Greetings, and welcome to the TriMas Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sherry Lauderback. Please go ahead.

Thank you, and welcome to TriMas Corporation's Fourth Quarter and Full Year 2022 Earnings Call. Participating on the call today are Thomas Amato, TriMas' President and CEO; and Scott Mell, our Chief Financial Officer. We will provide our prepared remarks on our results and on our 2023 outlook, and then we will open up the call for your questions. In order to assist with the review of our results, we have included today's press release and PowerPoint presentation on our company website at trimascorp.com under the Investors section. In addition, a replay of this call will be available later today by calling 877-660-6853 with a Meeting ID of 13735882. Before we get started, I would like to remind everyone that our comments today may contain forward-looking statements that are inherently subject to a number of risks and uncertainties. Please refer to our Form 10-K that will be filed later today for a list of factors that could cause our results to differ from those anticipated in any forward-looking statements. Also, we undertake no obligation to publicly update or revise any forward-looking statements, except as required by law. We would also direct your attention to our website where considerably more information may be found. In addition, we would like to refer you to the Appendix in our press release or our presentation for the reconciliations between GAAP and non-GAAP financial measures used today in the call. Today, this discussion on the call regarding our financial results will be on an adjusted basis, excluding the impact of special items. With that, I will turn the call over to Tom Amato, TriMas' President and CEO. Tom?

Thank you, Sherry. Good morning, and welcome to our fourth quarter earnings call. As recently announced, we are pleased to welcome two new companies to TriMas' portfolio of businesses; Aarts Packaging, which will report into our TriMas Packaging Group and Weldmac Manufacturing, which will report into our TriMas Aerospace Group. These two acquisitions are exciting additions to TriMas, and we now look forward to working with each of their leadership teams. I will discuss these acquisitions further in a few moments. Additionally, we welcome Greg Manfredi to TriMas, who will lead our Norris Cylinder business into its next phase of growth. Greg has more than 25 years of manufacturing experience, is Green Belt Six Sigma certified and was recently COO for JSW Steel's U.S. operation. In connection with Greg's appointment, Chuck Manz, the prior President of Norris Cylinder will move into a special projects role at the TriMas corporate office level, where he will support a smooth transition in leadership and assist in other high-impact manufacturing projects. I would like to personally thank Chuck for his years of service at Norris, and I look forward to Greg's future contributions. I would like to now pivot today's call by first refreshing what we discussed on our prior earnings call, specifically related to demand challenges in our consumer products and certain of our industrial end markets. As we discussed, we began experiencing meaningful demand softness in the third quarter, which we believe was largely a function of inflationary pressures impacting consumer confidence, compounded by overstocked inventory positions. Therefore, we closed out our fourth quarter and the full year, largely as we anticipated toward the end of the quarter. With that said, as we reflect on 2022, TriMas made solid progress investing in and executing against our long-term strategy despite some of these…

Thanks, Tom. Let's now turn to slide 7. TriMas continues to maintain a strong balance sheet and liquidity profile with more than $400 million of cash and borrowing availability at the end of 2022. Our net leverage remains below our long-term target of 2x at 1.6x, even after using more than $150 million of cash this year to reinvest in our businesses through capital investments and acquisitions as well as provide returns to shareholders through share repurchases and dividend payments. Free cash flow for the year was $43.1 million, down on a year-over-year basis, primarily as a result of lower cash from operating activities and our ongoing efforts to mitigate supply chain disruptions through proactive inventory management. Finally, and as Tom mentioned earlier, I'd like to highlight that in addition to the cash flow generated from operating activities this year, we generated $55 million of pretax cash proceeds from the sale of two noncore properties and the settling of our outstanding cross-currency swaps, which I detailed further during our third quarter earnings call. Now let's turn to slide 8, and I will begin my review of our segment results, starting with TriMas Packaging. Fourth quarter 2022 net sales were $106 million and decreased $18 million or 14.5% as compared to the year ago period. Acquisitions contributed $10 million of sales during the quarter, while the impact of unfavorable foreign currency translation reduced sales by $4.7 million or 4%. As expected and outlined during our Q3 earnings call, organic sales, excluding currency, decreased by 19% during the quarter due to an abrupt demand reduction for our products as dispensing products with applications in the personal and home care end markets and closures products for the food and beverage end markets continue to be negatively impacted by weak demand and our CPG…

