Park-Ohio Holdings Corp.

Good morning, and welcome to the Park, Ohio, first quarter 2023 results conference call and webcast. At this time, all participants are in 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 today on today's call may be forward-looking statements as defined in the Private Securities Allegation 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 2022 10-K, which was filed on March 16, 2023, with the SEC. Additionally, the company may discuss adjusted EPS, adjusted operating income, and EBITDA as defined on a continuing operations or consolidated basis. These metrics are not measures of performance under generally accepted accounting principles. For reconciliation of EPS to adjusted EPS, operating income to adjusted operating income, and net income attributable to Park Ohio Common shareholders to EBITDA as defined, please refer to the company's recent earnings release. I'll now turn the conference over to Mr. Matthew Crawford, Chairman, President, and CEO. Please proceed, Mr. Crawford.

Thank you very much, and good morning to everyone, to our first quarter a 2023 conference call. I know it's a busy day on the earnings side for everyone, so we'll jump right into the numbers. But I did want to make three comments quickly. First, continuing operations showed an all-time record quarterly revenue in our consolidated numbers. Turning to the three segments, supply technology had an all-time record quarterly revenue number. The second segment, ACG, had an all-time quarterly record revenue quarter EPG the last segment did not but showed very strong revenue improvement and record level type backlog so very exciting on the revenue front to profit performance is responding we highlighted the gross margin improvement I know Pat will talk about that again nice traction towards where the business should be as expected the many business initiatives we've taken during the last several years are beginning to demonstrate the kind of historic or even improved earning power of from across the company as we wipe away some of the lingering effects of COVID as well as benefiting from improved operating leverage and our improved cost profile. More to be done here, but nice to see some momentum. Thirdly, while there are plenty of questions about the economy, we continue to see strong demand and backlogs. More importantly, though, we're seeing new business opportunities which are underpinned by significant investments in megatrends relating to onshoring, infrastructure, defense, spending, green energy, and specifically battery technologies. These will have a positive impact over the next few years and may actually provide some insulation from the traditional industrial cycles. Again, thanks as always to our team. Glad to see a little ray of sunshine in these numbers. Thank you for all your hard work. I'll turn it over to Pat.

