8/8/2024

speaker
Operator
Conference Call Operator

Good morning, and welcome to the Park, Ohio, second quarter 2024 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 will 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 relative risks and uncertainties may be found in the earnings press release as well as in the company's 2023 10-K, which was filed on March 6, 2024, with the SEC. Additionally, the company may discuss adjusted EPS and adjusted operating income and EBITDA as defined, on a continuing operations or consolidated basis. These metrics are not measured of performance under generally accepted accounting principles. For a 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 would now turn the conference over to Mr. Matthew Crawford, Chairman, President, and CEO. Please proceed, Mr. Crawford.

speaker
Matthew Crawford
Chairman, President & Chief Executive Officer

Good morning, everyone, and thank you for joining this morning's call. We're excited to announce record revenue for the second quarter, as well as continued improvement in our margins and overall quality of earnings. We accomplished these strong results against a backdrop of stable but mixed demand, especially in our short-cycle businesses, and excellent operating execution across most of the product portfolio. Our diversification once again proved to be our strength, and in particular, our investments in aerospace and defense were important positive contributors. Supply Technologies and Assembly Components Group, both relatively short-cycle businesses, offset some softening demand in a handful of discrete end markets with new business and strong execution. while our engineer products group, a relatively long cycle business, continued to see elevated backlogs and benefited from some improved delivery performance. While we expect some variability in our second half demand picture, in the aggregate, we see our business as very stable and expect to deliver year-over-year growth. We also expect to make continual progress on our debt reduction goals and see the second half as meaningful from a free cash flow perspective. which is both seasonal and strategic given our change in business mix and lower capital requirements after the sale last year of some automotive assets. With that, I'll turn it over to Pat.

