Q2 2024 Park-Ohio Holdings Corp Earnings Call

August 8, 2024

Operator: Good morning, and welcome to the Park Ohio second quarter 2024 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. This conference is also being recorded. If you have any objections, you may disconnect at this time.

Good morning and welcome to the Park Ohio second quarter 2024 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. If 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 will be forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995.

Operator: Before we get started, I want to remind everyone that certain statements made on today's call will 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 relative risks and uncertainties may be found in the earnings press release as well as in the company's 2023 10-K, which was filed on March 6, 2024, with the SEC. Additionally, the company may discuss adjusted EPS and adjusted operating income, and EBITDA, as defined, on a continuing operations or consolidated basis. These metrics are not measured of performance under generally accepted accounting principles.

These forward-looking statements are subject to risk.

and uncertainties that may cause actual dealt results to differ materially

from those.

projected

A list of relative risks and uncertainties may be found in the earnings press release as well as in the company's 2023 10-K, which was filed on March 6, 2024, with the SEC. Additionally, the company may discuss adjusted EPS and adjusted

Operating Income, and EBITDA as defined, on a continuing, operations, or consolidated basis.

These metrics are not measured

of performance under generally accepted accounting principles.

For a reconciliation of EPS to adjusted EPS, operating income to adjusted operating income, and net income attributable to Park Ohio common shareholders to EBITDA, as defined, please refer to the company's recent earnings release.

Operator: For a reconciliation of EPS to adjusted EPS, operating income to adjusted operating income, and net income attributable to Park Ohio common shareholders to EBITDA as defined, please refer to the company's recent earnings release. I would now turn the conference over to Mr. Matthew Crawford, Chairman, President, and CEO. Please proceed, Mr. Crawford.

I would now turn the conference over to Mr. Matthew Crawford, Chairman, President and CEO . Please proceed, Mr. Crawford.

Matthew Crawford: Good morning, everyone, and thank you for joining this morning's call. We're excited to announce record revenue for the second quarter, as well as continued improvement in our margins and overall quality of earnings. We accomplished these strong results against a backdrop of stable but mixed demand, especially in our short cycle businesses, and excellent operating execution across most of the product portfolio. Our diversification once again proved to be our strength, and in particular, our investments in aerospace and defense were important positive contributors.

Good morning everyone and thank you for joining this morning's call. We're excited to announce record revenue for the second quarter as well as continued improvement in our margins and overall quality of earnings.

We accomplished these strong results against a backdrop of stable but mixed demand, especially in our short cycle businesses, and excellent operating execution across most of the product portfolio.

Unnamed Speaker: Our diversification once again proved to be our strength, and in particular, our investments in aerospace and defense were important positive contributors. While our engineering products group, a relatively long cycle business, continued to see elevated backlogs and benefited from some improved, While we expect some variability in our second half demand picture, in the aggregate, we see our business as very stable and expect to deliver year-over-year growth.

Unnamed Speaker: Our diversification once again proved to be our strength, and in particular, our investments in aerospace and defense were important, positive contributors.

Matthew Crawford: Supply Technologies and Assembly Components Group, both relatively short-cycle businesses, offset some softening demand in a handful of discrete markets with new business and strong execution. Meanwhile, our Engineered Products Group, a relatively long-cycle business, continued to see elevated backlogs and benefited from some improved. Delivery Performance. While we expect some variability in our second half demand picture, in the aggregate, we see our business as very stable and expect to deliver year-over-year growth.

Unnamed Speaker: Supply Technologies and Assembly Components Group, both relatively short-cycle businesses.

Unnamed Speaker: offset some softening demand in a handful of discrete markets with new business and strong execution.

Unnamed Speaker: While our engineer products group, a relatively long cycle business, continued to see elevated backlogs and benefited from some improved delivery performance.

Unnamed Speaker: While we expect some variability in our second half demand picture, in the aggregate we see our business as very stable and expect to deliver year-over-year growth.

Matthew Crawford: We also expect to make continual progress on our debt reduction goals and see the second half as meaningful from a free cash flow perspective, which is both seasonal and strategic given our change in business mix and lower capital requirements after the sale last year of some automotive assets.

Unnamed Speaker: We also expect to make continual progress on our debt reduction goals and see the second half as meaningful from a free cash flow perspective, which is both seasonal and strategic, given our change in business mix and lower capital requirements after the sale last year of some automotive assets.

Matt: Matt. We are pleased with our second quarter operating results which exceeded our expectations in most of our businesses and were highlighted by record consolidated sales of $433 million, adjusted EPS of $1.02 per share, and EBITDA is defined at $39.4 million, net sales of $433 million compared to $428 million a year ago and increased 4% from $418 million last quarter, continued growth in our proprietary fastener manufacturing business and improved sales in our capital equipment business where strong backlogs are being converted to sales, compared to 16.1% a year ago.

Matthew Crawford: Matt. We are pleased with our second quarter operating results, which exceeded our expectations in most of our businesses and were highlighted by record consolidated sales of $433 million, adjusted EPS of $1.02 per share, and EBITDA, defined at $39.4 million. Our strong results were driven by record sales and increased margins in our supply technology segment, better than expected results in our assembly component segment, and record sales and improved margins in our engineered product segment.

Speaker Change: with that i'll turn it over to that

Speaker Change: Thank you, Matt.

Matt: We are pleased with our second quarter operating results which exceeded our expectations in most of our businesses and were highlighted by record consolidated sales of four hundred thirty three million dollars.

Matt: adjusted EPS of $1.02 per share, and EBITDA is defined at $39.4 million.

Matt: Our strong results were driven by record sales and increased margins in our supply technology segment, better than expected results in our assembly component segment, and record sales and improved margins in our engineered product segment.

Matthew Crawford: Net sales of $433 million compared to $428 million a year ago and increased 4% from $418 million last quarter. Our second quarter revenues resulted from increasing demand in certain key end markets with notable strength in the aerospace and defense markets, continued growth in our proprietary fastener manufacturing business, and improved sales in our capital equipment business, where strong backlogs are being converted to sales. Our consolidated gross margin was 16.9 percent in the quarter, up 120 basis points from the second quarter of last year.

Matt: Net sales of $433 million compared to $428 million a year ago and increased 4% from $418 million last quarter.

Matt: our second quarter revenues resulted from increasing demand in certain key end markets with notable strength in the erospace and defense market continued growth in our proprietary faster manufacturing business and improved sales in our capital equipment business where strong backlogs are being converted to sales

Matt: Our consolidated gross margin was 16.9% in the quarter, up 120 basis points from the second quarter of last year.

Matthew Crawford: On a year-to-date basis, our gross margin increased 90 basis points to 17%, compared to 16.1% a year ago. The year-over-year improved gross margins are a direct result of ongoing efforts to improve customer pricing, reduce operating costs, and increase operational efficiencies throughout each of our businesses. We continue to focus on gross margin improvement through the implementation of value-driven initiatives in each business.

Matt: on a year-to-date basis our gross margin increased ninety basis points to seventeen percent compared to sixteen point one percent a year ago

Matt: The year-over-year improved gross margins are a direct result of ongoing efforts to improve customer pricing, reduce operating costs, and increase operational efficiencies throughout each of our businesses. We continue to focus on gross margin improvement through the implementation of value-driven initiatives in each business.

Matt: We continue to focus on gross margin improvement through the implementation of value-driven initiatives in each business.

Matthew Crawford: Our gap EPS of $0.95 was up 67% in the quarter, and our adjusted EPS of $1.02 increased 23% compared to $0.83 a year ago. Year-to-date adjusted EPS of $1.87 was up 21% compared to the same period last year. As I mentioned, we generated EBITDA of $39.4 million in the quarter, which was an improvement of 10% compared to a year ago. As a percentage of our sales, our EBITDA margin was 9.1% in the quarter, which is our highest EBITDA margin since 2018. On a trailing 12-month basis, our EBITDA has defined a total of $145 million.

Unnamed Speaker: Our gap EPS of $0.95 was up 67% in the quarter, and our adjusted EPS of $1.02 increased 23% compared to $0.83 a year ago. As I mentioned, we generated EBITDA of $39.4 million in the quarter, an improvement of 10% compared to a year ago. As a percentage of our sales, our EBITDA margin was 9.1% in the quarter, which is our highest EBITDA margin since 2018. On a trailing 12-month basis, our EBITDA has defined a total of $145 million.

Unnamed Speaker: Our gap EPS of $0.95 was up 67% in the quarter, and our adjusted EPS of $1.02 increased 23% compared to $0.83 a year ago.

