The Eastern Company (EML) Earnings Call Transcript & Summary

Greetings. Welcome to The Eastern Company Virtual Annual Meeting of Shareholders Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, James Mitarotonda, Chairman of the Board. Mr. Mitarotonda, please go ahead.

Good morning. Thank you. Welcome, everyone, to the 165th Annual Meeting of Shareholders of the company. I'm Jim Mitarotonda. I'm the Chairman Board of Directors of The Eastern Company, and I will act as the Chairman of today's meeting. We are glad that you have joined us for this webcast and look forward to hearing from you this morning. At this time, I am calling this meeting to order. I would like to introduce Mark Hernandez, the President and Chief Executive Officer of The Eastern Company. Mr. Hernandez is also on the Board of Directors. The Eastern Company's Board members are in attendance remotely. They are Frederick DiSanto, Charles Henry, Michael Mardy, Peggy Scott and John Everets is here with me as well. Also in attendance by phone are Matthew Soroka and Yana Reiser from Fiondella, Milone & LaSaracina, the company's independent registered accounting firm. We will be filing the final reports of the voting on a Form 8-K with the SEC in accordance with SEC rules. Mr. Nicholas Vlahos, the Chief Financial Officer of The Eastern Company, is in attendance as well. I would like to introduce the Corporate Controller, Mr. Ernie Hawkins. I have appointed Mr. Nicholas Vlahos to serve as our inspector of elections. I declare the polls now open for each matter to be voted on today, April 25, 2023. If you have not yet voted your shares by proxy or wish to change your vote, please go to the Ask a Question section which is located on the lower left portion of the webcast screen and write your name, your address, your control ID found on the proxy materials sent to you and indicate how you would like your shares voted. Again, you can now vote your shares by proxy or change your vote by going to the Ask a Question section, which is located on the left portion of the webcast screen. There, you can write your name, your address, and your control ID found on the proxy materials sent to you. You can also indicate how you would like your shares voted. [Voting]

Since everyone appears to have cast their ballots, I am declaring the polls closed. Mr. Vlahos, would you please provide a quorum report for this meeting?

Mr. Chairman, the total number of shares entitled to vote were 6,242,392 shares. The total number of shares represented are 5,753,793 or 92%. Accordingly, under our bylaws of the corporation, a quorum is present.

Mr. Vlahos, as Secretary of this annual meeting, please read the call to the meeting.

The Annual Meeting of Shareholders of The Eastern Company is being held virtually on April 25, 2023, at 11 a.m. Eastern Time. The annual meeting is being held in a virtual meeting format only. Shareholders are not able to attend the annual meeting in person, but have the same opportunities to participate in this virtual meeting format as they would at an in-person meeting. The Annual Meeting of Shareholders of the company is being held for the following purposes: to elect 7 directors; to cast a nonbinding advisory vote; to approve the compensation of the named executive officers; to cast a nonbinding advisory vote regarding the frequency of future advisory votes to approve the compensation of our named executive officers; to ratify the Audit Committee's recommendation and the Board of Directors' appointment of Fiondella, Milone & LaSaracina LLP as the independent registered public accounting firm to audit the consolidated financial statements of the company and its subsidiaries for fiscal year 2023. Shareholders of record and beneficial holders as of the close of business on February 28, 2023, may ask questions and vote their shares during the annual meeting. If you were a shareholder of record as of the close of business on February 28, 2023, to vote your shares during the annual meeting or submit questions during the meeting, you must log-in to the meeting using the control number found on your proxy card, voting instruction form or notice you previously received. Shareholders of record may vote during the annual meeting by following the instructions available on the meeting website during the meeting. If you do not have a control number, you may attend the annual meeting as a guest, but you will not have the option to vote your shares. Your vote is very important to us. All shareholders are cordially invited to attend the virtual Annual Meeting of Shareholders or any adjournment thereof, and management looks forward to having you here by the order of the Board of Directors.

Thank you. We will now proceed to our stated business of the meeting. These items have been described in the proxy materials previously made available to all shareholders of record for this meeting. Does anyone have any questions or comments? The first item on which we are voting today is the election of 7 directors to serve for a 1-year term set to expire at the 2023 Annual Meeting of Shareholders -- 2024 Annual Meeting of Shareholders. The Board nominees are Mr. Frederick DiSanto; Mr. John Everets; Mr. Charles Henry; myself, Jim Mitarotonda; Mrs. Peggy Scott; Mr. Michael Mardy; and Mr. Mark Hernandez.

96 or more percent -- 96% or more of the votes cast by proxy were voted in favor of all nominee directors, Mr. DiSanto, Everets, Henry, Mitarotonda, Hernandez, Mardy and Mrs. Scott for a 1-year term expiring in 2024.

I declare the nominees elected as directors for the term specified or until such time as their successors are elected and qualified. The second item on which we are voting today is to approve the compensation of the named executive officers.

98% of the votes cast by proxy were voted in favor of the compensation of the named executive officers.

Thank you. The third item on which we are voting today is to approve the frequency of future advisory votes to approve the compensation of our named executive officers.

90% of the votes cast by proxy voted in favor of the frequency of future advisory votes to approve the compensation of our named executive officers to be annually.

I declare the resolution to be adopted for the nonbinding advisory vote regarding the frequency of future advisory votes to approve the compensation of our named executive officers to be annually. The fourth item on which we are voting today is the ratification of the appointment of the independent registered public accounting firm, Fiondella, Milone & LaSaracina LLP.

