluminum business, and other one-time charges are adjusted operating loss was $9 million, of which $10 million related to our aluminum business. SG&A expenses in the quarter were $50 million compared to $38 million a year ago. The increase was driven by $4.3 million of one-time expenses in the 2021 fourth quarter and a return to more normalized levels. Interest expense totaled $7.7 million compared to $7.4 million a year ago. with the increase driven by higher average borrowings year over year. The income tax benefit in the fourth quarter of $2.8 million represented an effective rate of 13%, which is lower than the US statutory rate of 21%, as a result of higher taxable earnings in higher tax rate jurisdictions. Our liquidity continued to be strong, ending the year at $214 million. which consisted of $54 million of cash on hand and $160 million of unused borrowing capacity under our various banking arrangements, which included $11 million of suppressed availability. During the quarter, we sold our crop forage location for $20 million and recorded a gain on the sale of $14 million. We expect to complete the consolidation of this location into our Canton drop forage location during the year. which will drive higher future margins in this business. For the full year 2021, consolidated sales were $1.4 billion, an increase of 11% compared to 2020 levels. Each of our businesses, except the Forge and Machine Products Group, saw increased customer demand compared to a year ago, with the largest increase in our supply technology segment, which was up 21%. Our full year gap EPS was a loss of $2.07, and our adjusted EPS was a loss of $1.20. The loss in 2021 was due primarily to the operating losses in our aluminum castings and in our forged and machine products businesses, which more than offset strong performance in supply technologies and our capital equipment business. Turning now to our segment results, in supply technologies, net sales, were $153 million during the quarter, up 7% compared to $143 million a year ago. Average daily sales during the quarter were up 7% year over year. In the quarter, we saw strength in many key end markets, with the biggest increases in the semiconductor, heavy-duty truck, agricultural and industrial equipment, and civilian aerospace end markets. The civilian aerospace market was up 27% compared to the fourth quarter of last year. We continue to have success with our new business initiative centered around industrial supply and mid-market accounts. In 2021, new customers totaled over 600, including over 300 new customers in the fourth quarter in various products and end markets. Our initiative to focus on middle market customers and industrial supplies is contributing to our sales growth in this segment. Operating income in this segment totaled approximately $10 million in the current and prior quarter, and excluding one-time items, adjusted operating margins were consistent at 7.1% in each period. Operating income and margin were impacted by higher inbound domestic and ocean freight costs, as well as increasing product costs, which were offset through higher sales levels and favorable customer pricing initiatives. For the full year of 2021, net sales were $620 million, an increase of 21% compared to 2020 levels, driven by demand increases in virtually every key end market. The higher sales and customer pricing initiatives drove higher operating income and margin, which were up $13 million and 100 basis points, respectively. In our assembly component segment, sales for the quarter were 127 million compared to 132 million a year ago. Sales in the current quarter were again negatively affected by the ongoing semiconductor chip shortage. Weekly demand fluctuations and OEM plant shutdowns and delays impacted certain plant production schedules again this quarter. The fourth quarter operating loss of $18 million in this segment was driven by an operating loss of $10.6 million in our aluminum business and $5 million of one-time charges, primarily relating to our ongoing plant closure and consolidation activities. For the full year 2021, net sales in this segment were $483 million, an increase of 9% compared to a year ago, as sales levels rebounded from the pandemic-induced customer shutdowns which incurred in 2020. We expect continued sales growth in 2022 resulting from higher demand on previously launched products. The segment operating loss for the year was $26 million compared to operating income of $8 million in 2020. On an adjusted basis, segment operating loss in 2021 was $17 million compared to income of $12 million in 2020. Again, our losses in this segment were isolated in our aluminum business which had $19 million in operating losses on an adjusted basis. We are aggressively addressing the losses in this segment by negotiating and implementing price increases across all product lines, moving production to low-cost