Unnamed Speaker: Year-to-date adjusted EPS of $1.87 was up 21% compared to the same period last year.

Unnamed Speaker: As I mentioned, we generated EBITDA of $39.4 million in the quarter, and an improvement of 10% compared to a year ago.

Unnamed Speaker: As a percentage of our sales, EBITDA margin was 9.1% in the quarter, which is our highest EBITDA margin since 2018.

Unnamed Speaker: On a trailing 12-month basis, our EBITDA has defined a total of $145 million. The significant increase in EBITDA and free cash flow over the last 12 months have resulted in improvement in our net debt leverage of over 30% since June 30th of last year.

Matthew Crawford: The significant increase in EBITDA and free cash flow over the last 12 months has resulted in an improvement in our net debt leverage of over 30% since June 30th of last year. Consolidated operating income improved 28% to $24.6 million in the second quarter, and on an adjusted basis, operating income increased 11% to $26 million. In addition, operating income margins improved 120 basis points year-over-year, driven by continued strong profit performance in supply technologies and higher sales and improved margins in our engineered products.

Unnamed Speaker: Consolidated operating income improved 28% to 24.6 million dollars in the second quarter and on an adjusted basis operating income increased 11% to 26 million dollars.

Unnamed Speaker: In addition, operating income margins improved 120 basis points year-over-year, driven by continued strong profit performance in supply technologies and higher sales and improved margins in our engineered products. SG&A expenses were approximately $47 million and 11% of net sales in both periods. Interest costs totaled $12 million during the quarter, compared to $11.1 million last year, driven by higher interest rates in the current year.

Unnamed Speaker: in addition operating income margins improved one hundred and twenty basase points year-over-year driven by continued strong profit performance in supply technologies and higher sales and improved margins in our engineer product se

Matthew Crawford: SG&A expenses were approximately $47 million and 11% of net sales in both periods. Interest costs totaled $12 million during the quarter, compared to $11.1 million last year, driven by higher interest rates in the current year. Our effective tax rate was 19% in the quarter, which reflects the ongoing benefits from research and development tax credits and other tax planning initiatives to reduce our overall effective tax rate worldwide. As a result, we have lowered our expected full-year effective tax rate to between 21 and 23 percent to reflect the impact of these tax strategies.

Unnamed Speaker: SG&A expenses were approximately $47 million and 11% of net sales in both periods.

Unnamed Speaker: Interest costs totaled $12 million during the quarter compared to $11.1 million last year driven by higher interest rates in the current year.

Unnamed Speaker: Our effective tax rate was 19% in the quarter, which reflects the ongoing benefits from research and development tax credits and other tax planning initiatives to reduce our overall effective tax rate worldwide.

Unnamed Speaker: As a result, we have lowered our expected full-year effective tax rate to between 21 and 23 percent to reflect the impact of these tax strategies.

Matthew Crawford: During the quarter, we used operating cash of $3 million, primarily driven by increased working capital to support sales growth in certain businesses and due to the timing of the completion of capital equipment. Similar to prior years, we expect strong operating and free cash flow in the second half of the year, driven by continued strong EBITDA and lower working capital. Our liquidity continues to be strong and totaled $161 million at June 30th, which consisted of approximately $60 million of cash on hand and $101 million of unused borrowing capacity under our various banking arrangements.

Unnamed Speaker: During the quarter, we used operating cash of $3 million, primarily driven by increased working capital to support sales growth in certain businesses and due to the timing of completion of capital equipment projects.

Unnamed Speaker: Similar to prior years, we expect strong operating and free cash flow in the second half of the year, driven by continued strong EBITDA and lower working capital. Our liquidity continues to be strong and totaled $161 million at June 30th, which consisted of approximately $60 million of cash on hand and $101 million of unused borrowing capacity under our various banking arrangements. Turning now to our segment results, Supply Technologies generated record net sales of $203 million in the second quarter, led by a 56% increase in sales in aerospace and defense.

Unnamed Speaker: Similar to prior years, we expect strong operating and free cash flow in the second half of the year, driven by continued strong EBITDA and lower working capital levels.

Unnamed Speaker: Our liquidity continues to be strong and totaled $161 million at June 30th, which consisted of approximately $60 million of cash on hand and $101 million of unused borrowing capacity under our various banking arrangements.

Matthew Crawford: Turning now to our segment results, Supply Technologies generated record net sales of $203 million in the second quarter, representing a 3% increase year-over-year. We continue to see strong customer demand in several key end markets, led by a 56% increase in sales in aerospace and defense. Average daily sales also improved in the heavy-duty truck, off-road construction, electrical distribution, and consumer electronics and marketing. In addition, sales in our fastener manufacturing business grew 12% year over year as global demand for our proprietary products continues to be robust. However, slowing demand is expected in the semiconductor end market and certain consumer end markets throughout the rest of the country.

Speaker Change: Turning now to our segment results.

Unnamed Speaker: Supply technologies generated record net sales of $203 million in the second quarter, representing a 3% increase year-over-year. We continue to see strong customer demand in several key end markets, led by a 56% increase in sales in the aerospace and defense markets.

Unnamed Speaker: Average daily sales also improved in the heavy-duty truck, off-road construction, electrical distribution, and consumer electronics and marketing. In addition, sales in our fastener manufacturing business grew 12% year-over-year as global demand for our proprietary products continues to be robust. However, slowing demand is expected in the semiconductor agricultural equipment and certain consumer end markets throughout the rest of the country.

Unnamed Speaker: Average daily sales also improved in the heavy-duty truck, off-road construction, electrical distribution, and consumer electronics and markets.

Unnamed Speaker: in addition sales in our faster manufacturing business through twelve percent year-over-year as global demand for our proprietary products continues to be robust

Unnamed Speaker: Although revenues in many end markets continue to trend positively,

Unnamed Speaker: Slowing demand is expected in the semiconductor agricultural equipment and certain consumer end markets throughout the rest of the year.

Unnamed Speaker: Operating income in this segment totaled $19 million, an increase of 23% year over year. Operating margins were 9.4%, an improvement of 160 basis points from 7.8% a year ago. The higher profitability in the quarter was driven by an increase in sales of higher-margin products, lower operating costs in our supply chain business, and continued strong demand in our proprietary products. Operating margin was 9.6%, an increase of 210 basis points compared to the 2023 period.

Matthew Crawford: Operating income in this segment totaled $19 million, an increase of 23% year over year. Operating margins were 9.4%, an improvement of 160 basis points from 7.8% a year ago. The higher profitability in the quarter was driven by an increase in sales of higher-margin products, lower operating costs in our supply chain business, and continued strong demand in our proprietary... On a year-to-date basis, sales in this segment were a record $400 million, and operating income was a record $38.5 million. Operating margin was 9.6%, an increase of 210 basis points compared to the 2023 period.

Speaker Change: operating income in the segment totold nineteen million dollars an increase of twenty-three percent year-over-year

Unnamed Speaker: Operating margins were 9.4 percent, an improvement of 160 basis points from 7.8 percent a year ago.

Unnamed Speaker: The higher profitability in the quarter was driven by an increase in sales of higher margin products, lower operating costs in our supply chain business, and continued strong demand in our proprietary fastener business.

Unnamed Speaker: On a year-to-date basis, sales in this segment were a record $400 million, and operating income was a record $38.5 million.

Unnamed Speaker: Operating margin was 9.6%, an increase of 210 basis points compared to the 2023 period.

Unnamed Speaker: The strong quarterly and year-to-date results in this segment reflect our continued focus on expanding product margins, increasing sales in our higher-margin industrial supply business, and growing revenues in our proprietary fastener manufacturing. In our assembly components segment, sales were $103 million in the quarter, compared to $112 million a year ago. The year-over-year decrease in sales was driven by lower unit volumes on end-of-life programs and lower product pricing on certain legacy programs, which partially offset the sales growth on other OEM platforms. Segment operating income decreased to $6.9 million from $8.4 million a year ago.

Matthew Crawford: The strong quarterly and year-to-date results in this segment reflect our continued focus on expanding product margins, increasing sales in our higher-margin industrial supply business and growing revenues in our proprietary fastener manufacturing. In our assembly components segment, sales were $103 million in the quarter, compared to $112 million a year ago. The year-over-year decrease in sales was driven by lower unit volumes on end-of-life programs and lower product pricing on certain legacy programs, which partially offset the sales growth on other OEM platforms.

Unnamed Speaker: The strong quarterly and year-to-date results in this segment reflect our continued focus on expanding product margins, increasing sales in our higher margin industrial supply business, and growing revenues in our proprietary fastener manufacturing business.