speaker
Pat
Chief Financial Officer

Thank you, Matt. We are pleased with our second quarter operating results, which exceeded our expectations in most of our businesses and were highlighted by record consolidated sales of $433 million, adjusted EPS of $1.02 per share, and EBITDA is defined at $39.4 million. Our strong results were driven by record sales and increased margins in our supply technology segment, better than expected results in our assembly component segment, and record sales and improved margins in our engineered product segment. Net sales of $433 million compared to $428 million a year ago and increased 4% from $418 million last quarter. Our second quarter revenues resulted from increasing demand in certain key end markets with notable strength in the aerospace and defense market, continued growth in our proprietary faster manufacturing business, and improved sales in our capital equipment business where strong backlogs are being converted to sales. Our consolidated gross margin was 16.9% in the quarter, up 120 basis points from the second quarter of last year. On a year-to-date basis, our gross margin increased 90 basis points to 17% compared to 16.1% a year ago. The year-over-year improved gross margins are a direct result of ongoing efforts to improve customer pricing, reduce operating costs, and increase operational efficiencies throughout each of our businesses. We continue to focus on gross margin improvement through the implementation of value-driven initiatives in each business. Our gap EPS of $0.95 was up 67% in the quarter, and our adjusted EPS of $1.02 increased 23% compared to $0.83 a year ago. Year-to-date adjusted EPS of $1.87 was up 21% compared to the same period last year. As I mentioned, we generated EBITDA of $39.4 million in the quarter and an improvement of 10% compared to a year ago. As a percentage of our sales, EBITDA margin was 9.1% in the quarter, which is our highest EBITDA margin since 2018. On the trailing 12-month basis, our EBITDA has defined total $145 million. The significant increase in EBITDA and free cash flow over the last 12 months have resulted in improvement in our net debt leverage of over 30% since June 30th of last year. Consolidated operating income improved 28% to $24.6 million in the second quarter, and on an adjusted basis, operating income increased 11% to $26 million. In addition, operating income margins improved 120 basis points year over year, driven by continued strong profit performance in supply technologies and higher sales and improved margins in our engineered product set. SG&A expenses were approximately $47 million and 11% of net sales in both periods. Interest costs total $12 million during the quarter compared to $11.1 million last year, driven by higher interest rates in the current year. Our effective tax rate was 19% the quarter, which reflects the ongoing benefits from research and development tax credits and other tax planning initiatives to reduce our overall effective tax rate worldwide. As a result, we have lowered our expected full-year effective tax rate to between 21 and 23% to reflect the impact of these tax strategies. During the quarter, we used operating cash of $3 million, primarily driven by increased working capital to support sales growth in certain businesses, and due to the timing of completion of capital equipment. Similar to prior years, we expect strong operating and free cash flow in the second half of the year, driven by continued strong EBITDA and lower working capital levels. Our liquidity continues to be strong and totaled $161 million at June 30th, which consisted of approximately $60 million of cash on hand and $101 million of unused borrowing capacity under our various banking arrangements. Turning now to our segment results, Supply technologies generated record net sales of $203 million in the second quarter, representing a 3% increase year over year. We continue to see strong customer demand in several key end markets, led by a 56% increase in sales in the aerospace and defense market. Average daily sales also improved in the heavy-duty truck, off-road construction, electrical distribution, and consumer electronics end markets. In addition, sales in our fastener manufacturing business grew 12% year-over-year as global demand for our proprietary products continues to be robust. Although revenues in many end markets continue to trend positively, slowing demand is expected in the semiconductor agricultural equipment and certain consumer end markets throughout the rest of the year. Operating income in this segment totaled $19 million, an increase of 23% year-over-year. Operating margins were 9.4%, an improvement of 160 basis points from 7.8% a year ago. The higher profitability in the quarter was driven by an increase in sales of higher margin products, lower operating costs in our supply chain business, and continued strong demand in our proprietary fastener business. On a year-to-date basis, sales in this segment were a record $400 million. and operating income was a record $38.5 million. Operating margin was 9.6%, an increase of 210 basis points compared to the 2023 period. The strong quarterly and year-to-date results from this segment reflect our continued focus on expanding product margins, increasing sales in our higher-margin industrial supply business, and growing revenues in our proprietary fastener manufacturing business. In our assembly component segment, sales were $103 million in the quarter compared to $112 million a year ago. The year-over-year decrease in sales was driven by lower unit volumes on end-of-life programs and lower product pricing on certain legacy programs, which partially offset the sales growth on other OEM platforms. Segment operating income decreased to $6.9 million from $8.4 billion a year ago. Profitability in the second quarter was impacted by the lower unit volumes and product pricing, which more than offset margin expansion on several products, resulting from implemented margin improvement initiatives. On a year-to-date basis, sales were $210 million compared to $222 million a year ago, and adjusted operating income margin was 7.4% compared to 7.7% a year ago. In this segment, we continue to implement profit improvement initiatives, which will enhance operating margins in future quarters. Key initiatives include increasing customer pricing on low-margin products, improving operational efficiencies such as scrap production programs, increasing cycle times, reducing operating costs through the automation of certain processes, and increasing our rubber mixing capacity. In our engineer product segment, sales were a record $127 million. and increased 7% compared to $119 million a year ago, driven by higher demand in both our industrial equipment business and our Forbes and machine products group. Higher sales in the industrial equipment group resulted from strong sales of new capital equipment, primarily in North America and Europe. During the quarter, new equipment sales in North America grew 19% year-over-year. Also, sales of aftermarket parts and services in North America grew 12% year-over-year, while aftermarket sales in Europe and Asia were stable compared to a strong prior year quarter. During the second quarter, new equipment bookings were approximately $50 million, and equipment backlog continues to be strong, totaling $173 million, an increase of 7% compared to backlogs at December 31st. Revenues in our forage to machine products business increased 8% year over year, driven by increased unit volumes on products sold into the aerospace and defense industries. which more than offset weaker demand for rail forgings, which impacted our results. During the quarter, operating income in this segment was $6.3 million compared to $3.2 million a year ago. And on an adjusted basis, operating income increased 20% year-over-year to $7.3 million in the quarter. The increase in profitability year-over-year was driven by higher sales and improved margins, primarily in our industrial equipment group. Compared to the first quarter, operating income almost doubled, reflecting significant operational improvements in the current quarter. In our forging machine products business, profit flow through from the 8% year-over-year sales increase was offset by lower margins isolated in our forging operation in Arkansas. We have taken several actions to improve the results in this plan, including personnel changes and operational improvements to reduce equipment downtime and increase production efficiency. The year-to-date period sales in this segment were $240 million, an increase of 2% compared to the 2023 period. Adjusted operating income was $11.1 million compared to $13.1 million a year ago, with a decline due to lower margins in our forage-to-machine products business. And finally, corporate expenses totaled $7.6 million during the quarter compared to $7.8 million a year ago, and year-to-date we were approximately 2% of net sales in both periods. Overall, our results in the second quarter were strong, and our results year-to-date have exceeded our expectations. With respect to our full year guidance, we now expect year-over-year revenue growth to range from 2% to 4% due to slowing but stable demand in certain end markets. We continue to expect year-over-year improvement in adjusted EPS and EBITDA as defined. I'll turn the call back over to Matt.