facilities, finalizing planned consolidations, automating production in high labor areas, and exiting non-profitable products. We expect these actions to substantially reduce the segment's operating losses in 2022. In our engineered product segment, fourth quarter sales were $90 million compared to $86 million a year ago, an increase of 5%. In our capital equipment business, sales were up 8% compared to a year ago, and we're at their highest level since the pandemic began in the first quarter of 2020. Bookings and backlogs in this business are up significantly compared to a year ago. Bookings of new capital equipment totaled more than $36 million in the fourth quarter, an increase of 23% compared to last year. Our capital equipment backlog at December 31st, 2021, was $164 million, an increase of more than 20% compared to a year ago. Our strengthening performance in our capital equipment business was partially offset by the results in our forage and machine products business, where sales continue to be impacted by weak end market demand from several key end markets, including oil and gas, rail, and commercial and military aerospace. During the quarter, the segment's operating losses were due to one-time expenses totaling $11 million of charges for various plant restructuring initiatives. Also, as I mentioned earlier, we sold real estate for cash proceeds of $20 million and recorded a gain on the sale of $14 million. For the full year of 2021, sales were $336 million compared to $345 million in 2020. The decrease was due to lower customer demand for our forged and machined products. Adjusted operating income excluding the $13 million of restructuring charges was $1 million in 2021 compared to $6 million a year ago. During the quarter, the strong profitability in our capital equipment business was more than offset by operating losses in our forged and machine products business, which were concentrated in two manufacturing operations. We have implemented significant changes in these two operations, including leadership changes, customer price increases, and headcount reductions. As a result, we expect the results in the forging business to significantly improve in 2022. And finally, corporate expenses totaled $7 million during the quarter, compared to $6.4 million a year ago. On a full year basis, our corporate costs totaled approximately $26 million in both 2021 and 2020. Looking ahead to 2022, we are forecasting strong revenue growth of approximately 15% over 2021 levels, which would be at record levels. 2022 sales will be driven by strong customer demand in each segment. The revenue growth is expected in most end markets in supply technologies, increased volumes from several new products previously launched in assembly components, and from the strength of our backlogs in our capital equipment and forged and machined products businesses. Although we expect significant improvement in profitability in 2022, resulting in positive net income for the year, We will not provide further guidance at this time due to the supply chain headwinds, inflationary pressures, and labor challenges which we expect to continue during the year. Now I'll turn the call back over to Matt.
spk07: Thanks, Pat. Before I open it up for questions, I want to take a moment and thank the Park Ohio team. These have been very intense times in the global industrial markets. whether it be in the steady performance we've seen in supply technologies, some of the challenges in assembly components, or the reemergence of the performance of engineered products, all of the people that work in our business are working incredibly hard. These are very, very challenging times, and I want to acknowledge the professional and personal sacrifice that's happening throughout the business and thank everyone for their efforts. and reaffirm that the growth we're seeing in the business affirms that we have the right products and customers to succeed. Increasingly, as now we're substantially through a big portion of our restructuring, we've got the right operating model. We've got the ability to invest for the future and think long-term. And most importantly, we've got the right team. So thank you to everybody. A lot of good work. was done in 2021 that we should all be proud of. Having said that, I'm happy to put it in history books. So with that, I will open it up to questions.
spk04: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please. We'll be polled for your questions. Our first questions come from the line of Steve Barger with KeyBank Capital Markets. Please proceed with your questions.
spk06: Thanks. Good morning. Good morning, Steve. Yeah. Matt, Assembly Products in general, and now we know General Aluminum specifically, had a very tough year and looking at a tough start to 22 most likely. What can you do to make those businesses more resilient, and how's the conversation going with customers?
