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Edited Transcript of TRS earnings conference call or presentation 27-Feb-20 3:00pm GMT

BLOOMFIELD HILLS Mar 19, 2020 (Thomson StreetEvents) — Edited Transcript of TriMas Corp earnings conference call or presentation Thursday, February 27, 2020 at 3:00:00pm GMT

* Robert J. Zalupski

* Thomas A. Amato

Good day, and welcome to the TriMas Fourth Quarter and Full Year 2019 Earnings Conference Call. Today’s conference is being recorded.

At this time, I would like to turn the conference over to Ms. Sherry Lauderback. Please go ahead, ma’am.

Thank you, and welcome to the TriMas Corporation’s Fourth Quarter and Full Year 2019 Earnings Call. Participating on the call today are Tom Amato, TriMas’ President and CEO; and Bob Zalupski, our Chief Financial Officer.

After our prepared remarks on our 2019 results and our 2020 outlook, we will open the call up for your questions. In order to assist with the review of our results, we’ve 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 1287708.

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 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, which is available on our website for the reconciliations between GAAP and non-GAAP financial measures used during the conference call. Today, the discussion on the call regarding our financial results will be on an adjusted basis, excluding the impact of special items.

At this point, I would like to turn the call over to Tom Amato, TriMas’ President and CEO. Tom?

Thomas A. Amato, TriMas Corporation – President, CEO & Director [3]

Thank you, Sherry. Good morning, and thank you for joining our fourth quarter and full year earnings call. During the quarter, and for much of the second half, we made excellent progress on executing against our strategy to better position TriMas for long-term value creation. At the end of the year, we completed the sale of our Lamons business, a significant strategic step, which reduces our exposure to the oil & gas markets to less than 5%, markets that have historically been more cyclical than our core Packaging and Aerospace markets. This proved to be a challenging sale process that the TriMas and Lamons teams worked diligently on and for which I personally thank all involved in bringing it to successful completion. While working to deemphasize our position in the oil & gas market, we have also been executing against our strategy to build out the TriMas Packaging and TriMas Aerospace platforms through programmatic M&A, leaning into markets that we believe, in the long term, will drive the highest value for TriMas and its shareholders.

In our Packaging segment, in addition to the 2 acquisitions we completed earlier in the year, we recently announced that we signed an agreement to acquire Rapak, which brings us bag-in-box product line adjacency, and I’ll cover this unique transaction in a few slides. In our Aerospace segment, we renewed our acquisition target list earlier in 2019 to focus on building out this platform as well. As a result, we recently announced that we signed an agreement to acquire RSA Engineered Products, which adds a new product adjacency to our Aerospace group. Consistent with our Aerospace fastener business, RSA supplies highly engineered products under longer-term customer contracts. I’ll discuss this exciting acquisition in a few slides as well.

And turning to Slide 3. TriMas’ end market strategic repositioning is illustrated here. Our sales when considering full run rate for the 2 pending acquisitions would approximate $800 million, with more than 80% of our sales in the Packaging and Aerospace markets. More importantly, we believe this strategic shift better positions TriMas into markets with long-term positive outlook trends, especially as we increase our product line breadth to capture new customers and applications. Also, 15% of our total pro forma sales, which are reported in TriMas’ Specialty Products segment will be generated from the general industrial end market, predominantly from steel cylinder sales into a variety of end market applications, including HVAC, construction and aerospace and defense. Even though 2019 was an extremely challenging year for North American general industrial sales activity, we remain optimistic about the long-term outlook for our steel cylinder product lines. While we have taken strategic steps to focus TriMas further on the Packaging and Aerospace markets, we have also maintained a strong balance sheet, something that we are committed to as part of our overarching tenant to manage our financial profile.

And turning to Slide 4. As we have stated previously, we have increased our cadence of buying back shares, essentially using available treasury funds to buy TriMas. In fact, in 2019, we acquired 2.7% of our total shares outstanding, and more recently, to date in 2020, we have acquired another 0.6% of our shares outstanding. This brings the total amount of repurchases of shares outstanding up to 4.3% since we started buying under this program in mid-2018. In light of our strong balance sheet, and just over $90 million of availability under our share repurchase authorization, TriMas will continue to place a priority on share repurchases in tandem with M&A, both to drive long-term value for our shareholders.

