Good morning, and welcome to the Park-Ohio Third Quarter 2022 Results Conference Call. 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 may be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. A list of relevant risks and uncertainties may be found in the earnings press release as well as in the company's 2021 10-K, which was filed on March 16, 2022, with the SEC. Additionally, the company may discuss adjusted EPS and EBITDA as defined. Adjusted EPS and EBITDA as defined are not measures of performance under Generally Accepted Accounting Principles. For a reconciliation of EPS to adjusted EPS and for a reconciliation of net income attributable to Park-Ohio common shareholders to EBITDA as defined, please refer to the company's recent earnings release. I will now turn the conference over to Mr. Matthew Crawford, Chairman, President and CEO. Please proceed, Mr. Crawford.

Thank you, and thank you all for joining the call this morning. Generally, we're pleased with the results during the quarter as we continue to see strong activity across our business and increasing consolidated earnings momentum. The 22% increase in sales was driven by strong customer demand across most end markets, ongoing new business activity, and increasing demand in some markets which have trailed during the last several years, namely rail, aerospace, and oil and gas. Earnings have been slower to respond, but our results show continuing improvement as a result of price adjustments, operating leverage, key investments that lower our operating costs, and now the largely completed cycle of restructuring, which resized or closed 14 global locations without any significant customer attrition. While we see no notable weakness in our demand forecast at this time, the ongoing Fed tightening cycle will continue to introduce demand risk into our forecast. Despite this, we are buoyed by several factors. First, many of our customers have had their production constrained by freight, supply chain, and/or labor issues. Regardless of end-customer demand, we anticipate some amount of restocking at many of these production sites. Second, we continue to see record backlogs in our Engineered Products group as we benefit from trends in infrastructure investments or reshoring. Third, we anticipate that any slowing in growth will provide us with the opportunity to capitalize even more on the investments we have made to drive value and performance in our business. Lastly, while the effects of COVID on labor and supply chains continue to linger, we will begin to pivot towards additional focus on our balance sheet and harvesting some of the significant cash investments we made during the last couple of years to protect our valued customers. With that, I'll turn it over to Pat to cover the quarter.

