Good day, and welcome to the TriMas Second Quarter 2022 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Sherry Lauderback. Please go ahead.

Thank you, and welcome to TriMas Corporation's second quarter 2022 earnings call. Participating on the call today are Thomas Amato, TriMas' President and CEO; Scott Mell, our Chief Financial Officer; and Paul Swart, our Chief Accounting Officer. We will provide prepared remarks on our second quarter results and our outlook, and then we will open up the call for your questions. In order to assist with the review of our results, we have included the press release and PowerPoint presentation on our company website at trimascorp.com under the Investors section. In addition, a replay of this call will be available later today by calling (888) 203-1112 with a replay code of 7250176. Before we get started, I would like to remind everyone that our comments today, which are intended to supplement your understanding of TriMas, may contain forward-looking statements that are inherently subject to a number of risks and uncertainties. Please refer to our Form 10-K and our second quarter 10-Q that will be filed later today for a list of factors that could cause our results to differ from those anticipated in any forward-looking statements. Also, we undertake no obligation to publicly update or revise any forward-looking statements, except as required by law. We would also direct your attention to our website where considerably more information may be found. In addition, we would like to refer you to the appendix in our press release issued this morning or included as part of this presentation for the reconciliations between GAAP and non-GAAP financial measures used during this conference call. Today, the discussion on the call regarding our financial results will be on an adjusted basis, excluding the impact of special items. With that, I'll turn the call over to Tom Amato, TriMas' President and CEO. Tom?

Thank you, Sherry. Good morning, and welcome to our second quarter earnings call. Let's turn to Slide 3. As we reflect on our second quarter performance and take into consideration the challenging economic period we are in, I would like to acknowledge and thank our global team members for their continued commitment and dedication. It will come as no surprise that our businesses are not immune to the lingering effects of the pandemic, inflationary pressures, and other factors impacting production such as labor availability and supply constraints. To add to these dynamics, we are experiencing in certain product lines higher customer demand as compared to our planning models, while in other product lines we are seeing softer demand, all driven by our customers seeking to bring their inventories into balance to be responsive to their customers' needs. These effects translate in some cases to operating at less than our pre-pandemic efficiency levels in our production facilities as our daily and weekly scheduling is often adjusted to accommodate our available labor force or material constraints. As we remain flexible in this economic environment, the relentless commitment of our local teams to support our customers makes a significant performance difference. So again, I thank our global team for their continued strong efforts. With that background, despite this very dynamic operating and demand environment, we are pleased to report adjusted earnings per share of $0.60, which is in line with our planning model for the quarter. Additionally, in light of the many actions we have taken over the past few years to strengthen our balance sheet, and given the recent dislocation in the equity markets, we have repurchased nearly 1 million shares since the beginning of the year, reducing our shares outstanding by approximately 1.8%. We have approximately $115 million available under our share repurchase authorization, which is adequate to allow us to opportunistically repurchase shares in combination with investing to execute against our long-term strategy. I'd also like to note that we believe companies with a strong balance sheet and exceptional cash flow are the ones that will be best positioned to thrive in uncertain times. With that said, Scott will discuss in his section additional cash generation actions we are taking to ensure we maintain a strong balance sheet and solidify second half performance. Let's turn to Slide 4 where I'll cover our financial performance for the quarter. Sales were approximately $238 million, up 8.5% compared to the prior year quarter, driven by organic sales of 3.5% and sales from acquisitions, which contributed 7.2%, partially offset by unfavorable foreign currency exchange of 2.2%. Sales increased in all three of our segments, with the most significant increase in our Specialty Products segment, driven by continued industrial demand for products within our Norris Cylinder and aero engine businesses. Sales were also up within TriMas Packaging driven by acquisitions, and sales were up within TriMas Aerospace as we continue to see signs of returning demand in the aerospace market generally. Adjusted operating profit for the quarter was $32 million or 13.5% of sales, which was $2.1 million higher than the prior year quarter, but 20 basis points lower in margin largely due to product mix and higher energy costs in Europe. Adjusted net income was $28.8 million or $0.60 per share, and this was slightly lower than the prior year quarter due to an approximately $3 million or $0.07 per share tax planning benefit that occurred in the second quarter of 2021. Finally, adjusted EBITDA was $48.3 million in the quarter or 20.3% of sales, and on an LTM basis was $176.8 million, a $12.7 million increase over June 2021 adjusted LTM EBITDA of $164 million. We accomplished this earnings growth while also keeping net leverage in check and reducing our shares outstanding. We believe over time that our momentum in growing cash earnings, coupled with maintaining a strong balance sheet, will drive long-term shareholder value. At this point, I will turn the call over to Scott, who will take us through our balance sheet and segment performance. Scott?

Thanks, Tom. Let's turn to Slide 5. As Tom mentioned in his opening comments, we continue to maintain a strong balance sheet and liquidity profile, which we believe will position us well to execute against our long-term strategy. As of June 30, we maintained $348.1 million of unrestricted cash and availability under our credit facilities, and had net leverage of 2x, even after recent acquisitions and share repurchases. I will also highlight that Q2 '22 free cash flow of $15.5 million, which is slightly lower than the same period last year, is a result of proactive procurement actions in response to global supply chain disruptions as we actively managed our inventory balances to ensure continuity of supply for our customers. Finally, and as mentioned earlier, we are actively taking steps to further bolster our balance sheet in support of executing our long-term strategy. For example, in July, we closed out deep in-the-money cross-currency swaps and are in the process of disposing of excess land, which together should yield more than $30 million in cash proceeds before taxes. We will continue to assess additional opportunities to strengthen our balance sheet as they become available. Now let's turn to Slide 6, and I will begin my review of our segment results, starting with TriMas Packaging. Our Packaging segment results for the second quarter included another record-setting sales performance. Net sales of $148.4 million increased $8.8 million or 6.2% compared to the year ago period. Acquisitions contributed $14.4 million of sales during the quarter, while the impact of unfavorable foreign currency translation reduced sales by $4.8 million during the quarter. Organic sales decreased by less than 1% when compared to the prior year period, as we are comparing to the second quarter of 2021, which was the last quarter that significantly benefited from the positive effects of the pandemic-related demand surge. With respect to our dispensing product lines, while in Q2, we believe that our global CPG customers continued to work through existing inventory, we are starting to see indications that demand volumes are beginning to stabilize at a new higher post-COVID level. During the second quarter of 2022, and consistent with our results for the previous three quarters, we continued to experience double-digit year-over-year organic growth for products used in food and beverage and industrial and agricultural applications as these end markets continue to deliver stable macroeconomic growth. It's also worth noting that our flexible food and beverage product lines, which we take to market under our Rapak brand, continued to see strong demand for their bag and box product solutions, with sales increasing by more than 30% on a year-over-year basis. While we are pleased with the sales performance for the quarter, given the challenging macroeconomic factors currently impacting many of the regions of the world in which we operate, we will continue to closely monitor our order book and production planning as our customers potentially bring late pandemic period inventories further in balance over the second half of the year. Operating profit when compared to Q2 2021 was up slightly to $29.2 million, as the impacts of higher sales and less volatile resin costs were offset by inflationary pressure on other input costs, including energy cost in Europe, which continue to be meaningfully impacted by the ongoing hostilities in Eastern Europe as well as currency exchange rates. Operating margin was 19.7% compared to 20.2% a year ago, while adjusted EBITDA was $37 million, a 2.2% increase versus the prior year quarter. As we look forward to the second half of 2022 and beyond, I would like to highlight a few additional items. First, for the second half of 2022, we expect acquisition-related sales growth to continue to augment organic sales growth, and that key input costs, including material cost and energy will stabilize. Next, we remain committed to expanding our offering of a fully recyclable dispensing product line with additional sales expected to ramp up in late 2023 and into 2024 as we continue to see strong interest in these products from our global CPG customers. Finally, we are pleased with the results of the ongoing integration efforts at our two recently acquired life sciences businesses, Omega Plastics and Intertech and expect future organic growth for both businesses as well as further bolt-on acquisitions into the TriMas Life Sciences platform.

Okay. This is Paul Swart. Continuing on, adjusting for the impact of the stocking orders on Q2 '21 sales, Q2 2022 sales were up more than 16%. In addition, order intake and backlog for our Aerospace product lines are exceeding our internal plans for 2022. And accordingly, we believe should positively impact 2023 given delivery timing. Operating profit for the quarter was $3.3 million or 6.9% of sales as compared to $2.7 million or 6.1% in the prior year. This 19.3% year-over-year improvement in operating profit is primarily attributable to the increase in sales, which more than offset the higher product margin related to the prior period special stocking orders. Adjusted EBITDA for the quarter was $8.2 million or 17.4% of sales, a 90 basis point improvement year-over-year compared to $7.4 million or 16.5% for the prior year period. While we expect the broader commercial aerospace market recovery to continue over the remainder of 2022, we also expect a challenging production environment related to continued labor shortages, lingering COVID outbreaks, raw material delays, and dynamic customer order patterns to continue at least through the second half of 2022. Finally, I'd like to highlight that our TriMas Aerospace team will begin initial low-rate production of components for the new Boeing T-7A trainer jet during the second half of 2022. As we announced previously, Boeing's T-7A Red Hawk is an all-new advanced pilot training system for the U.S. Air Force. Our RSA Engineered Products business was awarded several components used in the air ducting system, which is part of our efforts to expand our aerospace product offering further into space and defense-related applications.

Thank you, Paul, and thank you, Scott. Scott is visiting one of our locations. We lost him on the line. And true to our TriMas business model, we always have contingencies ready to go, and we were ready to go. So let's turn now to Slide 9. As we discussed on our April 28 earnings call, we continue to see our customer demand environment evolve differently than we planned for some of our product lines. Overall, given our diversified end market model and proactive continuous improvement actions, we are again reaffirming our sales, EPS and cash flow outlook for the year. Our second half planning does assume that input cost of materials, materials availability stabilize while steel costs begin to ease. We also expect to see trends in our operations start to improve through the second half as we reduce labor bottlenecks and bring additional suppliers online, all to work through current production inefficiencies. Our outlook also considers successful execution of the project Scott mentioned previously, which will further strengthen our balance sheet and bolster performance. Lastly, we are assuming no additional geopolitical disruptions. Let's turn to Slide 10, which summarizes TriMas' strategic value drivers. First, we will continue to build out TriMas Packaging as we believe there are attractive long-term characteristics in our diverse set of packaging end markets. We have a robust pipeline of innovative product solutions and are committed to augmenting this growth through acquisitions. At the same time, we are optimizing the higher demand we have been experiencing in our Specialty Products segment, leveraging the previous factory floor improvement actions we have taken. Next, we are seeing positive trends emerge and reinforcing our thesis to have further long-term performance gains in our TriMas Aerospace Group as air travel and ultimately, commercial jet production recovers. And while we continue to reinvest in our businesses for long-term growth, we also anticipate continuing to return capital to our shareholders, both through quarterly dividends and share buybacks. And in addition to our financial progress, our leadership team also remains committed to operating TriMas in a responsible way to positively contribute to society, particularly in the communities where we live and work. Turning to Slide 11. Before wrapping up the call, I would like to highlight that over the past several weeks, a few of us from the TriMas leadership team attended both KeyBanc and William Blair investor conferences in Boston and Chicago, respectively, as well as attended several other direct investor meetings. These were the first in-person investor conferences and meetings we attended since the onset of the pandemic. We appreciate the attendance at our meetings, and it was great to reconnect and see so many familiar faces, meet new prospective investors and address questions as we further shape TriMas in the future. On this slide, I would like to share with you what we believe all of the drivers on the previous slide mean for the future of TriMas. This highlights some of the performance targets as we continue to grow TriMas both organically and through acquisitions, further build out our Packaging platform and maintain our strong balance sheet. Of course, it is also our commitment to leverage our TriMas business model to adjust for market disruptions and drive performance while returning capital to shareholders along the way. Again, we continue to believe TriMas is an exciting company to invest in.

Thanks, Tom. At this point, we would like to open up the call for your questions.

We will now take our first question from Ken Newman from KeyBanc Capital Markets.

For my first question, just looking at the segment-specific guidance you have on Slide 14. You bumped revenue growth for Aerospace and Specialty Products, but you kept the margin assumptions the same. I'm just curious, could you just walk through the puts and takes of what's offsetting what I think should be better absorption on higher volumes? And then maybe just a little bit of color on what's embedded in guidance from a price/cost perspective across all the segments?

Let me address those points in reverse order. From the perspective of pricing and material costs, we are assuming complete coverage. However, there are some inflation-related costs that make it challenging for us to recover on a quarterly or even annual basis, which is to be expected. Regarding the margin expectations with increased revenue, this is primarily due to some production inefficiencies I mentioned earlier in the call. I see these issues as somewhat temporary, and we hope to resolve them as we move out of this year and into the next. We don’t have significant equipment capacity limitations; there may be restrictions in certain production lines due to customer demand and some minor equipment issues we are addressing. The main constraint, however, is labor availability, which is likely the bigger issue for this year. Historically, we've seen similar challenges during the recovery period in 2009 and 2010 when manufacturing companies faced difficulties both in downturns and upswings. The positive aspect is that as we look ahead to 2023, I expect some of the current trends in our revenue will start to improve significantly in the upcoming year.