speaker
Matthew Crawford
Chairman, President & Chief Executive Officer

Great. Thank you very much, Pat. We'll now open the line for questions.

speaker
Operator
Conference Call Operator

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, while we poll for questions. Our first question comes from the line of Dave Storms with StoneGate. Please proceed with your question.

speaker
Dave Storms
Analyst, StoneGate Securities

Good morning.

speaker
Operator
Conference Call Operator

Good morning, Dave.

speaker
Dave Storms
Analyst, StoneGate Securities

Just hoping we could start with maybe some of the puts and takes on guidance. I know previously you were guided to mid-single digits. It looks like, you know, that might be coming in at the lower end of that previous guidance between 2% and 4% on the top line. Are there any the end markets that you're seeing as having an outsized importance for this guidance, you know, anything that could put you on the higher or lower end, really any color here would be great.

speaker
Matthew Crawford
Chairman, President & Chief Executive Officer

Yeah, it's a great, great question. You know, I think that broadly described the sort of business to business capital industry manufacturing side of the business continues to be strong. Where we are seeing a very different view is in our book of customers that are more consumer-facing. So I think that it's a little hard to predict right now, quite candidly. There's a lot at play, but it doesn't disconnect too much from what you read in the Wall Street Journal. What is unusual at an extremely high level is The difference between where you see pockets of strength in any market connected to aerospace and defense, as we described, steel, for that matter, electrical, again, parts of the automotive business where they're reshaping it, regardless of powertrain, all continue to be fairly positive. But things that are a touch more consumer-facing are problematic. And the difference between those are double-digit growth versus double-digit shrinkage. So I don't know that I would describe our forecast as meaningfully different. I think we have to appreciate the risks, though, that weren't here to the downside, if you will, in the prior or three months ago when we had this call, particularly on the consumer side. Everything just feels a little more delicate. But having said that, in no way do I want to suggest in the aggregate we don't feel that the positives outweigh the negatives and feel strenuously that we'll have a stronger second half than we did last year.

speaker
Dave Storms
Analyst, StoneGate Securities

Understood. That's very helpful. Thank you.

speaker
Dave Storms
Analyst, StoneGate Securities

And then just looking at engineered products, you know, it had a really strong quarter, kind of top to bottom. I know you've mentioned in the past that, you know, ET is really an important driver for the company. How would you categorize the sustainability? of this quarter's performance in engineered products?

