TriMas Corporation

Thank you and welcome to Trimouse Corporation's second quarter 2023 earnings call. Participating on the call today are Thomas Amato, Trimouse's President and CEO, and Scott Mell, our Chief Financial Officer. We will provide our prepared remarks on our second quarter results and outlook, and then we will open up the call for your questions. In order to assist with the review of our results, we have included today's press release and PowerPoint presentation on our company's website at trimouthcorp.com under the investor section. In addition, a replay of this call will be available later today by calling 877-660-6853 with a meeting ID of 1373-9841. Before we get started, I would like to remind everyone that our comments today may contain forward-looking statements that are inherently subject to a number of risks and uncertainties. please refer to our Form 10-Q that will be filed later 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 or our presentation for the reconciliations between GAAP and non-GAAP financial measures used during the call. Today, this discussion on the call regarding our financial results will be on an adjusted basis, which is excluding the impact of special items. With that, I will turn the call over to Tom Amato, TriMass' president and CEO. Tom?

Thank you, Sheri. Good morning, and welcome to our second quarter earnings call. As we reflect on the quarter, I want to first thank our TriMass team for their increased efforts this year as we continue to navigate a very dynamic and changing global market environment. In certain product lines, we are adding capacity, ramping up production volumes, enhancing skilled labor, and alleviating supply bottlenecks, all to support robust customer demand. At the same time, in other product lines, We are rebalancing our manufacturing footprint and securing procurement savings to prepare certain businesses for improved conversion as end markets recover. Overall, irrespective of markets being strong or soft, each TriMass local team is working diligently to satisfy market demand or offset market disruptions while remaining focused on gaining momentum against our longer-term strategies. In relation to this quarter, I would like to personally thank our specialty products team for delivering strong results. Our specialty products performance is the result of making investment decisions in our businesses when market demand was challenged on the premise that demand would rebound. Market improvement did occur, as we are witnessing today, and we were prepared to satisfy higher customer demand while also converting wealth. So in summary, we decided to invest in and take advantage of prior disruption in our specialty products and markets, which has benefited investors today. We are also leveraging our current momentum to position our specialty products group to capture future growth through new innovations, such as ultra-high purity cylinders for packaged gas applications and EPA-certified remote power generation units. So again, I would like to thank our specialty products team for their strong performance this year. I would also like to highlight that while our performance within TriMet's aerospace is well below our internal standards and potential, we are starting to make some significant progress in bringing the supply of super alloy raw materials, skilled labor, and production capacity into better balance. As we make strides to achieve improved synchronization with our production planning and customer requirements, we anticipate achieving financial results much improved from current levels. In fact, our second quarter results were sequentially better than our first quarter results. And I would like to note that in Q2, we had a settlement charge unique to the quarter that otherwise would have had our operating margin percent ahead of the prior year quarter as well. So while we are still below our overall potential, we are starting to achieve momentum in this group. Finally, our TriMAS Packaging and TriMAS Life Sciences teams are working diligently to prepare for improved market conditions as we move forward. Within TriMAS Packaging, while we have seen some sequential monthly increases in our order backlog, they are at a more moderated rate than we had hoped to achieve at this point in the year. As we move into the second half, we now believe a market recovery in certain consumer products and packaging industrial submarkets will be more gradual than we assumed to start the year. As such, we made the decision to take advantage of this lower demand period to reposition productive assets and streamline our manufacturing footprint. And we are taking other procurement savings actions, which we anticipate will generate more than 10 million or 200 basis points of annual run rate savings once implemented. Additionally, our TriMass packaging commercial team is gaining momentum, leveraging our global supply model by expanding our business into new geographic markets with new customers, particularly in South America. And of course, we continue to make progress marketing the characteristics and benefits to our CPG customers of our patented and commercial-ready single-polymer dispenser for personal care, beauty, and other applications. We anticipate highlighting these advancements as we move into 2024. Within TriMass Life Sciences, we are ramping up and launching new programs for polymerase chain reaction, femoral test kits, and electrosurgery component applications. While some of our life sciences applications are currently lower in volume, we remain excited about the new channels and newer customers for growth in areas that, once qualified, have a strong moat. Again, I thank our TriMAS Packaging and TriMAS Life Sciences teams for taking actions today to position us for improved performance in the future. With that background, we delivered adjusted earnings per share for the quarter of 50 cents, which, compared to the first quarter of 2023, of 30 cents represents a sequential improvement and was in line with our internal planning models. With that said, while we continue to assume recovery in certain of our packaging end markets in the back half of 2023, we anticipate that these will be at a more gradual rate than originally modeled. And I'll discuss this further in a few slides. At this point, I would like to turn the call over to Scott, who will take us through our consolidated and segment results. Scott?

