HAYN - Earnings call transcript Q4 2019 | Haynes International Inc

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Operator

Ladies and gentlemen, good day, and thank you all for joining this Hayes International Inc. Fourth Quarter Fiscal 2019 Earnings Conference Call.

During today’s meeting, all telephone lines shall remain in a listen-only mode, but instructions on how to submit a question will be shared after today’s prepared remarks. And now for opening remarks and introductions, I am pleased to turn the floor over to Controller and Chief Accounting Officer, Mr. David Van Bibber. sir. ahead go Please

David Van Bibber

much Shor, us Haynes President Vice Financial Dan very today International; With are Maudlin, Officer. Chief and Mike and President for you today. joining me and Thank CEO of

Act would I forward-looking Section Reform forward-looking XXXX. Act Litigation regarding conference of within started, get meaning This and of we like read the the cautionary statements. that a statements contains and and of of XXE to Securities call the XXXX note brief are Exchange Securities Before Private

The expressions forward-looking words and intended are similar believe, anticipate, plan to identify statements.

our in intentions Exchange or the and a uncertainties, as or believe reasonable, fiscal expectations The Many achieved. of or number forward-looking risks and we information, publicly obligation such events plans, by with Commission, for are future a plans, and risks new the we ended to Although will in Company discussed September detail intentions be Securities the Company’s statements whether can and regarding statements XX-K XXXX. any these forward-looking to of otherwise. of XX, suggested no provide expectations statements year Form in result filings undertakes no are subject revise or are such such particular, update assurances

the that, Mike. call me With let turn to over

Michael Shor

Good everyone. morning,

With we’ve the pleased moved am and close that plans of to results. fiscal to from actions say XXXX, I from words to

much cash so we have do and very believe XXXX. in they than have team more margins, generation of and accomplished pricing, we I volumes, that While all we our cost, proud can with fiscal am

over gained year. momentum significant We’ve the past

to excellent. change monthly metrics our been the this have business focused required actions employees on Our and

must proactive the to the QX XXXX. depth continue right A employees’ to The few safety direction. and We a our have the our of step actions implement thinking throughout fiscal actions performance and significant and initiatives excellent. company are in entire related improve been both highlights underway safety to

XX was QX. been fiscal months. the positive million which from $XX QX. $XX.X for We increased by eight of flow over last Inventory million in reduced of cash was XXXX, cash has in Our million $X

gross associated quarter despite result both which fourth planned issues price the cost yield with XX.X%. us. much are improved Our now This rebuild, collapse the finished and well-documented and of furnace behind is margin the cobalt at

are seen anything numbers These also we’ve recent in beyond years.

our in As and gross first last our I from of industry. stated to quarter, the to is margin goal percent worst slice move

continue to We progress make that towards goal.

XX.X% increased from and percentage Our margin in QX QX fiscal in in to as gross just of in XX.X% noted, XX.X% in quarter QX. XXXX QX, XX.X% each

and and Our reductions significant are pricing on actions bottom-line. real cost impact have our had a

Our price to contributing increases – improving our margins. therefore changes

manufacturing cost positive very reduction are all across being locations. On side, of seen the results our

efforts me create our focus and create advantage of the to to – value supply high competitive via via excuse efforts – emphasis. Our – chain the advantage products supply within differentiated competitive has great

where R&D our materials closely finally, facilities we solutions sales, grow in parts next continue labs application our through for with with related First, customers look to alloy in our who cut work marketing our their and our to staff issues to and business. distribution development,

from back it large made pounds to the X million of despite also long talked company IGT fiscal pounds in Our about XXXX XX frame million loss business XXXX the of peaks. our

our million but beginning greater of ended than fiscal As we year. backlog, at did the fiscal XXXX this far our year quarter, as decreased it $XX.X

MAX to is the inventories all minor XXX look some believe rebalancing issues chain. forward that occurring of some there in resolved. being supply the We segments We of

along in are typically with the the projects lighter demand specialty the booked into which chemical We summer once some the strengthen expect build of impacting market in processing schedules months, were the during shipments backlog application are to increased, also bookings prior quarter quarters.

volume the XXXX quarter, strong shipped for the highest fiscal the X.X for shipment volume years. quarterly quarterly X.X quarter in The put pounds, of was volume performance the As our in million details at million XX lower pounds alleviating year headwinds with with XX pounds. prior being three million volumes levels XX.X years’ million pounds associated each to The margin between lower were at volumes.

