Greetings. And welcome to The Eastern Company’s First Quarter Fiscal Year 2023 Earnings Call. At this time, all participants are in a listen-only mode and a question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Ernie Hawkins. Sir, you may begin.

Good morning. And thank you everyone for joining us this morning for a review of Eastern’s results for the first quarter of 2023. With me on the call are Eastern’s President and CEO, Mark Hernandez; and CFO, Nicholas Vlahos. We issued an earnings press release yesterday after the market closed. If anyone has not yet seen the release, I invite you to visit the Investors section of the company’s website, www.easterncompany.com, where you will find the release under Financial News. Please note that some of the information you will hear today -- hear during today’s call will consist of forward-looking statements about the company’s future financial performance and business prospects, including, without limitation, statements regarding revenue, gross margin, operating expenses, other income and expenses, taxes and business outlook. These forward-looking statements are subject to risks and uncertainties that could cause actual results or trends to differ significantly from those projected in these forward-looking statements. We undertake no obligation to review or update any forward-looking statements to reflect events or circumstances that occur after the call. For more information regarding these risks and uncertainties, please refer to risk factors discussed in our SEC filings, including Form 10-K –d with the SEC on March 14, 2023, for the fiscal year 2022 and Form 10-Q filed with the SEC on May 9, 2023. In addition, during today’s call, we will discuss non-GAAP financial measures that we believe are useful as supplemental measures of Eastern’s performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. A reconciliation of each of the non-GAAP measures discussed during today’s call to the most directly comparable GAAP measure can be found in the earnings press release. With that, I will turn the call over to Mark.

Thank you, Ernie. And good morning to those who have joined us by phone or participating via the web. It’s a pleasure to speak with all of you today. I am going to begin the call today with some high level observations about our first quarter performance. Then I will turn the call over to Nick, who will take you through the detailed review of our financial results. After that, I will come back and share with you many of the initiatives we have underway to improve our operational performance and enhance our return to our shareholders and the goals of this management team intends to achieve in 2023. When I accepted the appointment as Eastern CEO four months ago, I saw a company capable -- with capable people in three promising businesses, each which faced a very challenging market environment. As you know, frequent supply chain disruptions and increases in freight and material costs were the order of the day in 2022. As a result of these severe headwinds, our businesses did not perform to their full potential and our 2022 financial results suffered. Clearly, we needed to immediately change the way we are running our business. To that end, during the quarter, we undertook a thorough review of our businesses, products and began to implement an action plan consisting of several operational initiatives. We have set qual -- quantitative goals for these initiatives and are tracking performance to completion. I am pleased to report that we began to see initial benefits of these operational improvement initiatives during the first quarter. Inventory declined 11% from the end of the fourth quarter, particularly at Velvac and working capital as a percentage of sales declined to 22.1% from 26.1% for the fourth quarter as we flexed out a portion of our…

Thank you, Mark, and good morning, everyone. Net sales from continuing operations increased 5% to $72.5 million from $69 million in the first quarter of 2022, reflecting increased shipments of truck accessories and automotive returnable transport packaging products. Returnable transport packaging sales benefited from new automotive product launches, including several electric vehicle launches. Sales of existing products increased 3.3%. Price increases and sales of new products contributed 1.7%, and sales growth for the first quarter when compared to the first quarter last year. New products included various truck mirror assemblies, rotary latches, electronic latches and locks, D-rings and mirror cams. Gross margin as a percent of sales was 21%, unchanged from the first quarter of 2022, reflecting improved price/cost alignment and the easing of some raw material and freight costs. Product development expenses were $1.4 million, up $0.2 million, reflecting increased investment in new products at Eberhard and Velvac. As a percentage of net sales, product development expenses were 1.9%, compared to 1.7% for the first quarter of 2022. Selling and administrative expenses were $11.9 million, compared to $9.9 million for the first quarter of 2022, an increase of $2 million, $1.8 million of the $2 million year-over-year variance relates to onetime severance expenses associated with the elimination of the COO position and the departure of our previous CEO. The remaining $0.2 million increase reflects higher sales and investments in sales capabilities. Other expense of $0.6 million for the first quarter of 2023 includes $0.4 million, reflecting the final working capital adjustment related to the sale of the Greenwald business. Net income from continuing operations was $0.6 million or $0.10 per share, compared to $2.7 million or $0.43 per share for the first quarter of 2022. Adjusting for the severance expenses and working capital adjustment, net of tax, which totaled…

