TriMas Corporation

Good day and welcome to the Trimass Third Quarter 2020 Earnings Conference Call. Today's conference is being recorded at this time. I would now like to turn today's conference over to Ms. Sherry Lauterbach. Please go ahead, ma'am.

Thank you and welcome to the Trimass Corporation's Third Quarter 2020 Earnings Call. Participating on the call today are Tom Amato, Trimass' President and CEO, and Bob Zalupski, our Chief Financial Officer. After our prepared remarks on our results, we will open the call up for your questions. In order to assist with the review of our results, we have included the press release and PowerPoint presentation on our company website, www.trimaskcorps.com, under the Investor section. In addition, a replay of this call will be available later today by calling 888-203-1112 with a replay code of 3061032. Before we get started, I would like to remind everyone that our comments today which are intended to supplement your understanding of TriMAS, may contain forward-looking statements that are inherently subject to a number of risks and uncertainties, including impacts from COVID-19. Please refer to our Form 10-K and our Third Quarter 10-Q that will be filed today for a list of factors that could cause our results to differ from those anticipated in any forward-looking statement. Also, we undertake no obligation to publicly update or revise any forward-looking statements except as required by law. We would also direct your attention to our website where considerably more information may be found. In addition, we would like to refer you to the appendix in our press release issued this morning or included as a part of the presentation for the reconciliations between GAAP and non-GAAP financial measures used during this conference call. Today, the discussion on the call regarding our financial results will be on an adjusted basis, excluding the impact of special items. With that, I will turn the call over to Tom Amato, TriMass President and CEO. Tom?

