Q4 2021 Park Ohio Holdings Corp Earnings Call
Ladies and gentlemen, thank you for standing by our conference will begin momentarily. Once again, thank you for standing by our conference will begin momentarily.
[music].
Yes.
Good morning, and welcome to the Park, Ohio fourth quarter and full year 2021 results conference call. At this time all participants are in a listen only mode. After the presentation. The company will conduct a question and answer session. Today's conference is also being recorded 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 to differ materially from those projected a list of relevant risks and uncertainties maybe found in the earnings press.
Release as well as in the company's 2020, 10-K, which was filed on March five 2021 with the SEC. Additionally, the company may discuss adjusted EPS and EBITDA as defined adjusted EPS and EBITDA as defined are not measures of performance under generally accepted accounting principles for a reconciliation of each.
As to adjusted EPS and for a reconciliation of net income attributable attributable to park, Ohio common shareholders to EBITDA as defined please refer to the company's recent earnings release I will now turn the conference over to Mr. Matthew Crawford Chairman President and CEO . Please proceed Mr. Crawford.
Good morning, and thank you for joining our fourth quarter call.
There are many challenges in the fourth quarter of 2021, but I want to begin by high I'm highlighting the continued momentum of our revenue growth despite significant demand volatility from our customers and the ongoing restructuring work within our business.
Our revenue was up 3% for the quarter and 11% for the year.
More importantly, though our revenue outlook will benefit from growing backlogs and new business activity in each of our three segments.
In fact, we expect 2022 to provide record or near record revenue levels.
These relatively strong fourth quarter revenues came at a steep expense and resulted in an adjusted loss of $13 million.
This loss overshadows, a tremendous amount of work, which has been done over the last 18 months to increase profitability and lower lower our overall expense structure.
Extraordinary costs related to premium freight raw material inflation and labor as well as unpredictable customer production schedules led to unreimbursed expenses and inefficiencies, particularly during the reemergence of Covid.
While these cost affected all of our businesses the assembly products group accounted for the vast majority of these challenges.
Reduced or erratic production schedules at customer assembly plants made managing our operations efficiently extremely difficult.
And resulted in increased costs, especially related to premium freight.
Additionally, the spike in aluminum and related raw material in our casting business and some of the labor challenges that were unique to our Midwest U S footprint and our casting business in our casting business amplified these issues dramatically we.
We anticipate ongoing improvement in this segment and some incremental raw material pricing benefits. The 2022 results in more normalized customer production levels occur as we move into mid year.
We also anticipate that more normalized production schedules will create sizeable operating leverage due to the restructuring that has occurred in this segment.
As a reminder.
In this segment, we have reduced our manufacturing footprint over the last two years by approximately 20% and continue to see positive new business Awards.
Given our strong product portfolio related to light weighting electrification and powertrain agnostic parts. We see this segment is providing meaningful contribution towards the end of 2022.
We also anticipate the benefit of growing backlogs and engineered products, while supply chain spy chain challenges will provide some level of uncertainty to the timing of these revenues and earnings. We are pleased the robust order activity, especially in the new energy space.
We will also benefit from improvements in some of our traditional end markets railcar belt aerospace and of course oil and gas investments had been weak on a sustained basis. During this recovery and we expect solid incremental improvements in each week.
We anticipate that these revenue improvements will provide significant operating leverage as engineered products has been undergoing significant restructuring during the eight during the last 18 months, which include the closure of multiple high cost facilities and the expansion of one of our forging facilities.
Despite the solid revenue outlook.
We are reluctant to give earnings guidance due to the ongoing challenges in the global industrial market.
While we anticipate there will be an important restocking cycle and underlying end market demand is strong production schedules are particularly vulnerable even at the last minute due to supply some supply chain issues up and down the value chain.
While we have some but limited direct exposure to Russia and Ukraine. It is clear the war will only put more pressure on these challenges globally and may add some additional expense.
Additionally, it's difficult to understand the full impact of inflation to end market and particularly consumer demand.