Let’s turn to Slide 5, and I’ll further discuss our recently announced acquisitions. First, RSA Engineered Products. RSA is a company located in Simi Valley, California that designs, engineers and manufacturers, metallic ducting, connectors and expansion joints for aerospace air management systems. RSA’s products redirect bleed air from the turbine engine for use in in-flight functions such as de-icing or air pressurization applications. RSA supplies into defense, business and commercial jet applications, and many of RSA’s products are engineered for specific jet applications and are sold under long-term contracts. We identified RSA as a M&A target opportunity given its engineered product line and the characteristics of the aerospace air management end market generally. When RSA became available for sale, we moved expeditiously and diligently to bring RSA into the TriMas Aerospace family of businesses. We believe the longer-term growth prospects for RSA will be enhanced by it being part of our larger aerospace group as it has been to date a stand-alone private equity-owned business.

In addition, while it is not initially part of our investment thesis, we do anticipate that the nature of certain subcomponents that RSA currently utilizes would fit within the manufacturing scope of our Martinic Engineering business. Any opportunities for RSA to benefit from available machining capacity within Martinic will be further upside synergies to this transaction. RSA generated 2019 revenues of just over $32 million and an EBITDA margin in excess of 21%. Our transaction price was approximately $85 million and we expect procurement and infrastructure synergies and enhanced growth, all of which would imply a forward multiple of approximately 11x. A trading multiple, which we believe is currently in the lower to mid-end evaluations for aerospace engineered product companies.

Turning to Slide 6. We also announced our agreement to acquire Rapak. Rapak is comprised of certain bag-in-box assets and intellectual property used in North American dairy, soda, smoothie and wine applications. These bag-in-box assets previously owned by DS Smith were required by U.S. antitrust authorities to be divested by Liqui-Box in connection with their acquisition of DS Smith Plastics division. Rapak designs and manufactures injection molded closures and dispensers, which are formed into place during the bag manufacturing process, therefore, creating a ready-to-use liquid holding bag for Rapak’s customers. Additionally, Rapak engineers and manufacturers are filling equipment product line, which certain customers utilize for their filling processes. We will close this transaction upon completion of certain conditions to prepare Rapak for a seamless separation from Liqui-Box, which would include relocation of specified bag-in-box assembly line, molding equipment and filling equipment manufacturing lines, among other items, as agreed in the transaction agreement. Rapak will have stand-alone facilities in Indianapolis, Indiana; Union City, California and soon Woodridge, Illinois. Pro forma annualized sales of Rapak approximated $30 million, with an EBITDA margin in the low double digits, but which we expect to improve upon under our ownership. The transaction purchase price is $12 million, which is — which approximates a multiple under 4x our planned forward earnings. This valuation is reflective of the turnaround in performance actions we need to execute going forward. Rapak has approximately 100 employees, and we look forward to welcoming them to the TriMas Packaging family of businesses.

Before turning to the quarter and year-end results, we are excited about these significant steps to strategically reposition and concentrate TriMas further in the attractive markets of Packaging and Aerospace.

Turning to Slide 7. Sales for the quarter were $170.9 million, up slightly from the prior year quarter, driven by acquisition sales, which more than offset end market softness in currency. Operating profit was down as we anticipated for the quarter by $2 million to $21.2 million. Earnings per share for the quarter were $0.31, which was below last year, but came in at the higher end of our anticipated rate, thereby allowing us to achieve the top end of our revised full year EPS range.

And turning to Slide 8. Sales for 2019 were $723.5 million, up 2.6%, driven by acquisitions. Higher organic sales in our Aerospace segment were more than offset by lower sales within our Specialty Products businesses. Specifically, our Arrow Engine business, which sells to the upstream oil & gas market and Norris Cylinder, which had most of this softer sales occurring in Q4 due to, we believe, customer consolidations and their cautious approach to new product purchases at the end of 2019. In addition, we did experience lower organic sales throughout the year in certain North American Packaging product lines. Sales were curtailed by tariff premiums and also capacity constraints in certain food closure applications. In the case of capacity constraints with new equipment installations, organizational restructuring and training, these issues will be largely behind us as we enter Q2 2020.