spk07: Yeah, great question. I want to start by saying let's not lose sight, I think, of the strength of our product portfolio and our customers in our assembly components group and specifically at General Aluminum. Most of our peers in the automotive segment saw substantial deterioration in revenue quarter over quarter, and we didn't. We were kind of approaching flat. So new businesses impacting more broadly assembly components, we saw revenue gains Tad Piper- In aluminum, a lot of that is driven again by lightweighting electrification sort of the overhaul, if you will, of the automotive industry, so, in spite of some of those challenges, I want to reiterate. Tad Piper- You know, we continue to be confident in the businesses that were were positioned in having said that. Tad Piper- You know that the challenges to collect for re unreimbursed costs at every line in the in the p&l. has been a challenge. And those conversations, you know, with customers intensified through the end of last year's and continue today. So we believe we are a strategic supplier to those customers. We believe that we're an important part of the value chain. Our quoting activity and our volumes, you know, sort of prove that to some extent. And I think that we will continue we will benefit from that in our pricing model going forward. Again, I think our significant pain point was the fourth quarter. We think we'll see the benefit of that. Some of it related to, I think, automatic pass-throughs, particularly related to aluminum. Some of them will be the subject to difficult negotiations. Having said that, I do think we've sort of bottomed out, if you will, And, again, I think we're strategically important to our customers, and the conversations will reflect that. But that's not all about the customers either. I think we have, you know, it's incumbent upon us to continue to focus on reducing cost. The environment has changed significantly in automotive. Certain models, which were very strong performers for us, not more than 18 months ago, 12 to 18 months ago, are not very strong performers. The mix has changed, and it has not changed in a way that benefits our business. Areas where we're less efficient, we're overwhelmed with business. Areas where we're more efficient, we don't have enough business. So we need to respond to that aggressively. And I think Pat mentioned our focus on restructuring our footprint to meet our customers' needs long-term. and also to be able to focus on taking cost out of our current business model. Labor has really gotten the better of us in the fourth quarter as we try to serve some of those needs, particularly in the Midwest, and we need to rise to the challenge there. So I don't want to make this all about the customers, but we do need their help, and I think we'll get some of that contractually. We'll ask for some additional, and I think in the meantime we've got our work cut out for us to migrate the operating model to something that serves their needs long term.
spk06: Yep, understood. And you did say quoting activity is high, I guess. Do the quotes that you have out in the marketplace now adequately capture the current inflationary environment? And this is a question for all three of the segments. And can you structure contracts for quicker material cost adjustments?
spk07: Yeah, that's the big question these days, isn't it? So let me talk big picture, and then we can sink our teeth into some of the tougher ones. I really need to applaud supply technologies and acknowledge their steady performance throughout 2021. And that's, you know, I think that really answers your question, which is they were able to, to a large extent, meet the incremental costs in their business model. Not entirely. I would assure you that we have not recaptured significant amounts of premium expedited freight. Certainly on the cash side, we have had to invest heavily in increased inventories to protect our customers. But I think those guys have done a fantastic job, I think, of trying to stay on the curve, and that team is extremely focused. So I want to compliment them. I will say in the engineer products group, you know, those Not entirely, but to a large extent, those are less LTA-focused. So I think we have had the opportunity. Equipment's an obvious example, right? We get to, you know, quote business at, you know, new margins, and then, you know, we obviously ship that product and start again on the next project. So, you know, over a fairly limited amount of time, we're able to, I think, re-quote that business and make sure we're sort of keeping up, if you will. Our challenges there have been sort of less about, I think, pricing and more about refreshing pricing and more about supply chain and making sure that we can meet delivery schedules that continues to impact performance in that business. You know, some of the challenges that you're discussing are squarely focused in automotive. You know, the automotive world spent, you know, my whole business career globalizing, signing long-term agreements, all with productivity. You know, leaning out everything in sight and automating all things that don't do well in an erratic production environment. So, you know, I think that is where we have been damaged. Again, we will see some support, particularly with aluminum, as the contracts allow for some adjustments. But unfortunately, aluminum is not the only raw material we use. And a lot of those raw materials are not prone to quarterly adjustments. And, you know, we got killed in the fourth quarter. So, again, we're working, I think, with our strategic partners to address that, and we expect that we're important enough to get it. So, no, I think for most of our business, call it, you know, 80%, we've either gotten ahead of it, stayed on it, or had the opportunity to refresh more regularly. The significant challenges have been in automotive. Not to suggest that people really haven't been working hard in the other businesses to stay ahead of it, It is the challenge of the day across the business.
