Ampco-Pittsburgh Corporation (AP) Earnings Call Transcript & Summary

Hello, everyone, and welcome to the [ A plus ] Ampco-Pittsburgh Corporation Virtual Annual Meeting of Shareholders. My name is Mary Cogstein, and I will be your operator. [Operator Instructions] And I will now turn the call over to Brett McBrayer. You may begin, sir.

Good morning. My name is Brett McBrayer, CEO of Ampco-Pittsburgh. The time is 10 a.m., and I now call this meeting to order. On behalf of the entire Board of Directors, our officers and our employees, I'd like to welcome you to the 2020 Ampco-Pittsburgh Corporation Virtual Annual Meeting of Shareholders. At the request of Jim Abel, our Board Chair, I will be presiding over this meeting. Like many other companies, this year, we had to decide whether it would even be possible to have an in-person meeting, as we have done in the past, because of the COVID-19 pandemic. We agreed that it was best for the safety of our employees, directors and you, our shareholders, to hold this meeting virtually. Before we begin, I would like to introduce our directors, all of whom are present at this meeting. In addition to myself, we have James J. Abel, Terry L. Dunlap, Elizabeth A. Fessenden, Michael I. German, William K. Lieberman, Stephen E. Paul and Carl H. Pforzheimer III. Also present at this meeting are the following officers of the corporation: Rose Hoover, President and Chief Administrative Officer; Michael McAuley, Senior Vice President, Treasurer and Chief Financial Officer; Sam Lyon, President of Union Electric Steel Corporation; and Terry Kenny, President of Air & Liquid Systems Corporation. Mike McAuley has been appointed inspector of election and has been sworn in prior to the meeting. After we conclude the formal portion of this meeting, we will provide a time for a question-and-answer session. Shareholders of record on March 10, 2020, are welcome to ask questions using the online meeting portal. Enter your question in the ask a question window and click the submit button. As a reminder, only shareholders who have entered the meeting using their control number will be able to submit a question. Melanie Sprowson, Corporate Secretary, has in her possession an affidavit of distribution from Broadridge Financial Solutions establishing the notice of this meeting was duly given. A copy of the notice of the meeting and the affidavit of distribution will be incorporated in the minutes of the meeting. All shareholders of record at the close of business on March 10, 2020, are entitled to vote at this meeting. Will the Secretary please report on the presence of a quorum for this meeting?

As confirmed by the inspector of election, there are present at this meeting, in person or by proxy, shareholders entitled to cast at least the majority of the votes which all shareholders are entitled to cast. Therefore, a quorum is present for the transaction of business.

Thank you, Melanie. I declare this meeting duly convened. Will the Secretary report on any shareholder nominations or proposals for business at this meeting properly filed with you as Secretary?

There were no shareholder nominations or proposals properly filed.

Because no shareholder nominations or proposals for business were filed with the Secretary of the corporation in advance of the meeting, action will now be taken on the nominations and proposals outlined in the notice of annual meeting and the proxy statement. The first proposal to be voted on is for the election of 1 director to serve for a 1-year term to expire in 2021 and for 3 directors to serve for a 3-year term that will expire in 2023. All the nominations for election to the Board of Directors are currently directors. The Nominating and Governance Committee has recommended and the Board of Directors of the corporation has nominated for the election of the following directors: Carl H. Pforzheimer III, James J. Abel, William K. Lieberman and Stephen E. Paul. Do I have a motion to approve these nominations?

My name is Keith Zatawski. I am a shareholder. And I move that proposal 1, to elect Carl H. Pforzheimer III for a 1-year term; and James J. Abel, William K. Lieberman and Stephen E. Paul for 3-year terms on the corporation's Board of Directors, be approved.

I have a motion to approve proposal 1. Is there a second?

My name is Terry Kenny. I am a shareholder, and I second that motion.

Proposal 1 is approved. In addition to the election of directors, there are 2 other proposals on the ballot. Proposal 2 is to approve in a nonbinding vote the compensation of the named executive officers. This is commonly referred to as the say-on-pay vote.

My name is Roscoe Carrier. I'm a shareholder. And I move that proposal 2, to approve the compensation of the named executive officers, be approved.

I have a motion to approve proposal 2. Is there a second?

My name is Keith Zatawski, and I second the motion to approve proposal 2, the say-on-pay vote.

Proposal 2 is approved. Proposal 3 is for ratification of the appointment of BDO USA, LLP as the independent registered public accounting firm for 2020.

My name is Terry Kenny, and I move that proposal 3, to ratify the appointment of BDO USA, LLP as the independent registered public accounting firm for 2020, be approved.

I have a motion to approve proposal 3. Is there a second?

My name is Sam Lyon. I'm a shareholder. And I second the motion to approve proposal 3, which is the ratification of the appointment of the public accounting firm for 2020.

