Good day and welcome to the Ampco-Pittsburgh Corporation Fourth Quarter and Full-Year 2021 Earnings Results Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ms. Melanie Sprowson, Director of Investor Relations. Please go ahead, ma'am.

Thank you, Chunk, and good morning to everyone joining us on today's fourth quarter and fiscal year 2021 conference call. Joining me today are Brett McBrayer, our Chief Executive Officer; and Mike McAuley, Senior Vice President, Chief Financial Officer and Treasurer. Also joining us on the call today are Sam Lyon, President of Union Electric Steel Corporation; and Dave Anderson, President of Air & Liquid Systems Corporation. Before we begin, I would like to remind everyone that participants on this call may make statements or comments that are forward-looking and may include financial projections or other statements of the corporation's plans, objectives, expectations, or intentions. These matters involve certain risks and uncertainties, many of which are outside of the corporation's control. The corporation's actual results may differ significantly from those projected or suggested in any forward-looking statements due to various factors, including those discussed in the corporation's most recently filed Form 10-K and subsequent filings with the Securities and Exchange Commission. We do not undertake any obligation to update or otherwise release publicly any revision to our forward-looking statements. A replay of this call will be posted on our website later today. To access the earnings release or the webcast replay, please consult the Investors section of our website at ampcopgh.com. With that, I'll turn the call over to Brett McBrayer, Ampco-Pittsburgh's CEO. Brett?

Thank you, Melanie. Good morning and thank you for joining our call. As shared in today's press release, Ampco-Pittsburgh recorded a loss in the fourth quarter of 2021. This loss was driven primarily by the impact of inflationary headwinds that began last July and a non-cash asbestos liability adjustment. Despite these temporary setbacks, I'm encouraged by the ever-increasing demand for our products. Full-year backlog has increased 19%, with continuing momentum as we have entered the New Year. The diversification of our Forged and Cast Engineered Product segment continues to go well, with Open-die Forged Engineering Products backlog up over 300% at the end of Q4. As mentioned in prior press releases, we commenced price increases across all of our products to address negative inflationary costs, impacting primarily our Forged and Cast Engineered Product segment. These increases included new surcharges which capture the dramatic shifts in energy and transportation costs across our global operations. The transformation of our North American fixed assets in our Forged and Cast Engineered Product segment is on track, with completion targeted for mid-2023. Despite the challenges we have recently faced, we are confident that our path forward will facilitate long-term consistent profitability for our businesses. Although both segments have experienced supply chain constraints over the last six months, our Air and Liquid Processing segment's performance was impacted the greatest. Critical component lead times began to extend in the second half of 2021, impacting shipments in the fourth quarter. The lead times have stabilized, and these deferred sales will be realized in 2022. From a safety perspective, over the last 12 months, we conducted 18 high-risk assessments across our businesses. The goal of these assessments is to challenge our current work practices to ensure robust safeguards are in place for our employees. The engagement of our workforce and their actions to improve our work environment have been impressive. Our previous Air and Liquid Systems President, Terry Kenny, retired at the end of 2021. His successor, David Anderson, is joining the call this morning and will discuss the segment's performance in more detail. Dave?

Thank you, Brett. Good morning. I would first like to talk about our safety performance. In the fourth quarter, we had zero OSHA reportable accidents for all Air and Liquid locations. I would like to thank all three business units for their continued focus on safety. Our backlog continued to strengthen in the fourth quarter. At the end of 2021, our backlog was 28% higher than the prior year and 19% higher than the prior quarter. In January of 2022, our backlog continued to increase. Sales declined for both the quarter and the year primarily due to lower shipments of centrifugal pumps and custom air handling units. We continue to experience supply chain-related issues, including extended lead time on materials and customer-requested deferrals. While these supply chain issues impacted our business in 2021, they are short-term in nature and do not impact the long-term strategic direction of the business. Non-cash asbestos-related expense of $6.7 million drove the quarter to an operating loss of $5.4 million, compared to prior year income of $2.4 million. Full-year results declined due to the non-cash asbestos expenses and lower sales compared to the prior year. As we move forward, all three business units have identified new growth opportunities, and we are moving forward with new market initiatives, both in the United States and abroad.