Speaker Change: in our assembly component segment sales were hundred three million dollars in the quarter compared to or tweve mill dollars a year ago

Unnamed Speaker: The year-over-year decrease in sales was driven by lower unit volumes on end-of-life programs and lower product pricing on certain legacy programs.

Unnamed Speaker: which partially offset the sales growth on other OEM platforms.

Matthew Crawford: Segment operating income decreased to $6.9 million from $8.4 million a year ago. Profitability in the second quarter was impacted by lower unit volumes and product pricing, which more than offset margin expansion on several products resulting from implemented margin improvement initiatives. On a year-to-date basis, sales were $210 million compared to $222 million a year ago, and adjusted operating income margin was 7.4% compared to 7.7% a year ago. In this segment, we continue to implement profit improvement initiatives that will enhance operating margins in future quarters. Key initiatives include increasing customer pricing on low-margin products, improving operational efficiencies such as scrap production programs, increasing cycle times, reducing operating costs through the automation of certain processes, and increasing our rubber mixing capacity.

Unnamed Speaker: Segment operating income decreased to $6.9 million from $8.4 million a year ago.

Unnamed Speaker: Profitability in the second quarter was impacted by lower unit volumes and product pricing, which more than offset margin expansion on several products resulting from implemented margin improvement initiatives. On a year-to-date basis, sales were $210 million compared to $222 million a year ago, and adjusted operating income margin was 7.4% compared to 7.7% a year ago. In this segment, we continue to implement profit improvement initiatives that will enhance operating margins in future quarters.

Unnamed Speaker: Profitability in the second quarter was impacted by the lower unit volumes and product pricing, which more than offset margin expansion on several products resulting from implemented margin improvement initiatives.

Unnamed Speaker: On a year-to-date basis, sales were $210 million compared to $222 million a year ago, and adjusted operating income margin was 7.4% compared to 7.7% a year ago.

Unnamed Speaker: In this segment, we continue to implement profit improvement initiatives, which will enhance operating margins in future quarters.

Unnamed Speaker: Key initiatives include increasing customer pricing on low-margin products, improving operational efficiencies such as scrap production programs, increasing cycle times, reducing operating costs through the automation of certain processes, and increasing our rubber mixing capacity. For more information, visit www.parkohioho.com. In our Engineered Product segment, sales were a record $127 million and increased 7% compared to $119 million a year. Higher sales in the Industrial Equipment Group resulted from strong sales of new capital equipment.

Matthew Crawford: For more information, visit www.parkohioho.com. In our engineering product segment, sales were a record $127 million and increased 7% compared to $119 million a year, driven by higher demand in both our industrial equipment business and our forged and machined products. Higher sales in the Industrial Equipment Group resulted from strong sales of new capital equipment, primarily in North America and Europe. During the quarter, new equipment sales in North America grew 19% year-over-year. Also, sales of aftermarket parts and services in North America grew 12% year-over-year, while aftermarket sales in Europe and Asia were stable compared to a strong prior year quarter. During the second quarter, new equipment bookings were approximately $50 million, and the equipment backlog continues to be strong, totaling $173 million, an increase of 7% compared to backlogs at December 31st.

Unnamed Speaker: In our engineer product segment, sales were a record $127 million and increased 7% compared to $119 million a year ago.

Unnamed Speaker: driven by higher demand abboth our industrial equipment business and our forbes to machine products group

Unnamed Speaker: Higher sales in the industrial equipment group resulted from strong sales of new capital equipment.

Unnamed Speaker: primarily in North America and Europe . During the quarter new equipment sales in North America grew 19% year-over-year.

Unnamed Speaker: Also, sales of aftermarket parts and services in North America grew 12% year-over-year, while aftermarket sales in Europe and Asia were stable compared to a strong prior-year quarter. This more than offset weaker demand for rail forgings, which impacted our results. The increase in profitability year-over-year is driven by higher sales and improved margins, primarily in our industrial equipment. Compared to the first quarter, operating income almost doubled, reflecting significant operational improvements in the current quarter.

Unnamed Speaker: During the second quarter, new equipment bookings were approximately $50 million, and equipment backlog continues to be strong, totaling $173 million, an increase of 7 percent compared to backlogs at December 31st.

Matthew Crawford: Revenues in our forged machine products business increased 8% year-over-year driven by increased unit volumes on products sold into aerospace and defense. This more than offset weaker demand for rail forgings, which impacted our results. During the quarter, operating income in this segment was $6.3 million, compared to $3.2 million a year ago. And on an adjusted basis, operating income increased 20% year-over-year to $7.3 million. The increase in profitability year over year is driven by higher sales and improved margins, primarily in our industrial equipment.

Unnamed Speaker: Revenues in our forged machine products business increased 8% year-over-year driven by increased unit volumes on products sold into the aerospace and defense industry.

Unnamed Speaker: which more than offset weaker demand for rail forgings, which impacted our results.

Unnamed Speaker: During the quarter, operating income in this segment was 6.3 million dollars compared to 3.2 million dollars a year ago. And on an adjusted basis, operating income increased 20% year-over-year to 7.3 million dollars in the quarter.

Unnamed Speaker: The increase in profitability year over year is driven by higher sales and improved margins primarily in our industrial equipment group.

Matthew Crawford: Compared to the first quarter, operating income almost doubled, reflecting significant operational improvements in the current quarter. In our Forged to Machine Products business, profit flow through from the 8% year-over-year sales increase was offset by lower margins isolated in our forging operation. We have taken several actions to improve the results in this business, including personnel changes and operational improvements to reduce equipment downtime and increase production. The year-to-date period sales in this segment were $240 million, an increase of 2% compared to the 2023 period.

Unnamed Speaker: Compared to the first quarter, operating income almost doubled, reflecting significant operational improvements in the current quarter.

Unnamed Speaker: In our Forged to Machine Products business, profit flow through from the 8% year-over-year sales increase was offset by lower margins isolated in our forging operation. We have taken several actions to improve the results in this, including personnel changes and operational improvements to reduce equipment downtime and increase production. The year-to-date period sales in this segment were $240 million, an increase of 2% compared to the 2023 period. Adjusted operating income was $11.1 million compared to $13.1 million a year ago, with the decline due to lower margins on our forged and machined products.

Unnamed Speaker: We have taken several actions to improve the results in this plan.

Unnamed Speaker: including personnel changes and operational improvements to reduce equipment downtime and increase production efficiency.

Speaker Change: the year-day period sales in this segment were to our forty million dollars an increase of two percent compared to the two thousand and twentythree period

Matthew Crawford: Adjusted operating income was $11.1 million compared to $13.1 million a year ago, with a decline due to lower margins on our forged and machined products. And finally, corporate expenses totaled $7.6 million during the quarter compared to $7.8 million a year ago, and year-to-date, we're approximately 2% of net sales in both periods. Overall, our results in the second quarter were strong, and our results year-to-date have exceeded our expectations. With respect to our full-year guidance, we now expect year-over-year revenue growth to range from 2 to 4 percent due to slowing but stable demand in certain end markets. We continue to expect your improvement in adjusted EPS and EBITDA as defined. I'll turn the call back.

Unnamed Speaker: Adjusted operating income was $11.1 million compared to $13.1 million a year ago with a decline due to lower margins in our forged and machined products business.

Unnamed Speaker: And finally, corporate expenses totaled $7.6 million during the quarter compared to $7.8 million a year ago, and year-to-date, we're approximately 2% of net sales in both periods. Overall, our results in the second quarter were strong, and our results year-to-date have exceeded our expectations. With respect to our full-year guidance, we now expect year-over-year revenue growth to range from 2 to 4 percent due to slowing but stable demand in certain end markets. We continue to expect your improvement in adjusted EPS and EBITDA, as defined. Now I'll turn the call back.

Unnamed Speaker: And finally, corporate expenses totaled $7.6 million during the quarter compared to $7.8 million a year ago, and year-to-date were approximately 2% of net sales in both periods.

Unnamed Speaker: Overall, our results in the second quarter were strong and our results year-to-date have exceeded our expectations.

Matt: With respect to our full year guidance, we now expect year-over-year revenue growth to range from 2% to 4% due to slowing but stable demand in certain end markets. We continue to expect year-over-year improvement in adjusted EPS and EBITDA as defined. Now I'll turn the call back over to Matt.

Operator: Great, thank you very much, Pat. We'll now open the line for questions.

Matthew Crawford: Great, thank you very much, Pat. We'll now open the line for questions.

Speaker Change: Great, thank you very much, Pat. We'll now open the line for questions.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from the line of Dave Storms with Stonegate. Please proceed with your question.

Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Speaker Change: you may press our two if you would like to remove your question from the que for participants using speaker equipment it may be necessary to pick up your handset before pressing the starkeys one moment please will we pull for questions

Operator: Our first question comes from the line of Dave Storms with Stonegate. Please proceed with your question.

Speaker Change: our first question comes from line of dave storms with stone gate please proceed with your question

Dave Storms: Just hoping we could start with maybe some of the puts and takes on guidance. I know previously you were guiding to mid-single digits. It looks like... You know, that might be coming in at the lower end of that previous guidance between 2% and 4% on the top line. Are there any end markets that you're seeing as having outsize importance for this guidance? You know, anything that could put you on the higher or lower end. Really, any color here would be great.

Dave Storms: Just hoping we could start with maybe some of the puts and takes on guidance. I know previously you were guiding to mid-single digits. It looks like... You know, that might be coming in at the lower end of that previous guidance between 2% and 4% on the top line. Are there any end markets that you're seeing as having outsized importance for this guidance? You know, anything that could put you on the higher or lower end. Really, any color here would be great.

Speaker Change: Good morning.

Speaker Change: Morning, Dave.

Dave Storms: just hope ing we could start with maybe some of the puts and takes on guidance i know previously you will guide into msingle digits it looks like

Dave Storms: You know that might be coming in at the lower end of that previous guidance between two and four percent on the top line Are there any End markets that you're seeing as having outsized importance for this guidance You know anything that could put you on the higher lower end really any color here would be great

Matthew Crawford: That's a great, great question. You know, I think that broadly describes the sort of business-to-business. Capital Industry The manufacturing side of the business continues to be strong, but where we are seeing a very different view is in our book of customers that are more consumer-facing. So I think that it's a little hard to predict right now, quite candidly; there's a lot at play, but it doesn't disconnect too much from what you read in the Wall Street Journal.

Unnamed Speaker: Yeah, it's a great, great question. You know, I think that broadly describes the sort of business-to-business. The capital industry manufacturing side of the business continues to be strong, but we are seeing a very different view in our book of customers that are more consumer-facing. So I think that it's a little hard to predict right now, quite candidly; there's a lot at play, but it doesn't disconnect too much from what you read in the Wall Street Journal. What is unusual at an extremely high level is

Unnamed Speaker: that's a great great question

Unnamed Speaker: You know, I think that broadly described, the

Unnamed Speaker: sort of business-to-business.

Unnamed Speaker: capital, industry.

Unnamed Speaker: manufacturing side of the business continues to be strong. Where we are seeing a very different view is in our book of customers that are more consumer facing.

Unnamed Speaker: So I think that it's a little hard to predict right now, quite candidly. There's a lot at play, but it doesn't disconnect too much from what you read in the Wall Street Journal. What is unusual at an extremely high level is

Matthew Crawford: What is unusual at an extremely high level is the difference between where you see pockets of strength in any market connected to aerospace and defense, as we described, steel, for that matter, electrical, again, parts of the automotive business where they're reshaping it regardless of powertrain, you know, all continue to be fairly positive, but things that are a touch more consumer-facing are problematic. And the difference between those is double-digit growth versus double-digit shrinkage.

Unnamed Speaker: the difference between where you see pockets of strength

Unnamed Speaker: in any market connected to aerospace and defense as we described.

Unnamed Speaker: steel, for that matter, electrical.

Unnamed Speaker: Again, parts of the automotive business where they're reshaping it regardless of powertrain, all continue to be fairly positive, but things that are a touch more consumer-facing are problematic, and the difference between those are double-digit growth versus double-digit

Matthew Crawford: So I don't know that I would describe our forecast as meaningfully different. I think we have to appreciate the risks, though, that weren't here on the downside, if you will, in the prior or three months ago when we had this call, particularly on the consumer side. It feels a little more delicate. But having said that, in no way do I want to suggest in the aggregate that we don't feel that the positives outweigh the negatives and feel strongly that we'll have a stronger second half than we did last year.

Unnamed Speaker: trinkage so

Unnamed Speaker: I don't know that I would describe our forecast as meaningfully different.

Matthew Crawford: I understand. That's very helpful. Thank you.

Unnamed Speaker: I think we have to appreciate the risk, so...

Unnamed Speaker: that weren't here to the downside if you will in the prior or three months ago we had this call

Unnamed Speaker: particularly on the consumer side everything just feels little more delicate but having said that in no way to i want to suggest in the aggregate we don't feel that the positives outwegh the negatives and feel strennuously that we'll have a stronger second half then we did last year

Matthew Crawford: And then just looking at engineered products, you know, it had a really strong quarter, kind of top to bottom. I know you've mentioned in the past that EP is really an important driver for the company. How would you categorize the sustainability of this quarter's performance in engineered products?

Speaker Change: so that's very helpful thank you and then just looking at engineer products you know it had a really strong quarter

Speaker Change: kind of top to bottom i know you've mentioned the pas it you know e p is really an important driver for the company how would you categorize the sustainability of this quarter's performance and engineer products

Matthew Crawford: Let me give Pat a minute to think about that while I answer the easy part. For those of us that have been around this company for a while, we recognize that engineering products should have been, and will be again, the driver for quality earnings. In that segment, we have some of the most unique assets, some of the best brands, and also a nice diversification of Aftermarket versus OE. It's really a great business and has traditionally been a leader in terms of our business, both on the sales side periodically and also on the long cycle sales.

Unnamed Speaker: Let me, I'll give Pat a minute to think about that while I answer the easy part. The easy part is that the driver for quality of earnings should have been, and will again be, the driver for quality of earnings. In that segment, we have some of the most unique assets, some of the best brands, and also a nice diversification of Aftermarket versus OE. It's really a nice business and has traditionally been a leader in terms of our business, both on the sales side periodically and also in terms of long-term sales.

Unnamed Speaker: Let me, let me, I'll give Pat a minute to think about that while I answer the easy part.

Speaker Change: for those of us that have been around this company for a while we recognize that engineered products

Unnamed Speaker: should, has been, and will be again, the driver for quality of earnings in this business.

Unnamed Speaker: In that segment, we have some of the most unique assets.

Unnamed Speaker: Some of the best brands.

Unnamed Speaker: and also a nice diversification of

Unnamed Speaker: Aftermarket versus OE. It's really a nice business and has been a leader.

Unnamed Speaker: traditionally

Unnamed Speaker: in terms of our business, both on the sales side, periodically, and also the long cycle sales. This is a bit lumpy, but particularly on the quality of earnings and margins side.

Matthew Crawford: This is a bit lumpy, but particularly on the quality of earnings and margins side. We have sacrificed some of that due to execution, as we've discussed in prior calls because retirements, lack of knowledge, and supply chain challenges that while they've become a little easier are still challenging. Changes in geopolitics and how you source products, these are things that we continue to work through, and every day, we get a little better, but they're not a light switch.

Unnamed Speaker: This is a bit lumpy, but particularly on the quality of earnings and margins side. We have sacrificed some of that due to execution, as we've discussed in prior calls because retirements, lack of knowledge, supply chain challenges that, while they've become a little easier, are still challenging, changes in geopolitics and how you source products, these are things that we continue to work through, and every day, we get a little better, but they're not a light switch.

Unnamed Speaker: We have sacrificed some of that due to execution.

Unnamed Speaker: As we've discussed in prior calls, because.

Unnamed Speaker: Retirements, lack of knowledge, supply chain challenges that, while they've become a little easier, are still challenging.

Unnamed Speaker: changes in geopolitics and how you source products. These are things that continue to

Unnamed Speaker: We continue to work through and every day we get a little better, but they're not they're not a light switch. So, you know, that journey is underway. It hasn't been a demand issue. It's been an execution issue.

Matthew Crawford: That journey is underway; it hasn't been a demand issue; it's been an execution issue. We have made meaningful changes there in terms of personnel, we've spent meaningful dollars in terms of training, we've made changes in leadership, and we continue to attack this from all levels. So, what I would tell you is that, from a historical perspective, that business is still underperforming, meaningfully underperforming. So I don't mean to suggest that it's a low bar, but we would expect to see certain, maybe, again, it could be a bit lumpy, but we continue to expect meaningful improvement in that business over the medium term.

Unnamed Speaker: That journey is underway; it hasn't been a demand issue; it's been an execution issue. We have made meaningful changes there in terms of personnel, we've spent meaningful dollars in terms of training, we've made changes in leadership, and we continue to attack this from all levels. So what I would tell you is, from a historical perspective, that business is still, I don't mean to suggest that it's a low bar, but we would expect to see certain, maybe, again, it could be a bit lumpy, but we continue to expect meaningful improvement in that business over the medium term.