Regardless, we expect 2022 to be a year, where we benefit substantially from pricing initiatives reduced manufacturing overheads, which will provide improved earnings under almost all scenarios in short we expect at a minimum to return to solid adjusted profitability.
With that I'll turn it over to Pat to review the quarter.
Thanks, Matt.
Before I speak to the details of our fourth quarter results I want to make a few comments about our full year 2021 results overall, our consolidated sales met our expectations and customer demand continued to recover from 2020 levels as revenues for the full year were up 11%, we expect strong and mark.
Demand to continue throughout 2022.
Our supply technologies segment, which saw full year sales growth of 21% and a year over year operating income increase of $13 million or 42% continued to perform well in a difficult supply chain environment.
Our capital equipment, and forging backlogs increased in our engineered products segment at year end, and we expect increasing demand in the oil and gas rail and aerospace end markets. This year.
In our assembly components segment volatility in demand labor shortages and commodity inflation.
Continued to be challenging most notably in our aluminum casting business during the year our losses in our aluminum business negatively impacted our full year adjusted EPS by approximately $1 38 per diluted share.
Our ongoing restructuring efforts in our assembly components and engineered products segments, which have included several plant consolidations to reduce our fixed cost footprint will help drive improved profitability in 2022.
Now I'll review, our fourth quarter results.
Consolidated sales in the quarter were $370 million up 3% compared to $360 million a year ago with higher year over year sales occurring in our supply technologies and engineered products segments.
Sales in our assembly components segment were lower year over year as a result of the continued impact of the semiconductor chip shortage, which has caused production volatility throughout our automotive customer base.
GAAP EPS for the quarter was a loss of $1 48, and adjusted EPS, which excludes onetime nonrecurring items was a loss of $1 eight.
On a GAAP basis, our fourth quarter operating loss was $16 million on an adjusted basis, excluding the one time items related primarily to restructuring the gain on the sale of real estate, a goodwill impairment charge related to our aluminum business and other one time charges, our adjusted operating loss.
It was $9 million of which $10 million related to our aluminum business.
SG&A expenses in the quarter were $50 million compared to $38 million a year ago. The increase was driven by $4 $3 million of one time expenses in the 2021 fourth quarter and a return to more normalized levels.
Interest expense totaled $7 $7 million compared to $7 $4 million a year ago with the increase driven by higher average borrowings year over year.
The income tax benefit in the fourth quarter of.
$2 $8 billion, representing an effective rate of 13%, which is lower than the U S statutory rate of 21% as a result of higher taxable earnings.
In higher tax rate jurisdictions.
Our liquidity continues to be strong ending the year at $214 million, which consisted of $54 million of cash on hand.
$160 million of unused borrowing capacity under our various banking arrangements, which included $11 million of suppressed availability.
During the quarter, we sold our crop forged location for $20 million and recorded a gain on the sale of $14 million we.
To complete the consolidation of this location into our canton drop forge location during the year, which will drive higher future margins in this business.
For the full year 2021, consolidated sales were $1 $4 billion, an increase of 11% compared to 2020 levels each of our businesses, except the forged and machine products group saw increased customer demand compared to a year ago with the largest increase in our supply technologies segment, which was.
21%.
Our full year GAAP EPS was a loss of $2 seven.
And our adjusted EPS was a loss of $1 20.
The loss in 2021 was due primarily to the operating losses in our aluminum castings and in our forged and machine products businesses, which more than offset strong performance in supply technologies in our capital equipment business.
Turning now to our segment results.
In supply technologies net sales were $153 million during the quarter of 7% compared to $143 million a year ago average daily sales during the quarter were up 7% year over year.
In the quarter, we saw strength in many key end markets with the biggest increases in the semiconductor heavy duty truck agricultural and industrial equipment and civilian aerospace end markets. The civilian aerospace market was up 27% compared to the fourth quarter of last year.
We continue to have success with our new business initiatives centered around industrial supply and Midmarket accounts in 2021, new customers totaled over 600, including over 300, new customers in the fourth quarter and various products and end markets.
Our initiative to focus on middle market customers and industrial supplies is contributing to our sales growth in this segment.