$XXX.X than were revenue markets aerospace, and revenues fiscal industrial fiscal of gas three million revenue the fourth of XX.X% Net was fiscal XXXX had in the for of XXXX. year. Each and turbines quarter processing, chemical XX% our million of each. $XXX.X increases than greater Net XXXX, for major higher

This was fiscal price other aerospace up compared increase where fiscal increased $XX.XX was per in fiscal over to in the of $XX.XX market inclusive XXXX. about XXXX revenue, the average pound. pound, price selling X.X% led XXXX, our price by Average selling selling year’s per as X.X% last average

last let increase in With per to of a accounted year with for million X.X% markets. of represents same average the for in at our market quarter the period key an move of X.X% XX% aerospace volume. to $XX.X million Sales fourth a that, fiscal in combined from This increase selling due pound in increase me revenue $XX.X our price XXXX. XX.X% the

aerospace transactional increases We business successfully with renewed both initiated the market in for agreements. and price customer

highest decreased the to aerospace net the revenue shift in and year, full aerospace fiscal into QX during XX.X X.X%. XXXX the Backlog pounds $XXX.X QX sequentially company’s year market and at from in Looking million, million was history. fiscal volume by the

fiscal the up year backlog XX.X%. over aerospace our However, is

pound. for shipments the due to business XX.X% as better year in increase well base application of price fourth million specialty improved a of last volume, as increase period processing combined projects, from XX.X% solid a shipments. X.X% the in revenue in to of $XX.X increase the per selling at with in average We market accounted chemical represents same the This $XX.X XX% Sales a our quarter. million

from the backlog. Our backlog special QX decreased to due our CPI sequentially by project XX.X%, and dollars to of QX orders from primarily shipment

for a from the same selling price XX% to million quarter of in average period XX.X%, gas million offset the due This at per of last an by XX.X%. of for in selling price pound average to decrease in increase turbine increase year Sales nearly the $XX.X The industrial XXXX. decrease mix-related. volume is of fourth of revenue accounted an in $XX.X of market fiscal represents X.X%

The increase increase into builds, material an in medium-frame combined supply small of in is with primarily engine chain. and attributable the a to resupply volume

Demand be continues energy weak. for large-frame market the the to turbines in

industrial backlog gas sequentially turbines dollars decreased Our QX by from in to QX X.X%.

increased However, off of for backlog the year, the very XX.X% has levels. coming low

share I that IGT in for market that During the November mentioned to growth I order last we pleased representing IGT quarter market report recently market for am the us. start call, share see potential opportunities in meaningful the XXX,XXX do for we market. pounds Haynes our it roughly for growth see of

accounted in other revenue revenue at XX.X% Finally, $XX.X XXXX. XXXX. same and of for fiscal quarter XX% a $XX.X other million fiscal fourth represents of in million from period the of markets This decrease the our of

the compared at markets’ fiscal XXXX. to other fiscal revenue pounds in looking However, has year, increased full increase sold primarily XX.X% X% an from

markets other sequentially in to QX dollars by quarter. backlog the Our increased QX XX.X% during from

With that detail over more on now the Dan on it me financials. markets, our turn to details let for

Dan Maudlin

quarterly Mike. percentage was well with our a highest year financially, of as margin three Fiscal in year our as volume Thanks, positive years. highest shift ending XXXX years, quarterly gross X.X in the year

spite XX.X% and fall the in compression in margin increased XX.X% from finishing cold Both are, to in which a price headwinds. in XXXX second, two significant margin am be Net fourth had headwinds third the cobalt, impact market and of fiscal the are upgrades. alleviated moving of these into expected quarters outage XXXX. X.X% of The I in over gross the two revenues increased shipped the volume dollars margin significant and referring year. last Overall increased to

of Positive million gross and include aerospace market; our productivity, XX increases better overall impacts management, on margin melt beyond pounds. higher other achieving in price reductions Two, improved scrap XXXX fiscal and reduced cost changes, raw in material goal include, dollars reduction one, manufacturing three, initiatives. primarily cost costs, many volume shipped, that the

$X.X And projects, the number in quarter in from fourth levels application of increasing XXXX. million improved quarter were the of specialty $X.X third the million the four, sales fiscal which

Our has volumes, improving traction sequentially positively increasing with margins profitability fiscal gross headwinds. impacted XXXX results quarter despite and each over focus on gained improving

sales These was are XX.X%. The fourth margin keep continuous efforts a and percentage pushing performance as expect we quarter gross to our higher. of

technical is compensation Moving forfeitures This $XX.X down period from related to fiscal than stock same which the and of also the including quarter expense a prior research comp fourth year and that higher SG&A, costs, included incentive related to million XXXX. the last were in reversal changes. $X.X of it’s P&L, currency million year foreign

research A, to We million expect including $XX XXXX $XX fiscal approximately to and technical million. SG& costs in be

year’s L P& at Non-operating $XXX,XXX, retirement by last of driven in was favorable valuation the prior $X.X to year XX/XX/XXXX. million, QX expense compared benefit

the As to of be I quarter, levels. the XX/XX/XXXX rates we about lower mentioned used in valuation the concerned determines were XXXX expense last which discount

increased XXXX. our significantly rate concern million expense increase and balance by warranted as discount on was XXXX’s the expected declined is XX/XX/XXXX which compared to as This the to fiscal fiscal liability $X.X sheet

this to million of expense of Approximately, increase impact expected benefit million in non-operating expected cost in P&L sales. increase $X.X the and $X.X is remaining the retirement be is to reflected

of capacity XXXX fiscal is of much of primarily is market in to to of recognized million expense, item also me additional cost expected $X which and be significant increase. sales property mention less an less on expected dramatically. let fiscal is subject tightened available insurance resulting There the for on expense XXXX. While is that coverage The in another in has amount

which our reversing is effective impact partially accrual to for than by rate low stock XXXX, for fiscal to tax GILTI the adjustments XX.X%, income lower certain QX in back to occurred offset last quarter, foreign tax forfeitures and types tax. of valuation compensation global our due tax was intangible that or adjustments this on quarter tax credits, primarily Now of

incurred see tax from several to table impact the back the the stemming of non-GAAP special measures Tax the from and of items. I release. the details, press reconciliation Reform we year, To Last adjustments in you Act these refer tax

income quarter P&L, million $X.XX this diluted the net finish-off the year was to income in full or fiscal of share net share. per million or And $X.XX per and $X XXXX diluted $X.X was

off fourth since that the the highest the were over level XXXX coming X.X% decreased Backlog XX, levels, June quarter, XXXX.

XXXX. backlog $XXX.X year-end the September Over year highest since backlog to at XX, XX, increased the fiscal September is fiscal X.X% This XXXX. million

Outlook quarter, initiatives. year look from fiscal continued XXXX, our implementation focus as stemming of strong we into see next the for we momentum

global trade results optimistic low to related We interest This the XXX in insurance. and property tensions, optimism as pension as MAX expected the cost improved in and long-term. the due spite higher cost of well uncertainty rates remains of higher to about are

holidays, first we of managing The fiscal seasonally is the the planned balance yearend XXXX. lower typically that, quarter quarter of quarter to by and customers revenues in on Based expect than year outages earnings and sheet. be XXXX maintenance first of calendar fiscal fourth impacted fiscal the their

first quarter earnings expected first fiscal to However, revenue better XXXX the XXXX. the year and of are in of fiscal prior be than quarter

liquidity, Moving year. we our cash borrowings to on the September representing $XX facility on $XX XX, million XXXX and increase a at was credit fiscal have zero million over

was stronger and consume Thus Net million period notable volumes is cash XXXX $XX fiscal inventory of fiscal believe generated with would year. combined provided Normally a profitability, lower inventory in driven point volumes. by increase and cash this by cost activities sales it that in a rising rising cash. I operating we

was Also spending million our level Capital forecast contributing for $XX.X million. cash to compared depreciation to as is fiscal in $XX generation spending of was capital fiscal in XXXX, XXXX capital The expenditures. controlling million. $XX

to to strategic push improvement as the focus our conclusion, committed initiatives. we higher remain on we continuing of execution In profitability

new cost. further improving also New as but to these on expected expected mix, focused earlier, are pricing product fiscal headwinds are and opportunities in implement volume, XXXX initiatives noted