Operating profit for the year was at $96.2 million, down by $5.3 million as earnings from acquisitions and higher conversion within our Aerospace segment were more than offset by lower sales of traditionally higher profitability products within our Specialty Products and Packaging segments and expedited freight costs, which Bob will discuss. Earnings per share was $1.45, as noted, which was at the higher end of our revised guidance range provided in November of $1 to $1.45.

So before turning the call over to Bob, 2019 had a mix of end market challenges, some, as noted on our last earnings call, directly and indirectly related to tariffs and other challenges on a year-to-year comparison basis related to end market softness or uncertainty, resulting in lower customer spending. While we have continued to stay the course with our overarching strategy, we have had to also take more tactical steps in the second half of 2019 and into 2020 as we continue to face new challenges, including now unknown secondary effects from the coronavirus outbreak.

With that, I will turn the call over to Bob. Bob?

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Robert J. Zalupski, TriMas Corporation – CFO [4]

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Thank you, Tom. I will begin my remarks today on Slide 10 and briefly comment on free cash flow and the strength of our balance sheet. We generated $28.3 million of free cash flow in the fourth quarter, slightly higher than the prior year’s quarterly amount of $26.9 million. We finished the year with $71 million of free cash flow, which was lower than the prior year due to higher cash taxes, increased capital investment in support of customer growth initiatives and higher inventory levels to help manage the impacts of tariffs and planned factory floor improvements.

For the full year, free cash flow conversion approximated 100% of income — 107% of income from continuing operation, which exceeded our guidance of greater than 100% of net income. We ended the year with $172.5 million of cash on book, inclusive of the net cash proceeds from the sale of Lamons of approximately $111 million. In addition, as Tom noted a bit earlier, we invested $67 million in 2 bolt-on acquisitions in the first half of 2019 as well as used $36.7 million of cash during the year to repurchase more than 1.2 million shares of our stock in return of capital to shareholders.

As a result, we finished the year with net debt of $122.2 million and a bank leverage ratio of 1.3x, significantly below our stated overarching goal of less than 2x. TriMas’ strong balance sheet, which includes more than $450 million of cash in aggregate availability under our revolving credit facility, low leverage and a solid track record of free cash flow generation positions us with ample capacity and flexibility to continue to fund our balanced capital allocation priorities.

Now let’s review our segment results, beginning with Packaging on Slide 11. For fourth quarter, we reported net sales of $94 million, an increase of $4.3 million, net of a $0.6 million drag due to currency translation. This represented an increase of 4.9% versus the prior year fourth quarter and was driven by incremental sales of our Plastic Srl and Taplast acquisitions. Organic sales declined compared to Q4 2018 due to lower sales of certain beverage pump dispensers and food closure applications sold into North America as well as continued sluggish demand for industrial closure products also sold in North America, which we have experienced for much of 2019. Operating profit of $19.5 million declined 3.2% compared to the prior year quarter, which resulted in an operating profit of — operating profit margin of 20.7%. The favorable impact of incremental acquisition sales was more than offset by their margin profile, which currently runs at a lower rate than our segment average. So while acquisitions are EPS accretive and increase absolute EBITDA, segment operating margin does mix down by an estimated 100 basis points.

Operating margins were also impacted by a less profitable sales mix due to lower sales in the North American industrial and food and beverage end markets as well as higher costs related to production efficiency — inefficiencies for certain products experiencing high demand and higher freight costs to meet customer order commitments. We have installed capacity and implemented corrective actions to address these issues and anticipate the financial impacts will be substantially mitigated towards the end of first quarter 2020.

Finally, our acquisitions continue to perform consistent with our investment thesis, achieving our planned sales and operating profit targets.