Operating income in this segment totaled approximately $10 million in the current and prior quarter and excluding one time items adjusted operating margins were consistent at seven 1% in each period opt.
Operating income and margin were impacted by higher inbound domestic and ocean freight costs as well as increasing product costs, which were offset through higher sales levels and favorable customer pricing initiatives.
For the full year 2021, net sales were $620 million, an increase of 21% compared to 2020 levels driven by demand increases in virtually every key end market.
The higher sales and customer pricing initiatives drove higher operating income and margin, which were up $13 million and 100 basis points respectively.
And our assembly.
<unk> <unk> components segment sales for the quarter were $127 million compared to $132 million a year ago sales in the current quarter were again negatively affected by the ongoing semiconductor chip shortage weekly demand fluctuations and OEM plant shutdowns and delays impacted certain planned production schedules again this quarter.
The fourth quarter operating loss of $18 million. In this segment was driven by an operating loss of $10 $6 million in our aluminum business and $5 million of one time charges, primarily related to our ongoing plant closure and consolidation activities.
For the full year 2021, net sales in this segment and $483 million, an increase of 9% compared to a year ago.
Sales levels rebounded from the pandemic induced customer shutdowns, which incurred in 2020.
We expect continued sales growth in 2022, resulting from higher demand on previously launched products. The segment operating loss for the year was $26 million compared to operating income of $8 million in 2020 on an adjusted basis segment operating loss in 2021 was 17.
Million.
Compared to income of $12 million in 2020.
Ken our losses in this segment were isolated in our aluminum business, which had $19 million in operating losses on an adjusted basis.
We are aggressively addressing the losses in this segment by negotiating and implementing price increases across all product lines moving production to low cost facilities finalizing planned consolidations automating production and high labor areas and exiting nonprofit wool products. We expect these.
Actions to substantially reduce the segment's operating losses in 2022.
In our engineered products segment fourth quarter sales were $90 million compared to $86 million a year ago, an increase of 5%.
And our capital equipment business sales were up 8% compared to a year ago and were at their highest level since the pandemic began in the first quarter 2020 <unk>.
Bookings and backlogs in this business are up significantly compared to a year ago bookings of new capital equipment totaled more than $36 million in the fourth quarter, an increase of 23% compared to last year.
Our capital equipment backlog at December 31, 2021 was $164 million, an increase of more than 20% compared to a year ago.
Our strengthening performance in our capital equipment business was partially offset by the results in our forged and machine products business, where sales continued to be impacted by weak end market demand from several key end markets, including oil and gas rail and commercial and military aerospace during the quarter the segment's operating losses.
Due to one time expenses totaling $11 million of charges for various plant restructuring initiatives also as I mentioned earlier, we sold real estate for cash proceeds of $20 million and recorded a gain on the sale of $14 million.
For the full year 2021 sales were $336 million.
Compared to $345 million in 2020, the decrease was due to lower customer demand for our forged and machine products adjusted operating income excluding the $13 million of restructuring charges was $1 million in 2021 compared to $6 million a year ago.
During the quarter the strong profitability in our capital equipment business was more than offset by operating losses in our forged and machine products business, which were concentrated in two manufacturing operations.
We have implemented significant changes in these two operations, including leadership changes customer price increases and head count reductions as a result, we expect the results in the forging business to significantly improve in 2022.
And finally corporate expenses totaled $7 million during the quarter compared to $6 4 million a year ago on a full year basis, our corporate costs totaled approximately $26 million in both 2021 and 2020.
Looking ahead to 2022, we are forecasting strong revenue growth of approximately 15% over 2021 levels, which would be at record levels 2022 sales will be driven by strong customer demand in each segment. The revenue growth is expected in most end markets and supply.
Technologies increased volumes from several new products previously launched in assembly components and from the strength of our backlogs in our capital equipment and forged and machine products businesses.
Although we expect significant improvement in profitability in 2022, resulting in positive net income for the year, we will not provide further guidance at this time due to the supply chain headwinds inflationary pressures and labor challenges, which we expect to continue during the year.
Now I'll turn the call back over to Matt.
Thanks, Pat before I open it up for questions I want to take a moment and thank the park, Ohio team.
