Park-Ohio Holdings Corp.

Good morning and welcome to the Park Ohio First Quarter 2025 Results Conference Call. 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 on today's call may be forward-looking statements as defined in the Private Securities Litigation Form Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those rejected. A list of relevant risks and uncertainties may be found in the earnings press release as well as in the company's 2024 10K, which was filed on March 6th, 2025 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 will now turn the conference over to Mr. Matthew Crawford, Chairman, President, and CEO. Please proceed, Mr. Crawford.

Thank you, and good morning to everyone. While our first quarter results were a little behind our internal expectations, we're happy with how we performed given the volatility we saw in some of our end markets. Specifically, I'd like to call out three main themes. First, January started off surprisingly slowly. A number of customers confirmed a similar start to the year, but fortunately things rebounded quickly, and February and March improved steadily and became more consistent with our expectations. Secondly, our engineer products group turned the corner, and we saw year over year improvement and strong quarter end execution. As we mentioned often, engineer products group historically has led Park, Ohio in both margin profile and backlog visibility. While we continue to see solid order entry and backlog stability in the segment, we are now beginning to see improved profitability. We anticipate this will continue through 2025 and beyond. Lastly, we have discussed in every recent results conference call our effort to reshape our business by focusing our investment on our best products and services. This also required a culling of the herd a bit in terms of closing some non-strategic locations, discontinuing some customer relationships, and in some cases, the sale of assets. Fortunately, during this period, we also saw record growth in our remaining businesses and in particular, supply technologies. Financially, we believe this will improve our cash flows, reduce earnings volatility, and improve our overall margins through the business cycle. While our work is not complete, we saw evidence of these efforts in the first quarter as we navigated end market volatility and some unusual product mix. With increasing uncertainty in the global industrial markets, our products, our strategy has been timely and will lead to more stable and improved results. Turning to tariff uncertainty, there are several important points to make regarding our company. We have presence in more than 20 countries and for the most part, focus on an in-region strategy for manufacturing, distribution, and the end customer. This does not mean that we will not see some tariff costs. It means that we are an experienced operator in the global industrial space and will seek to understand optimal supply chains. Also, the vast majority of what we sell are highly engineered products and where changing the supply chain is difficult or too time consuming, we will seek customer support for these costs. Second, we are predominantly a US-based business with about two thirds of our revenue coming from domestic customers. Where we do rely on Mexican or Canadian suppliers, our imports are predominantly USMCA compliant. Lastly, we are well positioned in our US-based businesses to benefit from reshoring. We have seen multiple early examples of customer inquiries or new orders which relate to our customers seeking to secure their supply chains in the US. Given the highly engineered nature of these products, we anticipate little impact during 2025, but expect incremental business in 2026 and beyond. We also have seen an increase in investment in infrastructure, defense, and specifically key steel technologies, which will benefit our engineer product segment as the Trump administration drives reinvestment in these end markets. Given all this uncertainty, we have widened our 2025 earnings forecast to account for these questions and for the potential for lower sales as consumers and customers hit the pause button waiting for some clarity. Thank you to our entire Park Ohio team. We have a wonderful opportunity to demonstrate the strength of our team and our business model during these very interesting times. With that, I'll turn it over to Pat to cover the quarter results.