spk06: Yeah. And Pat, free cash flow was a use of $74 million last year, and I think about half of that was working cap. What do you expect for operating cash flow this year? Can you just talk through how that looks from a working cap standpoint? You already said you expect positive adjusted EPS, and then maybe talk about CapEx requirements. Sorry if I missed that.
spk00: No, no problem. Yeah, next year we expect our working capital levels to remain relatively flat. You know that is assuming that certain supply chain constraints will start to ease in the second half of the year. That would be a very positive sign which will drive positive operating cash flow. We expect our CapEx for 2022 to range between 30 and $40 million. We have to complete some major projects during 2022, which would push that number to the mid-30s. But expect positive free cash flow in the current year.
spk07: Steve, I want to add that we benefited from a non-budgeted cash benefit of the building in Chicago. We don't forecast those things, and to be clear, as we continue to restructure the business, we expect to see benefits like that, unbudgeted benefits like that. I think that's a particularly big one, so I wouldn't think about it in terms of being overly material, but we will continue to find opportunities to benefit from the restructuring on the cash flow side and offset some of the capital.
spk06: Understood. Thank you.
spk04: Thank you. Our next question has come from the line of Marco Rodriguez with StoneGate Capital. Please proceed with your questions.
spk01: Hey, this is Quinton dialing in for Marco. Thanks for taking my questions, guys. Sure. In the past, you've talked about all the activities you've been doing to improve manufacturing efficiencies. Can you provide some color on how much automation is playing a part?
spk07: Well, that's a great question. Let me start by saying we have invested heavily in automation across our business, particularly in automotive, where I think that that's sort of the table stakes, I think, to drive efficiencies in the business. Having said that, I think some of the challenges and some of the erratic production schedules are challenging the core belief that automation is always the right answer. I think that where we have seen some challenges are if you automate a production line that expects to make 1,000 parts a day every day for the next 10 years, that's a great candidate for automation. What we're seeing, particularly in the automotive space, is that's not how it's playing out. The production line either needs 2,000 or needs 100. So I would say that automation has been an important part of our growth and our opportunity to become more efficient and extract costs. But our team has to be incredibly nimble right now because developing a standard cost sheet to quote a job that relies on significant capital investment fundamentally requires that volumes are stable and consistent over a long period of time. So I would emphasize that what you say is true. I would also emphasize that that's not a one-size-fits-all solution. And the volatility in some of these end markets is making it more difficult to automate, is exposing some of the labor challenges even more. And we saw some of that in our assembly products group, inefficiencies related to where the automation didn't work for the production volumes. So, you know, I think that, you know, labor is still a critical part. Access to labor in a way that suits the volatility of the customers in demand is still a very important part of this process. And just continuing to automate isn't always the solution.
spk01: All right. And secondly, can you guys talk about how you feel about your pipeline of opportunities heading into fiscal year 2022 and maybe discuss how the aerospace and auto industries pipelines are looking?
