Greetings, and welcome to the TriMas Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sherry Lauderback, Investor Relations and Communications. Thank you, ma'am. You may begin.

Thank you, and welcome to TriMas Corporation's third quarter 2023 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 third quarter results and our outlook, and then we will open the call up for your questions. In order to assist with the review of our results, we have included today's press release and presentation on our company website at trimas.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 137-41-938. 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 and our third quarter Form 10-Q 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 during this call. Today, the 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 third quarter earnings call. Before we get into our business update, I would like to begin by expressing our sincere and heartfelt concern regarding the new conflict in the Middle East. Although TriMas does not have any direct sales or operations in the region, we have raw material suppliers and energy partners that rely on trading activity within the broader region generally. As of this call, we have had no economic effect from this new conflict. Now I would like to turn our attention to our TriMas Aerospace Group. As announced a few days ago, we are excited that Vitaliy Rusakov has agreed to join TriMas as our new President of TriMas Aerospace. Vitaliy comes to TriMas with years of successful operational excellence experience within the aerospace industry. He held positions of increasing responsibility at Howmet Aerospace and its predecessor companies, Arconic and Alcoa. Most recently, he was the President of Howmet's Aerospace Fastener Group, a premier large supplier to the aerospace and defense industries. We welcome Vitaliy to the TriMas team, and we look forward to his future contributions. In connection with this announcement, Bill Dickey, who I personally asked to step in to lead the TriMas Aerospace Group on an interim basis, will begin to transition the group's lead to Vitaliy. Bill has done an amazing job in a relatively short period of time, reigniting performance, driving a renewed commitment to operational excellence, and integrating the recent Weldmac acquisition. Bill's deep operational excellence, experience and passion to improve operations is the reason we have been enjoying meaningful sequential performance improvement within the group. So I thank Bill for taking on this important project. Also, Bill will continue to stay on with TriMas, and support Vitaliy to ensure a smooth…

Thanks, Tom. Let's now turn to Slide 6 for an overview of our key credit statistics. We ended the quarter with $361 million of net debt, a net leverage ratio of 2.1 times and more than $300 million of available liquidity. As of September 30, we had repaid all of the outstanding borrowings under our revolving line of credit, which we used earlier in the year to help fund the acquisition of our TriMas Aerospace business, Weldmac manufacturing. We had another strong quarter of cash generation, with more than $25 million in free cash flow in Q3, and our free cash flow for the 9 months ending September 30 increased by 15% when compared to the same period last year. We have ample liquidity to continue to invest in our businesses, take streamlining actions where appropriate, buy back shares, pay dividends and complete future strategic bolt-on acquisitions as opportunities present themselves. Now let's turn to Slide 7 and I will begin my review of our segment results, starting with TriMas Packaging. Net sales were $117 million as compared to $130 million for the prior year quarter. Acquisitions contributed $6 million of sales, while the favorable impact of foreign currency translation contributed another $2.2 million of sales during the quarter. As expected, organic sales were lower during the quarter, down 16.5% when compared to the previous year period. As Tom mentioned earlier, we believe the third quarter represents the last quarter, where we will experience a challenging comparison to the prior year, given the abrupt softening in demand which started late in Q3 of last year, with many of our packaging customers deciding to bring their overstocked inventories into better balance given the uncertainty of future consumer demand. We do remain encouraged by the increased commercial activity underway within this segment,…

Thank you, Scott. Let's now turn to Slide 10. As noted in our press release issued this morning, we are reaffirming our outlook for the year. While we continue to model various scenarios, this outlook assumes no impact from the escalation of the conflict in the Middle East. We are anticipating that the gains on conversion within each of our groups will continue through Q4 and as we enter 2024. Given reduced market lead times within our TriMas Packaging and Specialty Products groups, we are also taking a more measured view on near-term growth in these segments. Let's turn to Slide 11. We I would like to, again, thank our investors for their continued support. I will conclude our prepared remarks by providing just a few examples of why we remain excited about the long-term shareholder value creation prospects for TriMas. First, we continue to believe there are attractive long-term characteristics within our TriMas Packaging and TriMas Life Sciences group through our multiple end markets, diverse geographic presence and improving demand. We also have many sustainable and innovative product solutions, such as mono-polymer dispensers and tether caps in the pipeline and coming to market in the future. And as noted earlier, we are gaining traction with some of the new TriMas medical applications. We also have growing confidence in a sustained recovery within the commercial aerospace and defense end markets, and anticipate future increased spending in defense will benefit certain of TriMas Aerospace businesses, specifically RSA Engineered Products, Weldmac and Martinic. We continue to work through supply and remaining skilled labor constraints, and expect to take advantage of long-term operating leverage gains as we bring our production planning into better synchronization with customer demand into 2024. Within TriMas Specialty Products Group, we expect to continue to convert well on sales, and assess new market and product adjacencies to drive future growth within our Norris Cylinder and Aero Engine businesses. Given our relentless commitment to cash flow generation, we will continue to reinvest in our businesses for long-term growth, while also returning capital to our shareholders, both through dividends and share buybacks. In addition, our leadership team remains committed to operating TriMas in a responsible way to contribute to society, particularly in the communities where we live and work. Again, we continue to believe TriMas is an exciting company to invest in. And with that, I'll turn the call back to Sherry. Sherry?

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

We'll now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Hamed Khorsand with BWS Financial. Please go ahead.

Could you just talk about the timing of these new products that you're talking about in packaging, especially in the life sciences part. Is it, when you're saying '24, is it going to ramp materially for you at the time? Or is there a larger detail?