speaker
Matthew Crawford
Chairman, President & Chief Executive Officer

I'll give Pat a minute to think about that while I answer the easy part. For those of us that have been around this company for a while, we recognize that engineered products should, has been, and will be, again, the driver for quality of earnings in this business. In that segment, we have some of the most unique assets, some of the best brands, and also a nice diversification of aftermarket versus OE. It's really a nice business and has been a leader traditionally in terms of our business, both on the sales side periodically and also the long cycle sales. This is a bit lumpy, but particularly on the quality of earnings and margins side. We have sacrificed some of that due to execution, as we've discussed in prior calls, because, you know, retirements, lack of knowledge, supply chain challenges that, while they've become a little easier, are still challenging. Changes in geopolitics and how you source products, these are things that continue to, we continue to work through, and every day we get a little better, but they're not a light switch. So, You know, that journey is underway. It hasn't been a demand issue. It's been an execution issue. We have made meaningful changes there in terms of personnel. We've spent meaningful dollars in terms of training. We've made changes in leadership. We continue to attack this from all levels. So what I would tell you is, from a historical perspective, that business is still underperforming, meaningfully underperforming. So I don't mean to suggest that it's a low bar, but we would expect to see, you know, maybe, you know, again, it could be a bit lumpy, but we continue to expect meaningful improvement in that business over the medium term.

speaker
Pat
Chief Financial Officer

Yeah, Dave, this is Pat. I agree with Matt's comments. I think when you look at that segment of our business, we have seen meaningful improvement in our industrial equipment group. the backlogs have been strong, the bookings have been pretty consistent quarter by quarter, and the operational performance has improved to the point where we're approaching those double-digit operating income margins in that business. The acquisition of EMA and the transition into our business is underway. We expect a lot of good things to happen throughout Europe as a result. They are performing as planned right now, and their backlogs continue to be strong. The challenges that we've been faced with have been isolated in our forging group. As Matt mentioned, we've made meaningful changes across the board in leadership, not only on the plant floor, but across all aspects and all disciplines of the business, and expect our customer base to continue to support that business going forward. So we expect improvement there and to get back to those historic levels that Matt mentioned. So that gives you a little bit more color, but we feel we're heading in the right direction there, and we expect continued improvement.

speaker
Matthew Crawford
Chairman, President & Chief Executive Officer

Understood. That's great color. Thank you. I'll get back in queue.

speaker
Operator
Conference Call Operator

Thank you. Our next question comes from the line of Steve Barger with KeyBank Capital Markets.

speaker
Operator
Conference Call Operator

Please proceed with your question.

speaker
Matthew Crawford
Chairman, President & Chief Executive Officer

Thanks. Good morning.

speaker
Dave Storms
Analyst, StoneGate Securities

Hey, Steve.

speaker
Matthew Crawford
Chairman, President & Chief Executive Officer

How are you?

speaker
Steve Barger
Analyst, KeyBank Capital Markets

Doing okay. I think Pat mentioned in his prepared remarks increased pricing on some low margin product lines. What percentage of the portfolio do you think is not priced for the value that you provide?

speaker
Matthew Crawford
Chairman, President & Chief Executive Officer

And can you accelerate price actions in those areas? Steve, this is Pat.

speaker
Pat
Chief Financial Officer

Yes, the answer is yes. And we've proven over the last few years that we've been able to get pricing across to our customer base. And, you know, as we've talked about, the labor inflation that we've experienced has been permanent. And we're still working to recover much of that. You know, the raw materials side of price increases has for customers to understand. But we continue to look for ways to increase product pricing, especially within the automotive segment as volumes are lower than what was expected.

speaker
Matthew Crawford
Chairman, President & Chief Executive Officer

Not going to be a material improvement, you know, but coupled with operational efficiencies, value-driven initiatives,

speaker
Pat
Chief Financial Officer

floor, all of which will be a driver towards improved margins in that business.

