Good day and welcome to the TriMas Corporation Second Quarter 2015 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Sherry Lauderback. Please go ahead. Sherry Lauderback - Vice President-Investor Relations & Communications: Thank you. Thank you and welcome to the TriMas Corporation's second quarter 2015 earnings call. Participating on the call today are, Dave Wathen, TriMas' President and CEO; and Bob Zalupski, our Chief Financial Officer. Dave and Bob will review TriMas' second quarter 2015 results, as well as provide our outlook reflecting the spin-off of our Cequent businesses. And after our prepared remarks, we'll open the call to 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 www.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 6793033. 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 for a list of factors that could cause our results to differ from those anticipated in any such 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. I would also like to refer you to the Appendix in our press release issued this morning or included as a part of this presentation for the reconciliations between GAAP and non-GAAP financial measures used during the conference call. Today,…

Thanks, Dave. Before beginning my comments on the quarter, I wanted to update you on my areas of focus and that of the broader finance team. In addition to active involvement in the spin and financing related activities, we have been partnering with the businesses to drive accountability for specific margin improvement actions. As evidenced by this quarter's results, some of these initiatives are taking hold while other areas need additional work. We are assessing our plans to drive improved performance within a more aggressive timeframe, primarily in the Energy business. These efforts include assisting with resource allocation and improvement plans, providing financial analytics in support of daily operating decisions, evaluation of product lines, geographies and customer segments, developing key metrics to track progress against specific plan and ultimately understanding the financial implications and related timing to the company overall. With regard to the second quarter, I'll begin my comments by providing a brief summary of our total company performance beginning on slide nine. TriMas reported second quarter sales of $225 million, up slightly as compared to second quarter of 2014. The sales increases resulting from our 2014 acquisitions of approximately $16 million were largely offset by the sales decline related to lower oil prices, most notably in our engine and compressor business. In addition, sales growth via organic initiatives was primarily offset by the impact of unfavorable currency exchange of $4 million in both our Packaging and Energy segments. Operating profit for the quarter decreased to $24 million or 10.8% of sales. Q2 results were impacted by the $2.8 million charge to resolve the outstanding legal claim that Dave spoke about and higher cost related to West Coast port delays, both in our Energy business. We are also impacted by lower fixed cost absorption in Engineered Components resulting from…

Thank you very much. We have our first response today, Matt Koranda, ROTH Capital Partners.

Good morning, guys. Thanks for taking my questions. Just wanted to start out on the Aerospace segment and the outlook here. Is the primary delta here mainly the destocking phenomenon, the distributors? How long do you expect that phenomenon to last and how are you getting visibility and the potential improvements within that channel? David M. Wathen - President, Chief Executive Officer & Director: Yes. It's far and away the distribution – call it, working capital reduction at the distributors. And you know that a couple of the big distributors have gone public and all that. I did meet with their operating people at the Paris Air Show; the message was pretty clear. They have built inventory above levels that they think they want. They will reduce those. And I said in my script that I'd say a year; I mean it maybe two or three quarters and it maybe five, but it's not one quarter. They've got pretty heavy inventories, and you learn things. It does explain why we've had a lot of this going on. And we'll just react to it. It ultimately is good for us because it takes some of that out in the middle and it gets us closer to the customer, but there'll be a little bit of revenue pain for a while. That said, the commercial aircraft build rates, as you know, only keep climbing and our content seems to be higher. So overall, it looks great.

Okay just...? David M. Wathen - President, Chief Executive Officer & Director: Call it a year; call it a year.

Okay, about a year. Okay, got it. Just as a quick follow-up to that. What does that mean for the mix of business in Aerospace now, given that the majority of it sounds like, a larger mix is going to be going to the OEM channel. Talk about some of the changes you guys have made operationally there and the implications for margins going forward in Aerospace?

I think the mix question does impact us. So, it's higher margin business that – much of which flows through Allfast – that is impacted here. And as a result, we see our operating profit being a bit lower than what we had originally forecasted. We had talked about getting to plus-20% here on a run rate basis at the end of 2015 and it's looking it's going to be less than that, but we still believe based on the operational improvements and initiatives that we got going in our other aerospace platform companies, that that near-term goal of 20% is achievable as we move into 2016.