Hamed, it's a great question. I'm glad you asked it. I think in total, we have a number of new exciting awards in packaging that we'll launch for us beginning closer to the second half of next year, that we're investing in today. And they range from new innovative tether caps for one of our largest customers, Coca-Cola, new wins for dispensers with P&G, additional incremental volume in Brazil, additional applications with Henkel on a new jar award. These are all programs that if our current base of sales in packaging -- let's just say next year is flat or even to slow growth, that we should be able to power through a slow growth period layering on top these new wins that we have that we've got in our book today, but just haven't yet launched. Within Life Sciences, it's a little bit different story. I mean these are not as large volume yet, we're ramping them up today. They're actually in some of our Q4 expectations. But what's nice about those new wins is they are extended penetration with some pretty important medical customers. And what we're seeing as a result is new opportunities for additional penetration with those customers, and that probably will take longer, maybe 2025 and into 2026. But those are very sticky programs, and we're pretty excited about that. As I bring -- as we win those programs, I'll bring them to our discussions.

And my other question was just in Aerospace, given that you've seen improved labor and supply chain, does that create a linear kind of revenue growth for you given what Boeing and Aerospace are saying, Airbus?

Yes, I don't think we're quite yet there. I think there's -- our backlog is still so strong that we should be able to grow above a more linear market growth rate, at least for 2024, we are not quite done with our forecasting yet, but my expectation is if the commercial -- production of commercial jets are in the 15% range for next year, plus or minus, my expectation is we should be able to at least be there because we have to still -- we have a backlog that we still have not fully fulfilled yet. .

Thank you. Our next question comes from Katie Fleischer with KeyBanc Capital Markets. Please go ahead.

I wanted to dig in on the guide a little bit. It seems like Packaging, this quarter, was a little bit weaker than you had originally anticipated. Can you just talk about what gives you confidence in your ability to achieve the guide for the full year, because it implies a pretty big step-up within the Packaging segment for the fourth quarter. So just kind of wanted to understand some of the dynamics there and what you're seeing within your end markets?

Well, it's a bit -- each end market is a little bit different. We're still -- where we have the most weakness right now is still in personal care, dispensing and food closures and still a little bit on the industrial closure end. Our Q4 -- Scott mentioned this, our Q4 base for packaging was incredibly low. And this is what we -- it's hard to believe it was a year ago, now it's been a long year. But our expectation is that even if we stay sort of -- we started to see some trends on our win rates that have picked up a little bit. But even if we stay flat to that, and we're expecting a bit of a better outcome for Q4 that, that should be nicely above our organic -- should provide nice organic growth versus Q4 in our packaging group. I would say, Katie, the cycle time, we talked about this before -- or the lead time is greatly reduced in the market right now, because volumes are down, because there's available capacity, and what normally would have occurred as customers work through their inventory levels, you would normally see a pipeline refill. We're not seeing that necessarily. And I don't think we'll see that until and unless the market starts to snap back in a more meaningful way. So lead times are down. It's a bit difficult to predict our revenue precisely, but we're coming off such a low base that we're pretty confident that we'll do better than we did in Q4 last year.

And then just switching to margins in Packaging. Should we assume -- I know you discussed the cost savings and the impact that you're getting from that on your margins. Is the operating margin that we saw within Packaging this quarter a pretty fair assumption going forward? Or do you think you'll be able to get additional leverage from those cost improvements for next year?

Well, I think for the nearest term, it's a pretty good assumption 'til Q4-ish. But as we go into 2024, I'm expecting that we'll start to see some operating leverage gains occur. We'll probably be pretty mindful about our assumptions when we give guidance there. But when I look back at Q3, I wasn't too surprised with our sales rate, but I was very pleased with our conversion. And I've said this before in calls, we can see through nonfinancial indicators, things working. And typically, the numbers follow, and we started to see that because we started our cost savings efforts, I think, pretty early in the year. And the benefits started to come through for us nicely in Q3. So we should experience a nice full year run rate in 2024. And assuming some revenue comes back, which we hope happens and as we launch new programs later in the year, I'd expect to get some operating leverage gains.

And then -- just the last one on M&A. What does the pipeline look like right now? Have you had to shift your strategy at all given the high rate environment, has it become more or less attractive?

So I'll take that in reverse order. First of all, we are modeling things a bit differently. We've increased our cost of capital given the higher interest rates. That's a great question, and we've already adjusted for that. With respect to the M&A market overall, first of all, we're not going to force anything. Strategically, we're looking at a number of companies. We're able to make very clear decisions on things that fit our strategy and things that are just interesting companies out there. The M&A market, I would say, generally for the end markets we're in, the products we're in and where we want to grow, I mean there's not a lot -- there's not many, many opportunities as we would see, for example, 3 years ago, where it was a pretty hot market. But we are looking at some nice adds globally. I think if interest rates tick down a bit, I think that will start catalyzing what companies start to come to market, because there's a lot of privately owned companies out there that I think those owners are more working with those companies and their capital structure than being interested in bringing them to market at this point in time.

And then -- sorry, just one last quick question in terms of modeling. You talked about your tax -- the tax benefit this quarter. Can you just give a little bit more detail on that and if we should assume a lower level of taxes going forward?

Yes. So the tax item for this quarter was related to a legacy entity in a foreign jurisdiction. We were able to repurpose that entity and leverage some of the tax assets given renewed activity in the region. I think you should view it as a onetime benefit and not necessarily -- we won't necessarily view -- continue to have that benefit as we go forward.

[Operator Instructions] I see we have no further questions at this time. So I would like to turn the floor back over to management for closing comments.

Well, thank you all again for joining us on our earnings call, and we look forward to updating you again next quarter. Thank you.

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