Thank you, Scott. Let's turn to slide 11. As we model 2023, we continue to experience a period of demand uncertainty in certain end markets. As discussed on our prior earnings call, and as Scott noted, with respect to TriMas Packaging, we are continuing to take a cautious approach to balancing our support infrastructure against what we believe is a temporal demand effect with certain of our consumer goods and industrial product lines. While we have flex certain of our operations experiencing lower production activity, we are also forecasting a recovery in many of our food and beverage, beauty and personal care and industrial end market applications beginning in the second quarter and then ramping up significantly in the second half of 2023. While many of our customers also support this assumption, we cannot predict at this time if the consumer goods markets will significantly ramp up in the second half. However, we do expect to see some better planning indicators early in the second quarter. And of course, if we do not see positive indicators as we enter the second quarter, we will continue to take aggressive cost containment actions. Within our TriMas Specialty Products and TriMas Aerospace businesses, we are modeling that demand will remain strong throughout the year. While we are expecting to continue performing at high margin levels in TriMas Specialty Products, we also believe we will continue to make meaningful strides in progressively converting better on higher demand through 2023, particularly in the second half within TriMas Aerospace. With that, we anticipate our full year net sales will be up and in the range of 10% to 15% and are forecasting adjusted EPS to be in the range of $2 to $2.20, with the center point essentially even with 2022. Our outlook considers that we…

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

[Operator Instructions]. Your first question comes from Ken Newman with KeyBanc.

For my first question, Tom, I'm curious -- could you just give a little bit more color on what gives you confidence that selling patterns in packaging are going to revert back to that normal seasonality beyond the first quarter? Is it something specific within the conversations you're having with your customers? Is it -- is there anything specific that we should kind of take note about how the contracts are put together or anything like that?

Yeah. Great question, Ken, and thank you. We've obviously spent a lot of time on this as we closed out the year and into -- early into the quarter. But the biggest driver, we believe, of what occurred at the end of last year and into this first quarter was customers earlier in the year that went into an overstocked position. We talked in 2022 quite a bit about supply constraints. And we felt and we learned sort of after the fact that a number of our customers, particularly in the personal care area that maybe had challenges getting supply in and around COVID and related to some import issues, they started to buy ahead. And we went into the end of the year. We didn't know precisely where our customers were with their inventories -- and as the market started to slow down in the consumer goods purchasing area, but also with just consumer confidence and sentiment reducing, many of our customers took the position that they were going to slow or even in some cases, drop shipments that they had ordered on our books at the end of last year. So we are talking to our customers today, we know that they're burning through that inventory. We don't think this is like many, many quarters of inventory on hand. There's a few customers where that could be the case on certain SKUs. But for the most part, we're starting to see some orders revert. We're starting to get communications that orders will be coming in. So we're feeling pretty confident that reordering will start to occur in Q2 and with a pickup in the second half. The only caveat that I just want to put out there, and I mentioned this, is we can't predict what will happen with consumer take rates. And if consumer confidence picks up in the second half, if inflation starts to subside, I think that could be a nice benefit for us, but we haven't modeled that in.

Understood. That's very helpful. Switching over to Aero. Obviously, it seems like you expect Aero sales to be well above pre-COVID levels this year, but the incremental margin seems relatively limited. I'm guessing that's due to the special stocking orders that you took last year. Maybe just can you walk through the puts and takes and why the operating leverage is weaker despite the big step-up in revenue? And is there any way that you can quantify what core incrementals would have been if you act out that special stocking order from last year?

Well, I'll let Scott address the second part of that question. What I would just say is as we go -- as we work through 2023, we do expect -- sequentially for our margins to improve as we work through some of the production constraints that we're still experiencing. And yeah, there still is a very big mix issue that is occurring within TriMas Aerospace. Even if you exclude the special stocking order, some very favorable business for us, product lines for us related to 777 production that hasn't even turned on yet. So we think that's more like a 2024 or even 2024 and half and 2025 event. But we do have some mix issues that are occurring today, and then we have some production constraints that we're still working through in the first half. So we expect to exit the year in a better position and even sequentially in 2024, improve our margins on the TriMas Aerospace front.

Yeah. I mean if you look at the margin profile for last year, it was around 4%, 4.5% if you exclude some of the onetime items. I look at what we're giving outlook for this year. We're going to be sequentially stepping that margin up. But to Tom's point, while the top line is growing, we do have mix issues. We haven't seen the wide-body volume come back. And we've added some new businesses, which are kind of in the process of being integrated and ramped up. RSA has a big program that's going to be coming in. So that margin profile is going to improve quickly. Obviously, the Weldmac acquisition takes us some time to integrate these businesses and get those margin profiles to the place where we need them to be. So for me, this feels like a bit of a transitionary year for our Aerospace business, and we expect to see those margins start to creep back closer to kind of where we are running historically. But I mean, just to be clear, I mean, it's a bit of a different operating environment today with the high demand, the level of inflation and the fact that our aerospace team is really investing in some key functional capabilities to meet what we expect to be high demand for the next few years here. So that's all ingrained in the outlook for 2023.