Okay, got it. One more from me here in the Packaging segment. Looks like low-single-digit growth outlook; that was down, I think, from low to mid that you guys had guided to prior. Is it slower growth in Asia that's impacting this most, or is it currency-driven? If you could just help us understand some of the assumptions that went into the outlook there for the Packaging segment and...? David M. Wathen - President, Chief Executive Officer & Director: A little bit of it is Asia, although we're still not all that big in Asia. The currency translation hits directly. And then the third thing is, if resin prices drop at some point and we have to drop selling prices accordingly, usually by contract, margin percentages hold but dollars drop a little. And of course, that goes both directions. But call it the combination of a little slower in Asia, the translation, currency and the reset of selling prices due to lower resin costs. And so, the three of them together probably take just a little bit off of the Packaging revenue.

Got it. Okay, I'll jump back in queue guys. Thank you.

And next we'll hear from Andy Casey, Wells Fargo Securities.

Thanks a lot. Good morning, everyone. David M. Wathen - President, Chief Executive Officer & Director: Hey, Andy.

Hi, Andy.

Thanks. Given your Q2 was consistent with your expectations, I'm trying to kind of frame what the revision to the second half views could imply for 2016. If I take the midpoint of the updated guidance, it implies something like a 51%/49% first half, second half split. Is this what you would consider normal seasonality with the ongoing revenue mix?

I don't think so, Andy. I mean it's hard to sort of look at 2015 and characterize it as a normal or recurring mix because so much of the impact of the declining oil prices was felt in the first half of the year. And, look, we tried to react to it as quickly as we could, but you can never quite take cost out as quickly as perhaps top-line drops when you're in this kind of a situation. So I would say it's not necessarily representative. And what happens as we roll into 2016, I think in large measure that front half, back half split will be a function of, is there any rebound at all in the oil related activity, A); and B), when do we see the burn off of the extra inventory in channel at distribution customers.

Okay. Thank you for that. And then specifically on Energy within the 2015 guidance, now low-single-digit margin performance expected and that implies a positive margin performance in the second half. Do you expect first, the port issue impact on material cost to be contained in Q2? And then secondly, should we expect second half margin to kind of ramp through year-end or be pretty consistent by quarter?

Yeah. We do believe that the impacts of port delays have been sort of compartmentalized, if you will, to Q2. We do have available inventory as a result of having received that inventory that was stuck in the ports available for second half. I think the question of how quickly the margin percentages ramp will be function of two things. One, do we see an improvement in top-line, so to speak, from the run rates that we're currently at. And then, secondly, obviously the effectiveness of the operational improvement initiatives that we have in process as well as additional footprint restructurings that Dave mentioned that are currently under review and more to come on progress on those fronts.

Okay. Thanks, Bob. Then, lastly on Energy. If I go back to the Investor Day, I believe that – some of the prior outlook included some turnaround activity that I think at that time there was some line of sight. A, is that right? And then B, has that been taken out of the second half expectations? David M. Wathen - President, Chief Executive Officer & Director: You're correct that – that Kurt talked about some turnaround activity. And I wouldn't say we've taken it out of second half, because we are seeing some turnaround activity. It's a combination of when does it hit, because remember we had some large number of refineries being run by the white collar workers while they were on strike. And that is settling out. And when you put it altogether and it indicates that the turnaround season will be a lot closer to normal in the tail end of this year when it tends to come on. That said, you can probably tell by our tone that we're being cautious and realistic about this business, because it's disappointed enough times. So we're a little bit in a wait and see mode on the revenue. We will keep you updated when we see something. I mean, the optimist in me says, yeah, there's turnarounds going on, there are some big projects cut loose, our quote activity on big projects, but you've heard me say that in previous quarters. And I am a little bit in a wait and see mode now, if that's fair.

It is. Thanks a lot.

And next is Steve Tusa, JPMorgan.

Hey good morning. David M. Wathen - President, Chief Executive Officer & Director: Good morning, Steve.

Just getting back to the Aerospace thing. So the distributors are destocking. Is this an OE issue or an aftermarket issue. I mean did they just take enough for the ramp in production and are they kind of maybe the airlines are repurposing some of this stuff, or I mean – I'm not an aerospace analyst. So I'm just not sure how easy it is to move products around like that. I'm sure it is. I mean they cannibalized spare parts from planes they park. So it seems to be seeing somewhat, but I guess I'm just wondering is this OE or aftermarket type of issue. What's driving the destocking? David M. Wathen - President, Chief Executive Officer & Director: Of course, the answer is always it's both. Generally we serve Boeing and Airbus direct. Generally, it feels like direct sales. The indirect orders and we see the line rates and all that, generally, smaller OEMs are served by distribution. So a part of it is that. And then it's the aftermarket for the, what we'd call, people who are rebuilding aircraft or that refitting and that kind of things. And it's more of that's second part of aftermarket distribution. Though the companies are public – couple of them are public now, you can look at what they're saying about it. And I'm sure what you're going to see is they just, in a way, inherited more inventory than they think is reasonable across the board and they're working their way through it. And I mean I can speculate. I mean there's no doubt that companies like us have always given discounts for bigger orders in order to try to get longer runs. There's been some conversion away from the longer runs. That's still going on. We've caught up with being configured, the way we can run short runs a lot more efficiently, and you're seeing that in our numbers. But we think we're going to see this short run – short-term ordering patterns for quite a while as they work their working capitals down and get their turns up.

Is there an element of maybe they're reacting to; A, a change in the environment from an inflation perspective that they don't really see the need to buy urgently because they feel like ultimately with materials prices coming down that this kind of pricing power that all you guys have enjoyed for a period of time is kind of fading here. Is that at all in their mindset? Hey, I'll just wait to buy because I know in three months from now I'm going to get – there's going to be a better deal because just less of a cost push from an inflation perspective? David M. Wathen - President, Chief Executive Officer & Director: I'd actually think it's probably more to do with people like us have pulled our lead times down a lot. And you think about what that means to – if they know they can replenish in six weeks instead of 12 weeks, they can reset their whole supply chain. And there's some of that in it for sure. And again, ultimately when it flushes out, it's better for the manufacturer because we're ultimately closer to the customer and can take some of their stuff out in the middle. But, it will take a while to look. And I would call it more lead time driven than price driven. It's still not really a price market like less highly engineered products might be.

Right.

And the other comment I would make Stephen is that clearly there's trends in the Aerospace supplier channel or industry that are moving more towards OE supply last two distribution. And if our sales mix today is 50:50, OE to distribution, we see that over a couple, three-year timeframe moving to more a like 65:35. So how that reflects itself and ordering patterns quarter-to-quarter I mean more to come, but there's clearly that overhang if you will in terms of general trend in the industry.

Got it, got it. Okay. Sorry, one last question. On the power side, are you seeing aggressive behavior from your peers like the GEs of the world? David M. Wathen - President, Chief Executive Officer & Director: I'm sorry, like oil field activity and all that?

Pricing, discounting going on and I guess when your business is down 50% to 60%, it doesn't really matter what kind of price you can see now, you're going to get somebody they're not ordering it, but I guess you're seeing competitors come in and get aggressive with price on that front yet? David M. Wathen - President, Chief Executive Officer & Director: You're right, ,human nature is human nature. You get hungrier. For a while, we have definitely seen, for example, people who build oil platforms and use some of our high end fasteners. They're purchasing people who are asking for 15% price reductions, just based on softness. And that does permeate the industry. We are high share in a very narrowly defined set of products and so we're not quite as susceptible to that as some, but yeah, those price pressures are there and sometimes you got to make the choice of would I rather run lower volume than way lower margins.

Right. David M. Wathen - President, Chief Executive Officer & Director: And I'm a little more in that boat, because you lose price, it is the hardest thing to get it back.

Right. Well, best of luck. It's a very tough environment. Best of luck. David M. Wathen - President, Chief Executive Officer & Director: Thank you.

And our next question will come from Karen Lau, Deutsche Bank.

Thank you. Good morning.

Hi, Karen. David M. Wathen - President, Chief Executive Officer & Director: Good morning, Karen.

So first off, Bob, could you walk us through what's in that free cash flow number $30 million to $35 million. I think that implies 60% conversion on your adjusted net income. I wasn't sure if they are like spin cost and charges embedded in that number and it's also a lot lower year-over-year, even if I parse out Cequent. So just want to understand the puts and takes there?

Yeah. So first off, on the spin cost, none of those are really reflected in our free cash flow guidance. Those were basically considered part of the discontinued operations. And the majority of those were funded through the P&L of Horizon. There were a couple of refinance cost associated with TriMas' amendment of their credit facility, but nothing material. I think really the two big issues are the capital expenditure plans. We're still guiding to an area of 3% to 4% of revenue and depending on the timing of certain customer programs and how that might shake out in terms of end markets and demand for our Packaging business, that number could flex a little bit higher or lower depending on what the market circumstances dictate. I think, the other piece that has impacted us is working capital. We have higher inventory levels primarily in Energy that we're going to work pretty aggressively to burn down as we move through the remainder of the year. But again, some of that's going to be dependent on the customer orders vis-à-vis the products that we have there and are we able to get that inventory burn in turn. So, those are the sort of the principal elements of what's going on with free cash flow.

So, if you normalize for some of the inventory issues in Energy, it sounds like CapEx could remain high into next year given that you continue to be in that investment mode for Packaging. It's the 60% to 70% conversion sort of like normalized conversion number that we should look at going forward?

Yeah. I think it could be higher than that, Karen. I mean obviously I think our goal would be to be closer to 100% conversion rate. But again, you know whether you're at 100% versus 80% or 90%, will be a function of the timing of CapEx. And then maybe specific investments in working capital that are going on depending on end market demand in various segments.

Okay, it makes sense. And then on Aerospace, Dave, I want to get your thoughts around, your confidence level around maintaining margins at this level if we do see further disruption in the supply chain because you first got hit with Boeing sort of rationalizing their fastener purchasing. And then now it sounds like it's more broad-based, destocking from the distributors. So I wasn't sure if Airbus would try to do the same thing, but what if they decided to rationalize their purchasing as well. Do you think you now have the framework to handle more disruption and sort of maintain margins at the high-teens level at least? David M. Wathen - President, Chief Executive Officer & Director: Yes, Karen. I have a lot of confidence in the changes we've made within manufacturing. The team I've got running that business who are very used to that and the productivity goals we've got. So it's always a horse race of cost versus price. And I think we are well-positioned for that. So my confidence is high. We have definitely taken our speeds up, our lot size ability is way down, our setup times – I can see all that in our operating system reports and all the trends say that we can stay ahead of that curve.

Okay, makes sense. And just a quick one on Engineered Components. So you're expecting Arrow to be down 50% to 60%, so in line with the second quarter run rates. But you are guiding your full year margins to 10% to 12% which I think implies high-single-digit margins in the second half. So I was just curious what's driving the sequentially lower margins in that segment?

There's really a couple of factors, Karen. First off, if we look at Arrow Engine, while we were marginally profitable in Q2, that becomes harder to do as your revenue levels stay depressed, so to speak. And there's less absorption, if you will, into inventory and more of that gets reflected in P&L in terms of period costs. So that's part of what is driving the segment margin down. The other is that in the Cylinders business, Norris had a pretty solid first half of the year which, as Dave alluded to in his remarks, we're seeing some softening in terms of order intake, particularly from an export market point of view. And we don't have a lot of visibility into that channel. I mean it maybe typically runs four to six weeks. And when you start to see a little bit of softness, that of course portends that there could be a little bit less revenue than we had in the first half. So that's the other contributing factor because our margins in that business are pretty good and when you lose top-line, it impacts us accordingly.

Okay, makes sense. Thanks very much.

Bhupender Bohra with Jefferies is next.

Hey good morning, guys. How are you? David M. Wathen - President, Chief Executive Officer & Director: Great. Sherry Lauderback - Vice President-Investor Relations & Communications: Hi. How are you?

