Good morning, and welcome to the Park-Ohio First Quarter 2025 Results Conference Call. [Operator Instructions] 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 2024 10-K, which was filed on March 6, 2025, with the SEC. Additionally, the company may discuss adjusted EPS, adjusted operating income and EBITDA as defined on a continuing operations or consolidated basis. These metrics are not measures of performance under generally accepted accounting principles. For a reconciliation of EPS to adjusted EPS, operating income to adjusted operating income and net income attributable to Park-Ohio's 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 good morning to everyone. While our first quarter results were a little behind our internal expectations, we're happy with how we performed given the volatility we saw in some of our end markets. Specifically, I'd like to call out 3 main themes. First, January started off surprisingly slowly. A number of customers confirmed a similar start to the year. But fortunately, things rebounded quickly and February and March improved steadily and became more consistent with our expectations. Secondly, our Engineered Products group turned the corner, and we saw year-over-year improvement and strong quarter-end execution. As we mentioned often, Engineered Products group historically has led Park-Ohio in both margin profile and backlog visibility. While we continue to see solid order entry and backlog stability in this segment, we are now beginning to see improved profitability. We anticipate this will continue through 2025 and beyond. Lastly, we have discussed in every recent results conference call our effort to reshape our business by focusing our investment on our best products and services. This also required a culling of the herd a bit in terms of closing some nonstrategic locations, discontinuing some customer relationships and in some cases, the sale of assets. Fortunately, during this period, we also saw record growth in our remaining businesses and in particular, Supply Technologies. Financially, we believe this will improve our cash flows, reduce earnings volatility and improve our overall margins through the business cycle. While our work is not complete, we saw evidence of these efforts in the first quarter as we navigated end market volatility and some unusual product mix. With increasing uncertainty in the global industrial markets, our products -- our strategy has been timely and will lead to more stable and improved results. Turning to tariff uncertainty. There are several important…

Thank you, Matt. Our first quarter results were mixed across our various businesses. On a positive note, we saw sales growth in several parts of our Supply Technology business, including our locations in Europe and Asia and in the commercial aerospace end market, which helped offset demand weakness in certain end markets in North America. Also, our industrial equipment business and our Engineered Products segment performed well as sales grew 13% and operating margins increased 110 basis points during the quarter, resulting from strong new equipment and aftermarket demand in all regions. In our Assembly Components segment, lower unit volumes and lower pricing on certain fuel rail products and delayed new business launches impacted sales in the quarter. Sales in the quarter totaled $405 million compared to $418 million a year ago. Sales in both our Supply Technologies and Assembly Components segments improved throughout the quarter and consolidated March sales exceeded prior-year levels. Also, first quarter revenues in our Engineered Products segment grew 6% compared to last year, resulting from strong sales in our industrial equipment business. Our consolidated gross margin was 16.8% in the quarter compared to 17.1% in the first quarter of last year. Consolidated operating income totaled $19 million compared to $24 million in the first quarter of last year. The decline in both gross margin and operating income margin during the quarter were a result of the lower sales levels in Supply Technologies and Assembly Components segments. SG&A expenses were approximately $48 million compared to $47 million a year ago, with the increase driven primarily by general inflation and an increase in personnel costs. Interest costs were lower compared to last year and totaled $11 million during the quarter compared to $11.9 million last year, driven by lower average borrowings outstanding in the quarter and lower…

Great. Thank you very much, Pat. We'll now open the line for questions.

[Operator Instructions] And our first question is from the line of Steve Barger with KeyBanc Capital Markets.

This is Jacob Moore on for Steve. I joined a little late, so apologies if you addressed anything specifically already. But the first one for me is on the updated guide. Could you just break down for us what parts of the business are driving the change in guidance or at least the majority of the change?