Thank you, Dave. So, we'll now turn the call over to Sam Lyon, President of Forged and Cast Engineered Products. Sam?

Thank you, Brett, and good morning. From a sales perspective, backlog is up 25% from the low point of the pandemic, and up sequentially since the end of Q3, the segment's highest level since May of 2020. Supply chain worries and supply stability are becoming more of a factor in our customers' ordering decisions. Although there were supply issues to the market coming out of Ukraine and Russia, reliability of these sources is uncertain. As a result, we have seen more inquiries and questions from our customers regarding our potential available capacity since the war in Ukraine has begun. As stated in our last call, our first quarter is very strong for our non-roll Forged Engineered Product line. We also anticipate an improved roll sales mix with increased large forged roll sales starting in Q2 of 2022 and continuing into 2023. Inflation continued to impact operations in Q4 of 2021, continuing into Q1 of 2022. Materials and energy prices have remained elevated, and the volatility in Europe has been extreme. In the United States, natural gas has remained elevated at more than double the previous levels from around the midpoint of 2021. Key alloys, such as nickel and ferrochrome, were up over 80% since Q2 of 2021. In the U.K., natural gas spot prices have increased over 300% in Q4 and between 300% and 800% in Q1 of 2022. All costs, including refractory, transportation, and labor are higher. As I stated previously, our surcharge mechanism has some lag compared to actual costs. In Q4, our sales team was very busy implementing new surcharge mechanisms to address the energy and transportation costs. In addition to surcharge expansion, base pricing has been increased to address other general inflationary pressures, with the typical increase ranging from 5% to 7% over 2021 base pricing. Our ability to work with our customers to implement these pricing mechanisms is a testament to our value to the market. These pricing mechanisms will allow better stability throughout commodity cycles. Our previously discussed expansion and modernization programs for our U.S. plant assets continue to make progress. These investments will provide a lower cost structure in our roll business and further growth in the non-roll business, which is currently at capacity. On this note, we have seen a resurgence in the oil patch and a strong order book resulting from the increase in fracking. We expect to reach completion of our CapEx program by the middle of 2024. I will now turn it back over to Brett.

Thank you, Sam. At this time, Mike McAuley, our Chief Financial Officer, will share more detail regarding our financial performance for the quarter. Mike?

