TriMas Corporation

Greetings, and welcome to the Trimus second quarter 2024 earnings conference call. At this time, all participants are in the 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, Sherry Lauterbach, Vice President of Investor Relations. Thank you. You may begin.

Thank you, and welcome to Trimus Corporation's second quarter 2024 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 second quarter results and outlook, and then we'll open up the call for 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 trimus.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 1374-7794. 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 and our Form 10-Q to be filed later today for a list of factors that could cause our results to differ from those anticipated in any forward-looking statements. 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 this 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, TriMet's president and CEO. Tom?

Thank you, Sherry. Good morning, and thank you for joining us on our second quarter earnings call. Let's turn to slide three. As I'm certain you have seen from our earnings release this morning, While the resiliency of TriMass' packaging and aerospace businesses have become more evident, our businesses within the specialty products industrial markets have not yet seen the demand recovery we anticipated would have occurred by this point in the year. However, as we reflect on the quarter and the first half of the year, we experience a number of positive developments which we believe will translate into long-term opportunities for value creation despite encountering some discrete challenges. I'll provide one example from our largest group, TriMass Packaging. When demand pulled back last year, we were tempted to deeply cut costs. While we flexed some variable costs, we instead leaned into reengineering our commercial approach to drive long-term growth. We invested in a new customer relationship management application, and we also invested in reorganizing our commercial model, replicating an 80-20 approach. Although these initiatives are still in early stages of integration, we believe these internal changes, coupled with a natural market recovery, are now contributing to the strong core growth rates we are experiencing in our packaging group today. Given the foundational growth in revenue, I remain very excited about TriMass packaging's potential, and I'm confident we will improve upon conversion rates as we move forward. Next, I would like to provide an example for our TriMass Aerospace group. When I compare the second quarter of last year to this most recent quarter, the dynamics couldn't be more different. In the second quarter of last year, we faced a snapback of demand from our aerospace customers, compounded by supply and labor constraints, as well as several voluntary leadership changes. The broad-based actions and leadership top grading we implemented over the past year are too numerous to list for this call. But suffice it to say, we have successfully turned around the prospects for TriMass Aerospace. Assuming no further shocks in the A&D market, or our aerospace business specifically, we anticipate exiting 2024 at a conversion rate nearing pre-COVID levels, but more importantly, at approximately 50% higher rate of sales. I also remain very excited about the long-term prospect for TriMass Aerospace. While those are a few positive examples, unfortunately, our specialty product segment experienced a very different set of end market dynamics since the same quarter last year, and even since Q1 2024. Moreover, we have planned for demand to begin to recover in the second quarter of this year, predominantly within our Norris Cylinder business. total bookings and demand actually softened further, prompting us to lower our sales forecast within specialty products for the second half. In fact, the change in volume with our North Cylinder business is the main negative driver that impacted our first half and our annual outlook. Both Scott and I will be covering this dynamic in more detail throughout the call. So with that backdrop, our consolidated sales for the quarter were up 3.1% with our packaging and aerospace groups increasing 12.5% and 30% respectively. As noted, our specialty product segment experienced a reduction in sales driven from prior year overstocking and other factors of approximately 45%. Despite specialty products representing approximately 15% of TriMass' total portfolio sales, given our scale, the large rate of change had a profound performance impact in the quarter. I would now like to turn our attention to share repurchases for the first half of the year. On a year-to-date basis, including the actions in the second quarter, we repurchased approximately 672,000 shares for a net reduction of approximately 1.3% of shares outstanding. This rate of share repurchases is higher than the last year, and we continue to believe that reducing shares outstanding is a tax-efficient way to return long-term value to our shareholders. I will also note that we have ample room under our share buyback authorization and will continue to place a priority on opportunistic share buybacks as we assess value dislocating events in the market. Let's turn to slide four. On this slide, given the nuances of this quarter, We thought it would be helpful to take a few minutes to review sequential quarterly performance, which we believe will provide investors with a better view of our current status. Starting with TriMass packaging, we experienced 3.9% organic growth as compared to Q1 2024. We believe growth and demand is beginning to return as customers start to refill pipelines after inventory stocks were depleted in key channels last year. Additionally, commercial dynamics are much improved from last year based on our in-bookings rate and new business quoting activity. Conversion was essentially comparable between the first and second quarters of 2024 as our pull-through rate continues to be hampered from off-standard production and expedited freight costs from high demand on certain product lines. We do anticipate conversion rates will improve on a higher rate of sales as we move through the year and into 2025. Within our Trimass Aerospace Group, we compared to the first quarter of this year, as compared to the first quarter of this year, we are continuing to see positive results from the sweeping operational and commercial actions we have been focused on over the past year. While we still believe we have some upside to achieve on conversion To get back to pre-COVID levels, as mentioned, we are now operating at a much higher rate of sales, therefore driving growth in absolute EBITDA. This improvement is a testament to the TriMass Aerospace team collaborating with our supplier partners and also focusing on operational and commercial excellence improvements. Within our specialty product segment, as compared to the first quarter of this year, revenue softened by 5.8%. The resulting sales rate is a very low base for our specialty products group, and we believe we are now beginning to exit this cyclical demand trough. However, our expectations for sales in the second half have been tempered for our Norris Cylinder business, given the rate of demand experience in the second quarter. As such, we have implemented further flexing actions, now taking deeper structural costs out of our Norris Cylinder business, to improve performance even at a lower base of sales. And we know this is possible as we have performed historically better at sales rates not too far off from where we are experiencing today. Let's turn to slide five and I'll briefly go through our consolidated results for the quarter. We are reporting sales of 240.5 million up 3.1% as compared to the prior year quarter due to the factors previously discussed. Adjusted operating profit of $20.8 million was lower than the prior year quarter given demand challenges within our specialty products businesses, as well as certain favorable factors benefiting TriMAS in the second quarter of 2023, which did not repeat. Adjusted EPS was $0.43, which was lower than we anticipated in this quarter due to the factors noted previously and lower as compared to the prior year quarter. Adjusted EBITDA was 36.6 million or 15.2% of sales lower than the prior year quarter with the vast majority of the shortfall driven by demand changes and related conversion within our specialty products businesses. As we have noted on prior calls, our balance sheet remains strong and our low interest bearing senior notes do not mature until 2029. It is also important to note that we generated $11.4 million of free cash flow in this quarter, in line with last year, despite a lower base of absolute EBITDA, as we continue to focus on enhancing cash flow for TriMass. And finally, we finished the quarter with a leverage ratio of 2.6 times, slightly higher than the same quarter last year, but in line with the first quarter of 2024. At this point, I will now turn the call over to Scott, who will take us through TriMass' segment results. Scott?