Thank you, Nick. Our team strategy falls into four categories; disciplined operations that deliver consistent results; strong commercial business focus; effective capital allocation and utilization; and value-adding acquisition. Our priority this year is to ensure that all facets of Eastern operations, our pricing strategy, cost structure, working capital management, meet profitability and return on invested capital thresholds that each business contributes to the building over -- contribute to building overall shareholder value. As you have heard during the first quarter, we improved working capital significantly to a record low of 22.1% of sales. We are now sharpening our focus on profitability. With operations optimized, we will be in good shape to move forward with the fourth category, bolstering growth through acquisitions. As I mentioned in my opening remarks, our action plan and initiatives we are implementing this year are expected to have a quick impact on the company’s financial performance and be apparent in our results in the second half of the year. I will start with a review of the first category, disciplined operations that deliver consistent results. With more efficient operations, we will be much better positioned to deal with market challenges and in addition to take advantage of growth opportunities. We are scrubbing the cost side of the business, making sure that the cost of goods sold and operating expenses meet internal profitability targets. Let me give you a couple of examples of initiatives we are implementing. We are addressing supply chain inefficiencies, reducing lead times from our Asian suppliers and leveraging near shoring capabilities. We are also leveraging our Mexico operations to overcome labor shortfalls in the U.S. and taking steps to reduce manufacturing costs. Finally, we have implemented a hiring freeze throughout our businesses and we are cutting nonessential expenses looking for ways to realize…

Thank you.

Okay. Go ahead.

Sorry, sir. Thank you. [Operator Instructions]

Okay. We do have a few questions submitted via the web and we will go over those now. First question, why did operating income adjusted for onetime expenses decline quarter-over-quarter?

I will take that, Nick. In the first quarter, we took the challenge of reducing working capital and lower our working capital ratios. This action had additional effects, primarily around capitalize freight. The reduction of inventory within recovering logistics market caused us to recognize this value as an operating -- operational loss of income. The long-term logistics market is stabilizing and will minimize the effect going forward.

Okay. Second question, how much improvement in gross margin do you think is possible in 2023?

Well, I can’t give you an exact answer. But through our strategy, we intend to return historical margin performance to Eastern.

And last question from the web, how should I measure success for Eastern in 2023 and longer term?

Well, I look at the longer term in 2023 in this way, consistent and stable results quarter-by-quarter is our first objective, solidifying EBITDA and return on invested capital. In the future, it will be driven by EBITDA growth with solid underlying metrics. Any other questions?

Okay. Operator, do we have any other questions on the line?

Yes, sir. We have a question from Ross Davisson with Banneton Capital. Sir, you may go ahead.

Hi, Mark and Nick. Thanks for taking the question. Actually, a quick follow-up on something you just said, could you just explain a bit more, you said there’s I think you said capitalized freight costs that were more sort of one-time in nature as you clean things up in -- there in SG&A, is that where they are?

No. They are in cost of goods sold and what happens is when the freight rates coming from Asia, particularly, the container costs were over $10,000 per container, where we normally see about $3,000 per container, the freight is capitalized at the higher level. Therefore, when we reduce inventory, we have to reduce at the higher level, which hits our income -- reduces our income.

Okay. Yeah. Okay. That makes sense. Sorry. Thanks for clarifying. And then the other question I wanted to ask was just around the growth rate. So Q1’s growth rate and revenue specifically decelerated as a percentage compared to, say, Q4 or just all of last year and it wasn’t just price, it looks like volume decelerated, too. Anything going on there that you could sort of provide some color around kind of what’s leading to the slowdown? You are obviously still seeing growth, but curious if there’s sort of underlying dynamics, especially since it sounds like things are still pretty robust in terms of demand and wins across the business?

Yeah. Yeah. Last year we were fighting the headwinds. We are heavily into commercial vehicles. We are fighting the headwinds as the commercial vehicle companies try to produce, but they were unable due to supply chain constraints. Now those constraints are somewhat freed up, but the incremental -- the organic growth is not 10%, we are looking at potential growth in revenues of 3% to 4% throughout this year.

Yeah. Okay. That make sense. Thanks so much. Appreciate it.

Thank you. We currently have no further questions in queue. So I will hand it back to Mr. Hernandez for any closing comments you may have.

Thanks again for joining us today. To sum up today’s discussion, I am confident that our determined focus on disciplined operations, optimum capital utilization, focused commercial business and value adding acquisitions will bring positive changes and improved results in 2023 and put us on a path for sustained growth. Our markets have many favorable trends we can leverage and we look forward to sharing our progress with you after the second quarter.

Thank you. This concludes today’s conference and you may disconnect your lines at this time. We thank you for your participation.