Good morning, ladies and gentlemen, and welcome to the fourth quarter fiscal year 2020 earnings call. [Operator Instructions].

It is now my pleasure to turn the floor over to your host, Chris Moulton. Sir, the floor is yours. .

Thank you. Good morning, and thank you, everyone, for joining us today. Speaking today will be Eastern's President and CEO, Gus Vlak; and our CFO, John Sullivan. After that, we will open the call for questions. .

Please note that some of the information you will hear during our discussion today will consist of forward-looking statements about the company's future financial performance and business prospects, including, without limitation, statements regarding revenue, gross margin, operating expenses, other income and expense, taxes and business outlook.

These forward-looking statements are subject to risks and uncertainties that could cause actual results or trends to differ significantly from those projected in these forward-looking statements. For more information regarding these risks and uncertainties, please refer to risk factors discussed in our Form 10-K we filed yesterday. .

In addition, during today's call, we will discuss non-GAAP financial measures that we believe are useful as supplemental measures of Eastern's performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. .

With that, I will turn the call over to Gus for opening remarks. .

Thanks, Chris, and good morning to those of you who have joined us on the phone and those participating via the web. We released Eastern's fourth quarter and full year numbers on a Form 10-K this morning. And before John Sullivan reviews the detailed results with you, I just want to take a few minutes to reflect on the year. .

I'd like to begin once again by thanking each and every one of our people. Their resilience throughout 2020 was truly exemplary and their tireless work in protecting the health and safety of colleagues, ensuring a continuous operation of our facilities and serving our customers and giving back to communities deserves to be recognized.

It is because of the exceptional people that we are able to overcome the challenges of 2020 and are now in a strong position. .

We're also proud of how we executed on each part of our strategy. We acted quickly to deliver results in the face of unprecedented turmoil.

We strengthened our portfolio of businesses through several divestitures and 1 acquisition, and we preserved our balance sheet by generating exceptional cash flow from operations, which were used to accelerate our debt reduction. .

During the COVID-19 pandemic, we took 3 steps to continue our strategy of strengthening our portfolio of businesses. First, we acquired Hallink, based in Ontario, Canada. Hallink is a leading supplier of blow molds and change parts, predominantly serving the consumer packaged goods market.

And we have already seen its complementary products and capabilities driving significant synergies that are creating value through shared know-how and strong relationships across an even broader customer base. Hallink is now part of Big 3 Precision Mold Services subsidiary and has been fully integrated into its operations. .

Second, in March, we combined our Eberhard Manufacturing and Illinois Lock Company into a single company that we believe will be a leader in the access and security hardware business. In our view, this combination increases critical mass in our target markets, accelerates growth and optimizes our manufacturing footprint.

We increased critical mass because Eberhard and Illinois Lock call on similar customers; in some cases, the same customers. And we now have more to offer these customers. .

We're going to accelerate growth immediately because we now have one larger sales force selling the entire portfolio of Eberhard and Illinois Lock products. For example, many of our standard Illinois Lock products are now available at Eberhard's largest distributor.

In addition, we're able to leverage the technologies and engineering capabilities to bring more and more innovative products to our customers. We're able to scale Illinois Lock's investments in Blue Ox, a Bluetooth-enabled control module, across a much broader market. .

And finally, we're consolidating our manufacturing footprint. For example, we have already ceased production in Taiwan, and we're closing our facility in Tillsonburg this quarter. This combined business will operate under the Eberhard brand. We remain on track to complete the combination by the end of the second quarter. .

Engineered Solutions and Diversified Products. The Engineered Solutions segment, which is the largest segment accounting for roughly 82% of 2020 sales, includes Big 3 Precision, the newly combined Eberhard and Velvac. And the Diversified Product segment includes Greenwald Industries, Argo EMS and Frazer & Jones. .

We also upgraded our leadership team with several new appointments. Jim Woidke became Eastern's Chief Operating Officer. Jeff Fleming became the new Managing Director of the combined Eberhard. And in January of this year, Nick Lentine became the President of Big 3 Precision.

Nick has joined us from Faurecia, a top 10 global automotive supplier of technologies for sustainable mobility, and we're very excited to have him onboard in order to allow us to capitalize on the numerous opportunities at Big 3 Precision. .

Now briefly turning to some financial highlights for the fourth quarter and fiscal year. Net sales for the fourth quarter and full year 2020 were $60.4 million and $240.4 million, respectively.

During the second half of the year, we experienced an increasingly sharp recovery in demand, and the fourth quarter demand came close to pre-pandemic levels across many of our. Markets.

However, growth in demand by many of our customers was offset by the divestitures of our composite panel businesses, delays in new automotive launches and lower sales to mining customers. .

In the year, we incurred some onetime charges to the P&L relating to the improvements in our portfolio. More than 70% of these charges are noncash. As a result, our reported earnings for the fourth quarter were $0.23 per diluted share.

Adjusted for onetime, mostly noncash charges, earnings per diluted share for the fourth quarter were $0.74, and for the full year 2020, adjusted earnings were $1.95. .

Adjusted earnings of $0.74 per diluted share in the fourth quarter represent an increase of 38% over the adjusted earnings in the third quarter and more than 3x the adjusted earnings per share in the second quarter of 2020.

This growth in adjusted earnings is due to the rebounding demand in many of our markets, the recent acquisitions as well as the positive impact of our work to streamline the company and focus on our core businesses. .

Importantly, we generated $21 million in cash from operations in 2020. That's despite the economic downturn. This is double what we used to generate as recent as 3 to 4 years ago. Moreover, our free cash flow in 2020 was $18 million. That's a record in Eastern's more than 160-year history.