spk07: That's a big question, by the way. So I would say that IHS was just back out again, back at it, reducing global demand. production bills and sales numbers, but production bills for the world based on new data as it relates to the challenges in Ukraine and Russia. I mentioned that while we didn't have a huge direct exposure, we have some, and it's causing us to do some resourcing, et cetera, and perhaps some additional expense. But to be clear, nobody fully understands that the indirect risk I think, to the war between Russia and Ukraine. We've heard, you know, obviously we talk, you know, a lot about industrial gases and neon and metals like palladium, wire harness production. It's, I think, still playing out what that means to global production. Are we a little insulated in the U.S.? Maybe a little bit. Certainly Europe is in the front lines of that problem. But in general, I think that the first quarter will be unpredictable. but I think we recognize the restocking cycle, some increasing, hopefully, visibility on the supply chain, and pretty positive year-over-year growth on the production side in CAR for the second, third, and fourth quarter. So I think what that number is, I don't know, but I think we can expect, I think, a broader set of more predictable builds as the year goes on in auto. Aerospace, we are seeing incremental benefit. I mentioned that in my comments. Rail as well. So, no, I think that... You know, we've sort of been waiting for those markets to reemerge, and I think we're cautiously optimistic, you know, not that we're going to see 30%, 40%, 50% surges in demand, but that we'll see, you know, very nice, you know, multiple of sort of GDP-type growth.
spk00: Yeah, I would add that within our supply technology business, I mentioned in my script that 600 new customers in 2021, 300 in the fourth quarter. Our customers rely on our supply chain expertise, and we're starting to see that. With the supply chain constraints that you're seeing around the world, we're seeing customers come to Supply Tech because they know we can get the job done. And so the pipeline that we have within Supply Tech is solid, and we expect continued growth throughout the current year. I think that's an important part of our growth this year. I mentioned the backlogs in our engineered products group. That's buoyed by increases in end market demand and in end markets that have been really stagnant over the last two years, rail, aerospace, oil, and gas. We're seeing a nice pipeline of new business in those markets.
spk01: Okay, awesome. Makes sense. I appreciate you guys taking my questions. That's all I had.
spk04: Sure.
spk06: Thank you.
spk04: Thank you. Our next questions come from the line of Sarkis Sherbetchian with B. Riley. Please proceed with your questions.
spk05: Good morning, Sarkis. Good morning, and thank you for taking my question here. Just want to focus on the balance sheet real quick. You know, you sold some real estate here, which essentially financed fourth quarter ops. You have plenty of owned real estate, as I looked back on your previously filed 10-K balance. So just point blank, do you expect more asset sales or maybe even some sales leaseback arrangements? Or do you think, you know, your operations will more than cover your liquidity needs to operate the business?
spk07: Well, I think in reverse order, as I mentioned, we expect to be profitable this year. So I think that that implies, you know, more positive EBITDA. So we think that, you know, moving forward for 2022, we'll be able to finance our own growth. So I think, you know, to that extent, I don't think we'll need to injure the balance sheet, so to speak. So that would be, you know, that's sort of prospectively where we see ourselves going. We paid heavily, a dear price to not only related to some of the unreimbursed expenses in the fourth quarter, but also building inventories to protect our customers. we will anticipate unwinding some of that as things get more normalized. So that will provide, I think, free cash flow that will be important to our growth and our financial stability on the balance sheet. Yeah, no, you're right. The math would suggest that we spent the money that we got from the sale. As I said a few minutes ago, I think we will continue to see opportunities in the restructuring. I think that there are few opportunities if any, that will be the scale of that particular opportunity. But we certainly expect to continue to benefit from asset sales at the margin that we don't account for in our forecast.
spk05: That's helpful. And just kind of looking through the release, the definition of consolidated EBITDA was revised. Can you maybe go over the changes and amounts in detail? And I suppose, which of these components do you expect to recur in fiscal 22, if any?
spk00: Sorry, because I'll address that. So in November, we amended our credit agreement, which changed the definition of EBITDA. And as you know, historically, we've always used a defined EBITDA when disclosing what that is in our press releases. And if you look at page seven of the press release, we outlined the add-backs to our net income. The changes that were made in the current year were to allow for add-backs for non-recurring items related to restructuring and business optimization. Also, it allowed for the add-back of any COVID-related expenses, which are either specific business to that issue or labor-related issues that we spent money on. On that particular item, I would expect that to wind down in future periods because most of that money was spent. So it allowed for a number of ad backs. Most of the other non-cash ad backs were historically allowed for in that definition by our credit agreement. I would say that you know, when we look at that whole calculation, it doesn't really, any debt service coverage ratio doesn't come into play unless we blow through an availability covenant, which is about $46 million. And we're very, very far away from that. So hopefully that's helpful for you.