So just wanted to get on the previous commentary from Dave about the results were basically in line. I just wanted to see if you can explain which of the businesses actually were below expectations and – kind of internal expectations – and which were kind of above expectation. And especially if you can talk about your Energy business, what actually caught you by surprise over there? David M. Wathen - President, Chief Executive Officer & Director: I would say, I mean if you'll allow me to take that legal settlement out, a $0.34 EPS number is where I get my – it's about what we expected to be able to do, given what we know about tax rate and operations. I would say Packaging is performing as we'd expect. First half was flat, but actually sequentially, second quarter was above first quarter in revenue and we can see that kind of ramp. So I feel real good about that. I feel real good about the progress in Aerospace, and partly it's our position in the market. And there is nothing like meeting with your top customers and really getting it reinforced that the combination, really the combination of Allfast plus Monogram, makes us very important to customers and makes us into the tier that gets attention. So, all that feels goods. And so I'd say performance in that business is what we expected. Energy is behind what I expected the improvements to show. We have a tremendous amount of effort underway. I understand now better how much harm this port strike did to that business, because again think about it. You got container loads of standard products you made in India and China sitting out on the ocean. And so, instead, you're making them in a plant like Houston which by definition is more expensive. And that is painful from a margin standpoint. I mean it's a choice you make to serve your customers. So I would say that, that kind of thing made performance in Energy disappointing. The Cylinders business was stronger than I would have anticipated. That helped us. Headquarter's costs were a little less than anticipated. So I'd say that helped us. And because it's hard to – while we know how to budget, we know how to track costs, a spend is a complex thing. And anyway we came through that well. And then I got to say that the engine's business – the engine, compressors and parts business, in spite of a half run rate to a year ago, certainly met expectations in being able to control its cost. So, I put that all together – the work to do is in Energy. I feel good about the trajectory in Packaging and Aerospace, which are our high margin businesses, and we need them to grow to mix our total margins up.

Okay. David M. Wathen - President, Chief Executive Officer & Director: Does that address it?

Yeah, yeah. That's actually a pretty good summary here. Now, on the Energy side, you mentioned about the ports strike, right. I mean, is there a way to size that, like how much in terms of dollars, how much was beyond your expectations? David M. Wathen - President, Chief Executive Officer & Director: I mean it is – I've been a plant manager, I've been a division president. I was a foreman back when supervisors were called that. So I have some hands on feel for all this. It's a couple of million dollars. It's not $10 million. It's not $100,000. It's that kind of number in extra cost that you take on when you make a choice to build products. So call it that, a couple of million.

Okay, okay. That's good. And my last question, you know the last Analyst Day you guys talked about moving some of the Energy business to Mexico, and I believe the presentation actually talks about still on track to move by the fourth quarter. Can you just go through what kind of products will be moved from Houston to Mexico in terms of – I believe you mentioned something – products with longer lead times on your commentary? David M. Wathen - President, Chief Executive Officer & Director: Yes. The split is – of course, some of it is the type of equipment we put in and it's coil winders and that kind of thing. And then it's the real split because it'll be a, call it, a satellite plant to Houston and things that take more than a certain number of days; probably start with a cut off of five days and work it down a little that says we can schedule in Mexico instead of Houston and so fulfill customers orders. So this is a tremendous opportunity. Right now when you schedule on China or India, its six or eight or 10 weeks away. We're talking about six or eight or 10 days away in total production. So the split is based on lead time to fulfilling the customer order. So it's building products that you might call specials, but it's things that can stand five or six days.

Okay. Thanks a lot. David M. Wathen - President, Chief Executive Officer & Director: And we're doing all kinds of work on what fits, what equipment that needs and attempt to do longer runs during a plant ramp up and all that, but it's all moving right along.

Thanks, Dave. David M. Wathen - President, Chief Executive Officer & Director: I'm staying very close to this business. They're having to put up with Bob and me on lots of conferences. Bob's been there a couple of times already in the last few weeks because it needs a lot of attention and so we're keeping on it.