We define free cash flow as cash from operations minus the investments in capital expenditures. Our strong cash flow allows us to strengthen our balance sheet and invest in our future growth. .

With that, I'll turn the call over to John to go over the details of our financial results. .

Thank you, Gus. I'll focus on Eastern's results for the fourth quarter of 2020 as compared to the fourth quarter of 2019. Our full year results are available in today's 10-K filing and summarized in our earnings release. .

Engineered Solutions and Diversified Products. .

Sales decreased in the Engineering Solutions segment by 8% to $50.6 million in the fourth quarter from $54.7 million in the fourth quarter of 2019 due to lower demand for truck accessories, distribution products and automotive returnable packaging as a result of delays in new automotive launches, partially offset by the impact of new program launches and stronger sales of blow mold tooling and related services.

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Sales in the diversified segment decreased 30% to $9.9 million in the fourth quarter compared to $14 million in the fourth quarter of 2019 as a result of the sale of Canadian Commercial Vehicle in June of 2020, which reported sales in the fourth quarter of 2019 but not in the fourth quarter of 2020; and lower demand for mining products, industrial castings, commercial laundry products and printed circuit boards.

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Sale of new products contributed 4% to sales growth in the fourth quarter of '20 compared to 5% of sales growth from new products in the fourth quarter of 2019. New products in the quarter included various new truck mirrors, truck compression latch, cable lock and mirror cams. .

Gross margin as a percentage of net sales for the fourth quarter was 22% compared to 26% in the fourth quarter of 2019. The decrease reflects the combination of an escalation in raw material costs and a decline in facility utilization due to lower sales during the quarter. .

Product development expenses in the fourth quarter were $0.7 million, down 11% compared to the fourth quarter of 2019. As a percentage of net sales, product development expenses were 1.2% compared to 1.1% in the fourth quarter of 2019. .

Selling and administrative expenses in the fourth quarter decreased 26% compared to the fourth quarter of 2019. The decline was primarily the result of reductions in payroll and payroll-related expenses, reduced travel expenses and other expense reduction initiatives in light of COVID-19. .

Net income in the fourth quarter decreased 72% to $1.4 million or $0.23 per diluted share from $5 million or $0.79 per diluted share in 2019. Adjusting for onetime expenses, earnings per share would have been $0.74 per diluted share.

In the fourth quarter, net income was negatively impacted by a noncash goodwill impairment charge of $0.7 million, net of tax, as we announced the closure of Eberhard hardware in Ontario, Canada. .

In addition, there were nonrecurring restructuring expenses, factory relocation expenses and transaction expenses in the amount of $0.9 million, net of tax, the majority of which related to the severance pay incurred due to the closure of Eberhard hardware and a loss on the disposition of Sesamee Mexicana and Canadian Commercial Vehicle Corporation of $1.6 million net of tax.

EBITDA for the fourth quarter was $3.7 million, and our adjusted EBITDA accounting for onetime expenses would have been $8 million. .

Now for a quick summary of cash flow and balance sheet highlights. Net cash provided by operating activities was $20.7 million in 2020 compared to $23 million in 2019. Cash generated by reductions in working capital of $2 million was offset by a $2.7 million pension contribution.

Cash used for investing activities was $9.1 million, was used to acquire Hallink Moulds for $7.2 million and investing $3.1 million in capital expenditures. The company received $3.2 million related to the divestiture of our composite panel businesses during the year, offset by notes received in the amount of $2.2 million. .

We're planning for capital expenditures in fiscal 2021 to be approximately $5 million. We used $13.2 million in financing activities, primarily debt repayment totaling $10 million, of which $5 million was an accelerated principal payment and $2.8 million in dividend payments to our shareholders.

As of January 2, 2021, we had cash and cash equivalents of $16.1 million. Our net leverage ratio was 3x and our fixed coverage ratio was 2.1x, both of which are well within our bank covenants of 4.25% and 1.25%, respectively. .

With that, I'll turn the call over to Chris for questions. .

Thank you, John. Operator, I'd like to open the line for questions. .

[Operator Instructions] There are no questions from the phone lines at this time. .

Okay. And I'm not seeing any questions via the webcast. So with that, I'll turn the call over to Gus for closing remarks. .

Thanks, Chris, and thanks, everyone, for joining us this morning. We're encouraged by the acceleration in demand for our products and services across many of our businesses, and the strength in our backlog at the end of the year and heading into 2021 indicates sustained growth for our businesses. We're off to a strong start in 2021.

The value of our backlog of orders was $85 million at the end of fiscal 2020, and that compares to $71 million at the end of fiscal 2019. .

I would like to highlight that this is the company's highest ever level of backlog. The growth in backlog reflects a rebounding demand for truck accessories at Eberhard, the launch of new mirror programs for Class A trucks and strong demand for the services in our blow mold tooling business, including the acquisition of Hallink. .

At this time, there are many signs for optimism going into 2021 despite lingering uncertainty in demand, recovering supply chains and raw material volatility. Much of this uncertainty and disruption stems from the growth in demand and the impact of last year's measures to control the spread of COVID-19 still reverberating across global supply chains.

We expect the transportation challenges and higher raw materials to linger through some time in the second quarter of this year. .

That said, we believe that our focus on our 3 core businesses, Big 3 Precision, Eberhard and Velvac, will translate into material sales, earnings and cash flow growth in 2021 and beyond. The markets that these core businesses are serving are experiencing transformational changes as a result of digitization, automation and more.

And our position in these markets and our capabilities are unique, setting us up for success. Together, we believe these 3 core businesses will enable us to achieve our goal of becoming $100 million EBITDA company. .

Thanks, Gus. With that, I'll hand the call back to the operator. .

Ladies and gentlemen, this does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation..