PARK OHIO HOLDINGS CORP Q3 FY2025 earnings call

• Refinanced senior notes and revolving credit facility, extending maturities and strengthening balance sheet; incurred $2M bond-related expenses. - Made strategic capital investments in technology, capacity, and margin improvement. - Strong new equipment orders in industrial equipment; backlogs up 28% since year-end. - Third quarter revenue $399M, gross margin 16.7%, adjusted EPS $0.65; full year effective tax rate expected 13%-16%. - Working capital initiatives drove positive operating cash flow $17M; Q4 free cash flow expected $45M-$55M, full year $10M-$20M. - Liquidity strong, $187M as of Sept 30 with $51M cash and $136M unused borrowing capacity.

Supply Technologies: Net sales $186 million in the quarter, in line with prior quarters but down y/y due to lower demand in certain end markets; adjusted operating income $18 million, up sequentially but down y/y. Assembly Components: Sales improved sequentially to $97 million, adjusted operating income $6 million. Engineered Products: Sales $116 million, down y/y, adjusted operating income $3.7 million; backlog $185 million, up 28% since year-end.

• Full year 2025 net sales expected $1.600B-$1.620B, adjusted EPS $2.70-$2.90. - Full year free cash flow $10M-$20M, Q4 free cash flow $45M-$55M. - Expect debt reduction in Q4 and 2026, with Q4 expected $35M-$45M debt reduction from free cash flow.

• Macro headwinds like government shutdown could have adverse effects on business operations. - Margin pressure due to preparing for large orders and modernizing facilities to meet future demand. - Volatility in end markets and demand levels impacting operating execution and earnings quality.

Q: How are you accounting for the recent large orders in your EP backlog? Is that percentage of completion or completed contract? And then maybe just broader, do you expect that large order from last quarter to be largely delivered in '26?

A: Our contracts in that part of our business are accounted for using the percentage of completion method. The $47M order represents 5 pieces of equipment; we expect 3 of the 5 to be recognized during 2026, with the latter 2 in 2027.

Q: Are you seeing any impacts of the government shutdown ripple through to your business lines?

A: I don't have any explicit examples of that, but we know it can't be good and likely has slowed some internal workings of major orders or scope changes.

Q: Are you seeing any areas to strategically implement AI to further enhance your operations?

A: Yes, our investments in information technology over the last couple of years, including data management tools, are building blocks for AI use cases, particularly in supply technology which is data-heavy.

Q: What do we expect to reduce debt by in the fourth quarter?

A: Of the $45M-$55M Q4 free cash flow, we would expect $35M-$45M of debt reduction