99% of the votes cast by proxy were voted in favor of the appointment of Fiondella, Milone & LaSaracina LLP as the independent registered public accounting firm to audit the consolidated financial statements of the company for fiscal year 2023.

I declare the resolution adopted. I will now hand the floor to Mark Hernandez, who will review the results of 2022.

Thank you, Mr. Mitarotonda. Good morning. Although we are only meeting virtually, I'm pleased to be able to connect with you today. For those of you who aren't familiar with my background, I've been associated with The Eastern Company as a Director since June of 2022 and was appointed President and CEO in January of this year. I've been involved in commercial vehicles Classes 4 to 8 as well as shuttle buses and school buses throughout my entire career. I'm an expert in manufacturing -- lean manufacturing and supply chain management. I'll keep my remarks brief today. I'm sure all of you have already reviewed the fourth quarter and full year 2022 numbers announced on March 14, and will be joining us for our first quarter 2023 call next month. We'll issue an advisory press release with the exact date and other details in just a few days. Now first, taking a quick look at the past year. 2022 was a time of continued transformation for The Eastern Company and focus on our core operations for long-term growth and shareholder value creation. Among other things, we finalized the combination of our Eberhard and Illinois Lock business enable us to leverage Eastern's scale and operating synergies while continuing to take advantage of near shoring capabilities at our Reynosa, Mexico facility. We also have divested our last remaining noncore business, Argo EMS so that we could concentrate on Eastern's largest businesses with the biggest growth opportunities, Big 3 Precision products, Velvac and Eberhard. Eastern Company accomplished a lot in 2022, even as our business encountered very challenging market environments. There were frequent supply chain disruptions and increases in freight and raw material costs that weighed on our results. Early in 2023, our senior management team was realigned with an implied towards improving company operations -- operating performance and execution capabilities. As you know, I came on as CEO and streamline operations, cut costs and have a more immediate impact. I also took on the responsibilities that have previously been assigned to Chief Operating Officer. Shortly thereafter, Nick Vlahos, who has been with Eastern in a variety of roles of increasing importance since 2017, was promoted to CFO. Our team's top priorities in 2023 are disciplined operations that deliver strong results, effective capital allocation and utilization, strong commercial business focus and value-added acquisitions to improve Eastern's operating performance and to enhance returns for our shareholders. Our focus on generating strong free cash flow will be aided by continued strong sales demand in the automotive and commercial vehicle markets and moderating freight, raw material and labor cost increase. We believe Eastern is well positioned to take advantage of the industry's move towards electrification, digitization and automation. Our business capabilities are closely aligned with sustainable mobility through returnable packaging and commercial vehicle accessories that lessen wind resistance, enabling increased fuel efficiency, thus reducing our customers' carbon footprint. To accomplish our operational goals, we've undertaken a complete review of Eastern's business and products to maximize their potential. We'll be implementing actions that support disciplined operations, optimum capital utilization, focused commercial business and value-added acquisitions throughout the first half of the year and going forward. I believe they will have a quick impact on the company's financial performance and set us on a sustainable path for growth. We look forward to executing on Eastern's many opportunities and keeping you informed throughout our quarterly reporting. Thank you for your interest and support. I will now hand the floor back to Mr. Mitarotonda for closing comments.

At this time, we would like to invite any shareholders who has questions regarding the general company matters. Please type your question in the Ask a Question section, which is located on the lower left portion of the webcast screen.

We're showing no questions at this time, Jim.

We'll wait out a second just in case. We have a question. So Mark, do you want to read the question since it's related to the...

Yes, given the weakness in trucking, we are seeing an underbuilt of trucks over the past couple of years. How do they impact the trucking cycle to play out this time? And how are you positioning EML? The commercial vehicle market has been underperforming due to various supply chain shortages over the last 2 years, down as much as 15% to 20% of what the OEMs are trying to produce. We see that softening now that they're getting closer to their capacity production. What that means for Eastern is that we're well positioned with our manufacturing capabilities at our Velvac operations to supply the increased volumes in the commercial vehicle market as well as that Eberhard in supplying components to the OEMs. So we think going forward, that although the softening occurred over the last 2 years, we're seeing continued growth in the commercial vehicle market as they go towards replacement values -- volume, sorry.

Mr. Chairman?

Any other questions?

Are there any examples you can share of priorities and streamlining operations? Yes, of course. What we've seen is with the supply chain lead times reducing from our Asian suppliers, lead times have gone from 14 weeks down to 8 weeks. We focused on reducing our lead time, reducing our modifiers and reducing our inventories on hand in order to address the lessening of the lead times. This has a positive results on our inventory and working capital that we see at The Eastern company, and we'll continue to see this throughout the rest of the year as supply chain stabilize going forward.

Thank you, Mark.

Any further questions?

There are no further questions at this time, Mr. Jim.

Okay. All items of the business have now been completed. There being no further business, I will entertain a motion to adjourn the annual meeting.

I'll give you a motion to adjourn.

Is there a second?

I second.

I would like to express my appreciation to the shareholders who attended this virtual annual meeting as well as those who submitted their proxies but were unable to attend. I'd like to thank, of course mark as our new Chief Executive Officer of the company, Nick Vlahos is our new CFO, all members of management, the Board of Directors and assured all of the shareholders that this Board and this management team is very, very much committed to enhancing and creating shareholder value. Thank you very much. Thank you for being involved with The Eastern Company, and we look forward to the coming year and years beyond.

Thank you very much. This does conclude today's conference, and you may disconnect at this time. Thank you for your participation.