Park-Ohio Holdings Corp.

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.

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.

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.