Thank you, Matt. Our third quarter results reflect continued improvement in most parts of our business. First of all, we achieved record consolidated sales totaling $436 million, an increase of 22% year-over-year. End market demand was strong across each of our business segments. Sales in our Supply Technologies segment were again at record levels during the quarter, and sales in Assembly Components and Engineered Products segment grew 27% and 15%, respectively, compared to the third quarter a year ago. During the quarter, adjusted operating income and EBITDA improved both year-over-year and sequentially as a result of the strong end market demand, increased customer pricing, and the impact of restructuring efforts implemented throughout our businesses. As a result, we generated positive operating cash flows during the quarter, and we expect continued improvement in free cash flow for the remainder of the year. Our gross margins in the quarter were 11.6% compared to 11.2% last year. On an adjusted basis, our gross margins were 12.2% in the current quarter, an increase of 50 basis points year-over-year. The current inflationary environment has impacted our gross margins and has caused higher raw material, labor, and operating costs in every aspect of our business. We have been successful in obtaining new pricing on many of our products, and we'll continue to actively pursue price increases with our customers to offset these higher costs. SG&A expenses were $43 million compared to $45 million a year ago. As a percentage of net sales, SG&A expenses were down from 12.6% a year ago to 10% in the current year quarter. Interest expense totaled $9.6 million compared to $7.6 million a year ago, with the increase driven by higher interest rates on our revolving credit facility compared to a year ago as well as higher average borrowings driven by the acquisitions we completed during the quarter and working capital needed to support the significantly higher sales levels. For the quarter, we recorded an income tax benefit of $3 million, which included discrete tax benefits totaling $2.4 million or $0.19 per share related to increased federal research and development tax credits, which we expect to realize in the future. Our GAAP EPS for the quarter was $0.22 per diluted share, which compares to a loss of $0.60 per share a year ago. Adjusted EPS, which excludes $5 million of one-time charges related primarily to plant closure and consolidation costs, improved to $0.52 per share in the quarter. Currency fluctuations negatively impacted our results by $0.03 per diluted share during the quarter. Operating cash flow in the third quarter was a positive $7 million compared to a use of $38 million in the first six months of the year. The positive cash flows in the third quarter were driven by improved profitability and reduced levels of working capital required during the quarter. As we have stated on previous calls, supply chain challenges, coupled with strong end market demand, have resulted in additional investments in working capital compared to historical levels. We estimate the additional investments in working capital approximate $60 million, which will convert to cash over the next 12 to 18 months as working capital returns to normalized levels. Our focus on increasing free cash flows in each of our business units is expected to reduce bank debt by $10 million to $15 million during the fourth quarter. EBITDA as defined more than doubled year-over-year, improving to almost $29 million from $13 million a year ago and $25 million last quarter. CapEx in the quarter and year-to-date totaled $8 million and $24 million, respectively. We continue to expect our full-year CapEx to approximate $30 million to $32 million. Our liquidity at the end of the third quarter was $164 million, which consisted of $54 million of cash on hand and $110 million of unused borrowing capacity under our various banking arrangements, which included $24 million of suppressed availability. In the third quarter, we used cash and increased borrowings totaling $22 million to complete the acquisitions of Southern Fasteners and Charter Automotive. Turning now to our segment results. In Supply Technologies, net sales were a record $186 million, up 6% over the previous record set last quarter and up 21% compared to last year's third quarter sales of $154 million. This is the third consecutive quarter of record sales in this segment in spite of currency headwinds that impacted sales by approximately $6 million in the quarter. Average daily sales in our supply chain business increased 18% year-over-year, driving the overall segment sales record. Sales were strong across most of our end markets with the largest increases in semiconductor, power sports, heavy-duty truck, and civilian aerospace. Sales increased across all geographies with particular strength in North America. In addition, our fastener manufacturing business continues to perform well, delivering record quarterly sales in the third quarter as demand for our proprietary self-piercing and clinch fastening technology continues to increase with the automotive OEMs around the world. Our recently completed acquisitions of Southern Fasteners and Charter Automotive performed well during the quarter. Our integration efforts are being implemented, and we expect both acquisitions to be accretive to our margins and our earnings per share. Adjusted operating income in this segment totaled $11.6 million in the current quarter, an increase of almost $1 million year-over-year as the profit flow-through from higher sales levels was partially offset by higher freight costs, including ocean freight and blank sailings as well as higher product costs. We expect average daily demand to continue to be at record levels for the remainder of the year in most end markets. In our Assembly Components segment, sales for the quarter were $153 million compared to $120 million a year ago, an increase of 27% year-over-year. Sales in the current quarter were higher primarily due to increased volumes from the business launched last year, which are now being produced at run rate volumes and the impact of increased customer pricing realized in the quarter. Segment operating income improved from a loss of $9 million in the prior year to a loss of $2 million in the current year quarter. On an adjusted basis, operating income was nearly breakeven in the current quarter compared to a loss of $5.5 million in the prior year. Although our third-quarter results improved year-over-year and sequentially in this segment, performance continues to be negatively affected by raw material pricing and higher labor and overhead costs. We continue to see sequential operating margin improvement in many of our products in this segment, including fuel-related and molded and extruded rubber products as a result of improved customer pricing and operational improvements. Segment losses in the quarter were isolated in one of our facilities and the impact of start-up costs in our new aluminum plant in Mexico. We continue to aggressively pursue price increases on several programs across every product category to offset the increased raw material and operating costs in this segment. For the remainder of the year, we expect continued strong customer demand and improved operating performance compared to the third quarter as a result of our initiatives. In our Engineered Products segment, second quarter sales were $97 million, up 15% compared to $84 million a year ago, driven by increased customer demand in both our capital equipment and Forged and Machine products business. In our capital equipment business, sales were up 8% compared to a year ago as customer demand for our equipment continues to be robust. New equipment bookings in the first nine months of the year totaled $175 million compared to $148 million a year ago, an increase of 18%. Equipment backlogs totaled $166 million at the end of September compared to $121 million at the end of last year. In our Forged and Machine products business, sales in the quarter were $30 million, which is their highest level since the first quarter of 2020 as our key end markets, including aerospace, rail, and oil and gas continue to improve from the previous two years. During the quarter, operating income in this segment was nearly $6 million compared to less than $1 million a year ago. The profitability improvement year-over-year was driven by the profit flow-through from the higher sales levels and implemented operational improvements in product pricing initiatives. We continue to see the benefits from cost reduction actions taken in prior quarters, including the consolidation of our crop forge facility into our Canton Drop Forge operations. We expect the installation of the production equipment, which includes a 50,000-pound forging hammer, to be substantially completed by the first quarter of next year. The additional production capacity will support large forgings to meet the increasing demand with our aerospace and defense customers. For the remainder of the year, we expect continued year-over-year improvement in sales and operating income in this segment as we convert our strong equipment backlog into sales and from the continuing recovery in key end markets in our Forged and Machine products business. Corporate expenses in the quarter of $7.5 million were approximately in line with $7.4 million a year ago. And finally, with respect to our current year guidance, we continue to expect full-year consolidated revenues to be at record levels with year-over-year revenue growth currently estimated at approximately 18%. In addition, we expect significant improvement in profitability for the full year compared to last year, and we also expect our fourth-quarter adjusted operating results to improve sequentially compared to the third quarter.