These have been.
Very intense times in the global industrial markets.
Whether it would be.
And the steady performance, we've seen at supply technologies some of the challenges at assembly components or the reemergence of the performance of engineered products.
All of the people that work in our business are working incredibly hard.
These are very very challenging times, and I want to acknowledge the professional and personal sacrifice that's happening throughout the business and thank everyone for their efforts.
And reaffirm that the growth we're seeing in the business are firms that we have the right products and customers to succeed increasingly as now we're substantially through a big portion of our restructuring we've got the right operating model.
We've got the ability to invest for the future and think long term.
And most importantly, we got the right team. So thank you to everybody.
A lot of good work was done in 2021 that we should all be proud of.
Having said that I'm happy to put it in history books, so with that I will open it up to questions.
Thank you we will now be conducting a question and answer session I would like to ask a question. Please press star one on your telephone keypad.
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Please while we poll for your questions.
Our first questions come from the line of Steve Barger with Keybanc capital markets. Please proceed with your questions.
Thanks, Good morning.
Good morning, Steve.
Matt Assembly products in general and now we know general aluminum specifically had a very tough year and looking at a tough start to 'twenty two most likely what can you do to make those business is more resilient and how is the conversation going with customers.
Yes.
Great question.
I want to start by saying.
Let's not lose sight I think of the strength of our product portfolio and our customers and our assembly components group and specifically at general aluminum.
Most of our peers.
In the automotive segment saw substantial deterioration.
In revenue quarter over quarter.
Kind.
Approaching flat so new business is impacting more broadly assembly components, we saw revenue gains and aluminum a lot of that is driven again by light weighting electrification sort of the overhaul. If you will of the automotive industry. So in spite of some of those challenges I want to reiterate we continue to be confident in the <unk>.
Is that where we're positioned.
Having said that.
The challenge is to.
Collect.
For unreimbursed costs.
At every line in the in the P&L has been a challenge and those conversations.
With customers intensified through the end of last year and continue today.
So we believe we are a strategic supplier to those customers. We believe that were in part important part of the value chain, our quoting activity in our volumes.
Sort of prove that to some extent and I think that we will.
We will benefit from that and our pricing model going forward.
I think our significant pain point was the fourth quarter.
We think we'll see the benefit of that some of it related to I think automatic pass throughs, particularly related to aluminum.
Some of them will be the subject too.
Yes.
Difficult negotiations, having said that.
I do think we've sort of bottomed out if you will and again I think we are strategically important to our customers and the conversations will reflect that but that's not all about the customers either I think we have.
It's incumbent upon us to continue to focus on reducing cost.
The.
The environment has changed significantly in automotive.
Certain models, which were very strong performers for us.
Not more than 18 months ago 12 to 18 months ago are not very strong performance. The mix has changed and has not changed in a way that benefits our business.
Areas, where we are less efficient were overwhelmed with distant and with business areas, where we're more efficient.
We don't have enough business, so we need to respond to that aggressively and I think Pat mentioned.
Our focus on on restructuring our footprint to meet our customers' needs long term and also to be able to.
Focus on taking cost out of our current business model.
Labor has really gotten a better of us in the fourth quarter.
We tried.
Tried to serve some of those needs, particularly in the Midwest and we need to we need to rise to the challenge there. So I don't want to make this all about the customers, but but we do need their help and I think we'll get some of that contractually loss for some additional and I think in the meantime, we got our work cut out for us to migrate the operating model to something that serves their needs long term.
Yes understood.
And you did say quoting activity is high I guess the quotes that you have out in the marketplace now adequately capture the current inflationary environment and this is a question for all three of the segments.
And can you structure contracts were quicker material cost adjustments.
Yes.
That's the big question these days isn't it.
So let me start Big picture and then we can sink our teeth into some of the tougher ones.
I really need to applaud our supply technologies and.
And acknowledge their steady performance throughout 2021, and that's I think that really answers. Your question, which is they were able to.
To a large extent meet the incremental costs.