Thank you, Matt. Our first quarter 2023 results reflect significant improvement in sales gross margins and operating income both year over year and sequentially across all three of our business segments. We achieved record consolidated quarterly sales from continuing operations and in both our supply technologies and assembly component segments. These results were driven by strong customer demand in each business segment, improved operating efficiencies, and the positive impact of the recently completed restructuring activities in its segment. We were able to deliver these results in spite of ongoing supply chain uncertainties, inflation, and labor challenges, which continued to affect certain parts of our business. Our consolidated net sales from continuing operations were $423 million, up 18% compared to $358 million in the first quarter, and up 11% sequentially compared to the fourth quarter of 2022. Our gross margins from continuing operations in the first quarter were 15.8% compared to 14.2% last quarter and 13.3% a year ago. Our gross margin during the quarter was the highest margin level since the fourth quarter of 2019. The higher gross margin reflects the profit flow through from the higher sales and benefits from profit improvement initiatives, including product pricing. Consolidated operating income from continuing operations was $20.2 million, a significant improvement over $5.4 million in the first quarter of last year, and $2.6 million sequentially in the fourth quarter of 2022. We have substantially completed our multi-year restructuring consolidation plan in our assembly components and engineered product segments. Since these actions commenced in 2020, we have consolidated six facilities which represented over 875,000 square feet of manufacturing space and relocated and installed significant production assets. This was a considerable undertaking which reduced our fixed cost footprint, streamlined our plant operations, and lowered our overall cost to make our products. The benefits from these actions will help drive improved profitability in 2023 and in future years. SG&A expenses were $45 million compared to $40 million a year ago, with the increase due to higher selling expenses from the higher sales levels, higher costs due to ongoing inflation, and an increase in personnel costs. As a percentage of our sales, excluding restructuring and other special charges, of approximately $2 million in both periods, SG&A was 10.7% in the first quarter compared to 11.2% in the prior year quarter. Interest expense totaled $10.7 million compared to $7.1 million a year ago with $2.6 million of the increase due to the higher interest rates and the remaining million dollar increase due to higher average borrowings year over year. Our income tax expense was $2.6 million in the quarter for an effective income tax of 25%. This is in line with our expectations for the full year of 2023. We expect full-year cash taxes to be approximately $10 million. Gap EPS from continued operations for the quarter was 61 cents per diluted share, more than double the 30 cents in the first quarter of last year. On an adjusted basis, earnings per share from continued operations was 72 cents compared to 51 cents a year ago. Our EBITDA as defined was $30 million in the first quarter compared to 27.6 million a year ago. and significantly higher than $10.8 million last quarter. Excluding our aluminum products business, which is now classified as discontinued, our first quarter 2023 EBITDA was approximately $32 million. During the quarter, we generated slightly improved year-over-year operating cash flows and used $4.4 million after CapEx, which totaled $6 million in the quarter. and less the proceeds on the sale of real estate totaling $1.4 million during the quarter. We expect continued improvement in operating cash flow during 2023 driven by reduced working capital days on hand and expect free cash flow for the full year to be in the range of $30 to $40 million. Our liquidity at the end of the first quarter was $171 million, which consisted of approximately $50 million of cash on hand and $120 million of unused borrowing capacity under our various banking arrangements, which included $18 million of suppressed availability. As it relates to the sale of General Aluminum, we received interest from a prospective buyer at the very end of last year. While we did not reach a definitive agreement, we signed a memorandum of understanding which set the framework for a potential transaction. These actions principally resulted in our decision to classify the business as discontinued at year end. We have no further update on the sale at this time. We are pleased with the improved performance of General Aluminum and excited about its long-term prospects and are conducting ourselves as the long-term stewards of the business. Accordingly, in the first quarter, we invested $8 million in support of the business. Turning now to our segment results, In supply technologies, net sales were $196 million during the quarter, up 16% compared to $169 million a year ago, and $181 million last quarter. Average daily sales in our supply chain business were up 17% year over year. The sales increase was driven by higher customer demand in most key end markets. During the quarter, the largest end market increases were power sports, heavy-duty truck, industrial and agricultural equipment and civilian aerospace. In addition, our fastener manufacturing business continues to perform well and achieve sales growth of 12% over the first quarter of last year. Operating income in this segment totaled approximately $14 million compared to $12 million a year ago. Margins were up 10 basis points year over year as the profit flow through from higher sales levels was partially offset by higher supply chain costs, especially in North America. We continue to focus on price action strategies in this business, which will positively affect future operating income margins, along with initiatives to grow our higher margin industrial supply business. In our assembly component segment, sales for the quarter were $110 million compared to $98 million a year ago, and increased to 13% year over year. Sales in the current quarter were higher due to volumes from business launched in the prior year and improved product pricing. Segment operating income increased significantly to $7.3 million in the first quarter compared to a loss of $400,000 a year ago. On an adjusted basis, operating income was up $1.1 million a year ago to $7.6 million in the current year. This significant improvement year over year was driven by the profit flow through from the higher sales levels, profit improvement initiatives including product pricing, and the benefits of recently completed plant consolidation actions. We continue to focus on improving operating margins in this segment and are implementing additional price increases and operational improvements across many of our products and plants. For example, during the first quarter, We launched a new rubber mixing facility, which will increase our current mixing capacity and allow us to reduce raw material costs used on certain products. In our engineered product segment, first quarter sales were $117 million, up 29% compared to $91 million a year ago. In our capital equipment business, sales were up 31% compared to a year ago. Revenues from new capital equipment and aftermarket parts and services increased in every region, most notably in North America. Bookings remain strong and total $52 million compared to a quarterly average of $50 million in 2022. Our backlog as of March 31 was $175 million, an increase of 7% compared to the end of last year. We expect consistent order levels to continue throughout the course of this year. In our Forged and Machined Products business, sales in the quarter up 23% year over year, and at their highest level since the fourth quarter of 2019. This increase was driven by increasing customer demand in several key end markets, including rail and aerospace and defense, as well as from new business awarded over the past several quarters. During the quarter, operating income in the segment was $5 million compared to $1.8 million a year ago. On an adjusted basis, which excludes plant consolidation and other restructuring actions, Operating income was $7 million compared to $2.4 million last year. The profitability improvement year over year was driven by the higher sales levels, product pricing initiatives, and the benefits of profit improvement actions. We continue to see business opportunities and bookings for our induction and forging equipment as a result of investments being made in support of the increased production of electrical steel used in battery technologies. And in the defense end market, where increases in production of certain munitions are expected to occur. Our engineered product segment should benefit from these positive trends. And finally, corporate expenses totaled $6.9 million during the quarter. Compared to $8 million a year ago, the decrease was driven primarily by lower professional fees in the current year. And finally, with respect to our full year 2023 guidance, we continue to expect revenue growth to be 5% to 10% year-over-year with a bias towards the high end of the range driven by the current strong customer demand in each segment. We also continue to expect year-over-year improvement in adjusted operating income. EBITDA has defined free cash flow and adjusted EPS as a result of the higher sales levels and improved operating margins in each sector. I'll turn the call back over to Matt.