Got it. I guess just keeping on this idea of inflation and higher commodity costs. I think we have seen a decent drop or moderation in commodity costs in recent months. I think that includes resins and polyethylene to a certain extent, maybe not so much as you've seen in the metals like steel. Maybe just talk about how the expectations for how those cost fluctuations kind of flow through the P&L in the back half? And where are the opportunities or risks from renegotiating pass-throughs here as we enter 2023?

Currently, the market for polypropylene and polyethylene appears to be stable. Any softening we're experiencing consists of only minor fluctuations. It's important to consider that one of the main raw materials for producing polypropylene and polyethylene is natural gas or crude oil, which is a known factor in the current situation. We anticipate stable polymer pricing for the second half of the year, with no expected decline. In contrast, the steel market presents a different scenario. We utilize a variety of metals, including special bar quality, billet-type alloys, exotic metals, and aluminum. For metals outside the SBQ category, we are experiencing significant pressure, which is a challenge for us. We hope to see stabilization and ideally a reduction in prices either in the second half or moving into 2023. On the SBQ side, which represents a substantial part of our purchases, primarily supporting our Specialty Products business and somewhat in Packaging, we are observing some price easing. Currently, the market price stands at approximately $1,300 per ton in the U.S., which remains historically high. It would be beneficial if this could decrease to around $1,000 in 2023 or even lower, as that would significantly aid our operations.

Right. Just switching over real quickly. You touched on it a bit in your prepared remarks, but we've obviously seen some higher concerns from the market for potential softness around the consumer-facing end markets. Maybe just give a little bit more color about demand trends from your Packaging business as the quarter progressed? And what are you hearing in terms of major changes from customer behavior?

Yes, that's a great question, and we're noticing similar trends. At one of the conferences, I discussed this in depth. One of my concerns regarding recession and inflation pressures is the potential for a self-fulfilling prophecy as consumer habits shift. We're definitely experiencing changes in our product mix. While we see softening in specific end markets, feedback from our customers indicates varying demand from their own customers, as well as inventory levels that are related. We are maintaining close communication with our larger CPG customers to ensure our production rates align with their needs, and we will adjust as necessary. However, as Scott mentioned, we're also observing increased demand in other product lines, including industrial and food and beverage. This shift in mix is unusual compared to historical production rates across TriMas, leading to some secondary production challenges, but we are addressing them. We are closely monitoring our customers and inventory levels, managing our operations based on our TriMas business model, which focuses on being proactive rather than reactive.

Right. Maybe just one more for me, and I'll get back in queue. But you talked about it was, I think, good to see the new order on the trainer jet. Obviously, I think we've also seen some incremental positives out of Boeing for new airplane orders in recent weeks and months. Can you just talk through the visibility you have in the Aerospace segment as it relates to faster inventories in the distribution channel?

I'm glad you asked this question, Ken. Since we last met a few weeks ago, I've just returned from a visit to all our aerospace operations. We're definitely seeing a stronger order intake than we anticipated. We're currently booking orders as they come in, unless it's a particularly unique product. As we take an order today, we're already booking into 2023. Our backlog is increasing, and our planning models indicate better trends than we expected at the start of the year. This is positive news, as it means we need to keep pace with production, and we're actively taking steps to ensure we have the right plans in place. After meeting with the team, everyone is aligned to achieve the appropriate balance as we close out 2022 and transition into 2023, allowing us to convert effectively. Almost across the board, we're witnessing positive trends, except for a few product lines that are not yet produced at pre-pandemic rates, particularly the 787, which remains somewhat stalled. Looking ahead to 2023 and 2024, I believe we could see a tertiary effect: while the market is recovering, the secondary effect is the 787 returning to regular production rates. I'm excited about the opportunities ahead in aerospace and commend our team for their hard work in meeting customer demand. Their efforts are greatly appreciated.

Just a quick follow-up on that. With the order intake being stronger, maybe could you just give some commentary on how margin accretive the pricing on some of these new orders you're taking are, is this something that you think could drive with a combination of better volumes, drive EBIT margins back to pre-COVID type of levels?

Many of the products we are bringing in are reorders of existing products from our customers. The majority of our order intake consists of items that were affected by the COVID-related period, so we are aware of the associated margins. While we face some significant challenges, I remain confident that our TriMas Aerospace business will recover to the operating profit levels we achieved at the end of 2019. Although it's better for us to focus on EBITDA, we expect to see improvements in our exit operating profit levels. Additionally, through the restructuring efforts implemented during the pandemic, we have an opportunity to gain between 100 and 150 basis points of operating leverage as we work to grow that business beyond 2019 levels.