Turning to Slide 12. I would now like to review the performance of our Aerospace segment. Net sales for the quarter increased 6.6% to $41.1 million, which capped a very solid year for this business. We continue to capitalize on strong order intake for our highly engineered fastener products leveraging the increased production throughput resulting from our factory floor investments. Operating profit increased 14.9% to $7.4 million and operating margins improved 180 basis points to 18% as we achieved solid conversion on higher sales volumes and a more favorable product mix. And we continue to experience robust order bookings overall and customer order backlogs remain strong. Given solid demand for our full range of products, we remain focused on continuing to improve factory floor efficiency and anticipate making further progress in the operational performance of our standard fastener manufacturing platform.

Turning to Slide 13 and continuing with a review of our Specialty Products segment. Overall, sales in our Specialty Products segment in Q4 declined $6 million or 14.5% from $41.8 million to $35.8 million, with almost all of that decline occurring in our industrial steel cylinder business. Sales volumes declined versus the year ago period due to continued softness in North American industrial market as well as the ongoing impact of customer consolidation and rebalancing of asset cylinder inventories. Sale levels were also impacted by continued weakness in North American gas and oilfield activity and market pressures on the underlying commodity prices.

Operating profit declined $2.8 million compared to the prior year from $5.5 million to $2.7 million due to lower fixed cost absorption on the sales volume declines in our industrial cylinder business as well as higher conversion costs due to smaller lot sizes and a less favorable sales mix. While the challenges in these end markets persist, we will continue to closely manage our variable and fixed cost structures to optimize financial performance, while continuing to pursue market opportunities through product and process innovation.

Turning to Slide 15. There are a few updates we would like to share for the upcoming year. First, in connection with our planned acquisition of RSA Engineered Products, we will migrate operational management responsibility of Martinic Engineering into our TriMas Aerospace group and include Martinic’s financial results as part of TriMas Aerospace reportable segment. As Tom noted earlier, from an operational standpoint, we believe there are manufacturing processes within the scope of Martinic’s capabilities, which will likely benefit RSA. Although any such potential benefits will be upside to our synergy plan, by aligning these businesses organizationally together under our TriMas Aerospace group, we will incentivize and drive enhanced collaboration.

With respect to the segment reporting change noted above, in an 8-K filed today, we supplementally provide recap quarterly financial information for 2019 to show TriMas’ segment and total company results with Martinic as part of the Aerospace segment and without Lamons, which is now reported as discontinued operations.

Next, we wanted to share certain of our 2020 business planning assumptions in light of several notable external factors, which will directly or indirectly impact our businesses for the foreseeable future. First, as noted on previous calls and like other companies, we’ve experienced both direct and indirect commercial pressures related to tariffs and more recently, increased import risk given the potential for supply chain disruption due to coronavirus risk. As a result, in 2020, and over the next few years, we will be increasing our investment in North American domestic capacity for certain of TriMas’ Packaging product lines. While we are still in the planning phase, this investment commitment will require additional capital spending in 2020 and 2021 as we seek to localize capacity and support of key customers.

Next, our 2020 plan assumes lower sales unit volumes with one of TriMas’ largest customers, L-Brands, as a result of their strategic decision to de-risk their supply base. Absent this change, the TriMas Packaging group’s organic growth rate would likely have been twice the rate currently included in our 2020 outlook.

And finally, we have assumed build rates for the 737 MAX in our 2020 plan based on the most recent forecast communicated by Boeing. We estimate the reduced build rate schedule will negatively impact TriMas’ Aerospace group annual sales approximately $6 million to $7 million on a year-over-year comparable basis based on our average shipset content of $20,000 to $25,000 per aircraft. While we have already taken some actions in flexing costs for an immediate lower production rate, we are also balancing against the expectations for a projected ramp-up later in the year. Overall, we anticipate the incremental margin impact on the reduced sales noted above will be greater than the Aerospace segment average EBITDA margin.

At this point, I would like to turn the call back over to Tom to share our 2020 outlook and provide his concluding remarks. Tom?