Unnamed Speaker: We have made meaningful changes there in terms of personnel, we've spent meaningful dollars in terms of training, we've made changes in leadership, we continue to attack this from all levels.

Unnamed Speaker: so what i would tell you is from historical perspective that business is still

Unnamed Speaker: underperforming, meaningfully underperforming. So I don't mean to suggest that it's a low bar, but we would expect to see, you know, certain maybe, you know, again it could be a bit lumpy, but we continue to expect meaningful improvement in that business over the medium term.

Pat: Yeah, Dave, this is Pat. I agree with Matt's comments. I think when you look at that segment of our business, we have seen meaningful improvement in our industrial equipment group. The backlogs have been strong, the bookings have been pretty consistent quarter by quarter, and the operational performance has improved to the point where we're approaching those double-digit operating income margins in that business. The acquisition of EMA and the transition into our business are underway.

Patrick Fogarty: Yeah, Dave, this is Pat. I agree with Matt's comments. I think when you look at that segment of our business, we have seen meaningful improvement in our industrial equipment group. The backlogs have been strong, the bookings have been pretty consistent quarter by quarter, and the operational performance has improved to the point where we're approaching those double-digit operating income margins in that business. The acquisition of IMA and the transition into our business are underway.

Pat: Hey Dave, this is Pat.

Pat: I agree with Matt's comments. I think when you when you look at that segment of our business, we have seen meaningful improvement in our industrial equipment group.

Pat: You know, the backlogs have been strong, the bookings have been pretty consistent quarter by quarter, and the operational performance has improved to the point where we're approaching those double-digit operating income margins in that business.

Speaker Change: The acquisition of Yilma and the transition into our business is underway. We expect a lot of good things to happen throughout Europe as a result.

Patrick Fogarty: We expect a lot of good things to happen throughout Europe as a result. They are performing as planned right now, and their backlogs continue to be strong. The challenges that we've been faced with have been isolated in our forging group.

Pat: We expect a lot of good things to happen throughout Europe as a result. They are performing as planned right now, and their backlogs continue to be strong. The challenges that we've been faced with have been isolated in our forging group.

Pat: they are performing as planned right now and their backlogs continue to be strong

Pat: The challenges that we've been faced with have been isolated in our forging group.

Matt: As Matt mentioned, we've made meaningful changes across the board in leadership, not only on the plant floor but across all aspects and all disciplines of the business, and we expect our customer base to continue to support that business going forward. So we expect improvement there and to get back to those historic levels. So that gives you a little bit more color, but we feel we're heading in the right direction there, and we expect continued improvement.

Patrick Fogarty: As Matt mentioned, we've made meaningful changes across the board and leadership, not only on the plant floor but across all aspects and all disciplines of the business, and we expect our customer base to continue to support that business going forward. So we expect improvement there and to get back to those historic levels that Matt mentioned. So that gives you a little bit more color, but we feel we're heading in the right direction there, and we expect continued improvement.

Matt: As Matt mentioned, we've made meaningful changes across the board in leadership.

Matt: not only on the plant floor but across all aspects and all disciplines of the business and expect our customer base to continue to support that that business going forward. So we expect improvement there.

Matt: and to get back to those historic levels that Matt mentioned.

Matt: So, that gives you a little bit more color, but we feel we're heading in the right direction there, and we expect continued improvement.

Steve Barger: Understandable. That's a great caller. Thank you. I'll get back in queue.

Unnamed Speaker: Understandable. That's a great caller. Thank you. I'll get back in queue.

Unnamed Speaker: That's a great caller. Thank you. I'll get back in queue.

Operator: Thank you. Our next question comes from the line of Steve Barger with KeyBank Capital Markets. Please proceed with your question.

Steve Barger: Thank you. Our next question comes from the line of Steve Barger with KeyBank Capital Markets. Please proceed with your question.

Speaker Change: Thank you. Our next question comes from the line of Steve Barger with KeyBank Capital Markets. Please proceed with your question.

Steve Barger: Uh, I'm doing okay. Um...

Steve Barger: Uh, doing okay, um... I think Pat mentioned in his prepared remarks increased pricing on some low-margin product lines. What percentage of the portfolio do you think is not priced for the value that you provide? And can you accelerate price actions in those areas?

Speaker Change: Thanks. Good morning.

Dave Hariam: It's Dave Hariam.

Steve Barger: I think Pat mentioned in his prepared remarks increased pricing on some low-margin product lines. What percentage of the portfolio do you think is not priced for the value that you provide? And can you accelerate price actions in those areas?

Steve Barger: Uh, doing okay. Um...

Steve Barger: I think Pat mentioned in his prepared remarks increased pricing on some low margin product lines. What percentage of the portfolio do you think is not priced for the value that you provide and can you accelerate price actions in those areas?

Pat: Steve, this is Pat. Yes, the answer is yes, and we've proven over the last few years that we've been able to get pricing across to our customer base. And, you know, as we've talked about, the labor inflation that we've experienced has been permanent, and we're still working to recover much of that. You know the raw material side of price increases has to be understood by customers, but we continue to look for ways to increase product pricing, especially within the automotive segment as volumes are lower than what was expected. Not going to be a material improvement, but coupled with operational efficiencies, value-driven floor, all of which will, you know, be a driver towards improved margins in that.

Patrick Fogarty: Steve, this is Pat. Yes, the answer is yes, and we've proven over the last few years that we've been able to get prices across to our customer base. And you know, as we've talked about, the labor inflation that we've experienced has been permanent, and we're still working to recover much of that. You know, the raw materials side of price increases has been easier for customers to understand. But we continue to look for ways to increase product pricing, especially within the automotive segment, as volumes are lower than what was expected. Not going to be a material improvement, but coupled with operational efficiencies, value-driven floor, all of which will, you know, be a driver towards improved margins in that segment.

Pat: Steve, this is Pat. Yes, the answer is yes, and we've proven over the last few years that we've been able to get pricing across to our customer base.

Pat: And, you know, as we've talked about the labor inflation that we've experienced,

Pat: has been permanent.

Pat: and we're still working to recover much of that.

Pat: The raw materials side of price increases has been easier for customers to understand, but we continue to look for ways to increase.

Pat: product pricing, especially within the automotive segment as volumes are lower than what was expected.

Pat: Not going to be a material improvement, you know, but coupled with operational efficiencies, value-driven initiatives.

Pat: floor, all of which will be a driver towards improved margins in that business.

Unnamed Speaker: Steve, I would say that if there's such a thing as a silver lining to COVID, I think the leadership across the board, and supply technologies was an early mover and thoughtful on it across a very complex portfolio of products, was pricing was addressed aggressively. And, you know, we had some pain, as you know, particularly in the automotive segment on that front, and that caused some losses.

Matthew Crawford: Steve, I would say that if there's such a thing as a silver lining to COVID, I think the leadership across the board, and Supply Technologies was an early mover and thoughtful on it across a very complex portfolio of products, was pricing was addressed aggressively. And, you know, we had some pain, as you know, particularly in the automotive segment on that front, and that caused some losses.

Unnamed Speaker: Steve, I would say that if there's such a thing as a silver lining to COVID...

Unnamed Speaker: I think the leadership in the business across the board and supply technologies was a early mover and thoughtful on it across a very complex portfolio products was pricing was addressed aggressively.

Speaker Change: and and we you know we had some some pains as you know particularly in the automotive segment on that front and that caused some losses and you know we've got ourselves in a much state much more stable circumstance. The good news is as Pat described while there's always opportunity

Matthew Crawford: And, you know, we've got ourselves in a much more stable circumstance. The good news is, as Pat described, while there's always opportunity, the opportunities are more limited. But nonetheless, I think that the inflation that exists in the market, the ongoing demand for certain pieces, allows us to keep focused on it, to keep pushing the lessons that we've learned from the past, keeping an eye on additional areas of volatility like freight.

Unnamed Speaker: And, you know, we've got ourselves in a much more stable circumstance. The good news is, as Pat described, while there's always opportunity, the opportunities are more limited. But nonetheless, I think that the inflation that exists in the market, the ongoing demand for certain pieces, allows us to... keep focused on it, to keep pushing the lessons that we've learned from the past, keeping an eye on additional areas of volatility like freight.

Unnamed Speaker: that the opportunities are more limited. But nonetheless, I think that the inflation that exists in the market, the ongoing demand in certain pieces, allow us to...

Unnamed Speaker: keep focused on it, to keep pushing the lessons that we've learned from the past, keeping an eye on additional areas of volatility like freight.

