Park-Ohio Holdings Corp.

Good morning and welcome to the Park Ohio Second Quarter 2025 Results Conference Call. 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 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 different 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 2024 10K which was filed on March 6, 2025 with the SEC. Additionally, the company may discuss adjusted EPS, Adjusted Operating Income, and EBITDA as defined. On a continuing operations or a 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. Welcome. Thank you for joining us this morning. We are very proud of the accomplishments during the second quarter. The strength of our business model is the broad and diverse nature of our businesses combined with our strong operating leadership. Additionally, our transformation over the last several years is and will allow us to be more profitable through the business cycle. Most importantly, we stand ready to absorb improving backlogs and new business with meaningful operating leverage. We believe strongly that the remainder of 2025 will continue to provide solid performance while building momentum for an even stronger 2026. Thank you especially to all of our Park Ohio team members. I'll now turn it over to Pat.

Thank you, Matt. Before I get into the details of our second quarter results, I want to discuss a few recent events. First, we recently refinanced both our senior notes and our revolving credit facility. As it relates to the senior notes, we completed a private offering of $350 million of senior secured notes due in 2030, which bear an interest rate of 8.5%. We used the net proceeds from the offering along with cash on hand to redeem all $350 million of the senior notes which were due in 2027 and to pay related fees and expenses. In addition, we entered into an amendment to our existing revolving credit facility extending its maturity date by five years. In connection with these refinancing activities, we received upgraded ratings on the new senior secured notes from Moody's, S&P Global, and Fitch Ratings. In addition, many institutional investors continued their support of Park Ohio, which led to the successful completion of the refinancing. We appreciate their commitment and continued support. These actions provide us with the future liquidity to execute our long-term goals, which include sales growth, higher operating margins, and reduced net debt leverage. And lastly, our capital equipment orders in the second quarter were approximately $85 million, an all-time quarterly record, and included an order from a major steel producer tolling $47 million for induction slab heating equipment for high silicon steel production. The order demonstrates our ability to utilize our world-leading technology to engineer and manufacture high-tech induction heating and melting solutions for our customers. The new order, which was shipped from our Warren, Ohio facility beginning in 2026, enables the most uniform heating profile available in today's markets. Turning now to our second quarter results, second quarter revenue totaled $400 million compared to $405 million last quarter and $433 million last year. A year over year decrease reflects lower customer demand across certain end markets, most notably on our supply technology segment and certain North American industrial markets. We took numerous countermeasures in each segment to enhance profitability, including variable cost reductions to align with current demand, targeted restructuring activities, and reductions in discretionary spending. As a result of these actions, profitability improved on a sequential basis in the second quarter compared to the first quarter, with adjusted EPS increasing 14% to 75 cents per diluted share, and EBITDA is defined increasing 4% to $35 million. The sequential profit improvement was driven by a higher gross margin percentage in the second quarter of 17% compared to .8% last quarter and .9% a year ago. We continue to focus on gross margin improvement through the implementation of value driver initiatives in each business. We generated $35.2 million of EBITDA in the quarter, an increase of $33.9 million in the first quarter. As a percentage of sales, our EBITDA margin was .8% in the quarter. On a trailing 12-month basis, our EBITDA is defined, totalled $144 million. SG&A expenses were $46.8 million in the quarter, down from $47.4 million last year and $48.2 million last quarter, reflecting our cost containment efforts. Interest costs totaled $11 million during the quarter compared to approximately $12 million last year, driven by lower average interest rates in the current year and lower average outstanding debt balances. Our effective income tax rate was 17% in 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 range between 17 and 19% to reflect the impact of these tax strategies. During the quarter, we used operating cash of $14 million, primarily driven by higher working capital and capex, including technology-related investments and growth capex in multiple businesses. We expect significant operating and free cash flow in the second half of the year, driven by increased profitability and reduced working capital levels. For the full year, we continue to expect higher -over-year free cash flow and expect free cash flow to be approximately $20-30 million. Free cash flow during the second half of the year is expected to significantly improve and total approximately $65 million. Our liquidity continues to be strong and total $189 million as of June 30, which consisted of approximately $46 million cash on hand and $143 million of unused borrowing capacity under our various banking arrangements. Turning now to our segment results, supply technologies net sales of $187 million in the second quarter approximated our first quarter net sales and were lower than net sales in the prior year quarter due to lower customer demand in certain key end markets, including power sports, heavy duty truck, and industrial equipment, partially offset by increases in the electrical and semiconductor end markets. Geographically, sales in Europe were stronger -over-year, which was more than offset by lower sales in North America and Asia. Sales in our faster manufacturing business were down -over-year, reflecting lower auto production during the quarter. Adjusted operating income in this segment totaled $17 million compared to $19 million last year. Adjusted operating margins were .9% in the quarter compared to .5% a year ago due to the lower sales levels. On a -to-date basis, sales in the segment were $375 million and operating margin was .1% compared to .6% last year. Operating margins above 9% in this business are at historically high levels, and we expect continued efforts to increase our margin profile in this segment by implementing operational improvements to drive growth and profitability, including investments in technology and warehouse optimization. In our assembly components segment, sales in the quarter were $95 million compared to under $3 million a year ago. The -over-year decrease in sales was driven by lower unit volumes in our fuel rail and extruded rubber products. Customer delays on new product launches across several automotive platforms and favorable pricing that ended in 2024 on certain legacy programs. Segment adjusted operating income of $6.1 million increased sequentially from the first quarter and was lower than the second quarter of last year due to the lower sales levels. In this segment, we continue to win new business as over $50 million of incremental business across all product lines will begin to launch in the second half of this year and throughout 2026. The incremental business will positively impact future sales and margins in this segment. In our engineer product segment, sales were $118 million compared to $127 million a year ago due primarily to lower sales in our forged machine products group, driven by lower rail demand and closure of a small manufacturing operation last year. In our industrial equipment group, sales were similar -over-year as aftermarket sales continued to be strong and production of new capital equipment was stable in most of our global locations. During the second quarter, new equipment bookings were at an all-time quarterly high and totaled $85 million, which was driven by the one equipment order totaling $47 million that I mentioned earlier. Our capital equipment backlog continues to be strong, totaling $172 million, an increase of 19% compared to backlogs at the end of last year. During the quarter, adjusted operating income in this segment was $6.4 million compared to $7.3 million a year ago. The decrease in profitability -over-year was driven by the lower sales in our forged and machine products group. -to-date net sales in this segment were approximately $240 million and similar to prior year net sales levels, and operating income was approximately $10 million in both periods. And finally, corporate expenses totaled $7.8 million during the quarter compared to $7.6 million a year ago. I'll conclude my comments with an update on our current expectations for the rest of the year. Given the current environment and uncertainty around tariffs, we continue to assess the impact of both added costs for direct imported raw materials and other components and lower end market demand in each of our businesses. We are working with our customers and suppliers to mitigate the impact of such tariffs and expect to fully recover our tariff costs, which we estimate to be $25 to $35 million in 2025, primarily in our supply technology sector. Additionally, 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. In addition, the refinancing of our senior notes will result in higher interest in the second half of the year, which will reduce our adjusted earnings per share by approximately $0.20. As a result, we now estimate that our 2025 adjusted EPS will be in the range of $2.90 to $3.20 per diluted share. Our net sales are expected to be in the range of $1.62 billion to $1.65 billion. We expect our free cash flow to be $20 to $30 million in 2025 compared to $15 million last year with the increase due to strong free cash flow of approximately $65 million for the remainder of the year. Now I'll turn the call back over to