Understood. Maybe if I could just squeeze one more and then I'll jump back into the queue. I just want hoping to clarify the first quarter guide a little bit. Maybe could you help us frame how the sales are expected to trend sequentially from the fourth quarter across all the segments? Specifically, I'm curious if you -- if we should think that packaging sales are down sequentially from 4Q levels? And then any help on the margin expectations for those segments would be great as well.

Yeah. So yeah, and we do expect for packaging sequentially Q4 to Q1 to be relatively flat. And historically, we would have a nicer pickup there as we would ramp up into the New Year. And then for some of the other businesses, aerospace, some seasonality that would be having those businesses flat to a little bit up.

[Operator Instructions]. You have a follow-up from Ken Newman with KeyBanc.

I do want to ask about the incremental color on the M&A pipeline. Obviously, Weldmac seems like a decent deal here. Curious if -- are you still prioritizing packaging deals or should we take Weldmac to signal that your -- there's maybe some better opportunities in that sector instead?

No. Definitely, we have a higher priority. If I look at our corp dev internal resources, we're investigating and spending a larger share of our time on packaging deals. And particularly, we're focused in not only expanding in the area of beauty, which Aarts is a great example of that but also where we could add in our Life Sciences platform. The Weldmac opportunity was opportunistic, and I think it's going to be a great company for us. There's a lot of work to do. Like I mentioned in my script, it was acquired out of a trust and the owner had passed a number of years ago. And we think as part of the TriMas Aerospace Group, the customer base will really appreciate the stability of it, and we think there's great opportunities with that. But that was more of what I would call not only a very great add and a compelling fit, but also an opportunistic purchase. And Ken, I just wanted to come back to your earlier question. We do expect packaging in Q1 to be up slightly versus Q4 where we exited, which also is an indicator -- will be an indicator as we start to see orders come in into Q2 and the rest of the year.

Okay. That's very helpful. For Specialty, obviously, you're guiding margins for the year a little bit lower than what I think have been record margins in that business last quarter. Just talk a little bit about what the puts and takes there on why margins are a little bit lower versus 4Q levels? Is that just conservatism? And how do you think about run rate margins going forward through the cycle for that business?

Well, I think as it relates to Specialty Products, if you look to [indiscernible] the fourth quarter, yeah, the operating margins were a little bit higher than what we're guiding to. But for the full year, we're still forecasting sequential margin growth there if you look at the mid-range of our outlook. So I think with the Specialty Products Group, the key item there is just managing through material costs. We've seen some volatility in steel costs. They went up, they've come down, and they're starting to creep up slightly a bit here so nothing unique there. And again, I think if you look at this on an annualized basis, the 17% to 19% is sequentially over what we achieved in '22. And if you look back for a few additional years, you can see the margin continuing to increase year-over-year sequentially.

Maybe last one for me. Obviously, free cash impacted by the weaker demand this quarter. You're still expecting 100% plus conversion for the full year '23. Inventory still seems a little elevated despite the consolidated sales decline this quarter. Maybe just talk through how you expect working cap to trend through the year? Would you expect free cash to be a use in the first quarter?

We do -- well, I'll let Scott address the first quarter specifically. But yes, we did exit the year with higher working capital than we would normally have in our business. Some of that was related to mix and some of the abrupt change in demand. But some of it also was related to us doing what our customers were doing throughout the year, which is protecting supply. And we did have situations in 2022 where we had poor balancing in our production activities because we were -- we didn't have certain materials and components that we needed to run certain lines. So as we went through the year, we too overstocked in certain areas. So we still have that in place. And I think as we go through the year, you'll start to sequentially adjusted for seasonality see us improve in net working capital. And our plan is to exit the year in a better position.

Yeah. I mean as you know, Q1 is typically a lower cash flow quarter for us, just given the investment and the seasonality in the business. I think, obviously, given the fact that we've given guidance that our largest business we expect to see sequential quarter-over-quarter improvement and a really strong second half of the year. I think you can then ascertain that our cash flow is going to be more heavily weighted towards the back half of the year.

There are no further questions. I would like to turn the floor over to Tom for closing remarks.

Well, once again, I'd like to thank you for joining us on our earnings call, and we look forward to updating you again next quarter. Thank you very much.

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.