spk07: So, Sarkis, I want to, you know, address what can be an elephant in the room, which is our leverage. As Pat mentioned, that's not really specifically related to our liquidity. And again, we have stated not long ago that our goal, our target leverage for the business was three times. Now, that may seem a little distant at the moment, but again, I think what our numbers are showing is we've got the inherent revenue and profitability in the business, particularly if you sort of think about you know, the area of focus around general aluminum, we have the inherent revenue and profitability to rebuild, I think, the EBITDA number to a point where that target is very much real again. So, and then I think to boot, we've got, you know, well over $200 million worth of liquidity, which gives us the flexibility to continue to invest, to build at or belong at or beyond our historic EBITDA levels. So, you know, I'm not suggesting it's not an important metric, But obviously, with some of the challenges we had in the most recent six months, I think it's a little less meaningful to the outlook of the business.
spk05: No, I appreciate the color. I guess this is a good forum to have the discussion because clearly the market is judging the you know, the operations and kind of the environment and obviously pricing the debt and equity securities accordingly, right? So just want to be able to kind of talk through this. And, you know, moving on to top line growth guidance of 15%, maybe if you can talk to the specific drivers of the growth and for example, you know, how much of that is driven by pricing in your outlook and how much by volumes?
spk00: Sarkis, let's start and go over segment by segment. I mentioned in my script that the backlogs are extremely strong in our forging and in our capital equipment business. That's due to a number of factors. One is the improvement in end market demand in aerospace, rail, and oil and gas. We should see double-digit growth in that segment as a result of that. You know, those products typically are priced as, you know, capital equipment. We're pricing those as we are negotiating the order. So there is some element of pricing in those growth numbers, but that's the nature of that business. In our assembly components group, you know, I think the last two years have been so volatile relative to the impact of of the pandemic and supply chain constraints. We expect some normalizing of that demand. In addition, we've launched a number of products in 2021. I'll give you one example, which is about a $40 million block of business on a fuel assembly for the Gen 5 engine for General Motors. Uh, so large blocks of business were being launched in 2021 that we expect to get to, uh, quoted volumes in, in 2022. In addition in supply technologies, uh, I think the, you know, the demand we're seeing is, is based on the global economy. Uh, our business is, you know, 80%, 75 to 80% domestic. we're seeing strong end market demand across every key end market. And we expect that to continue in 2022. Marcus, I might add this color as well.
spk07: The vast majority of our end markets, I can't say all, but let's just say the vast majority of our key end markets, certainly all the major ones, since pre-COVID, we haven't lost a material customer. And every one of those markets is seeing incremental unit growth in 2022. Incremental unit growth. So while it is challenging, given the diversity and complexity of our business, to answer your question directly on a macro basis, I think the important point here is we're seeing unit growth in all corners of the business. And we haven't lost a material customer. So, again, we've got the – you know, it is no surprise to us that we expect – to be near or above record revenue so and that's still with parts of the business not hitting key unit growth pre-pandemic unit growth for example oil and gas for example aerospace so no i think that we can feel confident that this is not just about inflation this is about unit growth no good and the the drivers outlined are certainly very helpful
spk05: And I guess if we kind of step back for a second, again, very important piece to this puzzle here, you know, you speak to solid profits for 2022 as a whole and positive net income for the year, right? So, you know, my question is, what does solid mean? Because it means different things to different people. And what is the cadence of getting back to positive net income look like through 22? You know, do we expect you know, to have a little bit of losses here in the front half and then the profitability to come through in the second half, or do you think it's a little bit more, you know, evenly spread to get to that? What are you guys expecting for the business?