Thank you, Matt. Our first quarter results were mixed across our various businesses. On a positive note, we saw sales growth in several parts of our supply technology business, including our locations in Europe and Asia and in the commercial aerospace end market, which helped offset demand weakness in certain end markets in North America. Also, our industrial equipment business and our engineered product segment performed well as sales grew 13% and operating margins increased 110 basis points during the quarter, resulting from strong new equipment and aftermarket demand in all regions. In our assembly component segment, lower unit volumes and lower pricing on certain fuel rail products and delayed new business launches impacted sales in the quarter. Sales in the quarter totaled $405 million compared to $418 million a year ago. Sales in both our supply technologies and assembly component segments improved throughout the quarter and consolidated March sales exceeded prior year levels. Also, first quarter revenues in our engineered product segment grew 6% compared to last year, resulting from strong sales in our industrial equipment business. Our consolidated gross margin was .8% the quarter, compared to .1% in the first quarter of last year. Consolidated operating income totaled $19 million compared to $24 million in the first quarter of last year. The decline of both gross margin and operating income margin during the quarter were a result of the lower sales levels in supply technologies and assembly component segments. SC&A expenses were approximately $48 million compared to $47 million a year ago, with the increase driven primarily by general inflation and an increase in personnel costs. Interest costs were lower compared to last year and totaled $11 million during the quarter, compared to $11.9 million last year, driven by lower average borrowings outstanding in the quarter and lower interest rates compared to a year ago. Our effective income tax rate was approximately 20% in the quarter as foreign tax credits and research and development credits offset the impact of higher foreign tax rates. We now expect our full year effective tax rate to range between 20 and 23%. Gap earnings per share from continued operations for the quarter was 61 cents per diluted share compared to 83 cents last year. On an adjusted basis, our earnings per share was 66 cents per share compared to 85 cents per share a year ago. The year over year decrease in gap in adjusted earnings per share was driven by lower sales in the quarter, primarily in assembly components and the increase in diluted shares outstanding, resulting from the sale of common shares in the third and fourth quarter of last year. Increase in shares outstanding impacted the current quarters earnings per share by approximately five cents per share. Our EBITDAs defined total $34 million in the quarter and on a trailing 12 month basis, our EBITDAs defined was $148 million compared to $152 million for the full year 2024. During the quarter cashflow from operations was a use of $10 million to fund working capital, primarily accounts receivable due to the increase in sales in the second half of the quarter. Capital spending in the first quarter totaled $9.5 million, which included investments in information technology and to support new business activities during the quarter. We expect our full year capbacks to range between 30 and $35 million. Our liquidity at the end of the first quarter was $210 million, which consisted of approximately $55 million of cash on hand and $155 million of unused borrowing capacity under our various banking arrangements, including suppressed availability. Turning now to our segment results. In supply technologies, net sales totaled $188 million during the quarter compared to $197 million in the first quarter of last year. During the quarter, demand was lower year over year in certain end markets in North America, including power sports, industrial equipment, and in our industrial supplies product lines, which more than offset increased demand from the heavy duty truck semiconductor equipment, consumer electronics and electrical distribution markets. Sales in our fastener manufacturing business were down 9% year over year due to a sluggish start to the year despite strong sales in the second half of the first quarter. Operating income in this segment totaled $17.8 million compared to $19.5 million a year ago and operating margins were .5% compared to .9% a year ago. The lower profitability in the quarter was driven by the lower sales levels. In our assembly component segment sales for the quarter totaled $97 million as compared to sales of $107 million a year ago with the decline due to lower unit volumes in our fuel rail product line. Customer delays and new business launches affecting our fuel filler and extruded rubber products businesses and favorable pricing on legacy programs that ended in 2024. Segment operating income totaled $5.3 million compared to $8.6 million a year ago. Segment operating margins were impacted by the lower sales levels and were .5% compared to 8% last year. In our engineered product segment, demand continued to be strong across most product brands and geographies. First quarter sales were $121 million compared to $114 million a year ago. The increase in sales was driven by sales of new equipment, primarily in Europe and strong aftermarket sales in North America. During the quarter, our total aftermarket revenue increased 5% of margins in this part of our business, increased 130 basis points year over year. New equipment bookings totaled approximately $39 million in the quarter compared to quarterly average bookings of $43 million in 2024. Backbugs as of March 31st totaled $136 million compared to $145 million last quarter. We expect strong bookings in the second quarter based on increased quoting activity, especially with producers of lightweight steel who are actively looking to expand production capacity. The increase in sales in our industrial equipment business was offset by lower sales in our forged products business, resulting from lower demand for rail forgings and forging related equipment. During the quarter, our adjusted operating income in this segment improved to $4.6 million compared to $3.8 million a year ago. Despite the strong performance in our industrial equipment business, our profitability in this segment continued to be impacted by the soft demand for rail forgings and forging related equipment. We continue to see improved profitability in this segment resulting from ongoing initiatives to improve production efficiencies in several locations and equipment uptime in our forging facilities. And finally, corporate expenses totaled $8 million during the quarter compared to $7.6 million a year ago driven by higher personnel costs. Turning now to our outlook for the year as indicated in our press release, we continue to assess the impact of tariffs on certain imported raw materials and other components and softening of end market demand in each of our businesses. We are working with our customers and our various supply chains and expect to mitigate the effect of the added costs caused by tariffs. Conversely, we believe many of our businesses are well positioned to benefit in the long term from the current environment due to higher production activity and localized sourcing back into the United States. We are currently estimating that our 2025 net sales will range from $1.6 billion to $1.7 billion and adjusted earnings will be in the range of $3 to $3.50 per share, which takes into account the known risks caused by tariffs and softening in market demand. We continue to expect our free cash flow to improve year over year. Now I'll turn the call back over to Matt.