Thank you, Brett. I'll focus my comments on Q4 2021 results. Commentary on our full-year results is available in our earnings release issued this morning and will also be included in our forthcoming Form 10-K. There were a few large unusual items recorded during the quarter, namely a non-cash net asbestos-related liability and insurance receivable revaluation charge of $6.7 million, as well as reorganization-related costs of $1.4 million ending in reducing the corporation's long-term cost structure. The reorganization-related costs included early retirement incentives, a reduction in force charged for terminations at one of our cast roll manufacturing facilities, and costs associated with the closure of a foreign sales office entity. Please refer to the non-GAAP financial measures reconciliation table included in this morning's earnings release and the related footnotes. Ampco's net sales for the fourth quarter of 2021 were $84.5 million, a decrease of approximately 3% compared to $87 million for the fourth quarter of 2020. In the Forged and Cast Engineered Product segment, Q4 '21 net sales were compared to the same quarter of the prior year. But comparable is higher sales of forged engineered products offset lower sales of mill rolls. Net sales for the year on that wood processing segment in the fourth quarter of 2021 were 13% lower than the prior year period due to customer requests and deferrals and delays in receiving required components due to supply chain issues. Selling and administrative expenses of $11.5 million, or 13.6% of net sales for the fourth quarter of '21, were down compared to $12.1 million, or 13.9% of net sales for the fourth quarter of 2020. Lower employee-related costs and lower spending on research and development activities were offset by the impact from higher exchange rates and additional sales commissions on higher forged engineered product sales during the current year quarter. Depreciation and amortization expense of $4.4 million for the fourth quarter of '21 was down slightly compared to the prior year. Adjusted loss from operations for the fourth quarter of 2021 after the asbestos-related charge and reorganization-related costs was $4.6 million. This compares to adjusted income from operations in the prior year quarter of $2.3 million. The Forged and Cast Engineered Product segments operating results declined for the fourth quarter of '21 compared to prior year, primarily due to higher raw materials, energy, and other operating costs, net of surcharges passed through to customers, as well as higher maintenance spending associated with some extended machine outages, which more than offset the effect of higher sales and higher manufacturing cost absorption. Outside of the asbestos charge, the Air and Liquid Processing segments underlying operating results declined for the fourth quarter of 2021 compared to prior year primarily due to the lower volume of shipments, but benefited from changes in product mix and savings generated from process improvements. At the bottom line, the corporation reported a net loss attributable to Ampco-Pittsburgh of $12.3 million, or a $0.65 per share loss for the fourth quarter of 2021 compared to net income of $2.2 million, or $0.12 per share for the fourth quarter of 2020. Results for 2021 include the asbestos-related charge and the reorganization-related charge, which combined to increase the net loss by $8.1 million or $0.42 per common share. So, about 65% of the current quarter EPS loss was driven by these two unusual items. Backlog for the Forged and Cast Engineered Product segment improved 16% year-over-year. The increase is principally due to favorable product mix, surcharge and pricing for mill rolls along with increased demand for forged engineered products. In fact, the backlog for forged engineered products increased fourfold from a year ago. Backlog for the Air and Liquid Processing segment increased approximately 28% year-over-year, principally due to additional order intake for centrifugal pumps and higher on-hand orders for air handlers. Net cash flows used in operating activities were approximately $11.5 million for Q4 '21, primarily due to an increase in trade working capital associated with the higher level of business activity. Capital expenditures for the fourth quarter of 2021 were $3 million and our $15.2 million year-to-date, primarily for the Forged and Cast Engineered Product segment. At December 31, 2021, the corporation's balance sheet and liquidity position included cash on hand of $10.3 million and undrawn availability on the revolving credit facility of $34 million. Despite the Q4 book loss, total shareholders' equity as of December 31, 2021, grew by 8% or $6.8 million compared to December 31, 2020, and grew nearly 4% sequentially. This is driven by a significant improvement in the balance of employee benefit obligations, namely the higher funded status of our global pension plans from the rise in discount rates and good asset return performance during the year.

At this time, we would now like to open the line for questions.

Hi, good morning. Brett, you mentioned the mid-2023 target completion. Can someone explain what will happen between now and then, including the new equipment and other details?

Sure. And I'll let Sam kind of weigh out how the capital is going to be hitting the business, and the path forward from an improvement standpoint. Sam, you want to get that?

Yes, sure. Thanks, Brett. David, there are three aspects to it. There are a couple pieces of equipment for large roll processing, and that's our large backup rolls that have very good margin. And that's really stability for that product flow path. Those machines are being built as we speak, and will be installed in the next year, about 12 months from now. If you go to the work roll machines, that's on a similar path, and then the forged non-roll improvement, which is really growth, we're waiting right now on the permits to improve, which is in our plans to finish in 2023, and those furnaces to improve that growth will be installed beginning to mid-2023 to complete the capital.

And what facilities are those for?

The furnaces for the non-roll will go into Harmon Creek, and then the other machines, some of them will go into Harmon Creek, and some will go into Carnegie.

Okay, great.

So, the finishing machines go into Carnegie, and the roughing machines or the intermediate processing machines go into Harmon Creek.

Okay, thanks. And Mike, can you tell us, in the fourth quarter, how much of the forged and cast revenue was from non-roll, the Engineered Products revenue?

Right, 12%, 14% of the net, 15%.

Yes.

We have to validate that, but that would be rough numbers.

I'm sorry, I didn't hear; you were speaking that very softly.

Mike will validate the numbers, so… Did you get that, Dave?

No, I didn't hear a number.

It's estimated to be between 10% and 15%, but we're working to finalize that figure. It should be around $30 million, with about 25% of that amount expected in the fourth quarter, which would translate to approximately $8 million to $9 million out of a total of around $75 million to $70 million.

Got it. Okay, all right, thank you very much.

Thanks, David.