Well, I'll start just by saying just to make sure we're characterizing clearly what we think the risks are. We continue to believe that the high end of our range is consistent with what we've seen year-to-date and hopefully anticipate seeing for the rest of the year. So some impact, I think, with some of the uncertainty in the customer mix and the volatility we're seeing, but generally in line with our business plan and how we've seen the year so far. The lower end, I think, contemplates some of the uncertainty related to current demand. Clearly, some consumer-facing customers are seeing weakness today. Some of that weakness, I think, is because of anticipated inflation. Some of that weakness could be related to restructuring their production schedules to contemplate for waiting for imported parts after there's more clarity around tariffs. So there's some volatility out there that we're concerned about that may impact some of the demand going forward, particularly in the second half.

Got it. That's really helpful. And my second question -- go ahead.

And I guess, more specifically, I think it's worth commenting on because you did miss the opening. Where is that? Well, that's mostly in Supply Technologies and ACG. We'll be the beneficiary of some new business in the second half in those businesses, but that's where we're more impacted, I think, by the consumer-facing part of the business. I mentioned Engineered Products ended the quarter very strong. They were up year-over-year. This historically is the highest margin business with the most visibility and stability in their backlog. So we're pretty excited not only how that business stands to succeed for the rest of the year, but we're also pretty excited to see what some of the tariffs and some of the things that the reorganization of global supply chains are going to do for that business. That business is uniquely levered on the forged side to a domestic supply chain. And on the equipment side is levered to some of the infrastructure and steel investments that we've talked about in the past. So -- and also the defense industry and the infrastructure. So a lot of the things we were excited about in prior calls for Engineered Components is going to continue, I think, to evolve perhaps even more quickly.

Okay. Great. Yes, that's really good color. My second question is on your cost base. I think you're at like 58% of sales to the U.S., but I understand that you have a not insignificant global manufacturing presence. Here, I'm thinking specifically, but not exclusively about China. Could you just help us understand how much of your cost base comes from China or more broadly from countries where significant tariffs could potentially be imposed?

Yes. Jacob, this is Pat Fogarty. 70% of our business is North America-based. The other 30% is split roughly 15% Europe, 15% Asia. Within the Asia marketplace, our business is roughly 8% of that 15%. So relatively small in terms of the total of our business. It is located in China. But clearly, we're a global business, and we have locations in many countries and in many areas of the country. So in terms of the cost base, I can't really speak to the cost base, but I can speak to the total size of our revenues in those locations.

Okay. Got it. That's helpful. And then if I could sneak one more in related to...

Jacob, just to be a little more explicit because again, I think you missed the opening comments. We do -- we will address tariff issues. We're a global business. We're sizably a U.S. business. So those are certainly issues that we're going to have to address, particularly on the 232 tariffs. Having said that, we generally do in-country manufacturing and distribution for those countries. So while I won't suggest that the China tariffs will have no impact, we are not a significant exporter of our products back to the U.S. for distribution or sale.

Understood. Yes, that's a helpful add there. And maybe if I could sneak one more in related to tariffs. Are you seeing more demand pull forward or maybe wait-and-see type of pauses? I mean it feels like component manufacturers have been more victims of pull forward, while larger, more complex goods are more wait and see. I'm just curious what your experience has been so far? And then maybe that's an opportunity to expand on any specific mitigation efforts you'd like to call out as well.

Well, I'll discuss the pull forward. I would say -- I'm sure there are examples of that in our broad portfolio. But I would say, in general, other than March being a pretty good month, as I indicated, I do not think that we saw evidence of a sizable pull forward. Again, these are very sophisticated supply chains, whether it's aerospace or auto or equipment building or aftermarket, these just aren't the kind of businesses. These aren't retailer textiles. We just can't sort of double down and call our suppliers and tell them to double the orders. So again, I think that our supply chains are reacting. We do see at the end market. We've heard comments from some of our customers that they saw some pull forward. I don't know that, that sort of filtered down to the Tier 1 and Tier 2 level on the supply chain side. Relative to mitigation efforts, again, we will first seek to understand and optimize supply chains. We're mostly in country. We benefit from the USMCA agreement. We will seek to optimize as best we can our supply chains. We think we're in a great position to actually do that. So we will look to support our customers in all the appropriate ways and where we can because again, we're sole sourcing most of our relationships on highly engineered components. We're going to look for customer support.

I think the risk, Jacob, our forecast, again, to finish where we started is related to the broader issue with the consumer and demand destruction and less about specific tariffs.

[Operator Instructions] The next question comes from the line of Dave Storms with Stonegate.

Just wanted to kind of stick with some of the momentum you saw coming out of February and March. The difference between your Q1 results and your Q1 forecast, how much of that do you think can be made up in the subsequent quarters of 2025?

Yes. Dave, where we saw a slow start was primarily in the month of January, as Matt mentioned in his opening comments. So when you look at where we expected to be compared to where actual sales came in, we fully expect to make up ground the rest of the year. The shortfall wasn't that great business by business, but it was a slow start to the year, especially in the first 2 weeks in January. We picked up momentum. Average daily sales in our Supply Technology business in the month of March mirrored where our expectations were. And many of our businesses performed better, as Matt mentioned in his opening comments, in our industrial equipment business, we had outstanding execution and flow-through and equipment building in the month of March, which we expect to carry through the rest of the year.

David, I think it's important to note, too, particularly with our small share count, I know we talk about this fairly often, but -- and even with the increased number of shares year-over-year because of the equity offering, the start of the punchline is $15 million in lost sales flows through at about $3 million. These are businesses that were strengthening throughout the quarter. So we're not taking aggressive cost actions, some cost actions, not aggressive cost actions. So that filters through pretty quickly, you could find yourself losing north of $0.10 a share really quickly. But again, as Pat said, that was, I think, a little bit more isolated in the front end of the quarter than the back end.

That's great. And then another one for me. You've mentioned that the supply chain is shifting in your favor, hopefully. Is there a qualification process that makes this shift a little more durable? Or is it still at the stage of just order inquiries? I guess kind of what inning of that supply chain shift are we in?

We touch global supply chains in a lot of different ways. So I would characterize broadly incremental new opportunities in businesses like automotive that are more fully evolved and very cost sensitive are going to happen very quickly. It's already begun happening. I think you probably noticed a lot of other industrial companies talking about the fact that they were exiting China years ago. There's nothing new to that story. I think there's an urgency to some of these industrial sort of price-sensitive consumer products like auto that are going to force the global OEMs and global Tier 1s to be very nimble. Is that going to cause greenfield investment? I wouldn't go that far. Is there going to be incremental activity around understanding how to strengthen their supply chains, dual source and look for the ability to avoid tariffs? Absolutely. So I think that you're going to see that. I think on some of the more longer-term ones, certainly around steel production and defense and infrastructure, those are certainly in the order book today, but those are longer cycle sales opportunities. So again, I mentioned that I don't see much of this leaking in the book until 2026. But I think some of these shifts are, if not permanent, certainly semi-permanent particularly around the 232 tariffs and steel and aluminum and those derivative products. I don't know of anyone that thinks those are going away.

That's great color. And then just one more for me, if I could, more general question. I know you guys are keeping ear to the ground in the M&A market. Just curious if you're seeing any really structural shifts there given the macro uncertainties if things have frozen up or if you're looking at this as a buying opportunity? Any color there would be great.

Yes. Dave, this is Pat. Clearly, there is a decline in M&A activity, whether it's because of the uncertainty in the macro environment or economic environment or because banks are tightening up on owing money to buyers of businesses. So we're definitely seeing a decline in some of that activity. That could be short term in nature as things start to free up. Hopefully, we'll see interest rate cuts at some point during the course of the year. But clearly, I think many acquirers of businesses are taking a wait-and-see attitude and sellers as well.

At this time, I would like to turn the floor back to management for further remarks.

Great. Thank you for your time this morning. I do want to point out that it is while interesting and important for us to appreciate the risks in this year's business plan related to tariffs and demand destruction, I would also want to say that a lot going on gives us confidence that our business is not only going to weather this period well, but will be stronger for these changes next year and beyond. So this is an exciting time for us. The focus on industrial policy, the focus on U.S. manufacturing clearly is a trend that will support our business now and going forward. So thank you for your attention, and have a great day. Bye.

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.