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

Thank you. Well, now we're conducting a question and answer session. If you'd like to ask a question, please press star one from your telephone keypad or the confirmation tone will indicate your line is in the question queue. Let me press star two if you'd like to withdraw your question from the queue. For participants who are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, will we pull for questions? Once again, that

is star one. Thank you. Thank you. And our first question is from the line of Steve Barger with KeyBank Capital

Markets. Please just use your questions.

Hi, good morning. This is Jacob Moran for Steve. Thanks for taking our questions. I joined a little late, so apologies if you addressed anything specifically already, but the first one for me is on the updated guide. Could you just break down for us what parts of the business are driving the change in guidance, or at least

the majority of the change?

Well, I'll start just

by saying, just to make sure we're characterizing clearly what we think the risks are. You know, we continue to believe that the high end of our range is consistent with what we've seen year to date, and hopefully anticipate seeing for the rest of the year. So some impact, I think, with some of the uncertainty in the customer mix and the volatility we're seeing, but generally in line with our business plan and how we've seen the year so far. The lower end, I think, contemplates some of the uncertainty related to current demand. Clearly, some consumer-facing customers are seeing weakness today. Some of that weakness, I think, is because of anticipated inflation. Some of that weakness could be related to restructuring their production schedules to contemplate for waiting for imported parts after there's more clarity around tariffs. So there's some volatility out there that we're concerned about that may impact some of the demand

going forward, particularly in the second half.

Got it, that's really helpful, thank you. And I think, and I guess, go ahead.

Well, and I guess, more specifically, I think it's worth commenting on because you did miss the opening. You know, where is that? Well, that's mostly in supply technologies and ACG. You know, we'll be the beneficiary of some new business in the second half in those businesses, but that's where we're more impacted, I think, by the consumer-facing part of the business. I mentioned engineered products ended the quarter very strong. They were up year over year. This historically is the highest margin business with the most visibility and stability in their backlog. So we're pretty excited, not only how that business stands to succeed for the rest of the year, but we're also pretty excited to see what some of the tariffs and some of the things, the reorganization of global supply chains are gonna do for that business. That business is uniquely levered on the forward side to a domestic supply chain, and on the equipment side is levered to some of the infrastructure and steel investments that we've talked about in the past. So, and also the defense industry and the infrastructure. So a lot of the things we're excited about and prior calls for engineered components is gonna continue, I think, to evolve, perhaps even more quickly.

Okay, great. Yeah, that's really good color. My second question is on your cost base. I think you're at like 58% of sales to the US, but I understand that you have a not insignificant global manufacturing presence. Here I'm thinking specifically, but not exclusively about China. Could you just help us understand how much of your cost base comes from China or more broadly from countries where significant tariffs could potentially be imposed?

Yeah, Jacob, this is Pat, it's over to you. 70% of our business is North America based. The other 30 is split roughly 15%, Europe 15%, Asia. Within the Asia marketplace, our business is roughly 8% of that 15%. So relatively small, in terms of the total of our business, it is located in China, but clearly we're a global business and we have locations in many countries and in many areas of the country. So in terms of the cost base, I can't really speak to the cost base, but I can speak to the total size of our revenues in those locations.

Okay, got it, yep, that's helpful, thank you. And then if I could see one more in the way to...

Jacob, just to be a little more explicit, because again, I think you missed the opening comments. We will address tariff issues, we're a global business. We're sizably a US business. So those are certainly issues that we're gonna have to address, particularly on the 232 tariffs. Having said that, we generally do in-country manufacturing and distribution for those countries. So while I won't suggest that the China tariffs will have no impact, we are not a significant exporter of our products back

to the US for distribution or sale.

Understood, yeah, that's a helpful add

there. And maybe if I could sneak one more in related to tariffs, are you seeing more demand pull forward or maybe wait and see type of pauses? I mean, it feels like component manufacturers have been more victims of pull forward while larger, more complex goods are more wait and see. I'm just curious what your experience has been so far. And then maybe that's an opportunity to expand on any specific mitigation efforts you'd like to call out as well.

Well, I'll discuss the pull forward. I would say, I'm sure there are examples of that in our broad portfolio, but I would say in general, other than March being a pretty good month, as I indicated, I do not think that we saw evidence of a sizable pull forward. Again, these are very sophisticated supply chains, whether it's aerospace or auto or equipment building or aftermarket, these just aren't the kind of businesses, these aren't retail or textiles, we just can't sort of double down and call our suppliers and tell them to double the orders. So again, I think that our supply chains are reacting. We do see at the end market, we've heard comments from some of our customers that they saw some pull forward. I don't know that that sort of filtered down to

the tier one and tier two level on the supply chain side. So, you know, relative mitigation efforts, again,

we will first seek to understand and optimize supply chains. We're mostly in country. We benefit from the USMCA agreement. We will seek to optimize as best we can our supply chains. We think we're in a great position to actually do that. So we will look to support our customers in all the appropriate ways and where we can, because again, we're sole source, most of our relationships on highly engineered components, we're gonna look

for customer support. I think the risk, Jacob, to our forecast, again,

to finish where we started is related to the broader issue with consumer and demand destruction and less

about specific tariffs.