Next we will hear from Gautam Khanna, Cowen & Company. Gautam J. Khanna - Cowen & Co. LLC: Yes, good morning. I was hoping you could elaborate on your Aerospace comments. I understand how the Boeing basin program hurts distribution and the distributors are reacting, but I guess what I wonder is in the quarter, would you describe the reasons distributors has been week as more a function of them just destocking and kind of rightsizing for demand? Or was the pace of on boarding under the Boeing basin program, did it pick up in anyway, did they onboard more kind of Boeing subcontract manufacturers or any particularly large ones that affected kind of the cadence of demand in the quarter? David M. Wathen - President, Chief Executive Officer & Director: We didn't see that, but I'm not sure we would. You heard us talk before. The effect of those changes at Boeing are kind of under our belt now. And it's really hitting the first and second tier distributors more than anybody. And the fastener stuff is pretty well done and they're working on other products. So I'm just not a good source of that. I will tell you Boeing is serious about it and they've got some impressive high horsepower people working on it, but it's hard for me to say did they accelerate or not. I think you'd learn more from a couple of the big distributors.

Yeah. And I'd also add that coming into the second quarter we did expect and had been signaled there will be lower orders coming from distribution and really the question mark was, was it just the second quarter thing or was it going to extend longer throughout 2015 and beyond. And I think what we learned most recently is that this is going to be a longer-term trend we're going to be dealing with. Gautam J. Khanna - Cowen & Co. LLC: I understand. Okay. And to that point, do you think that the basin program is fairly mature now meaning incrementally the number of Boeing Tier 1s and Tier 2s that join, is going to be fewer and fewer as we move forward. They've already done the majority of the transfer? David M. Wathen - President, Chief Executive Officer & Director: What I have seen of their reports, which say they've come a long way with it and most of the distributors are making their choices, but again we're kind of once-removed from that. Gautam J. Khanna - Cowen & Co. LLC: That makes sense. Last quarter I think you also made a comment about this being the season Airbus fastener contract. I was wondering if you could update us on where you stand on your contract renewals with Airbus? And if you're seeing a central procurement that's being used at Airbus relative to what they've done historically with distributors? Thanks. David M. Wathen - President, Chief Executive Officer & Director: I would say Airbus is not done. We've been through multiple rounds of contract negotiations with Airbus. But we think – we know where we are on the drawings, (58:18) we think we understand what is swinging our way. It's as expected. As you would know, it doesn't…

And at this time we have a question with Walter Liptak with Global Hunter.

Hi. Thanks. My question is on Aerospace. You mentioned purchase accounting. How much purchase accounting costs went through in the quarter?

It's about $1 million relative to inventory step-up burning off and then some higher intangible amortization although that is recurring.

Okay. So if we back out that inventory step out, you would be I think a little bit above the 20% levels for margin. How much more purchase accounting rose through in the back half of the year?

We should be set for the remainder of the year, Walt. All the one-time kind of impacts are worked away through in the first six to eight months here.

Okay. So if we back out – where do you think the normalized margin is now. I know you said you're going to have trouble getting to the 20% level in the back half of the year, but looks like you're already there with purchase accounting. Where is the incremental weakness, is it on mix or is it on volume?

Yeah. It's mix. Well, mix and volume ultimately because of distribution, but I would weight it more heavily towards mix.

Okay. And then on the corporate expense, it sounds like you're forecasting in millions of dollars to somewhere around $36 million for the year. Is that right? David M. Wathen - President, Chief Executive Officer & Director: That's about right.

The 4%? Can you explain to us how the Horizon charge back is going to work and why that wouldn't be lower if you're going to be charging Horizon for taking care of their back office?

Well, the transition services agreement will scale over time. So there will be higher levels of support provided near-term. As time passes, that should diminish. The number that we're focused on here of about 4% currently considers what fees we'll be receiving from Horizon. And I think as time passes, Walt, and we understand sort of are the recurring demands without the TSA that, we'll adjust accordingly. But I think longer-term, our focus is, we've stated we're focused on 3% of revenue and that's something I think we get to probably over, some future timeframe depending on what happens with both growth and acquisitions or anything of that nature.

Okay, okay. Thank you.

And currently we have no questions in the queue at this time. We will turn the conference over to our host for any additional comments. David M. Wathen - President, Chief Executive Officer & Director: Yeah. We sure appreciate the attention. We are fully focused on the new configuration of TriMas, and the upsides that we've got. And while higher oilfield activity would be great, we can get ourselves in shape to where the company we want to be regardless of oil price. So we're sure working on all that. So again, I feel, quite upbeat about the new configuration of TriMas' businesses and what our potentials are. So we're on it and we sure appreciate your support and attention. Thank you.