speaker
Matthew Crawford
Chairman, President & Chief Executive Officer

Steve, I would say that if there's such a thing as a silver lining to COVID, I think the leadership in the business across the board and supply technologies was an early mover and thoughtful on it across a very complex portfolio of products. was pricing was addressed aggressively. And, you know, we had some pains, as you know, particularly in the automotive segment on that front that caused some losses. And, you know, we've got ourselves in a much more stable circumstance. The good news is, as Pat described, while there's always opportunity, you know, the opportunities are more limited. But nonetheless, I think that the inflation that exists in the market, the ongoing demand in certain pieces, allow us to keep focused on it, to keep pushing the lessons that we've learned from the past, keeping an eye on additional areas of volatility like freight. So I think the dynamics have changed in a positive way. Having said that, I agree with Pat. The opportunity for it is not as meaningful as it would have been in the prior couple years.

speaker
Steve Barger
Analyst, KeyBank Capital Markets

Yeah. As you think about the new business that you're quoting, do you have more flexibility in there vis-a-vis escalators and that sort of thing than you did historically?

speaker
Matthew Crawford
Chairman, President & Chief Executive Officer

Yeah, no, that's, you know, contractually, that is an interesting question. There's no doubt that there have been, you know, challenges in the marketplace to some of the customary design of products. and relationships. I can tell you de-emphasizing through asset sales, the automotive business, that's where the pressure is always worse. And is that it's worse? And I think that that, you know, again, I talk a lot about having changed or evolved our business model to make us more sustainable from a quality of earnings in a sustainable earnings and a free cash flow earnings through the business cycle. You know, this is part of it. So, no, there's no doubt that the evolution has been in the supply base's favor. Our business mix has been in our favor. Having said that, we deal with the biggest, most sophisticated companies in the world. Their hand's always out. They always want the best deal. So I think that what we need to preserve and make sure is that we can meet them in the middle. And we have spent a lot of time over the last few years reducing our cost to serve, and we continue to do it, whether they be in implementing pure restructuring, and reducing footprint, as we've discussed, whether it be implementing new software tools and technology, our positioning of our business today is meaningfully better in terms to get awarded new business at attractive pricing that's accreted to our business model. And that's what it's all about, right? That's what it's all about. So I think that as we focus and begin to see the needle move a little bit in the second half and into 2025 on these new blocks of business, we're going to see better margins. Part of it because, as you described, the marketplace is a little bit different, but part of it's because we've reduced our cost to serve.

speaker
Matthew Crawford
Chairman, President & Chief Executive Officer

Yeah.

speaker
Steve Barger
Analyst, KeyBank Capital Markets

No, that's good color. And I guess as you think about your sales force, do they have an understanding of the hurdle rate required to bid new business? Do they have the tools they need? to make sure that you do walk away from business that is less favorable when it doesn't make sense to take it?

speaker
Matthew Crawford
Chairman, President & Chief Executive Officer

Yeah, no, there's no question. I think the most – certainly the ACG and engineered components, the size, the sheer size of some of the orders and opportunities and nature of the long-term agreements get a lot of attention from the whole executive team. You know, supply technology certainly is the most complex business where a lot of people touch pricing in the process, and some of our best opportunities are some of our smaller accounts. So, no, there's no question that's where we have continued to try and invest in business processes that identify not only low margin or underperforming accounts, warehouses, whatever, end markets, you name it, but we continue to invest heavily there in technology tools to make sure that that we don't make mistakes. So, no, you're absolutely, I think, hitting an important point, and I would tell you to the extent most of our portfolio are big orders that get attention with big companies and long-term contracts. We are, you know, I won't say best in class, but we work every day to be best in class to make sure that our team makes the right decisions, even on the small orders at a place like Supply Technologies. And I'm confident that today we're meaningfully better than we were a year ago and two years ago. And I think we're going to be twice as good a year or two from now, given some of the investments we're making. So, no, I do feel pretty comfortable. And, again, I don't want to say it's silver lining to COVID, but when you have to address pricing across the board, as a matter of life and death, you get a little better at this stuff, right? Right.

speaker
Steve Barger
Analyst, KeyBank Capital Markets

And, Pat, you said – oh, sorry, go ahead.