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Thomas A. Amato, TriMas Corporation – President, CEO & Director [5]

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Thank you, Bob. Let’s turn to Slide 16. For 2020, our objective is to continue the momentum in each of our businesses under the TriMas business model, while strategically positioning to drive further growth through innovation and capitalize on available market opportunities. We expect annual sales growth of 9% to 11%, primarily driven by our acquisitions. Due to certain end market challenges, Bob discussed, organic growth is expected to be approximately 2%. We are forecasting full year 2020 diluted EPS in the range of $1.50 to $1.60 per share, with the midpoint representing an increase of approximately 7% compared to 2019. Our forecast does not include any impact from FX related to coronavirus as it is simply too early to predict secondary effects. For example, while we are working through supply based challenges, we are also seeing an increase in quoting activity related to our hand soap and sanitizer dispensing product lines, and in 1 case, actually, in 2 cases, selling out available capacity at both our Vietnam and our India locations. We are planning to shift and add more equipment and floor space capacity in both our Packaging and Aerospace segments in 2020 and beyond. Therefore, we are planning to invest at a slightly higher rate of CapEx. However, we again anticipate 2020 free cash flow conversion of greater than 100% of net income.

Turning to Slide 17. We remain excited about the important strategic actions we completed in 2019 and look forward to delivering long-term value creation for our shareholders. We will continue to leverage the TriMas business model and operate under a culture of Kaizen to drive continuous improvement. We also continue to invest in new product and process innovation. For example, we have now brought online our first high volume, 1-piece flow, large-cap manufacturing line in a plant that experienced capacity constraints last year. We were excited to invest in this innovative processing technology and are already making plans to implement further operational excellence improvements based on what we have learned from this installation. We also have a robust pipeline of potential transactions as we use M&A to grow TriMas in the Packaging and Aerospace segments. We believe that M&A and ongoing investment in our businesses combined with share buybacks provides a balanced approach to capital allocation. We will continue to shape TriMas by investing in our highest return product lines and businesses to drive long-term value for our shareholders. Given the progress we have made strategically and our sound financial position, we remain excited about the long-term prospect for TriMas in each of our businesses.

With that, I’ll turn the call back over to Sherry.

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Sherry Lauderback, TriMas Corporation – VP of IR & Communications [6]

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) We’ll take our first question from Andy Casey with Wells Fargo Securities.

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Andrew Millard Casey, Wells Fargo Securities, LLC, Research Division – Senior Machinery Analyst [2]

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Few questions on the guidance. First, in Aerospace, what — could you give us a little bit more color on the production schedule forecast you’re using for the 737 MAX? Is that beginning in August, you start to see the ramp-up? And then also on the top line, can you provide some further color around the timing of when you expect acquisition benefit from RSA and Rapak? Meaning, does your guidance include RSA from the beginning of Q2 and Rapak from the beginning of Q3? Or is it more defined than that?

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Thomas A. Amato, TriMas Corporation – President, CEO & Director [3]

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Let me take those questions in reverse order. On the acquisitions, we expect the RSA acquisition to close relatively soon, probably in the coming weeks. The Rapak transaction is a little bit more challenging because there are some operational changes and equipment relocations that have to take place. That’s probably best case late Q2 sort of in that time frame. So hopefully, that gives you some ability to range bound how those transactions will come in. On the Boeing ramp-up, it’s pretty slow. Obviously, slow progress throughout the year. I don’t want to give the external — I don’t know what Boeing has published externally. So I don’t want to give exactly what we’re building to, but it’s fairly modest build rate over the next couple of months and then slowly ramping up towards the end of the year.

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Andrew Millard Casey, Wells Fargo Securities, LLC, Research Division – Senior Machinery Analyst [4]

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Okay. And then on the industrial cylinder weakness, can you help us understand if the decline rate related to that specific business deepened relative to past quarters? And then within that, have you seen any change in channel inventory destock?

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Thomas A. Amato, TriMas Corporation – President, CEO & Director [5]

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Yes, great question. That probably was the biggest surprise for us in Q4. And as you probably know from following that market, we’ve had a number of our largest customers consolidate over the past few years. And what we saw when there was 1 consolidation a couple of years ago was — not going to — I guess, I’ll call it, inventory rebalancing. I’m not a fan of the word destocking. But inventory rebalancing occurred, and then things got more to a normal cadence. Well, 2 of our larger customers combined and their order rate was down significantly in Q4, levels we haven’t seen in many quarters. That’s the bad news. On the more positive side, now that we’ve seen them combine and are working through that, we’re seeing an order intake that is starting to approximate more expected levels, not quite the levels we would like, but certainly not the rate we saw in Q4.