Unnamed Speaker: So I think the dynamics have changed in a positive way. Having said that, I don't, you know, I agree with Pat; the opportunity for it is not as meaningful as it would have been in the prior couple years.

Matthew Crawford: So I think the dynamics have changed in a positive way. Having said that, I don't, you know, I agree with Pat; the opportunity for it is not as meaningful as it would have been in the prior couple years.

Unnamed Speaker: So I think the dynamics have changed in a positive way. Having said that, I don't, you know, I agree with Pat, the opportunity for it is not as meaningful as it would have been in the prior couple years.

Matthew Crawford: Well, as you think about the new business that you're quoting, do you have more flexibility in there vis-a-vis escalators and that sort of thing than you did historically?

Unnamed Speaker: Well, as you think about the new business that you're quoting, do you have more flexibility in there vis-a-vis escalators and that sort of thing than you did historically?

Unnamed Speaker: Yep.

Speaker Change: As you think about the new business that you're quoting, do you have more flexibility in there vis-a-vis escalators and that sort of thing than you did historically?

Matthew Crawford: Contractually, that is an interesting question. There's no doubt that there have been challenges in the marketplace to some of the customary design of products and relationships. I can tell you de-emphasizing through asset sales, the automotive business, that's where the pressure is always worse and is at its worst. And I think that, you know, again, I talk a lot about having changed or evolved our business model to make us more sustainable from a quality of earnings perspective and a free cash flow perspective through the business cycle. You know, this is part of it.

Speaker Change: Yeah, no, that's, that's, you know, contractually, that is an interesting question. There's no doubt that there have been...

Speaker Change: challenges in the marketplace to some of the customary design of products.

Unnamed Speaker: and relationships. I can tell you de-emphasizing through asset sales, the automotive business, that's where the pressure is always worse. And is that its worst?

Unnamed Speaker: and relationships. I can tell you de-emphasizing through asset sales, the automotive business.

Unnamed Speaker: that's where the pressure is always worse and is that it's worstse and i think that that

Unnamed Speaker: And I think that, you know, again, I talk a lot about having changed or evolved our business model to make us more sustainable from a quality of earnings perspective and sustainable earnings and free cash flow through the business cycle. You know, this is part of it. So, no, there's no doubt that the evolution has been in the supply base's favor. Our business mix has been in our favor. Having said that, we deal with the biggest, most sophisticated companies in the world. Their hand's always out.

Unnamed Speaker: Again, I talk a lot about having changed or evolved our business model to make us...

Unnamed Speaker: More sustainable from a quality of earnings in a sustainable earnings and a free cash learning through the business cycle

Matthew Crawford: So, no, there's no doubt that the evolution has been in the supply base's favor. Our business mix has been in our favor. Having said that, we deal with the biggest, most sophisticated companies in the world. Their hand's always out.

Unnamed Speaker: You know, this is part of it, so no, there's no doubt that the evolution has been in the supply base's favor.

Unnamed Speaker: Our business mix has been in our favor. Having said that, we deal with the biggest, most sophisticated companies in the world.

Matthew Crawford: They always want the best deal. So, you know, I think that what we need to preserve and make sure is that we can meet them in the middle. And we have spent a lot of time over the last few years reducing our cost to serve, and we continue to do it. Whether it be in implementing pure restructuring and reducing footprint, as we've discussed, whether it be implementing new software tools and technology, our positioning of our business today is meaningfully better in terms of getting awarded new business at attractive prices that are accreted to our business.

Unnamed Speaker: They always want the best deal. So, you know, I think that what we need to preserve and make sure is that we can meet them in the middle. And we have spent a lot of time over the last few years reducing our cost to serve, and we continue to do it. Whether it be in implementing pure restructuring and reducing footprint, as we've discussed, whether it be implementing new software tools and technology, our positioning of our business today is meaningfully better in terms of getting awarded new business at attractive prices that are accreted to our business.

Unnamed Speaker: Their hand's always out. They always want the best deal. So, you know, I think that what we need to preserve and make sure is that we can meet them in the middle. And we have spent a lot of time over the last few years reducing our cost to serve and we continue to do it.

Unnamed Speaker: whether they'd be implementing pure restructuring and reducing footprint as we've discussed whether it be implementing new software tools and and technology our positioning of our business today is meaningfully better

Unnamed Speaker: in terms to get awarded new business at attractive pricing that's accreted to our business model.

Unnamed Speaker: And that's what it's all about, right? That's what it's all about. So I think that as we focus and begin to see the needle move a little bit in the second half and into 2025 on these new blocks of business, we're going to see better margins. Part of it is because, as you describe, the marketplace is a little bit, a little bit different. But part of it's because we reduced our cost of service.

Matthew Crawford: And that's what it's all about, right? That's what it's all about. So I think that as we focus and begin to see the needle move a little bit in the second half and into 2025 on these new blocks of business, we're gonna see better margins. Part of it because, as you described, the marketplace is a little bit different, but part of it's because we reduced our cost to serve.

Unnamed Speaker: and that's what it's all about right that's what it's all about so i'm i think that as we focus and begin to see the needle move a little bit in the second half in the two thousand and twenty five on these new blocks of business we're going to see better margins

Unnamed Speaker: Part of it because, as you described, the marketplace is a little bit different, but part of it is because we reduced our cost to serve.

Unnamed Speaker: Yeah, no, that's a good color and I guess as you think about your sales force today, do they have an understanding of the hurdle rate required to win new business? Do they have the tools they need? To make sure that you do walk away from business.

Matthew Crawford: Yeah, no, that's a good color. And I guess as you think about your sales force, do they have an understanding of the hurdle rate required to bid on new business? Do they have the tools they need to make sure that you do walk away from business that is less favorable? That, you know, when it doesn't make sense to

Unnamed Speaker: Yeah, no, that's good color. And I guess as you think about your sales force, do they have an understanding of the hurdle rate required to bid new business? Do they have the tools they need to make sure that you

Speaker Change: do walk away from businesses less favorable when it doesn't make sense to take it.

Matthew Crawford: Yeah, no, there's no question. I think the most, certainly the ACG and engineered components, the size, the sheer size of some of the orders and opportunities, and nature of the long-term agreements get a lot of attention from the whole executive team. You know, supply technology is certainly the most complex business where a lot of people touch pricing in the process, and some of our best opportunities are some of our smaller accounts.

Unnamed Speaker: Yeah, no, there's no question. I think the most, certainly the ACG and engineered components, the size, the sheer size of some of the orders and opportunities, and nature of the long-term agreements get a lot of attention from the whole executive team. Supply technology certainly is the most complex business where a lot of people touch pricing in the process, and some of our best opportunities are some of our smaller accounts. So, no, there's no question that's where we have continued to try and invest in business processes that identify not only low margin or underperforming accounts, warehouses, whatever, end markets, you name it, but we continue to invest heavily there in technology tools to make sure that we don't make

Unnamed Speaker: Yeah, no, there's no question. I think the most...

Unnamed Speaker: Certainly, the ACG and engineered components, the size, the sheer size of some of the orders and opportunities and nature of the long-term agreements get a lot of attention from the whole executive team.

Unnamed Speaker: Supply technology certainly is the most complex business where a lot of people touch pricing in the process, and some of our best opportunities are some of our smaller accounts. So no, there's no question that's where we have the most impact.

Matthew Crawford: So, no, there's no question that's where we have continued to try and invest in business processes that identify not only low margin or underperforming accounts, warehouses, whatever, end markets, you name it, but we continue to invest heavily there in technology tools to make sure that we don't make the So, no, you're absolutely, I think, hitting an important point, and I would tell you to the extent most of our portfolio are big orders that get attention with big companies and long-term contracts. We are, I won't say best in class, but we work every day to be best in class to make sure that our team makes the right decisions, even on the small orders at a place like supply technologies.

Unnamed Speaker: continue to try and invest in business processes that identify not only low margin or underperforming accounts, warehouses, whatever, end markets, you name it, but we continue to invest heavily there in technology tools to make sure that we don't make mistakes.

Unnamed Speaker: So, no, you're absolutely, I think, hitting an important point, and I would tell you to the extent.

Unnamed Speaker: Most of our portfolio are big orders that get attention with big companies and long-term contracts.

Unnamed Speaker: We are, you know, I won't say best in class, but we work every day to be best in class to make sure

Unnamed Speaker: that our team makes the right decisions, even on the small orders at a place like Supply Technologies. And I'm confident that today.