The polls are now open. If you have not yet submitted a proxy card and wish to vote on these proposals or wish to revoke a proxy card you have previously signed, you may vote your shares by clicking on the vote here button on your screen now. You will need the control number provided on your proxy card in order to vote your shares online. If you previously voted by proxy, you need not take any additional actions unless you wish to change your vote. We will now pause to allow shareholders to vote and to allow the inspector of election to count any final votes. [Voting]

While this is happening, I would like to take this time to review some of the significant accomplishments in 2019 as well as some of the challenges we now face. The safety and health of our employees and the -- and protecting the environment and the communities where we operate is a core value of Ampco-Pittsburgh. From an environmental standpoint, I'm pleased to report we received an -- experienced an incident-free year in 2019. This is a result of many years of hard work and focus. We are not, however, pleased with our safety performance as any injury is one too many. To ensure we safeguard the well-being of our employees globally, we are focused on our goal of an injury-free workplace. We are seeing improvements in many of our locations, and I'm pleased with the work that has occurred over the past year. We've taken many actions last year to improve our performance, including safety observations, leadership walks and fatality prevention assessments. We are confident we are on the right path. During the current pandemic, we have taken additional steps to protect our employees and their families. We continue to follow guidance from government, state and local authorities where we operate to minimize our risk profile. We are grateful but not surprised by the engagement of our employees to work as safely as possible during these unusual circumstances. Many restructuring actions were taken in 2019 to simplify and rightsize our business. As you recall, our first actions were taken shortly after I began with Ampco-Pittsburgh with the divestiture of Vertical Seal, our specialized parts and service provider to North American rolling mills, during the second half of 2018. In the third quarter of 2019, we completed the sale of our North American cast roll operation in Avonmore, Pennsylvania. During this same period, we also completed the sale of our Canadian specialty steel business ASW Steel. These actions helped to return the corporation to profitability in the fourth quarter. We also engaged in performance improvement actions of our core assets, beginning in the U.S. during the second half of 2019 in the Forged and Cast Engineered Products segment as well as the Air and Liquid Processing segment. These actions resulted in lower operating and overhead costs and improved efficiencies. We quickly moved our efforts to our European cast roll facilities, where we launched additional restructuring initiatives as well as enhancing our leadership team. The full impact of these actions will be realized in 2020. During 2019, we made significant strides in lowering our corporate cost structure. We identified noncritical positions for elimination. And through combining some functions in our corporate office, we were able to lower our costs further. During the second half of the year, we focused our efforts on our outside service costs. These efforts are continuing as we are targeting 10% to 15% reduction in corporate expenses for this year alone. We will continue to address additional opportunities in 2020 to further consolidate our manufacturing footprint and streamline our business. We will remain focused on cost reduction and rightsizing our assets and resources to align better with our corporate objectives. As noted prior, our actions returned Ampco-Pittsburgh to profitability in the fourth quarter of 2019 with an earnings per share of $0.24. Our first quarter results clearly demonstrated our continuing improvements. We reported an earnings per share of $0.33 versus a net loss per share of $1.21 in the year ago quarter. Operating income improved by 43% from quarter 4 2019 and quarter 1 2020. And excluding unusual items, adjusted operating income improved 85% sequentially. With the onset of COVID-19, many of our customers have slowed or temporarily curtailed many of their operations. We know the next several months will be a challenging period. We will not, however, slow our improvement efforts. Ampco-Pittsburgh made significant progress in 2019 as we followed through on our key priorities to strengthen [indiscernible]. We've built a strong foundation to support sustainable and profitable growth and entered 2020 a stronger and more streamlined company. I am incredibly proud of the employees' accomplishments in 2019. Their efforts and disciplined execution has been tremendous. On behalf of Ampco-Pittsburgh Corporation's leadership team, I want to thank you, our shareholders, for your ongoing support. We value the trust you have placed in us, and we are honored by the investment you have made in Ampco-Pittsburgh. We're going to continue to pause until the votes are finally in. All right. I hereby declare the polls closed, and I ask Mike McAuley, our judge of election, whether all votes have now been tabulated.

Yes. I have received and tallied the ballots of shareholders casting their vote in person or by proxy at this meeting. I am pleased to report that the nominees for election to the Board of Directors have been duly elected. Further, the proposals to approve the compensation of the named executive officers and to ratify the appointment of BDO USA, LLP as the independent registered public accounting firm for 2020 have been approved.

Deloitte & Touche LLP, our independent registered public accounting firm for 2019, is represented on the call by [ Dan Potets ], audit partner. And we asked [ Mr. Potets ] if he had any comments to make, and he did not. Having completed the formal portion of the meeting, I will now open the call to shareholder questions. To submit a question using the virtual meeting portal, please enter your question in the ask a question window and click the submit button. Again, as a reminder, only shareholders who have entered the meeting using their control number will be able to submit a question. Have we received any questions or comments related to the business?

Yes, we have. The first question, with respect to the newly adopted stock ownership policy guidelines referenced in the proxy statement, how long do officers and directors have to meet those guidelines? And are they expected to purchase stock in the open market, in addition to shares they receive through stock awards, to achieve the guidelines?

Thank you, Melanie, and I will respond on behalf of the Chair of the Compensation Committee, Liz Fessenden. In addition to shares directors and officers receive through stock awards, they may also purchase stock in the open market. The open-market purchases are not required. While no time period has been set for directors and officers to achieve compliance with the stock ownership guidelines, there are limits on the divestiture of granted shares until the guideline is met. The Compensation Committee reviews the progress of compliance on an annual basis.

We have one more question. Has the committee discussed whether it should recommend either term limits or mandatory retirement age for directors?

And I'll respond on behalf of the Committee Chair of the Nominating and Governance Committee, Mr. Lieberman. We've discussed mandatory retirement and term limits in the past, but no action has been recommended.

We have no further questions.

There being no further questions, I will entertain a motion to adjourn the meeting.

I move that the meeting be adjourned.

I second that motion.

I declare this meeting adjourned. Thank you for attending the 2020 Ampco-Pittsburgh Corporation Virtual Annual Meeting of Shareholders.