speaker
Pat
Chief Financial Officer

I was just going to add that, you know, when we look at hurdle rates, whether it's with sales folks or – or the executive teams that run the business. We go very deep into that process and look at, you know, IRR's return on capital, you know, if there's capital needed. So, and those hurdle rates are well described within each of the business. So, I would say that, you know, that's been an evolving process with each of the, whether it's the financial teams within each business or the sales teams within each business. So, I feel very good about kind of where we're at as we look at opportunities across the board.

speaker
Matthew Crawford
Chairman, President & Chief Executive Officer

Steve, I want to say one last thing. As we think about where we have underperformed, it hasn't been because of poor quoting or not understanding our hurdle rates. It has been by poor execution. And we've seen that a bit in engineered products. And, again, I'm not – I mean, we see it everywhere, but I'm saying some of the challenges of the retirements, of the loss of knowledge – those kinds of things affected our ability to convert some of the orders at what we expected. I'm not so sure that's a pricing issue or a visibility issue. I think it's more an execution issue and one we're, again, trying to get better at every day.

speaker
Steve Barger
Analyst, KeyBank Capital Markets

Understood. And, Pat, you said bookings were good in some parts of engineered products. Can you talk more about that and what were orders for the company this quarter?

speaker
Pat
Chief Financial Officer

Yeah, so the bookings in the quarter, Steve, were $50 million. and really across several of our brands in both Europe and in North America is where we're seeing the most strength. You know, backlogs continue to be good, and, you know, the operational improvements we saw, at least sequentially, we believe are sustainable, and having better throughput through the plants with a strong backlog is, It is good and it takes out a lot of the inefficiencies that we see in the plants.

speaker
Steve Barger
Analyst, KeyBank Capital Markets

Yeah. And I guess that's a good segue to my last question. I heard you say free cash flow will be better in the back half, typically is. But did you say what you expect for full year free cash flow realization?

speaker
Pat
Chief Financial Officer

No, I did not comment on that. But we expect second half free cash flow to be 25 to 30 million. And year-to-date, we're at 13 million. So those are hurdles that we expect to exceed, but I'm comfortable laying that out for you right now. Okay. Appreciate that.

speaker
Matthew Crawford
Chairman, President & Chief Executive Officer

Thanks. I'm not going to miss the opportunity to say, you know, achieving record results after having sold a business that represented, about 12% on average of our sales, but 20% to 25% of our CapEx through the business cycle has changed our mix from a cash flow perspective permanently. So, you know, I'm not saying we don't have good ideas. We may spend a little more, a little less, but we are fundamentally a different business model from a cash flow perspective post-sale.

speaker
Steve Barger
Analyst, KeyBank Capital Markets

I mean, yeah, that's kind of my point on some of the pricing questions. You know, you – But by exiting low margin business where there are structural challenges to pricing, you know, the whole portfolio becomes better. And I have to think there's other opportunities to do that. You guys provide a lot of value to your customers. If you're not getting adequately compensated, the question has to become why are you doing it?

speaker
Dave Storms
Analyst, StoneGate Securities

You're preaching to the choir.

speaker
Matthew Crawford
Chairman, President & Chief Executive Officer

And as I said, we're better today than we were last year. And we're going to be better tomorrow than we are today. Okay. We are making the investments necessary to do that, and I would, again, highlight the use of technology as a key driver, particularly in supply technologies, in making those decisions. The devil's in the details, but your point is absolutely well made. But we've made some real strides in this area, and we expect to continue to improve. But, again, we've done it a couple different ways. One of them is structurally. We just got out of a business that was too damn hard in this area.

speaker
Matthew Crawford
Chairman, President & Chief Executive Officer

Right.

speaker
Matthew Crawford
Chairman, President & Chief Executive Officer

We've moved to businesses where your point is we've got a little more leverage, a little more ability, a little more opportunity to get paid for it. And that was very difficult.