Thanks, Tom. Let's now turn to slide four where I'll summarize our financial results for the quarter. Sales for the quarter were $233.2 million as compared to $237.7 million for the prior year quarter. As organic growth in the TriMAS specialty products and TriMAS aerospace groups and acquisition-related sales, were more than offset by lower market demand for TriMAS packaging dispenser enclosure products used in personal care, food, and industrial applications. We continue to believe the packaging market softness primarily relates to continuing overstock positions at certain large CPG customers, more conservative purchasing patterns, and lingering inflationary concerns. Operating profits for the quarter was $27.3 million as compared to $15.5 million for the first quarter of this year and $32.1 million for the prior year quarter. EBITDA for the quarter was $45.5 million or 19.5% of sales as compared to $31.7 million or 14.7% of sales for the first quarter of this year and 20.3% of sales for the prior year quarter. As Tom mentioned in his opening remarks, the performance for the quarter was in line with our planning models, and we continue to expect our performance to sequentially improve over the second half of the year, albeit at a more gradual rate than originally expected. Finally, adjusted earnings per share for the quarter were 50 cents, which was a 67% increase when compared to the first quarter of this year. Now let's turn to slide five, and I will briefly review our balance sheet and credit statistics. Net debt after funding the acquisition of WellMAC, paying a dividend, and completing share repurchases was $375 million with a net leverage ratio of 2.3 times. As previously discussed, we drew approximately $40 million on our revolving line of credit to fund the April acquisition of WellMAC. of which 22 million remains outstanding at the end of the quarter. We expect to repay the remaining outstanding balance by the end of the year with cash flows generated from operating activities. Free cash flow of 11 million for the quarter was in line with expectations, and we continue to have ample liquidity to continue to invest in our businesses, take streamlining actions where appropriate, buy back shares, pay dividends, and complete future strategic bolt-on acquisitions as opportunities present themselves. Now let's turn to slide six, and I will begin my review of our segment results, starting with TriMAS Packaging. First quarter net sales were $117 million, as compared to $148 million for the prior year quarter, and up slightly when compared to the first quarter of this year. Acquisitions contributed $7.5 million of sales during the quarter, while the impact of foreign currency was immaterial. As expected, organic sales were lower during the quarter, down 26% when compared to the previous year period. This decline is primarily attributable to lower demand, most notably for consumer goods with applications in the personal care, food, and certain industrial submarkets. We continue to closely monitor the commercial environment and will take, as necessary, additional streamlining action as a hedge against any potential further market demand softening. Operating profit in the quarter increased by $6.7 million to $21.9 million when compared to the first quarter of this year, but was lower on a year-over-year basis, primarily on account of the impact of lower sales. Operating margin was 18.7% of net sales, while adjusted EBITDA was 30.3 million, or 25.8% of net sales, a 90 basis point improvement year over year, and a more than 600 basis point improvement when compared to the first quarter of this year. Turning to slide seven, I will now provide an update on our TriMAS Aerospace segment. Net sales for the quarter increased by 12.4 million, or 26%, when compared to the same period a year ago, as we continue to see strong order intake for many of our aerospace products as general aerospace volumes continue to recover ahead of market expectations. Acquisitions contributed 7.3 million of sales during the quarter, while organic sales increased by more than 5 million, or 11%, when compared to the previous year period. operating profit for the quarter was 3.7 million, or 6.2% of net sales, as compared to 3.3 million, or 6.9% in the prior year. As Tom mentioned earlier, absent a one-time settlement charge unique to the quarter, operating margin for the quarter would have been higher on a year-over-year basis. More importantly, sequential quarterly operating margin improved by more than 300 basis points, as we are starting to see improved conversion rates on higher sales. Adjusted EBITDA for the quarter was 8.6 million or 14.4% of net sales. Now on slide eight, let's review our specialty product segment. Net sales in the second quarter increased by more than 14 million to 56 million, a 34% increase when compared to the same period a year ago. This is now nine consecutive quarters of double-digit percentage growth for our specialty product segment. Demand for steel cylinders for packaged gas applications and remote power generation units and related spare parts, each for the North America region, remains robust with moderately high levels of backlog for both businesses. Operating profit in the quarter was $12.1 million, or 21.6% of net sales, as compared to 6.8 million in the previous year period. This record-setting margin level for specialty products is a result of continuing robust demand and the impact of previous factory floor improvement actions. Adjusted EBITDA for the quarter was 13.2 million, or 23.5% of net sales. While our specialty products businesses Order books remain strong, which we believe is indicative of continuing resilience in certain end markets for which they sell into. We will continue to closely monitor order changes and input costs and take appropriate actions if necessary. At this point, I would like to turn the call back over to Tom to review our 2023 outlook and for some closing remarks.