I that, you. the with over back discussion to will turn Mike, now

Michael Shor

the series Dan. of company. focused a implemented launched It potential an as designed Thanks, have our year unlock has of to initiatives exciting we and been

processes. is our alloys, goal grow increasing profitability and and to value-added flow, support customers’ to cash provider choice continuing for technical business Our be this of revenues, by while high-performance

to With up questions. that, Jim, let’s open the call

Operator

Please Gentlemen, for morning will Instructions] your hear remarks. first ahead. thank with We from Sidoti [Operator & Edward Marshall this go you Company.

Edward Marshall

Hey guys. Good morning. How are you?

Michael Shor

Hey, Ed.

Dan Maudlin

Ed. morning, Good

Edward Marshall

Hey.

the So, MAX. to I on first wanted touch

see to volumes. ramping engine to down I talking XX in finally the of from hard and suppliers for it’s you about know that XX guys your Some are

start I had you’ve aerospace, will performance for pour. least aero. at As that the around in kind you do to Any the material as at think of you look impact backlog, see quarter about first comments I or think your in that, two,

Michael Shor

a a spend it. time time spend We you going of on the as Ed, know XXX with discussing Sure. customers MAX. lot our through of we lot

change move in we've the said, XXX good along. honestly, with that to significant not You a know news the process recertification to continues forward. is all if know our situation. related We seen not that supply as significant a that the we issue is order chain move there MAX But for book

and and of a continue continue if engine something the sure This both making to continue we supply. which in be was have be to to it to October airframe or With news that positive further, series that's with. is said, we going to conversations customer and conversations very in late had about there the either low meetings, industry, I it obviously, the even are deal keep to is all going emphasized, reduce

looked reduced not years, where now. we feel those are that backlog. we've versus we you right at years about last the each dealing with we backlog typically, five in at our But are. We The our when good five QX, we've – look and QX our of

events forward. I continue from So, us don’t to that that the keep of current in to as get and comments pushing state want customers look at unusual

Edward Marshall

I about if your your second, raw I pricing. am any attribute base finish? can aerospace you in a above cold the material within for freed to up think you aerospace on pricing remarks, staying of that curious talked capacity prepared And And

Michael Shor

Yes, of supply, but part or technical in I believe we the support, inventory parts. quantities from in that deliver able high-value in in that's it perspective, small think Haynes a that’s that the we're that's provides is, products the the I differentiated aerospace really the cut even it’s to Ed,

we we paid of big product very as think, our get is truly differentiated that. a be our to for we prices, have high-value that XX% part we in which and I to aerospace, So, mix you strongly ability feel need of believe know

talking customers about our in comfortable to that. very are we And

from that’s a lead down volume standpoint. look there take our MAX a and part when not does drive So, the pricing come of forward – advantage the back hopefully we pull, transactional is it. of but also continue I only to from to times that and standpoint big pull, that – the can

Edward Marshall

maybe understand it available I you the that about opposed correctly, what appropriately more Is capacity. if that initiatives was just like, product you as sounded the just to to So, set it the price said? you having

Michael Shor

one we've to as think I tube is, our expanded two for flight pricing finished allowed it’s is capacity, part cold us our secure our part line, more. value, in

yes. So,

Edward Marshall

sequentially? I it, like quarter, it. it need on mean, Got got going XX% or R&D in The you there particular it it. swell that’s Got in the I is mean, looks was quarter? something this – is so up

Michael Shor

and what do. It's cost and am lot about of much time in I more funny. much talking We we spend reduction a to cost we reductions. interested are interested But more need variable

frankly couple Over the last couple our and of years in research and development, technicians. we high-end have of quite lost of our a some engineers

back that And to loss of people the past that the drop been number drive close to occurred our has and those in the up. pull has has been

what you what us. now approaching now typical So should be are seeing more for is

than we this want and do less that. an an as technical I as of have more backbone and this both now the the been to spend amazed, area what capabilities insider development of outsider by I one to do. It’s company. is And continue

Edward Marshall

the sounds the cobalt from you also am kind change well And I production impact, and your Could quantify change – of the cost in cobalt higher the does higher or assess? as as impact good. and quarter? volumes in That cobalt maybe customers the sorry,

Dan Maudlin

I – with difficult it’s mean, Yes, first a to can a number the of of bit start that. part quantify. the I

our on the of margin the of drever impacting is an higher So cobalt of really combination and the both fourth and of what X% impact quarter. say would cost roughly we that’s higher

slightly we X%, but So that roughly say right around higher, would maybe range.