And their business model not entirely I would assure you that we have not recaptured significant amounts of premium expedited freight are certainly on the cash side, we have had to invest heavily in increased inventories to protect our customers.
But I think those guys have done a fantastic job I think of trying to stay on the curve and that team is extremely focused so I want to complement them.
I will say.
The engineered products group.
Those not entirely but to a large extent those are less LTA focused so I think we have had the opportunity of equipments and obvious example, right we get to.
To quote business at.
<unk> margins and then we obviously ship that product and start again on the next project. So over a fairly limited amount of time, we're able to I think.
Quote that business and make sure we're sort of keeping up if you will our challenges there have been sort of less about I think pricing and more about refreshing pricing and more about supply chain and making sure that we can meet delivery schedules that continues to impact performance in that business.
Some of the challenges that you're discussing are squarely focused on automotive.
On the automotive World spent.
My whole business career, globalizing, signing long term agreements with all with productivity.
Leaning out everything in sight and automating all things that don't do well in an erratic.
Production environment so.
That that is where we have been damaged again, we will see some support particularly with aluminum as the contracts allow for some adjustments.
But unfortunately aluminum is not the only raw material, we use and a lot of those raw materials.
Not prone to quarterly adjustments.
And we got killed in the fourth quarter. So again, we're working I think with our strategic partners to address that and we expect that were important enough to get it. So no I think that I think for most of our business call. It.
80%, we've either gotten ahead of it stayed on it or have the opportunity to refresh more regularly.
The significant challenges have been in automotive not not to suggest that people really hasnt been working hard in the other businesses to stay ahead of it. It is the challenge of the day across the business.
Free cash flow was a use of $74 million last year I think about half of that was working cap.
What do you expect for operating cash flow. This year can you just talk through.
How that looks from a working cap standpoint, you already said you expect adjusted positive adjusted EPS and then maybe talk about Capex requirements, sorry, if I missed that.
No no problem.
Yes next year, we expect our working capital levels to remain relatively flat.
That is assuming that certain supply chain constraints will start to ease in the second half of the year.
That would be a very positive sign.
Which will drive positive operating cash flow.
We expect our capex.
For 2022 to range between 30 and $40 million.
We have to complete some some major projects during 2022.
Which would would push that number.
To the mid <unk>.
Expect positive free cash flow in the current year.
Steve do you want to add.
I wanted to add that we benefited from a non budgeted cash benefit of the building in Chicago.
We don't forecast those things and to be clear as we restrict continue to restructure the business, we expect to see benefits like that on budgeted benefits like that I think that's a particularly big one so I wouldn't.
Didn't think about it in terms of being overly material, but we will continue to find opportunities to benefit from the restructuring on the cash flow side and offset some of that some of the capital.
Understood. Thank you.
Thank you. Our next question is coming from the line of Marco Rodriguez with Stonegate capital. Please proceed with your questions.
Hey, this is quintin dialing in for Marco Thanks for taking my questions guys sure just had to in the past you've talked about all the activity you've been doing.
Improved manufacturing efficiencies can you provide some color on how much automation is playing a part.
Well, that's a great question and.
Let me start by saying.
We have.
<unk> invested heavily in automation across our business, particularly in automotive.
I think that that sort of table Stakes I think to drive efficiencies in the business.
Having said that.
I think some of the challenges.
And some of the erratic production schedules.
Our challenging the core belief that automation is always the right answer.
I think that where we have seen.
Some challenges are if you automate a production line that expects to make.
1000 parts a day every day for the next 10 years.
That's a great candidate for automation.
What we're seeing particularly in the automotive space.
That's not how it's playing out.
The production line either needs to 2100, so I would say that automation has been an important part of our growth and our opportunity to become more efficient and extract costs, but our team has to be incredibly nimble right now.
Developing a standard cost sheets to quote a job that relies on a significant capital investment.
Fundamentally requires that volumes are stable and consistent over a long period of time.
I would emphasize that what you say is true I would also emphasize that that's not a one size fits all solution and the volatility in some of these end markets is making it more difficult to automate.
Is exposing some of the labor challenges, even more and we saw some of that in our assembly products group inefficiencies related to where the.