speaker
Steve Barger
Analyst, KeyBank Capital Markets

Exactly. Yep. I'm sure you sleep better with that going.

speaker
Matthew Crawford
Chairman, President & Chief Executive Officer

Thanks. Our customers are big and tough, and we've got to do the right thing by them.

speaker
Matthew Crawford
Chairman, President & Chief Executive Officer

So this isn't a straight line. Appreciate it.

speaker
Operator
Conference Call Operator

Thank you.

speaker
Operator
Conference Call Operator

Our next question comes from the line of Jamie Weiland with Weiland Management. Please proceed with your question.

speaker
Jamie Weiland
Analyst, Weiland Management

Hi, fellas. You talked about the pickup of business in the aerospace and defense side. Could you give us a little clarity on that? Are these new customers, existing customers with new projects, the longevity of these projects, and how would you characterize the margins on the business you're picking up versus your existing business?

speaker
Matthew Crawford
Chairman, President & Chief Executive Officer

Yeah, I'll kick off. I'm sure Pat will have things to say. One of the nice things about seeing some additional activity in aerospace and defense is it does touch a large percentage of our product portfolio. And that's good news. So, you know, we have seen significant and discrete opportunities in our engineer products groups related to defense, particularly in capital equipment for building things like ammunitions and so forth. So very discrete there. also on the aerospace side and defense side as well, but aerospace in particular. You may know that, you know, five or six years ago, this became an area that we felt was a great adjacency for supply technologies and that, you know, those customers would appreciate our service model and our brand. And so that business has grown nicely. We had to sort of foster it a bit and support it a little bit during the more difficult times. But now that they're trying to reorient their and improve their supply chains, I think we're in a great place. So we've seen the benefit of their and supply technology. So, you know, we've seen a fairly diverse and impressive and, I think, sustainable improvement in those areas.

speaker
Pat
Chief Financial Officer

Hey, Jamie, this is Pat. You know, Matt mentioned, you know, the supply technology business. And we think about the OEMs and the commercial side of the business, Airbus and their tier one. suppliers we're supplying product to. And the growth opportunity is to supply more product, different types of Class C componentry, into those various programs. The margins typically are higher than other end market margins. So that business continues to grow, and we're seeing tremendous opportunities not only throughout Europe but also here in the States for those products.

speaker
Matthew Crawford
Chairman, President & Chief Executive Officer

I forewent talking about how it impacts our broader portfolio. I should have talked about our Forge Group. We should highlight there that for a while, we were significantly past due and unable to deliver because of the struggle to get aerospace-grade alloys to the Forge, which the whole industry was seeing and gets talked about a lot at the highest levels at Airbus and Boeing. Those supply chains have improved a little bit. So we're able now to convert some of those orders. So Again, I don't see this as a flash in the pan. I see this as an industry that is reinvesting in on the defense side, and I see it as a commercial side that is just only beginning to sort out their supply chain issues, and we want to be there to support it.

speaker
Matthew Crawford
Chairman, President & Chief Executive Officer

Excellent. Thank you.

speaker
Operator
Conference Call Operator

Thank you. There are no further questions at this time.

speaker
Operator
Conference Call Operator

I'd like to turn the floor back over to management for closing remarks.

speaker
Matthew Crawford
Chairman, President & Chief Executive Officer

Thank you again for your time today. And I want to thank all of the Park Ohio family of people that should come to work every day and make this happen. That's what it's really all about. And we're, again, very pleased with the results. But at the same time, there's plenty of room for opportunity for improvement. Steve, you gave me a nice opportunity to talk about how our business model is evolving. and we expect continued deleveraging, continued improvement in quality of earnings, which to us means higher aggregate margins and better sustainable business on the free cash flow side. So that's where we're going, and I think this was a nice step in the right direction. Thanks, and have a great day.

speaker
Operator
Conference Call Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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