The next question will come from Justin Bergner with Gabelli Funds. Please go ahead.

Good morning, Brett. Good morning, Mike.

Morning, Justin.

You mentioned that customers are less willing to rely on rolls coming from Ukraine and Russia. Could you elaborate a bit more on how much of the overall market is supplied by facilities in those countries, and is it primarily captive for those markets or are those being exported to European markets, and now the customers need to find alternative suppliers for?

This is Sam, Justin. I can't provide specifics about the size or level of participation, but we are noticing activity, especially in Europe. One of our major customers there has contacted us and placed orders to replenish some rolls for that area. We're just beginning to observe that companies are assessing their exposure and considering their options. While I wouldn't categorize it as insignificant, there is potential for Western suppliers to gain market share.

Okay. Second question would be on the price increases that are being implemented in the first half of 2022 on the Forged and Cast Engineered Products side. Is it anticipated that those price increases will recover the entire set of inflationary forces to date across materials, freight, energy, and labor?

A significant portion of it, so we have two portions of the price increase. There's a base price increase to cover general inflationary pressures, and then there's a surcharge mechanism being implemented. That surcharge mechanism will reduce our exposure to roughly 20% of our customer base that will be non-covered. In those cases, we are going back, and more regularly visiting the base prices. So, we're either getting it through base price or we're getting it through surcharge mechanisms. A preferred method from our customer base and from us is the surcharge mechanism just because it's a lot easier and cleaner, but the anticipation is to capture those costs, yes.

The surcharge mechanism will not cover labor costs. Therefore, for customers who do not accept a full surcharge, there will be a more significant increase in base prices for those who do agree to the full surcharge mechanism.

That's accurate. So, yes, there's a smaller base price increase when there's a surcharge mechanism, a larger base price increase when there's no surcharge mechanism, correct.

Okay. And then, to the extent that certain inflationary forces are hard to recover, where would those be? Would that be more labor-oriented or any clarification there will be helpful?

More on the supply side, so you're tooling that you're purchasing. But again, those are lesser. I mean by far, labor would end up in base pricing, but the energy and natural gas and transportation are much bigger portion of our costs than the supply side.

Okay. And then, maybe one clarification question. The question on the CapEx project, just help me understand the difference between the finished machines and the intermediate machines? In terms of the key pieces of CapEx equipment, I'm not sure I followed there.

Well, the way, real briefly, where the process works is we forge the roll, so it's a rough forged blank. And then, it goes to what we call an intermediate machine or a roughing machine. So, that's to make the rough general shape for thermal processing. Then once the material is thermal processed at Harmon Creek, it goes to a finishing plant where the real fine detail is done. So, the finishing machines are doing the post-retreat work that makes the final product that the customer sees. The roughing equipment is just to get the material ready for heat treatment.

Got it. So, it's the second and third stages in the production process where the CapEx is addressing, and those are where you'll be able to meaningfully expand capacity and address limitations or bottlenecks?

Correct, correct.

Great, thank you, again.

I think, Justin, more significantly as well as take costs of process. If you look at, we've stated this before, but these are multipurpose machines, replacing multiple machines with one new one, which really accelerates the velocity through the manufacturing process as well as takes out costs. So, pretty excited about the opportunities we have here with this new capital.

Great, thank you, again.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Brett McBrayer for any closing remarks. Please go ahead.

Just before we get to the closing remarks, just for the record, I wanted to respond to the question about Forged Engineered Products sales for the fourth quarter. Just to get it in the record, there were $7.7 million in the quarter, and for the full year, $25.3 million, and the change year-over-year is about $7.5 million for Q4 versus the prior year.

Great. Thank you, Mike. Despite the challenges we faced in the second half of 2021, I'm encouraged by our progress over the past year toward our near-term goal of $450 million in revenue and double-digit EBITDA margins. I want to thank our employees for their hard work and dedication as we continue to transform Ampco-Pittsburgh. I also want to thank our shareholders and our Board for your continued support of our turnaround efforts. We remain confident in the actions we're taking and our expectations for much improved performance in our businesses as we conclude our capital improvement initiatives. Thank you for joining our call this morning.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.