The automation didn't work for the production volumes.
So.
I think that.
Labor is still a critical part access to labor.
In a way that suits the volatility of the customers and demand is still a very important part of this process and just continuing to automate isn't always the solution.
Okay.
Secondly could.
Could you guys talk about how you feel about your pipeline of opportunities heading into fiscal year, 2022, and maybe discuss how the aerospace and auto industries pipelines are looking.
That's a big question by the way.
So I would say that.
Hi.
IHS was just back out again back at it reducing.
Global production builds in sales numbers, but production built for.
The world.
Based on new data as it relates to the challenges in Ukraine, and Russia, I mentioned that.
While we didn't have a huge direct exposure, we have some and it's causing us to do some resourcing et cetera.
Perhaps some additional expense but to be clear nobody fully understands that the indirect risk I think to the war between Russia and Ukraine. We've heard obviously, we talk a lot about industrial gases in neon and metals like palladium, our wire harness production, it's I think still playing.
What that means to global production are we low insulated in the U S. Maybe a little bit certainly Europe is in the front lines at that problem, but in general I think that.
The first quarter will be unpredictable, but I think we recognize the restocking cycle.
Some increasing hopefully visibility on the supply chain and pretty positive year over year growth in the production side and car for the second third and fourth quarter. So I think what that number is I don't know.
But I think we can expect I think a broader set of more predictable build as the year goes on in auto.
Aerospace we are seeing incremental benefit I mentioned that in my comments.
Rail as well so no I think that.
We've sort of been waiting for those markets to re emerge and I think we're cautiously optimistic optimistic not that we're going to see 30 40, 50% surges in demand, but we will see very nice.
Multiple sort of GDP type growth.
Yes, I would add that within our supply technology business I mentioned in my.
Script that 600, new customers in 2021 300 in the fourth quarter.
Our customers rely on our supply chain.
Expertise and we're starting to see that.
With the supply chain constraints that you're seeing around the world.
We're seeing customers come to supply tech because they know we can get the job done and so the pipeline that we have within supply tech.
Is solid and we expect continued growth into the current year and throughout the current year.
So I think thats, an important part of our growth. This year I mentioned the backlogs in our engineered products group.
Thats buoyed by increases in end market demand in end markets that have been really stagnant over the last two years rail aerospace oil and gas, we're seeing a nice pipeline.
Of new business in that in those markets.
Okay.
I appreciate you guys, taking my questions. That's all I had.
Sure Okay. Thank you.
Thank you our next questions come from the line of Sarkis <unk> with B Riley. Please proceed with your questions.
Yes.
Good morning, Good morning, and thank you for taking my thank you for taking my question here just wanted to focus on the balance sheet real quick you sold some real estate here, which essentially finance fourth quarter ops you.
You have plenty of owned real estate as I look back on your previously filed 10-K, so disappointing Blink do you expect more asset sales or maybe even some sale leaseback arrangements or do you think youre operation will more than cover your liquidity needs to operate the business.
Well I'll take it in reverse order as I mentioned, we expect to be profitable. This year, so I think that that implies.
More positive EBITDA. So we think that moving forward for 2022, we'll be able to finance our own growth. So.
I think to that extent I don't think we'll need to.
Injure the balance sheet so to speak.
So that would be that's sort of prospectively, where we see ourselves going we paid heavily at your price to to not only related to some of the unreimbursed expenses in the fourth quarter, but also building inventories to protect our customers. We will anticipate unwinding some of that as things get more normalized so.
That will provide I think free cash flow that will be important to our growth and our financial stability on the balance sheet.
Now Youre right. The math would suggest that we spent the money that we got from the sale as I said a few minutes ago. I think we will continue to see opportunities in the restructuring I think that they.
There are few if any that will be the scale of that particular opportunity, but we certainly expect to.
Continue to benefit.
Chip from asset sales at the margin that we don't account for in our forecast.
That's helpful and just kind of looking through the release the definition of consolidated EBITDA was revised can.
Can you maybe go over the changes and amounts in detail and I suppose.
Which of these components do you expect to recur in fiscal 'twenty two if any.
