Good morning and welcome to the Park-Ohio Third Quarter 2017 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 maybe 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 maybe found in the earnings press release as well as in the company's 2016 10-K, which was filed on March 9, 2017 with the SEC. Additionally, the company may discuss an adjusted earnings and EBITDA as defined, as adjusted earnings and EBITDA as defined are not measures of performance under Generally Accepted Accounting Principles. For a reconciliation of net income to as adjusted earnings and for reconciliation of net income attributable to Park-Ohio common shareholders to EBITDA as defined, please refer to the company's recent earnings release. I'd now like to turn the conference over to Mr. Edward Crawford, Chairman and CEO. Please proceed, Mr. Crawford.

Good morning, ladies and gentlemen, Welcome to Park-Ohio's third quarter 2017 conference call. May I now turn the call over to Matthew Crawford, the President of the Company.

Thank you and good morning. To begin our third quarter was a bit of a mix bag of results relative to our internal expectations. Our revenue was strong. We did have some unforeseen costs which affected the bottom-line. We expect these costs to moderate quickly and are pleased to confirm our guidance for 2017. I also want to highlight as I begin continued progress during the quarter related to important strategic initiatives which include, Supply Technologies continued investments in Europe, lots of heavy lifting relative to two new Chinese factories in our Assembly Components group and improved global capital equipment order received in Q3. I mentioned these, because our strategic initiatives which each made significant progress in the third quarter, although they will not be financially significant until 2018, more on these later. Operationally, we continue our focus on operating efficiencies particularly in those businesses which are very busy, acquisition integration as well as cash flow and working capital optimization while also positioning to grow the company for future growth by investing in new facilities and product offerings. Financially, we ended the quarter with $81 million of cash on hand and over $200 million of unused borrowing availability under our revolving credit facility. Relating to acquisitions, I would remind everyone that in the past 12 months we have made three strategic and accretive acquisitions. One, GH in December 2016 in our Engineered Product segment, two, Aero-Missile Components in Q2 of 2017 in our Supply Technologies, Aerospace business, and three our most recent addition to Supply Technologies, Heads & All Threads which closed in Q4. The Heads & All Threads acquisition will enhance our global footprint, strengthen our market position for supply chain management services and bring new customers to our already diverse group of global clients. The business which has…

Well, thank you Matthew. 2017's third quarter results look very dull to me. So, I will speak to the future, which I think is very bright for the company. The Supply Tech silo will continue to respond to the industrial surge taking place worldwide. This is a company that follows other companies as they grow, as they tend to prosper. So, we're excited about how we're participating in that particularly activity again on a worldwide basis. Engineered Products and that's the process of the capital equipment, oil and gas materials, trucking as finally turned the corner, is historically has been our highest margin silo it looks great for 2018 and beyond. Assembly Components will continue to grow particularly in China and Mexico. And finally the MA activities will increase as good assets had a fair value become available. I would now like to open the lines to questions. Thank you.

Thank you. [Operator Instructions] Our first question comes from the line of Edward Marshall with Sidoti and Company. Please proceed with your question.

Good morning guys.

Good morning, Edward.

Good morning.

So the costs, you mentioned unforeseen costs in the prepared remarks, can you talk about maybe the defined scope, the location et cetera? And then I guess sounds like you've incurred costs of sales are raising maybe sooner than faster than you targeted and going back to the cost cuts in 2016, I'm just curious if I wanted to make sure that you didn't cut too far, and these people related costs issues with training et cetera, I think you mentioned some facility costs?

Hi. It’s Matt Crawford. I'll kick it off and perhaps someone can fill in the additional blanks. But, the so what we try to be very clear on is we have significant facility costs that we are absorbing currently in the third period without the corresponding at least financial benefit. Our strategic plan for growth included the expansion of several of our key product lines into giving them a global presence in both Mexico and China those have come with a significant amount of booked orders. In many cases we won't see that growth until, the end of next year. We have accelerated given the amount of orders in demand, we've accelerated the pace at which we are building those facilities. So, and then I think I also noted in our Canadian business, I think you witnessed the growth of that faster business and a significant margin opportunity there. So we've enlarged - moved and enlarged that facility. So we've got a lot going on to accommodate growth and in most cases on the facility side we have not benefited with the corresponding sales. So, I don't need to remind you, we don't have that many shares outstanding, so few hundred thousand dollars of growth expense where we haven't seen the corresponding revenue yet can very quickly become $0.04 or $0.05 a share. So, I would, that's what I think we've been trying to discuss during the prepared comments. I would also comment that there is a, I would say the only area in which we've had to be pretty thoughtful relative to rebuilding the team and maybe there has been some incremental cost relative to that, how fast its scaled is in the Engineered Products segment. We are seeing as I just mentioned massive increases in backlog. There is…