Good morning, and welcome to TriMass' third quarter earnings call. This year, we have all learned to endure modifications to our daily routines to protect the health and safety of individuals in the communities where we live and work. At TriMass, we have taken steps in each of our facilities to enhance social distancing and increase awareness of cleaning and personal hygiene. Compounding the impact of these physical changes, certain of our facilities are operating at full capacity while other facilities are operating at market reduced capacities. Both cases result in our teams having to adapt to our operating patterns to protect supply for our customers. Again, as I have said on earlier calls, I extend my deepest appreciation to our employees around the world for their commitment and dedication during these challenging times. Let's turn to slide three. Trimass operates businesses with strong brand names in a diverse set of end markets and applications. At the end of 2019, we successfully completed a strategic divestiture, which resulted in concentrating our family of businesses in the segments shown on this slide. We believe this strategic step reduced Trimass' overall systemic risk which will benefit our shareholders in the long run, especially for a company of our moderate size. TriMass's presence in a diverse set of end markets further diversifies our risk and has proven to be beneficial for our investors again in this third quarter. As a reminder, just over 60% of TriMass's revenues are reported in our packaging segment, where we provide dispensers, closures, and jars into a wide variety of consumer packaged goods and industrial applications. Several of our product lines are used in applications that help fight against the spread of germs, such as hand sanitizers, soaps and lotions, and products for household and janitorial cleaning. Sales within our packaging segment, again, outperformed our expectations, given what we believe has emerged as a secular global trend resulting from a heightened awareness of hand washing, improved personal hygiene, and overall cleanliness. Expanding TriMass' packaging platform is foundational to our overall growth strategy. Therefore, I'm excited to report that we have signed a purchase agreement with Afaba and Ferrari, a niche supplier in the Euro CPG and industrial markets, which specializes in design, development, and manufacture of caps and closures, further enhancing the breadth and scope of TriMass' packaging group. Upon completion of this acquisition, which I will cover in more detail shortly, we will have acquired our fourth packaging company since early 2019. TriMas' aerospace segment represents 24% of our sales. We supply engineered fasteners and fabricated products and assemblies into commercial, business jet, and military and defense applications. As discussed previously, our businesses in this segment have been severely impacted by the effects of the pandemic, given the reduced aircraft production build rates. Sales began to significantly decline in the second quarter, and we are currently running at about 35% below prior year revenue on an organic basis. As noted on prior calls, we have taken significant actions to better realign our cost structures with lower demand in this segment. Given what we anticipate being a prolonged recovery period, we continue to take cost realignment actions, including more significant manufacturing footprint rationalization steps, to better position TriMAS to gain operating leverage when the aerospace market ultimately recovers. The balance of TriMAS's business is in our specialty product segment, where we predominantly supply steel cylinders under the Nord Cylinder brand name, the only remaining manufacturer of high-pressure steel cylinders in the United States, as well as natural gas engines and compressors under the Arrow Engine brand name. Our Norris Cylinder business, which represents nearly 90% of this segment's revenue, supplies into a wide variety of end markets, including welding and HVAC, medical, and military and defense. While volume in our specialty product segment has been off due to the pandemic, through swift realignment efforts, This segment is also positively contributing to TriMass' overall earnings and cash flow. Moreover, we anticipate our specialty product segment, particularly our Norris Cylinder business, will begin to recover first when the effects from the pandemic begin to subside. Let's now turn to slide four. Despite priority shifts resulting from the effects of the pandemic, we remain committed to TriMass' overall growth strategy. Executing against our strategy begins with our strong commitment to the TriMass business model. In fact, the TriMass business model process facilitated our swift response to rapidly changing environments to drive, or in some cases, protect performance. Another top priority of our strategy is our commitment to reinvest in each of our businesses to accelerate their long-term organic growth, benefiting TriMass overall and therefore our investors. Through managing our business as well, investing in our products and processes, and maintaining an appropriate capital structure, we also remain committed to building out TriMass' key platforms through Bolton M&A. As noted, we continue to execute against our strategy with today's announced acquisition. Our ability to execute our strategy is predicated on our commitment to generate exceptional free cash flow. Our cash flow characteristics even in challenging periods, is our strategy's oxygen. It allows us to reinvest in our businesses, both for organic and acquisition growth, and to take treasury steps to benefit our shareholders, which we have successfully done over the past few years through both debt reduction and share buybacks. Let's turn to slide five. As noted earlier, we were excited to announce that we entered into an agreement to acquire Afaba and Ferrari, a company that specializes in the design, development, and manufacture of plastic caps and closures for the Euro CPG and industrial markets. Afaben Ferrari is a single manufacturing plant operation located in Borgo San Giovanni, Italy, which is highly automated and equipped with appropriate certifications for supply into aseptic and other beverage applications. Approximately 75% of Afaben Ferrari sales are sold into energetic, juice, or dairy applications, with the balance of sales sold into agricultural and industrial applications. We expect their 2020 sales to be approximately €32 million, with an EBITDA margin of around 30%, and we paid a total enterprise value at a rate of about 8.75 times EBITDA. Afab and Ferrari will ultimately report into our Reiki division, which is included as part of Trimass' packaging segment. We are also very pleased that both Silvia Ferrari and Guglielmo Ferrari, siblings and the daughter and son of the original founder, have both agreed to stay on with Afaba and Ferrari under TriMas' ownership, where they will continue to execute against the overall growth strategy. We look forward to closing the transaction, which is expected to occur by the end of the year, and we welcome the Afaba and Ferrari team to TriMas' family of businesses. Let's now turn to slide six, and I will cover our financial performance. Driven by the exceptional performance of our REKI division, our consolidated third quarter results were strong, despite uncertainty in many of our end markets. Net sales for the quarter were 199.5 million, up 5.9% as compared to the prior year period, and up 0.4% net of currency and acquisitions. Consolidated operating profit for the quarter was $29.6 million, or 14.8% of sales, $5 million higher than the prior year period, which was $24.6 million, or 13.1% of sales. Net income was $18.6 million, or 43 cents per share, up nearly 20% as compared to 36 cents per share in the prior year period. At TriMAS, we like to track our adjusted EBITDA momentum to assess how much ground we are gaining, particularly when in challenging periods. In this regard, on a segment basis, our September 2020 LTM adjusted EBITDA was 173.9 million, or 23.1% of sales, and up 3.8 million versus June 2020 LTM. And on a consolidated basis was 154 million or 20.5% of sales and up 4.3 million. Again, versus June, 2020 LTM. So despite challenges in certain end markets, we were able to gain ground on EBITDA momentum under our TriMass business model. Further, given that we reduced net debt from 230 million at the end of June, to just under $200 million at the end of September, it becomes evident why we remain comfortable with executing both our share repurchase and acquisition strategies to augment organic growth. Let's now turn to slide seven. On a year-to-date basis, net sales were $581.8 million, up 5.3% as compared to the prior year period, and essentially flat net of currency and acquisition. Year-to-date consolidated operating profit was $79.1 million, or 13.6% of sales, higher than the prior year period, which was $75 million. Net income was $52.4 million, or $1.19 per share, up 4.4% versus $1.14 per share on a year-to-date prior year comparison. I'll now turn the call over to Bob, who will take us through our cash flow, balance sheet, and segment results. Bob?