We will now take a follow-up question from Ken Newman from KeyBanc Capital Markets.

Just one more for me. Obviously, you've been much more active on share repurchase. You reiterated your expectations to be more active on the M&A front as well. Maybe how should we think about the cadence of capital deployment here just given where we are in this uncertain type of environment? How do you prioritize capital deployment? And where do you see the best opportunities for each incremental dollar of free cash flow?

Thank you for the question, Ken. This aligns perfectly with our strategy. Our primary focus is on investing in innovations on our factory floors, and we are committed to this direction. With our strong balance sheet, we will continue this approach. We also aim to maintain our dividend and return capital to shareholders through this established method. Furthermore, we are looking to grow our packaging platform through strategic mergers and acquisitions. We have ample cash flow and intend to utilize that capital to expand our packaging capabilities. Additionally, we will pursue unique opportunities in the aerospace sector, especially as we observe market dynamics where some entrepreneurs may be looking to exit. This creates excellent opportunities for TriMas to integrate such businesses into our operations. Finally, we evaluate our available cash after considering our strategic initiatives along with our stock's trading position. This provides us a straightforward pathway to repurchase shares at favorable levels. Throughout this year, we have successfully utilized this method to return capital to shareholders, amounting to nearly 2% of shares repurchased. This is how I would prioritize our capital deployment.

On the M&A, I mean, are you seeing the pipeline kind of open up or close a little bit? I would imagine the next deal to come across the desk is probably harder to find. But maybe just give a little bit of color about where you're seeing deals from a multiple perspective and the number of opportunities that are coming across?

Yes. It's not surprising that there has been a pause in larger deals, which is primarily due to the availability of debt rather than its cost. The high-yield market seems to be quite restricted at the moment. Consequently, there are fewer larger deals available, but that's fine because we are currently focused on M&A activities in the bolt-on size range. We are still experiencing decent activity in that area. We need to review many deals to identify high-quality companies, and this trend has persisted over the past few years. I expect that deals with EBITDA under $20 million will remain unaffected by the current credit conditions, and we will continue to see opportunities in that pipeline.

Yes. And then just last one for me. I know you're not ready to guide to 2023, but I think it's maybe worth kind of revisiting how you view the longer-term operating leverage across the three businesses. Obviously, I think Packaging has always been one that's been challenging for investors to a certain extent, just given the fact that you are doing more deals that are typically are fixer-uppers and maybe a bit more margin dilutive to the legacy business. And on top of that, we've got the fluctuations in raw material costs. But do you see a pathway to get operating margins back to pre-COVID levels in that low 20% range for Packaging? And then similarly for Specialty, just how do you view the pathway or the right kind of normalized run rate for operating leverage, given what's been a very strong market within those basket of businesses?

So on the Packaging front, if we did not have the effects of the high energy costs in Europe in 2022, there would be a materially different story on our margin. That is a big cost effect to us given our presence in Europe; we've got roughly 30% of our production and trading activity is in that region. So that's been the biggest negative driver. We know that impacts material costs. We know we can get the right type of recovery in time. But that has been just an absolute drag to performance. You're right on some acquisitions; in some cases, they are fixer-uppers or modest turnarounds or integration plays and not assimilation because many of the companies we buy are great brands in and among themselves, and they have customers and long-standing relationships that we want to preserve. However, we also see that through acquisitions we have in the mix and acquisitions that we would bring in drive to increase that operating performance. Certainly, my and our team's objective is to be north of that 20% bogey in operating profit within our Packaging group, and we're taking efforts to do that over time. We were hit with some things this year that were completely outside of our control, such as the issues that occurred in Ukraine and Russia. On the Specialty Products side, we are continuing to invest in automation, which will help us relieve pressure. What I'd like to do for the most part is continue to bring in incremental revenue. The next step in operating leverage pickup for us, believe it or not, will be in the Arrow Engine side perhaps. That business is ramping up quarter-over-quarter, month-over-month as natural gas prices go up and the activity in exploration goes up in North America. That will be a contributor as well. But I want to ensure we're taking advantage of all the orders we can get and produce them in a timely fashion to enjoy that pull-through. So we'll look at continuing to invest in factory floor improvements for throughput, and that will give us slight operating leverage. If you look over the past three years, we've had some beautiful gains in operating leverage already there.

There appear to be no further questions at this time. I would like to turn the conference back to the host for any additional or closing remarks.

Okay. Great. I know it's a very busy earnings day, and I'd like to thank everyone for joining us on our call, and we look forward to updating you again next quarter. Thank you.

This concludes today's call. Thank you for your participation. You may now disconnect.