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Andrew Millard Casey, Wells Fargo Securities, LLC, Research Division – Senior Machinery Analyst [6]

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Okay. That’s very helpful. And then just kind of a detailed point given that your — you continue the share repurchase, as indicated on Slide 4. I’m just wondering if you can help us with the share count that’s included in the $1.50, $1.60 EPS forecast. I’m just wondering if it anticipates incremental beyond the repo that’s listed on that slide.

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Thomas A. Amato, TriMas Corporation – President, CEO & Director [7]

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Bob, you want to?

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Robert J. Zalupski, TriMas Corporation – CFO [8]

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Yes, it does include some anticipated additional share repurchases. We’re circa 45.5 million or 45.6 million shares outstanding as of the end of ’19. And we’d expect that to trend down closer to 45 million plus/minus, depending on timing of repurchases for the remainder of 2020.

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Operator [9]

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We’ll take our next question from Steve Barger with KeyBanc Capital Markets.

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Robert Stephen Barger, KeyBanc Capital Markets Inc., Research Division – MD and Equity Research Analyst [10]

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I know coronavirus is hard to predict, but obviously, it’s topical. Has there been any impact on your Asia manufacturing footprint so far in terms of extended shutdowns or lower utilization rates?

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Thomas A. Amato, TriMas Corporation – President, CEO & Director [11]

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Look, I mean, as you can imagine, for several weeks, we’ve been working on this matter. We do have a extended supply network that is in China as well as our own manufacturing locations. What’s interesting about it, if there’s any bit of a bright spot, given the nature of the crisis, it occurred before in and around the Chinese New Year. So we had already stocked up many products, both stateside and on the water and some cases in China. So as it started to hit, there really was sort of a delay in individuals coming back to work at many of our sub-suppliers and our own locations. And we’re now starting to see capacity come online. In some cases, it’s actually surprising me that it’s a little bit better than I thought it would be at this point. I mean, hopefully, there’s not some type of rebound or secondary effect that occurs, but we are getting products manufactured now in the region. One of our sub-suppliers is reported to be at, call it, 70-plus percent, which is pretty good. Our plants are sort of north of 70%, which is pretty good. And as I mentioned, the inbound quote activity for us has been — I mean, we have a lot of products that go into hand cleaning or washing or sanitizing applications. You could start to extend that to a company we just bought in, called Taplast, which makes a whole product line of soap lotion dispensers. And then additionally, the other company we just bought makes a product line that is largely used in the detergent area and cleaning area. So you could see that if people become a little bit more conscious of washing hands and cleaning and keeping countertops clean, there could be some longer-term benefit here. I mean, we’re certainly living in the current period of managing our supply base and our current manufacturing operations, but we’re also looking at our available capacity to see where we can ramp up and scale up in other locations to take advantage of the period.

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Robert Stephen Barger, KeyBanc Capital Markets Inc., Research Division – MD and Equity Research Analyst [12]

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Yes. Understood. That’s good detail. And how much capacity do you expect to add back in North America for Packaging? And will most of that spend be this year? Or is this a multiyear rethinking in the footprint?

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Thomas A. Amato, TriMas Corporation – President, CEO & Director [13]

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Yes. It’s really a great question. And it will be a multiyear process. I mean tariff was sort of the onset. I mean the company has been thinking about this with some freight strikes from — or port strikes from a few years back. And then with the onset of tariffs, clearly, we started to put some wheels in motion. We’ve already added some capacity into the states. But with coronavirus and some of the geopolitical issues that have crept into our business model here, we’re going to probably take more significant steps and probably will involve, what I call, bumping out a plant as opposed to adding new manufacturing facilities, so we’ll take existing manufacturers, we’ll spend to add more square footage at those locations, and then, we’re buying injection molding machines, we’re buying presses — sorry, we’re buying mold, and we’re buying assembly lines. That will take more than a year, just given the nature of how long equipment, mold and assembly lines need to be made.