Great. Thank you very much, Pat. I will open the line for questions.

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

Good morning, and congrats on the record second quarter. Just wondering if you could start by going in a little more about the backlogs that you're seeing in the Engineered Products and the timing of turning those into sales?

Dave, this is Pat. Throughout the last six to nine months, we've seen record orders, record backlogs, and the timing of those pushing those orders through production ranges from six to nine months given the equipment being ordered. We've seen continued improvement in revenues. We expect that to continue. Key hurdles in being able to push capital equipment through your production facility is the ability of getting the supply chain in line. And over the last six months, we've seen some challenges on that front. We expect continued improvement. So the backlogs, we expect would kind of push through production through the first half of 2023.

And then just kind of on that supply chain front, I know you mentioned that freight has been a challenge. Are you seeing that starting to abate? Or are things like the water levels in the Mississippi continuing to cause headaches?

This is Matt. I would say that ocean freight, which has been our biggest constraint in terms of blank sailings and pricing, has stabilized. Pricing has decreased significantly, and we are also seeing improvements in availability and timeliness. Some of our lead times had extended for much of the year, but now we're witnessing more predictable shipments and much better pricing. I believe this trend will continue into the new year.

That's very helpful. And then from there, it sounds like you're starting to see demand remain strong and pick up as end users are resupplying shelves. Is that expected to continue into next year as well?

Yes. I mean I think in my opening comments, I referenced it's hard to suggest that the Fed will not succeed in diminishing end customer demand. There's no question. So I think our visibility is no better than anyone else's in terms of what that looks like with a 100% chance of recession, I believe, at this point. So the good news for us is that there is a fair amount of restocking that has to happen as well as some industries that are still recovering. Aerospace would be a notable one. So we do believe that whatever happens with the end customer or consumer that we're better positioned than most. So that's positive. I would also say that given the robust growth in the business, some stabilization of the business would cause us, I think, to be able to take a breath. I think labor, I think, has stabilized; availability has stabilized, but it's still not great. So I think that, again, whatever we give up in terms of growth rate, I think will be mitigated by the restocking and also will be a benefit to our operations as we seek to rebuild our margin line meaningfully.

Understood. All very helpful. One more for me, if I can. Just on the federal research and development credits. What's your visibility into those continuing into Q4 and beyond? Or is that more of a one-off?

Yes. Dave, this is Pat again. The current quarter R&D credits were 80% recurring and 20% were really one-off type credits. But one of the things that we've done over the last three years really since the Tax Reform Act is we have been focused on our tax planning initiatives around research and development credits, international opportunities, and we're seeing the benefits of that. We do not expect our efforts and our initiatives to slow down. We feel there's a lot of opportunity for us to continue to focus on reducing our effective tax rate anywhere we can. The third quarter was a good example now.

That's all very helpful. Thank you both for now. Hope you have a great, great rest of the quarter. Thanks.

Thank you. Our next questions come from the line of Jacob Moore with KeyBanc Capital Markets. Please proceed with your question.

Good morning, guys. This is Jacob on for Steve.

Good morning, Jacob.

I just wanted to ask my first question on the timing and confidence level in your free cash flow commentary. If end markets are relatively stable and even strengthen into next year, why are you confident that you'll be able to drive a big improvement in free cash flow? And maybe what kind of level are you targeting there?

Yes, Jacob, included in our working capital is embedded inefficiencies that have been caused by supply chain constraints, customer pricing being dragged out within our receivables. So there's plenty of opportunity for us to eliminate the excess. Clearly, some of the comments that Matt made around our supply chain and international freight, and any improvement that we get will result in lower inventory levels. So most of what we're referring to relative to free cash flow going into next year is going to be a result of reducing that embedded working capital we have since the start of the pandemic, which is roughly $60 million, as I mentioned in my comments.