Matthew Crawford: And I'm confident that today we're meaningfully better than we were a year ago and two years ago, and I think we're going to be twice as good a year or two from now, given some of the investments we're making. So, no, I do feel pretty comfortable. And again, I don't want to say there is a silver lining to COVID, but when you have to address pricing across the board as a matter of life and death, you get a little better at this stuff, right?

Unnamed Speaker: We're meaningfully better than we were a year ago and two years ago, and I think we're going to be twice as good a year or two from now, given some of the investments we're making. So no, I do feel pretty comfortable.

Unnamed Speaker: And again, I don't want to say a silver lining to COVID, but when you have to address pricing across the board as a matter of life and death, you get a little better at this stuff, right?

Matthew Crawford: Right. And Pat, you said... Oh, sorry.

Patrick Fogarty: I'm just going to add that, you know, when we look at hurdle rates, whether it's with sales folks or the executive teams that run the business, we go very deep into that process and look at, you know, IRRs, return on capital, you know, if there's capital needed. So, those hurdle rates are well defined within each business. So, I would say that, you know, that's been an evolving process with each of them, whether it's the financial teams within each business or the sales teams within each business. So, I feel very good about kind of where we're at as we look at opportunities across the board. Steve Auer

Unnamed Speaker: Right. And, Pat, you said... Oh, sorry.

Speaker Change: I was just going to add that

Unnamed Speaker: You know, when we look at hurdle rates, whether it's with sales folks or the executive teams that run the business,

Unnamed Speaker: We go very deep into that process and look at, you know, IRRs, return on capital, you know, if there's capital needed.

Unnamed Speaker: So, and those hurdle rates are well described within each of the business, so I would say that, you know, that's been an evolving process with each of the, whether it's the financial teams within each business or the sales teams within each business.

Unnamed Speaker: So I feel very good about kind of where we're at as we look at opportunities across the board.

Matthew Crawford: Steve, I want to say one last thing. As we think about where we have underperformed, it hasn't been because of poor quoting or not understanding our hurdle of race. It has been by poor expectations, and we've seen that a bit in engineered products. And again, I'm not, I mean, we see it everywhere, but I'm saying some of the challenges of the retirements, of the loss of knowledge, those kinds of things affected our ability to convert some of the orders at what we expected. I'm not so sure that's a pricing issue or a visibility issue. I think it's more of an execution issue and one we're, again, trying to get better at every day.

Unnamed Speaker: Steve, I want to say one last thing. As we think about where we have been, we are not understanding our hurdle of race. It has been by poor expectations, and we've seen that a bit in engineered products. And again, I'm not, I mean, we see it everywhere, but I'm saying some of the challenges of the retirements, of the loss of knowledge, those kinds of things affected our ability to convert some of the orders at what we expected. I'm not so sure that's a pricing issue or a visibility issue. I think it's more of an execution issue and one we're, again, trying to get better at every day.

Steve Auer: Steve Auer

Steve Auer: Steve, I want to say one last thing. As we think about where we have

Speaker Change: underperformed, it hasn't been for because of poor quoting or not understanding our hurdle rates, it has been by poor execution.

Steve Auer: and we've seen not a fbit in engineer products

Steve Auer: And again, I'm not, I mean, we see it everywhere, but I'm saying some of the challenges of the retirements, of the loss of knowledge, those kinds of things affected our ability to convert.

Steve Auer: some of the orders at what we expected. I'm not so sure that's a pricing issue or a visibility issue. I think it's more an execution issue and one we're again trying to get better at every day.

Patrick Fogarty: Pat, you said bookings were good in some parts of engineering products. Can you talk more about that, and what were orders for the company this quarter?

Pat: And Pat, you said bookings were good in some parts of engineered products.

Speaker Change: Understood. And Pat, you said bookings were good in some parts of engineered products. Can you talk more about that and and what were orders for the company this quarter?

Patrick Fogarty: Yeah, so the bookings in the quarter, Steve, were $50 million, and really across several of our brands, in both Europe and North America, where we're seeing the most strength outside the U.S.

Unnamed Speaker: Yeah, so the bookings in the quarter, Steve, were $50 million, and really across several of our brands, in both Europe and North America, where we're seeing the most strength.

Pat: so the bookings in the quarter steve were fifty million and really across several of our brands

Steve Auer: in both Europe and in North America is where we're seeing the most strength.

Speaker Change: Backlogs continue to be good, and the operational improvements we saw, at least sequentially,

Speaker Change: we believe are sustainable and ha ' better throughput through the plants with a strong backlog it is good and it takes out a lot of ineffficiencies that we seen in the plants

Unnamed Speaker: Yeah, and I guess that's a good segue to my last question. I heard you say free cash flow will be better in the back half, which it typically is, but did you say what you expected for a full year free cash flow realization?

Patrick Fogarty: Yeah. And I guess that's a good segue to my last question. I heard you say free cash flow will be better in the back half, which it typically is. But did you say what you expected for a full year free cash flow realization?

Unnamed Speaker: Yeah, and I guess that's a good segue to my last question. I heard you say free cash flow will be better in the back half, typically is, but did you say what you expect for a full year free cash flow realization?

Patrick Fogarty: No, I did not comment on that, but we expect second half free cash flow to be $25 to $30 million, and year-to-date, we're at $13 million. So those are hurdles that we expect to exceed, but I'm comfortable laying that out for you right now.

Unnamed Speaker: No, I did not comment on that, but we expect second half free cash flow to be $25-30 million. And year-to-date, we're at $13 million. So, those are hurdles that we expect to exceed, but I'm comfortable laying that out for you right now.

Unnamed Speaker: No, I did not comment on that, but we expect second half free cash flow to be $25 to $30 million, and year-to-date we're at $13 million.

Unnamed Speaker: So those are hurdles that we expect to exceed, but I'm comfortable laying that out for you right now.

Matthew Crawford: Okay, I appreciate that. Thanks. I'm not going to miss the opportunity.

Matthew Crawford: I'm not going to miss the opportunity to say, you know, achieving record results after having sold a business that represented about 12% on average of our sales but 20-25% of our CapEx through the business cycle has changed our mix from a cash flow perspective permanently. So, you know, I'm not saying we don't have good ideas. We may spend a little more, and we may use a little air, but we are fundamentally a different business model from a capital perspective.

Speaker Change: Okay, appreciate that. Thanks. I'm not going to miss the opportunity to say, you know, achieving record results after having

Unnamed Speaker: sold a business that represented about 12% on average of our sales, but 20 to 25% of our CapEx through the business cycle has changed our mix from a cash flow perspective permanently.

Unnamed Speaker: So, you know, I'm not saying we don't have good ideas. We may spend a little more, and we may have a little air, but we are fundamentally a different business model from a cash flow perspective.

Unnamed Speaker: So, you know, I'm not saying we don't have good ideas, we may spend a little more on the layer, but we are fundamentally a different business model from a cash flow perspective.

Unnamed Speaker: I mean, yeah, that's kind of my point on some of the pricing questions, you know, but by exiting low-margin businesses where there are structural challenges to pricing, the whole portfolio becomes better. And I have to think there are other opportunities to do that. You guys provide a lot of value to your customers. If you're not getting adequately compensated, the question has to become why are you doing it?

Matthew Crawford: I mean, yeah, that's kind of my point on some of the pricing questions, you know, but by exiting low-margin businesses where there are structural challenges to pricing, the whole portfolio becomes better. And I have to think there are other opportunities to do that. You guys provide a lot of value to your customers. If you're not getting adequately compensated, the question has to become why are you doing it?

Unnamed Speaker: postale

Unnamed Speaker: I mean, yeah, that's kind of my point on some of the pricing questions, you know, you

Unnamed Speaker: but by exiting low margin business where there are structural challenges to pricing you know the whole portfolio becomes better and i have to think there's other opportunities to do that you guys provide a lot of value to your customersif you're not getting adequately compeensted the question has to become why are you doing it

Unnamed Speaker: You're preaching to the choir. And as I said, we're better today than we were last year. And we're going to be better tomorrow than we are today. So we are making the investments necessary to do that. And I would, you know, again highlight the use of technology as a key driver, particularly in supply technologies and making those decisions. The devil's in the details.

Matthew Crawford: You're preaching to the choir. And as I said, we're better today than we were last year. And we're going to be better tomorrow than we are today. So we are making the investments necessary to do that. And I would, you know, again highlight the use of technology as a key driver, particularly supply technologies, and making those decisions. The devil's in the details. But your point is absolutely well made.

Unnamed Speaker: You're preaching to the choir. And as I said, we're better today than we were last year. And we're going to be better tomorrow than we are today. So we are making the investments necessary to do that. And I would, you know, again, highlight the use of technology as a key driver, particularly at supply technologies and making those decisions.