spk07: So, Sarkis, this will be frustrating to you because I'm the one that picked the word solid, and we're not inclined to give any guidance right now. So, you know, I think we've got to leave it at that. I think the point is, you know... I suggested solid because we're not trying to just say we're going to make one penny. You know, we're not just trying to push it over the break-even point. You know, we believe we can be, you know, profitable in the context of, you know, the kind of revenue we're forecasting. So almost impossible to give you more granularity than that. But we're not just trying to nose our – or get our nose over the finish line here. We're trying to begin to rebuild the margin and benefit from the restructuring that we saw – And if we can achieve those goals, you know, we would expect to see substantial improvement. In terms of the cadence, we think there's a lot that is – we will – there are a number of things we've discussed that will benefit the early part of the year. But to be clear, the early part of the year was continuing to be a challenge. Omicron was still a big factor in our business in January, a big factor. Weather was a business – a challenge in February. Supply chain, in some cases, is worse than it was a year ago. So we will benefit from some of the things I discussed, you know, pricing issues, I think, you know, some improvements, I think, as we eke into March in particular. But, you know, the punchline is the cadence will be measured as the year goes on and is based on some of the assumptions that we've discussed. Some things will benefit us regardless and will start in the first quarter. Some won't. So the cadence would, you know, be decidedly incremental as the year goes on. Not a hockey stick, but incremental as the year goes on.
spk05: Gotcha. Certainly helpful.
spk07: Thank you so much. It's the best we can do.
spk05: No, no, it's helpful. Thank you very much.
spk04: Thank you. Our next questions come from the line of Steve Barger with KeyBank Capital Markets. Please proceed with your questions.
spk06: Hey, guys. Thanks. Just a couple follow-ups. Pat, appreciate the comments on the segments, and I think you said EP will be up double digits. Does the new product launch activity get you to double-digit top-line growth in assembly?
spk00: Yes.
spk06: And supply tech, obviously, very tough 21% comp. Should we be thinking that's more single-digit? or is there enough activity out there domestically to drive that towards double digits?
spk00: I think that's reasonable, Steve, that to assume another 21% is unrealistic, but I think you can assume that it'll be more single-digit type growth. Understood.
spk07: Steve, despite their pretty stable performance, over the last year at the revenue and the profitability line, and we very much need and appreciate that team's effort. It's a little bit like the classic duck. You know, it looks very calm on the surface. It's not very calm on the surface. You know, I mean, the amount of notifications these guys get on Friday for what customers are going to shut down the next week is still unprecedented. So it is, you know, fantastic. Expanded freight, these are all fundamental issues that they're working through. So it's going to be tough, particularly in the early part of the year, against, as you point out, pretty strong comps. But those guys have done a great job, and we expect them to continue doing a great job.
spk06: And last one, I know you don't want to get a lot more specific around the guidance that you've given, but just given everything that we talked about in assembly components specifically, Is it reasonable to think that even with improving activity and supply tech and EP, the consolidated EPS is probably still negative in one queue at least before you start to get that sequential cadence through the year? Or do you think you can be positive in one queue?
spk07: Steve, we just can't answer it. It just is. I apologize, but we can't go there. I can't emphasize enough that we are having important conversations with key customers and asking the question, How important are we to you? And I think the results of those conversations matter, and those are particularly true. And, again, I have confidence that we're very important, but these are tough times and these are tough customers. So it would be impossible, particularly on an EPS basis, to answer that question.
spk06: I understand. Thanks so much for the time. Thanks, Dave. Thank you.
spk04: Thank you. There are no further questions at this time. I would now like to turn the call back over to Matthew Crawford for any closing comments.
spk07: Great. As I mentioned earlier, glad to put this one in the history books, but couldn't be more proud of our team. I want to reemphasize that we have a great, bright future and a lot to look forward to here. Again, upward and onward. Thank you very much.
spk04: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
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