Edward, we have not as part of our culture, we have not really we've done everything to reduce our cost on facilities and individuals, okay. That's something unfortunate in the 2016, 2017 trip as we gained momentum. But we have not taken out the ability to respond quickly, this capital equipment these orders are just flowing in the front door finally after a long period of time. The factories are still there and little encouraging I think we have already encouraged some extra cost this year in the launching and getting ready to roll with that much business, which will be shift in 2018, a large portion of it. So, there are some, taking things from a slowdown, napping view to full speed is not easy, but we have not given up on the way down the talent taken - that we need is necessary to accomplish that efficiently.

Okay. And just to be clear, you talked about the expansion in Mexico and China. Are those just you talked about book orders, but I want to make sure that it goes beyond orders is there some commitment on the - the form of the OEM to kind of continue using Park for these kind of product lines that you are building out their capacity, I mean this is more than a, if we build it they will come type scenario, correct?

I'm not quite sure what your question means, I mean typically the most significant vote of confidence you can get from an OEM is when they book business with you and buy tooling for you. So, I think that, the commitment we've seen from them, I want to get the OEMs I'm talking about now are not the big three. We're healthy in our share of opportunity with the big three, but I'm also talking about a myriad of Chinese companies and European companies who are also seeking to do business with us in some of the key product lines I have discussed. So, this is not a one trick pony in terms of OE, this is not a one trick pony in terms of geography. And candidly, I think there is no more demonstration you get from OEM wanting to do business with you than placing an order and buying the tooling to be honest with you.

Of course.

This is Pat Fogarty. Our strategy in both China and Mexico began with new orders booked to allow us to build out those plans. So this wasn't a build it and they will come strategy. Once we have the orders we expect to expand on those orders in those locations.

Got it. It sounds like the high-quality…

Edward, my comment maybe page back a little bit too, this is a not a new story. I mean this fuel rail business has doubled and tripled in size since we acquired it. This is exactly what we thought what happen. We needed to make the investments particularly in China, because our customers were demanding it. If we're going to continue to see that business become what we think it could be particularly in a space that has incredible demand globally and we're world leader, we're going to make some investments. So, we had a nice run there, I think where we took it from $30 million, $35 million up to $100 million and got to maximize every inch, of every corner, of every building we had. But, you've heard us discuss this business, this is a globally important product line with myriad of Tier 1 partners and OE partners, and you know what for us to see that advantage it's time to invest. So this isn't really new news.

Great, great, okay. Glad I gave you the forum for that. I'm curious on acquisitions, I mean you're getting more active and I guess the last, I guess three out of four of the last deals were done internationally. Are you finding that the multiples internationally are more reasonable than what you see in the U.S. or I guess in North America and, are you seeing any rationalization domestically?

Well, Edward, what is clear for example what you are seeing in Europe there is for the first time we are really taking in into that sector, the euro zone or Europe, Supply Technologies and the systems and what they stand for. Keep in mind, this is the momentum there is because we bought one company this will lead us to another company, will lead us to another company. So that business, that area is just loaded with the smaller mid-sized companies that have special relationship with the customers that really even haven't ever had of franchise or our technology. So it's unparallel there with the number of people that are interested and when you make acquisitions like we have with outstanding companies with leaders that have been in business for a long time. That flows one another person say look at it, it works, so it's that is very strong right now. And I think for the first time from the M&A view point, I would I move out, it's not softening, but I don't see the pressure from the private equity firms that existed even a year ago or 6 months ago. And I think you're going to see that and as we move forward in acquisitions, I think that's going to reflect that we can add to silos we have at reasonable prices and get the type of return that we're talking about. And just seems to be less pressure at this point from the private guys and when aiming less pressures multiples are coming down. So this is good, so I'm really that we haven't been really active as you know that we've been doing small deals, transactional add-ons, referrals, but I see that changing, I see opportunities upscale in the future. Then I would address this $0.05, shortfall, simply this is not a hole in the road where the truck can fall into, this is a pebble. I mean its a little amount money, I know what's the target. But the money we spent will get that $0.05 back in more in the future, because we are in a serious growth mode here and we're ready to go. And things in are in our way and particularly if there is any effort or success in the tax reductions then I'm hearing how to watching it, they are aimed like ourselves to have a lot of EBIT. So, I have been more excited about what the potential is here, it's been a long time, but this $0.05 is just a pebble in the road compared to a builder. I mean and I want to make that very, very clear, I am not disappointed about that, it's just we're running the business as you know long-term. So, we're going to do things when we can make the, enhance the future.

All right, great. Thanks guys, I appreciate it.

Okay.

Our next question comes from the line of Steve Barger with KeyBanc. Please proceed with your question.

Hey good morning guys this is Ken Newman on for Steve.

Hi, Ken.

So, the first question, good morning. So first question, I have is around Supply Technologies and the operating leverage you guys expect to generate out of that business, with the revenue op is much as that I understand the start-up cost and the launch cost that you incurred this quarter. Trying to get a bit of sense of, how quickly did those cost moderate and, can we expect operating margins are, excuse me incremental margins you kind of get back to a normalized value whether it's this year or is that's something that early 2018 phenomenon?

I'll start Ken. Every down then we have this conversation particularly when the truck market get stronger, some of the margin if you heard us talking detail about how we think about Supply Technologies, we talk a lot about running the business on return on invested capital, which means margin is important but it's not singularly how we measure the business. This is a working capital intensive business. So we think about our investment, our efficiencies relative to our margin. So to be clear sometimes in a growth period, particularly in lower margin accounts, but higher return on invested capital accounts, we can see margin degradation that is fantastic meaning we are getting incremental products with the current customer perhaps at a lower margin, but with no incremental cost, so interim return on investment if you will, but yes its lower margin. So, mix is an important thing to understand in this business and I would articulate that the third quarter in particular saw, what I would consider from return on invested capital outstanding returns, but it has some degradation to our margin. So, very difficult to measure this business just affect to gross margin line. Having said that, there are some areas which we did absorb what I would more or around a period absorbing some cost that are more short-term in nature. The first and your guess is good as mine is foreign currency exposure. We have done a lot of business building outside of the U.S. and one of the prices for poker of doing business with global OEMs is sometimes you get currency risk. So Pat can go into detail what that means, but an impacted performance in Supply Technologies. Once again not something we talk about a lot, but as we are sort of maybe…

That is helpful. And trust me I understand the small share account and how is the little bit of EBIT can impact EPS positively or negatively here. I guess as a follow-up to that, we have seen some material inflation kind of creep up this quarter curious, did you provide any color on your ability to push price to offset inflation and any color on how you are looking at price cost going forward?

Yes now that's an excellent question. I'll comment on both sides. On the customer side we continue to do our best with large relationships to index pricing to adjust with some color around inflationary or deflationary things going on in the marketplace. That can be challenging given the broad amount of the SKUs we service. But, we certainly do the best we can relatively to things like wire rod and other key raw material components that go into some of our broader classes of products. So, we do work on that on the customer side, undoubtedly the market has for a lot of our products has stiffened up if you will. We are particularly cautious right now as we go into the renegotiation period which we're always in with current contracts recognizing that the period of low hanging fruit to resource or push around if you will suppliers on the cost side is probably coming to an end. I would not suggest that's translated into significant cost increases, but we are cognizant that the raw material markets are stiffening up a bit.

Okay. And then, just one last question from me. You talked about this visibility in the 2018 and your confidence for continued growth and continued operating income growth and EBITDA growth. As you look at the orders which you talked about earlier, can you maybe just talk about what's in backlog that's ready to ship in 2018 and what gives you that confidence for year-over-year improvement?

Ken, this is Pat Fogarty. In Q3 and leased in our capital equipment we booked $64 million of new equipment orders. Those orders would begin to flow through in the first quarter of 2018 maybe we'll get a little bit of recognition in the fourth quarter of 2017, but those will occur in 2018. And what's important here is the continued growth in our bookings in Q4 and Q1 of next year to carry out the rest of the year. So, we're obviously very optimistic, because the trend in new bookings continues to increase and we're hopeful that continues into the fourth quarter and the first quarter of next year, and we now have significant benefits to 2018.

Thanks for the color guys.

Our next question comes from the line of Marco Rodriguez with Stonegate Capital Markets. Please proceed with your question.

Good morning, guys. Thank you for taking my questions.

Good morning, how are you today?

Doing very well, thanks and you?

Oh great, thank you.

Just a couple of quick follow-up to just Ken, following some other trends here just on the investments that you made in the new facilities. If I'm understanding you correctly, there is Mexico too in China, and then, one in Canada for the fasteners. And I'm assuming that the fasteners is inside of your supplier technologies and then the China and Mexico facilities are assembly components, am I understanding that correct?

Correct, correct.

Got you. And then, in terms of those facilities, the increase in orders that you are seeing from clients, are these new clients that are driving such investments for you guys or the existing clients?

