TriMas Corporation

Greetings and welcome to the Trimus fourth quarter and full year 2023 earnings conference call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Shari Lauterbach, Vice President of Investor Relations and Communications. Thank you. You may begin.

Thank you, and welcome to Trimus Corporation's fourth quarter and full year 2023 earnings call. Participating on the call today are Thomas Amato, Trimus' President and CEO, and Scott Mell, our Chief Financial Officer. We will provide our prepared remarks on our fourth quarter and full year results and our 2024 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 presentation on our company website at Trimouse.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 13744326. 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-K, which 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 our 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, Primus's President and CEO. Tom?

Thank you, Sherry. Good morning and welcome to our fourth quarter earnings call. Let's begin on slide three. As we reflect on the previous year, it's important to note the end market challenges we faced. At the onset of 2023, there was a significant amount of market uncertainty and dislocation in demand, which was impacting many of our businesses. When we developed our 2023 planning model, we had anticipated that we would start to see a market recovery towards the end of the second quarter in our largest operating group, TriMask Packaging, which unfortunately did not occur. Our packaging group was not the only one affected as consumer products and industrial packaging customers and even our packaging peers encountered a similar dynamic in 2023. Of course, in the spirit of seizing opportunities amidst challenges, we proactively initiated important savings actions to better position ourselves for the future. For example, we exited two packaging locations in California, one manufacturing and the other a warehouse. We also consolidated two locations in China, one in Haining and the other in Hangzhou, into a single new facility in Haining. Our new facility in China is better aligned with our strategy to support future growth in the region. It is important to note that executing these actions would have been considerably more costly and risky in a regular demand environment. Structural savings from these initiatives, along with other actions, will yield operating leverage gains as sales return to more normalized levels over the coming few years. I would also like to further note that while last year did not turn out how we expected at the start of 2023, we are now encouraged by trends we began to experience in the fourth quarter, particularly within TriMAS Packaging and TriMAS Aerospace, our two largest segments. As we begin 2024, we believe that many actions we have taken across our businesses reset our foundation for a return to organic growth within packaging and continued improvement upon conversion rates within aerospace. In the fourth quarter, consolidated sales were up 3.1%, with aerospace up 26.1%, and packaging up 7.5%. With respect to our packaging group, organic sales were flat to slightly positive, which is a favorable trend as most of our larger customers' inventory levels have started to come into better balance. With that said, the sales growth within aerospace and packaging overcame sales demand within our specialty product segment that weakened more than anticipated at the end of the fourth quarter as customers chose to defer capital expenditure purchases and better assess their sales rates into 2024. So while we had several bright spots in the fourth quarter within our packaging and aerospace groups, a sudden demand shift within specialty products worked against our overall expectations. Despite these inherent dynamics in our diversified portfolio model, we did gain segment EBITDA momentum and expect further upside in 2024 given the actions we have already implemented. Finally, we continue to proactively repurchase shares as a core component of our capital allocation strategy, especially given our balance sheet strength and the confidence we have in the outlook for our businesses and long-term strategy. In 2023, We completed two acquisitions, repurchased more than 680,000 shares, paid quarterly dividends, and still finished the year with nothing drawn on our revolver, despite operating in a challenging economic environment. Let's turn to slide four. I would like to highlight a few important changes as we move forward into 2024. First, we have formally initiated a sale process for our aero engine business. Following the divestiture of our layman's business just before the pandemic, Arrow Engine is now our only remaining business focused in the oil and gas end market. We expect Arrow Engine's 2024 sales to be just over $30 million, with forecasted adjusted EBITDA of approximately 16%. Arrow Engine is a great business led by a very experienced management team. yet we believe the business will be better served by executing its long-term growth plans within a business more aligned in similar end markets, manufacturing processes, and product lines. Next, we plan to report our Norris Cylinder business as part of our packaging segment, bringing more focus to TriMass' portfolio. We envision making this change beginning in the third quarter. We have discussed for some time that Norris Cylinder's products are used in packaged gas, general industrial applications, and are now preparing to make this change more formally. Upon completing this change, our packaging group will represent nearly 70% of our total sales, and TriMAS will be one step closer to our strategic objective of building out our packaging platform to more than $1 billion in revenue. Also, we will be adding back non-cash stock compensation expense to our adjusted net income and adjusted earnings per share definitions. We believe this change, beginning in Q1, will provide investors with a better sense of TriMass' cash earnings power. Finally, we have completed the centralization of our global IT function into a shared service model and will, in turn, be allocating certain IT costs to our businesses going forward. While this is not normally something we would highlight on an earnings call, we are excited to further advance in our digital transformation journey, better supporting our operating methodology of making fact-based data-driven decisions. This may result in some quarter-to-quarter comparison nuances, which Scott will discuss as we move through the year. I would also note that while this shift in our IT approach will improve our ability to assimilate acquisitions, it will not prohibit our ability to make further portfolio optimization changes. Let's now turn to slide five, and I will go through our quarter and year end results. For the quarter, we are reporting sales of 209.6 million, up 3.1% as compared to the prior year quarter, with the drivers as noted previously. Before covering conversion rates, I do want to highlight, as we discussed at length in the third and fourth quarters of 2022, we did benefit in 2022 from special cash earnings generating property sale projects, which did not repeat in 2023. We have further normalized for this nuance to better compare 2023 to the prior year. Therefore, adjusted operating profit of 18.8 million was slightly higher than the same quarter last year when normalizing for the property sale gain of 17.6 million that occurred in the fourth quarter of 2022. When normalizing for the same property sale gain, our fourth quarter 2023 adjusted EPS of 37 cents was 15.6% higher than the prior year quarter of 32 cents. I would like to also point out that the adjusted EPS for the year was $1.74, a slight increase over 2022 when normalizing for the same property sales gains. Please note these EPS figures do not include the add-back of non-cash stock compensation expense. So again, while 2023 was a challenging year, we experienced positive order intake within TriMAS Packaging, and earnings momentum within TriMass Aerospace are two largest segments as we exited the year. In turning to slide six, we are reporting LTM adjusted EBITDA of 156.4 million, or 17.5% of sales, which was consistent with 2022 levels when adjusting for the property sales gains as noted. As I will cover in a few slides, we expect growth in absolute adjusted EBITDA in 2024, as we leverage sales growth within TriMass packaging and further improve conversion rates within TriMass Aerospace. While leverage increased slightly driven by the change in adjusted EBITDA, our leverage remains low at 2.3 times, and based on our modeling, we would naturally deleverage through the year. Overall, our balance sheet remains strong and is based on a foundation of low interest rate senior notes that do not mature until 2029. At this point, I will turn the call over to Scott, who will take us through TriMass's segment results. Scott?