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Robert Stephen Barger, KeyBanc Capital Markets Inc., Research Division – MD and Equity Research Analyst [14]

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Understood. Moving to the model a little bit. Do you expect all 3 segments will have positive organic growth in 1Q? Or is this a year of lower growth first half versus back half?

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Thomas A. Amato, TriMas Corporation – President, CEO & Director [15]

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Well, I mean, first half could be a little bit challenged given some of the dynamics that we’ve been talking about. But I think, overall, as we’re reporting, we see a positive upside.

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Robert J. Zalupski, TriMas Corporation – CFO [16]

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Yes. I was going to add that the first half of last year was much stronger than second half, obviously. So coming off the run rates we are in fourth quarter, we’ll make that comp challenging in the first quarter, no question. But I do think we see it trending positively as we move through the year.

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Robert Stephen Barger, KeyBanc Capital Markets Inc., Research Division – MD and Equity Research Analyst [17]

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Yes. And Bob, what do you expect to run for SG&A on a quarterly basis given all the portfolio actions?

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Robert J. Zalupski, TriMas Corporation – CFO [18]

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I don’t really see the SG&A changing a lot. I mean I think we’re ultimately going to see leverage once we get the new acquisitions folded in on that SG&A. But clearly, with the tough year we were coming off of and going into 2020, where the prospects of coronavirus and what that might do to this business generally and markets, we’re being very, very cautious about increasing spend and/or adding headcount.

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Robert Stephen Barger, KeyBanc Capital Markets Inc., Research Division – MD and Equity Research Analyst [19]

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Yes. Right. You have that typical footnote on your free cash flow guide. What special items are contemplated in that guidance? Or what will conversion be ex special items?

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Robert J. Zalupski, TriMas Corporation – CFO [20]

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Well, ex special items, it’s greater than 100%. Typically, the majority of the special items are deal costs associated with diligence and the like.

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Robert Stephen Barger, KeyBanc Capital Markets Inc., Research Division – MD and Equity Research Analyst [21]

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Yes. Sorry, I misspoke. Do you have a percentage estimate, including special items, is what I meant.

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Robert J. Zalupski, TriMas Corporation – CFO [22]

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No.

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Robert Stephen Barger, KeyBanc Capital Markets Inc., Research Division – MD and Equity Research Analyst [23]

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All right. And then last one for me. Tom, it’s good to see you turning the portfolio over some with divestitures and acquisitions. But this is going to be another year of low single-digit organic growth and plus or minus, this year is going to look pretty much like the last 5 years in terms of absolute revenue level and operating income. Are you looking at more sizable M&A and higher growth areas to kind of break out of this range? Or just where do you see the best opportunities to really kind of kick-start TriMas?

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Thomas A. Amato, TriMas Corporation – President, CEO & Director [24]

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Well, good question. And clearly, over the past few weeks given some of the dislocation and valuation, maybe we’ll rethink some of that a bit. I mean, to date, we’ve spent — we’ve been spending our corp dev resources on looking at acquisitions that, what I would call, are a little bit more manageable, in the range of bolt-on or where there’s an adjacency, there — they could tuck in well, we can manage and track them well and not disrupt our balance sheet and that is currently our current path forward. That being said, we’re looking at some valuations now that could make some companies pretty, but we have to see if what’s happening in publicly traded companies is affecting the private transaction world. And there — it’s 1 reason why I like the fact that we put our balance sheet in the position that we’re in. So we could make, if we needed to and wanted to or we’re willing to, more sizable steps.

But I would also say before I close out that point is, we’re also looking at the valuation of TriMas, and we’re going to make some sizable steps there.

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Operator [25]

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(Operator Instructions) And speakers at this point, we do not have any questions in the queue.

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Thomas A. Amato, TriMas Corporation – President, CEO & Director [26]

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Okay. Thank you for joining our earnings call. And we look forward to updating you again next quarter. Thank you.

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Sherry Lauderback, TriMas Corporation – VP of IR & Communications [27]

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Thank you.

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Operator [28]

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Thank you, ladies and gentlemen. This concludes today’s teleconference. You may now disconnect.

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