It's a combination. But unquestionably, I think particularly as we refer to the Chinese developments, the Chinese facilities have the highest percentage of new -- brand new customers. For example, it's -- our ability to access directly Chinese OEMs is a function of being localized, bottom-line. So, I would say a little bit of both in each location but disproportionately current customers in Mexico and Canada and disproportionately new customers in China.

Got you. And in terms of the expectation as far as those orders kind of translate into revenues, I'm understanding you correctly for both supply technologies and the assembly components is kind of a mid-18 where you will start to see some of those revenues come through. And then, maybe, it will ramp better in Q4 and then we will see some significant leverage in fiscal 2019?

To be quite honest and Pat maybe if you can jump in. We have not completed our business planning process for 2018. So, I would -- I feel as though each of those initiatives will benefit from particularly, yes, at the top-line but particularly at the bottom-line as we begin to complete and absorb some of those excess costs. So, I think they will be meaningful in 2017 and 2018, but to common exclusively at this point could be difficult. Any?

No. I agree with Matt's components, Marco. I would say that as it relates to those revenues comparing it to 2017, we are starting to see those revenues to be realized and that will start in 2018 and continue throughout the course of the year. And then, obviously, we will be in full production mode as we get into 2019.

Got you. That's fair. I appreciate that. Then, on your comments on the engineer product side. That business seems to be picking back up and I think you said that the challenges you are seeing there now is just kind of bringing back in the bodies to support that growth that you are seeing. Can you talk about, is that just a challenge of maybe there was a tight labor market or is it a training aspect you need to keep a little backup to speed with there?

I think it's -- listen. I mean they were in a bit of a sustained downturn and now we are talking about bookings that are way, way up. We also have a more diverse last few years, part of our strategic plan was to add to our global position on the induction hardening tech side. So, we sort of grown our footprint and grown the markets that we are trying to penetrate, grown our expectations of how we kind of attack the aftermarket business in each of those geographies which is are -- is our most valuable part of the business from a financial perspective. So, I would say that the HR picture for a lack of better way of saying it is more complex than it was four or five years ago. And I think also the average size order is smaller than it was four or five years ago. That period being dominated by large oil and gas and steel orders. So, I think it's a more complex picture, also I think we have seen some attrition during the last, I'll call three or four years. So, also I think the labor market is a bit tighter than it was three or four years ago. So, I wouldn't think about any one of those things other to say the business is accelerating and these problems that are not something we aren't familiar with. This business over the last decade or so, has had a couple of these cycles. But, you can't flip the switch overnight. So, each of the issues I have mentioned are an HR challenge and we are working through it.

Got you. And last quick question, on the acquisition announced here in October Heads & All Threads, I know you guys have stated that it's got an annual revenue of around $35 million kind of run rate. Can you maybe talk a little bit about their historic -- what kind of have been the growth rates, what sort of expectations do you have for that and what is the margin profile look in comparison to your aggregate numbers there in supply technologies?

Marco, this is Pat. Heads & All Threads over the last three to four years has been achieving double-digit growth rates. So, they have been able to achieve that with some great end markets and great customers that are global customers that we expect to grow with. As far as their margin profile, I would say it's greater than what we see in our overall supply tech business, but not significantly greater than the margins that we get in our business today. We obviously believe we can improve on that through our sourcing efforts and being able to source product all over the world better than what they do today. We believe the opportunity from a sales standpoint is to take some of their customers that really concentrated locally within England and in the Czech Republic being able to grow with them globally in our operations not only within Europe but also in Asia and in the states.

Got you. And does that business from revenue standpoint have any sort of seasonality or should we be kind of thinking about that as far as kind of like a straight line across all four quarters?

I would view it more as a straight line. Their end markets don't experienced the cyclicality that you may see in some of our other end market.

Got you. Got you. Great guys. I appreciate your time. Thanks.

Thank you.

Thank you.

Our next question comes from the line of Matthew Paige with Gabelli & Company. Please proceed with your question.

Hey, good morning. I just wanted to build on your M&A commentary, I know you said you want to stay within your current silos, but are there any other technologies or products that you like to see in your overall portfolio?

Yes. Absolutely, the one that we are -- we've got our fingers in this aerospace a little bit particularly in Europe. This is an area we would like to go particularly over the next five years particularly with this new engine that GE is building. We have designs on entry into that business with clearly that would be outside the current silos. But, we are very interested there and we think we can make some progress at fair multiples at this particular point. But, we really like that. We really are beginning to think in terms of the future. We have been stuck with the concept, it's got to fit in one of the silos. But, if we get an aerospace entry which I think we will into the aerospace business. We need one of the size that will get us in there and get the recognition and get the all these aerospace companies the plans and everything are all certified. So, it's not easy to do business around, to take business, you really have to buy a company to be in that sector in any meaningful way and that's a target clearly, it's been on the agenda and it will continue to become more important as we go forward.