The circus I'll address that so in November we amended our credit agreement.
Which changed the definition of EBITDA and as you know historically, we've always used a defined EBITDA.
When disclosing what that is in our press releases.
If you look at.
Page seven of the.
The press release, we outlined the add backs to our our net income the changes that were made in the current year were to allow for add backs for nonrecurring items related to restructuring and business optimization.
Also it allowed for the add back of of any Covid related expenses, which are either specific.
To that that issue or labor related issues that we spent money on.
On that particular item I would expect that to wind down in future peers.
Periods.
Because most of that money was spent so it allowed for a number of add backs most of the other noncash add backs were historically allowed for in that definition by our credit agreement.
I would say that when we look at that that whole calculation. It doesn't really any debt service coverage ratio doesn't come into play unless we blow through an availability covenant, which is about $46 million and we're very very far away from that.
So hopefully that's helpful for you.
Marcus I wanted to.
Address what can be an elephant in the room, which is which is our leverage.
As Pat mentioned.
That's not really.
Specifically related to our liquidity.
And again we.
We have stated not long ago.
That our goal our target leverage for the business was three times now that may seem a little distant at the moment, but again I think what our numbers are showing is we've got the.
Inherent.
Revenue.
And profitability in the business, particularly.
Particularly if you sort of think about that.
The area of focus around general aluminum we have the.
The inherent revenue and profitability to rebuild I think the EBITDA number to a point where that target is very much real again, so and then I think to boot, we've got well over $200 million worth of liquidity, which gives us the flexibility to continue to invest to build at or belong at or beyond our historic EBITDA levels.
I'm not suggesting it is not an important metric, but obviously.
Some of the challenges we had in the most recent six months.
I think it's a little less meaningful to the outlook of the business.
No I appreciate the color I guess this is a good for them to have the discussion because clearly the market is judging.
On the operations and kind of the environment, and obviously pricing the debt and equity securities. Accordingly, right. So just wanted to be able to kind of talk through this.
Moving on to topline growth guidance of 15%, maybe if you can talk to the specific drivers of the growth in for example, how much of that is driven by pricing.
And your outlook and how much by volumes.
Sorry, let's start.
And go over segment by segment, Alright, I mentioned in my script that the backlogs are extremely strong in our forging and in our capital equipment business.
That's due to a number of.
Two factors one is the improvement in end market demand in aerospace rail and oil and gas.
We should see.
Double digit growth in that segment as a result of that.
Those products typically are priced as you know capital equipment. We're pricing those is as we are negotiating the order.
So there is some some element of pricing in those growth numbers.
But but that's the nature of that business.
In our assembly components group I think the last two years have been so volatile relative to the impact of the <unk>.
<unk> and supply chain constraints.
We expect some normal normalizing of that.
That demand.
In addition, we've launched a number of products in 2021.
I'll give you. One example, which is about a $40 million block of business on our fuel Assembly for the Gen. Five engine for general Motors. So large blocks of business were being launched in 2021 that we expect to get to quoted volumes.
In 2022.
In addition in supply technologies.
I think the.
Demand. We're seeing is is based on the global economy.
Our business is 80%, 75%, 80% domestic we're seeing strong end market demand across every key end market.
And we expect that to continue in 2022.
Sorry, because I might I might add this color as well.
<unk>.
Every the vast majority of our end markets I can't say, all but let's just say, it's the vast majority of our key end markets certainly all the major ones.
Since pre Covid, we haven't lost a material customer and every one of those markets is seeing incremental incremental unit growth.
In 2022.
Incremental unit growth so while it is challenging given the diversity and complexity of our business to answer your question directly on a macro basis I think the important point here is we're seeing unit growth in all corners of the business and we haven't lost a material customer. So again, we've got the.
It is no surprise to us that we expect to be near or above record revenue.
And that's still with.
Parts of the business not hitting key unit growth pre pandemic unit growth for example, oil and gas for example, aerospace.
So no I think that we can feel confident that this is not just about inflation. This is about unit growth.
Good.