I mean, I guess just a little bit to follow up on if the end markets are maybe flattish in '23 and '24, how much working capital are all of you think you need to run the business?

We generally consider a normalized level of working capital to be $0.24 on the dollar, though this can vary by business. This is the level we are comfortable with, which aligns with historical figures. We have initiatives underway in all of our businesses aimed at reducing working capital to eliminate some of the excess. If we experience growth, which we anticipate over the next one to two years, you can expect an increase in working capital to maintain that $0.24 on the dollar level.

That's good color. And then maybe a last one for me just to put a point on the debt reduction commentary. Do you guys have a quantitative goal for where you'd like the balance sheet to be and maybe what those targets look like as we look out to '23 and '24?

Yes, this is Matt. Pre-pandemic, we aimed for a debt-to-EBITDA ratio of 3x within an 18 to 24-month timeframe, and we remain committed to that objective. We have certain businesses in our portfolio performing exceptionally well, while others require improvement. As we enhance our earnings and move in a positive direction, we will build on our successes in the upcoming year by leveraging new business opportunities and increasing efficiency. We expect our earnings to stabilize, especially as we become more efficient in the post-COVID environment. Additionally, we plan to optimize our balance sheet. While our current debt level is slightly above our target, we believe our earnings are temporarily low and that we have resources available to improve our financial position. Maintaining a 3x debt-to-EBITDA ratio is still our goal.

And then if I could, just one quick one. I know you guys have done some restructuring, and you worked on in-plant efficiencies. But are there any businesses that you think are candidates for divesting at this point?

I believe that part of our process over the last few years, even before the pandemic, was to concentrate on our strongest products and businesses. We have focused on a capital allocation plan aimed at investing in ventures that we think can not only grow but do so with very attractive margins. That said, we have a strong portfolio of businesses that complement each other well. However, we are clear about our intention to sell off assets when we deem it necessary. We have completed several asset sales and continue to pursue more. While this has not involved selling off entire businesses, we are thorough in evaluating our business portfolio and identifying opportunities to invest in high-growth, high-margin enterprises. Therefore, I wouldn’t rule anything out.

Okay. Got it. Thanks for taking the questions.

Thank you. Our next questions come from the line of Yilma Abebe with JPMorgan. Please proceed with your question.

Thank you. Good morning. My first question is regarding the cyclicality of the cash flows and a recession. Perhaps you can remind us what was the cyclicality of the cash flows in prior cycles? And how could that be different this time around, given your current working capital build if we do have a recession in the next year?

Yes, this is Pat. As I mentioned earlier, we have some excess working capital, which tends to exit the business more quickly during a recession. Additionally, in many of our operations, especially in our supply chain segment, we typically see strong cash flow during recessions as our working capital decreases. This sector of our business is primarily working capital-intensive rather than capital-intensive. Thus, during a recession, our diversification strategy works to our advantage in terms of cash flow.

That's helpful. And then my second question is regarding kind of capital allocation. How do you think about allocating capital, more specifically purchasing your tradable bonds versus other uses of capital given that the returns for buying back the bonds versus other returns and other investments?

This is Matt. I want to echo Pat's comments. Since you've been with the company for a while, you know that if we enter a recession that affects our revenue base despite some restocking, we have benefited from significant cash flow. We currently have about $850 million in current assets on our balance sheet, which is a solid position. While that’s not our main focus, the scale of the opportunity is considerable and has been proven during past business cycles and downturns. I’m not implying that we are recession-proof; some of our manufacturing businesses are less vulnerable, but the recent restructuring, which resized 14 locations, involved some of the sites most affected by recessionary conditions. So if that situation arises, I believe we are well-positioned. Regarding our priorities, we are aware of how our bonds are trading and have occasionally repurchased some in the past. However, our main instinct is to concentrate on our business and support the growth we are currently experiencing, which exceeds 20%. Therefore, our priority will remain on the business and how we can best support it, while also keeping an eye on the bond situation.

Thank you very much. That's all I had.

Thank you. There are no further questions at this time. I would like to hand the call back over to Matthew Crawford for any closing comments.

Great. Thank you all for your time this morning. We appreciate your support and your insightful questions, and we look forward to showing continued improvements in the fourth quarter. Thank you very much.

This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.