Unnamed Speaker: But your point is absolutely well made. But we've made some real strides in this area, and we expect to continue to improve. But again, we've done it a couple different ways. So who are we structurally? You know, we just got out of a business that was too damn hard in this area. We've moved to businesses where your point is, we've got a little more leverage, a little more ability, and a little more opportunity to get paid fairly. And that was very difficult. Exactly like that.

Matthew Crawford: But we've made some real strides in this area, and we expect to continue to improve. But again, we do it a couple of different ways. So what are we structurally? You know, we just got out of a business that was too damn hard in this area, and we can't do it right. We've moved to businesses where, your point is, we've got a little more leverage, a little more ability, a little more opportunity to get paid fairly. And that was very difficult.

Unnamed Speaker: The devil's in the details, but your point is absolutely well made, but we've made some real strides in this area and we expect to continue to improve.

Unnamed Speaker: But again, we've done it a couple of different ways. One of them is structurally. You know, we just got out of a business that was too damn hard in this area. Right.

Unnamed Speaker: And we've moved to businesses where your point is, we've got a little more leverage, a little more ability, a little more opportunity to get paid fairly. And that was very difficult.

Matthew Crawford: Yep, I'm sure you sleep better with that cover. Thanks. Our customers are big and tough, and we've got to...

Matthew Crawford: Thanks. And again, our customers are big and tough, and we've got to do the right thing by them. So this isn't a straight line.

Unnamed Speaker: Thanks. And again, our customers are big and tough, and we've got to do the right thing by them. So this isn't a straight line.

Speaker Change: Yep, I'm sure you sleep better with that gone.

Unnamed Speaker: Thanks. And again, our customers are big and tough, and we've got to do the right thing by them. So this isn't a straight line.

Jamie Weiland: I appreciate it. Thank you. Our next question comes from the line of Jamie Weiland with Weiland Management. Please proceed with your question.

Unnamed Speaker: I appreciate it. Thank you. Our next question comes from the line of Jamie Weiland with Weiland Management. Please proceed with your...

Speaker Change: appreciate it

Operator: Thank you. Our next question comes from the line of Jamie Weiland with Weiland Management. Please proceed with your question.

Jamie Weiland: Hi fellas, you talked about the pickup of business in the airspace and defense side. Could you give us a little clarity on that? Are these new customers, existing customers with new projects?

Speaker Change: the longevity of these projects and how would you characterize the margins on the business you're picking up versus your existing business.

Matthew Crawford: Yeah, I'll kick off. I'm sure Pat will have things to say, too. One of the nice things about seeing some additional activity in aerospace and defense is that it does touch a large percentage of our product portfolio. And that's good news. So, you know, we have seen significant and discrete opportunities in our engineering products groups related to defense, particularly capital equipment for building things like ammunition and so forth. So very discreet also on the aerospace side and defense side as well, but aerospace in particular.

Speaker Change: I'll kick off, I'm sure Pat will have things to say. One of the nice things about seeing some additional activity in aerospace and defense is it does touch a large percentage of our product portfolio, and that's good news. So we have seen significant and discrete opportunities in our engineer products groups related to defense.

Speaker Change: particularly in capital equipment for building things like ammunitions and so forth. So very discreet there. Also on the aerospace side and defense side as well, but aerospace in particular, you may know that...

Matthew Crawford: You may know that, you know, five or six years ago, this became an area that we felt was a great adjacency for supply technologies and that, you know, those customers would appreciate our service model and our brand. And so that business has grown nicely. We had to sort of foster it a bit and support it a little bit during the more difficult times. But now that they're trying to reorient and improve their supply chains, I think we're in a great place. So we've seen the benefit of their supply and demand technologies. So, you know, we've seen fairly diverse and impressive, and I think sustainable improvement in those areas.

Operator: You know, five or six years ago, this became an area that we felt was a great adjacency for supply technologies.

Speaker Change: and that, you know, those customers would appreciate our service model and our brand. And so that business has grown nicely. We had to sort of foster it a bit and support it a little bit during the more difficult times, but now that they're trying to reorient their and improve their supply chains.

Speaker Change: I think we're in a great place, so we've seen the benefit of their and supply technology. So, you know, we've seen a fairly diverse and impressive and I think sustainable improvement in those areas.

Patrick Fogarty: Hey Jamie, this is Pat. May I mention the supply technology business, and we think about the OEMs and the commercial side of the business? Airbus and their Tier 1 suppliers are the ones we're supplying product to, and the growth opportunity is to supply more product, different types of Class C componentry, into those various programs. The margins typically are higher than other end market margins, so that business continues to grow, and we're seeing tremendous opportunities not only throughout Europe but also here in the States for those products. I, you know, I avoided talking about how it impacts our broader business.

Pat: a jigasthis is pat you may mentioned know the supply technology business and we think about the o ems and the commercial side of the business

Speaker Change: Airbus and their Tier 1 suppliers we're supplying product to. And the growth opportunity is to supply more product, different types of Class C componentry, into those various programs.

Unnamed Speaker: The margins are typically higher than other end market margins, so business continues to grow, and we're seeing tremendous opportunities not only throughout Europe but also here in the States for those products.

Unnamed Speaker: The margins typically are higher than other end market margins, so that business continues to grow, and we're seeing tremendous opportunities, not only throughout Europe , but also here in the States for those products.

Matthew Crawford: I forewent talking about how it impacts our broader portfolio. Instead, I should have talked about our forge group.

Speaker Change: I, you know, I forewent talking about how it impacts our broader portfolio. I should have talked about our forge group.

Matthew Crawford: We should highlight there that, for a while, we were significantly past due and unable to deliver because of the struggle to get aerospace-grade alloys to the forge, which the whole industry was experiencing and is talked about a lot at the highest levels at Airbus and Boeing. Those supply chains have improved a little bit, so we're able now to convert some of those orders. Again, I don't see this as a flash in the pan.

Unnamed Speaker: We should highlight there that for a while, we were significantly past due and unable to deliver because of the struggle to get aerospace-grade alloys.

Speaker Change: to the Forge, which the whole industry was seeing and gets talked about a lot at the highest levels at Airbus and Boeing. Those supply chains have improved a little bit, so we're able now to convert some of those orders. So, again, I don't see this as a flash in the pan. I see this as an industry that is reinvesting in on the defense side, and I see it as a commercial side that is...

Matthew Crawford: I see this as an industry that is reinvesting in on the defense side. I see it as a commercial side that is just beginning to sort out its supply chain issues. We want to be there to support it.

Speaker Change: just only beginning to sort out their supply chain issues and we want to be there to support it.

Jamie Weiland: excellent thank you

Matthew Crawford: Thank you. There are no further questions at this time. I'd like to turn the floor back over to management for closing remarks.

Unnamed Speaker: Thank you. There are no further questions at this time. I'd like to turn the floor back over to management for closing remarks.

Matthew Crawford: Thank you again for your time today, and I want to thank all of the Park Ohio family people that come to work every day and make this happen. That's what it's really all about, and we're, again, very pleased with the results, but at the same time, there's plenty of room for opportunity for improvement. Steve, you gave me a nice opportunity to talk about how our business model is evolving, and we expect continued deleveraging, and continued improvement in the quality of earnings, which to us means higher aggregate margins and better sustainable business on the free cash flow side. So that's where we're going, and I think this was a nice step in the right direction. Thanks, thanks, and have a great day. This concludes today's teleconference.

Unnamed Speaker: Thank you again for your time today, and I want to thank

Speaker Change: all of the purohi family people that could come to work every day and make this happen

Speaker Change: That's what it's really all about, and we're, again, very pleased with the results, but at the same time, there's plenty of room for opportunity for improvement. Steve, you gave me a nice opportunity to talk about how our business model is evolving.

Speaker Change: And we expect continued deleveraging, continued improvement in quality of earnings, which to us means higher aggregate margins and better sustainable business on the free cash flow side. So that's where we're going. And I think this was a nice step in the right direction. Thanks. Thanks and have a great day.

Unnamed Speaker: Thanks. Thanks, and have a great day!

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

Operator: [music]

Operator: Brian Sponheimer, Matthew Crawford, Patrick Fogarty, Christian Zyla [inaudible] Patrick Fogarty, Christian Zyla, Dave Storms Patrick Fogarty, Christian Zyla, Dave Storms, Yilma Abebe, Patrick Fogarty, Christian Zyla, Dave Storms, Yilma Abebe, Patrick Fogarty, Christian Zyla, Dave Storms, Yilma Abebe

Q2 2024 Park-Ohio Holdings Corp Earnings Call

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