Excellent. Well, my other questions have been answered. Thanks for the time.

Thank you.

Our next question comes from the line of Christopher Van Horn with B. Riley, FBR. Please proceed with your question.

Good morning, guys. Thanks for taking my call.

Hi, Chris. How are you doing?

Good. I just want to ask you know, you obviously, you're acquisitive by nature and you talked about RIOC as a big metric. Are there any businesses and I know historically you typically don't divest a lot. But, are there any businesses that may not be meeting those requirements that you have and are you looking at anything in the portfolio?

Let's address the portfolio. And you are correct. We do not have a lot of turnover and have been outbound companies. We looked at over and over again one of the areas that I'm confident enough too much in last couple of years as the hidden value of the assets of these companies. We've historically we have done 86 acquisitions at Park-Ohio in 25 years. We are holder of assets. We buy them at great value and we are just stacked up with companies that are tremendously value not reflected in the current price of the stock. But, the issue is, we get a lot of inbound calls for products we have particularly in the forging business and units. But, we have such a low base in a lot of these companies particularly the successful ones, the capital equipment companies. We have such a little base and have such a history of even EBITDA and cash flow, keep in mind, this company was built from $60 million to $1.5 billion without doing a stock and a lot of acquisition with stock. And that's why we still only have 12.4 million shares out. So, clearly, we like and will do acquisitions, but we've had opportunities to sell more than ones units that we have that had extremely high margins of 8 to 9, private equity is 9 to have some of our assets. But, our assets are throwing off and I'm very reliable relative to the cash flow and growth, in some there is no one in the portfolio doesn't have a chance for growth. And keep in mind, we have been investing money particularly a lot of our cash flow that we have earned and have generated particularly in the last couple of years. We have a lot of opportunities…

Okay, great. Thanks for the color there. That makes a lot of sense. Just wanted you to comment, if you don't mind what's going on in the auto market and maybe some of your exposure to the passenger car side, I know it's just one segment or one end market. But, I'm just curious what you are seeing there.

Are you referring to the North America or globally?

Most of North America, but if you want to comment globally that would be great too.

My comments would be consistent and the fact that our strategy to diversify our footprint and expose ourselves and our products to a broader range of OEs and Tier-1s through localization of production continues to be a propelling force in our growth. We also see global build rates to be stable to top. So, we view that as a key driver of our business over the next few years. So, that I think would be the key point I would make. Certainly, if you look at a smaller piece of that and ask where is the North American market, I don't think we would suggest anything different than what you hear which is -- the markets that we see have generally plateaued. So, we are not seeing incremental growth in the North American market. The good news is our portfolio is more like truck than car. So, we have not then I think damaged although I can certainly think of the few places we have -- we have generally have not damaged by the fall off in the small -- in the car space. So, we've weathered that I think conversion fairly well. But, we see volumes having been plateaued. And but once again, we are focused more on sort of the growth in the global market.

Okay. Thanks Matt for the color. And then, just final one for me, just a little bit more on the mechanical side. The cash flow, year-to-date seems to be down a little bit compared to last year mainly on the working capital side. I'm wondering, is there anything you can comment on there?

This is Pat Fogarty. No, our cash flow as we mentioned earlier, our networking capital days are down a 11 days in order to support the growth in our revenues we have invested in working capital this year. We still are expecting our operating cash flow to be in the range of $45 million to $50 million for the full year. So, we are on track. But, I think when you look at our quarter-to-quarter cash flows from an operating view point, the second quarter was down a little bit, but the third quarter was up over $18 million in operating cash flow. And we expect the fourth quarter to be strong as well. So, we are on target with where we thought we would be from a cash flow perspective.

Okay, great. That's it for me. Thanks guys.

Thank you.

Sir, there are no further questions in queue. I would like to hand the call back over to management for closing comments.

Well, I want to thank everyone for joining us today. We are gladly optimistic about 2018 and beyond that we sure have a lot of opportunities. We've gone out and raised this incredible amount of capital, we are sending on. So, we've got a little cost there just in the 350 versus the 250. We are absorbing that. We haven't fired anything off in size. We are surely prepared to do that but quite frankly we are going to continue to say on point, we have the pieces, we have the silos and got the people. We have been patient. We struggled through 2016. We all know about that story and we are rebounding in 2017, where we are going to be back on track again, year-over-year growth and revenue and earnings per share. Thank you very much. Look forward to seeing you next time.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.