The drivers outlined are certainly very helpful and I guess, if we kind of step back for a second again very important piece to this puzzle here can you speak to solid profits for 2022 as a whole and positive net income for the year right. So my question is what the solid mean, because it means different things to different people and what is the cadence of getting back to.
Positive net income looked like through 'twenty, two do we expect to have a little bit of losses here in the front half and then the profitability to come through in the second half or do you think it is a little bit more evenly spread to get to that.
What are you guys expecting for the business.
So soccer. So this will be frustrating to you because I am.
I'm going to pick the word solid and it's we're.
We're not inclined to give any guidance right now so.
I think we got to leave it at that I think the point is is.
You know.
I suggested solid because we're not trying to just say we're going to make one penny we're not just trying to push it over the over the breakeven point, we believe we can be profitable in the context of the kind of revenue we are forecasting so.
Almost impossible to give you more granularity than that.
But we're just not we're not trying to just trying to knows our get our notes over the finish line here, we're trying to begin to rebuild the margin benefit from the restructuring that we saw.
And if we can achieve those goals, we would expect to.
To see substantial improvement in terms of the cadence.
We think there is a lot.
That is.
There are a number of things we've discussed that will benefit the early part of the year, but to be clear.
The early part of the year was continue to be a challenge I'm a crime was still a big factor in our business in January of <unk>.
Factor, whether it was a business a challenging February supply chain in some cases is worse than it was a year ago. So we will benefit from some of the things I discussed.
Pricing issues I think some.
Improvements I think as we eke into into March in particular, but the punch line is is the cadence will be measured as the year goes on.
And it's based on some of the assumptions that we've discussed some things will benefit us regardless and will start in the first quarter somewhat so.
<unk>.
Be decidedly.
Incremental as the year goes on not a hockey stick, but incrementals year goes on.
Got it.
So youre looking forward, it's the best we can do.
No no. That's helpful. Thank you very much.
Thank you our next questions come from the line of Steve Barger with Keybanc capital markets. Please proceed with your questions.
Hey, guys. Thanks, just a couple of follow ups.
I appreciate the comments on the segments and I think you said EPS will be up double digits does the new product launch activity gets you to double digit top line growth in assembly.
Yes.
And.
Supply Tech, obviously, very tough, 21% comps should we be thinking that's more single digit or is there enough activity out there domestically to drive that towards double digits.
I think I think that's reasonable Steve that to assume another 21% is unrealistic.
But I think you can assume that it will be more single digit type growth.
Understood.
Steve Despite they're pretty stable performance.
Last year at the revenue and the profitability line and very much needed and I appreciate that team's effort, it's a little bit like the classic duck. It looks very calm on the surface. It's not first Tom on the surface.
I mean.
The amount of notifications. These guys get on Friday for what customers are going to shut down the next week.
It's still unprecedented so right.
It is.
Expedited freight these are all fundamental issues that they're working through so it's going to be it's going to be tough, particularly in the early part of the year against as you point out pretty strong comps.
Those guys have done a great job and we expect them to continue doing a great job.
And last one I know you don't want to get a lot more specific around the guidance that you've given but.
Given everything that we talked about in assembly components.
Is it reasonable to think that even with improving activity in supply tech and EP. The consolidate EPS is probably still negative in <unk> at least before you start to get that sequential cadence through the year or do you think you're going to be positive in <unk>.
Steve We just can't.
We just can't answer it just as I apologize, but we can't go there I can't emphasize enough that we are having important conversations with key customers and asking the question.
How important are with you.
Right.
Results of those conversations matter and Thats those are particularly true and again I have confidence that we're very important but.
These are tough times and these are tough customers. So it would be impossible.
Particularly on an EPS basis to answer that question.
I understand thanks, so much for the time.
Thanks, David.
Thank you there are no further questions at this time I would now like to turn the call back over to Matthew Crawford for any closing comments.
Great.
As I mentioned earlier glad to put this one in the history books, but couldn't be more proud of our team.
I want to reemphasize that.
We have a great.
<unk> future and.
A lot to look forward to here and.
Again.
Upward and onward, thank you very much.
Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time and enjoy the rest of your day.