Yep, okay, that makes sense to me and thank you for taking my questions today.

Thank you.

Thank you.

As a reminder to ask questions today, you may press star one. The next question comes from the line of Dave Storms with Stonegate. Please receive your questions.

Good morning and thank you for taking my questions. Morning, Dave. Just wanted to kind of stick with some of the momentum you saw coming out of the Q&A. So, Dave, you mentioned the beginning of February and March. The difference between your Q1 results and your Q1 forecast, how much of that do you think can be made up in the subsequent quarters of

2025?

Dave, where we saw a slow start was primarily in the month of January, as Matt mentioned in his opening comments. So when you look at where we expected to be compared to where actual sales came in, we fully expect to make up ground the rest of the year. The shortfall wasn't that great business by business, but it was a slow start to the year, especially in the first two weeks in January. We picked up momentum, average daily sales in our supply technology business in the month of March mirrored where our expectations were. And many of our businesses performed better, as Matt mentioned in his opening comments, in our industrial equipment business, we had outstanding execution and flow through and equipment building in the month of March, which we expect to carry through the rest of the year.

Dave, I think it's

important to note too, particularly with our small share account. I know we talked about this fairly often, but even with the increased number of shares year over year, because of the equity offering, the start of the punchline is $15 million in lost sales flows through at about 3 million bucks. These are businesses that were strengthening throughout the quarter, so we're not taking aggressive cost actions, some cost actions, not aggressive cost actions. So that filters through pretty quickly. You could find yourself losing north of 10

cents a share, really quickly. Understood, very helpful. But again, as Pat said, that was, I think, a little bit more isolated in the front end of the quarter than the back end. That's great, thank you.

And then another one for me. You've mentioned that the supply chain is shifting, and in your favor, hopefully. Is there a qualification process that makes this shift a little more durable, or is it still at this stage of just order inquiries? I guess, kind of what inning of that supply chain shift are we in?

Well, we touch global supply

chains in a lot of different ways, so I would characterize broadly incremental new opportunities in businesses like automotive that are more fully evolved and very cost sensitive are gonna happen very quickly. It's already begun happening. I think you've probably noticed a lot of other industrial companies talking about the fact that they were exiting China years ago. There's nothing new to that story. I think there's an urgency to some of these industrial sort of price sensitive consumer products like auto that are gonna force the global OEMs and global tier ones to be very nimble. Is that gonna cause greenfield investment? I wouldn't go that far. Is there gonna be incremental activity around understanding how to strengthen their supply chains dual source and look for the ability to avoid tariffs? Absolutely, so I think that you're gonna see that. I think on some of the more longer term ones, certainly around steel production and defense and infrastructure, those are certainly in the order book today, but those are longer cycle sales opportunities. So again, I mentioned that I don't see much of this leaking in the book until 2026, but I think some of these shifts are, if not permanent, certainly semi-permanent, particularly around the 232 tariffs and steel and aluminum and those derivative products. I

don't know of anyone that thinks those are going away. That's a great call, thank you.

And then just one more for me, if I could. More general question. I know you guys keep an ear to the ground in the M&A market. Just curious if you're seeing any really structural shifts there, given the macro uncertainties of things have frozen up, or if you're looking at this as a buying opportunity, any call there would be great.

Yeah, Dave, this is Pat. Clearly there is a decline in M&A activity, whether it's because of the uncertainty in the macro environment or economic environment, or because banks are tightening up on phoning money to buyers of businesses. So we're definitely seeing a decline in some of that activity. That could be short-term in nature as things start to free up. Hopefully we'll see interest rate cuts at some point during the course of the year. But clearly I think many acquirers of businesses are taking a -and-see attitude, and

sellers as well. Thank you. At this time,

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

All right, well, thank you for your time this morning. I do want to point out that it is, while interesting and important for us to appreciate the risks in this year's business plan related to tariffs and demand destruction, I would also want to say that a lot going on gives us confidence that our business is not only going to sell out, going to weather this period well, but will be stronger for these changes next year and beyond. So this is an exciting time for us to focus on industrial policy, to focus on US manufacturing clearly is a trend that will support our business now and going forward. So thank you for your attention, and have a great day. Bye.

This will conclude today's conference. Let me disconnect your lines this time. Thank you for your participation.