Edward Marshall

it. Got

Michael Shor

impacted volume. cobalt the don’t think Ed, pricing And drop

need. I customers items think these are

change I there requirements. don’t material think really So volume any to is

Dan Maudlin

this and outage. cost mentioned the see drever we more be the alleviates. flushed going are much neutral headwind seems from really cobalt Everything into And pretty the that on to through XXXX, Those as I system.

So headwinds those alleviate.

We have I up new that headwinds outlined. coming

Edward Marshall

Sure.

Dan Maudlin

But, to XXXX. on moving

Edward Marshall

mean, And new I quickly, impacts these if by cost absence like I do the QX. of the the looks math two in it offset

Dan Maudlin

the cost year. sales, the $X roughly. of Roughly, mostly on be the I insurance which increase over million will mean, whole

if a also is margin is the there quarter, and So, looking operating that squeeze that are that below just post-retirement, but portion a quarter is at a that will most bit. you above of but the income, the of pension

Edward Marshall

operations Right. Final me, generating obviously what are just you kind as more of improve, is for cash. one you –

You that. had pretty comments good about

lot a I the of back CapEx. of major balance in curious need balance now the decent focus for sheet now as starting what’s cash you So to sum? pretty kind am that of on the are a put sheet

Dan Maudlin

Board we at allocation, capital as that far the talking about as Well, always level. are

and think plan continue margins our what certainly with allocation So improving there. think what certainly are we about fund about and then, cash. out do we pension other we more to capital that gross generating that, we opportunities And

the at level. the table – really far on Board table everything the as So, is as options

Michael Shor

thrilled that sense income cash. I makes cash and do to we thrilled a It point value. lot shareholder leading most whatever generation. we'll is for of net am am are sense generating the makes I from then forward,

Edward Marshall

Perfect guys. I appreciate your very comments. Thanks much.

Michael Shor

Thanks, Ed.

Dan Maudlin

Ed. Thanks,

Operator

move with Instructions] to next Research. We'll Olin Chris Longbow [Operator

Chris Olin

morning. Good guys. Hey

Michael Shor

Chris. are How you? Hi,

Chris Olin

realizations I’m bit – around little the I is good. guess, going increases color a maybe that to getting first the question much Thanks, on put is good. you and I’m type reset of of are terms was you be bit what if and aerospace pricing more could you contracts business of how maybe wondering transactional guys in for the that Mike. XXXX? of Little about. talked my I

Dan Maudlin

the year the if As We contracts high-value we to goes mature, this XX are the products. our roughly year that’s year the going and last XX% very aerospace product. as that after differentiated and we that are feel all million and we is pricing, that products as strongly pounds majority of increase far of overwhelming into both last started

increases point about material is, raw bottom-line pure pushes. my increases. emphasis are These we price of here are again, talking beyond But

are on and and the also, the thing We We’ve cost are transaction pushes. pushing push to had that that. side same continue doing some

our only moulds through to not offsetting offset those but that. price is example, increases, goal For contract and refractories and go beyond and transactional just

Chris Olin

moving the of Is transactional the component higher? business

Michael Shor

order get we two. we measure, or do transactional we ship order what an and when that is, Well, month a can consider within we

time. So mill less lead a than it’s

moving So which about XX%. do this XX% $XX it around I or approximately so, is track We that it’s say million quarter would higher. not was

holding across So it’s year. steady pretty been the

higher If back that ago, was a you look years few number. a

the it’s the into the couple over team, more and from - number bit But years year. to Marty and up a Chris, tie just so why what in where business that’s shifted this last said and it was. have and we LTA pretty his following Losch non-transactional. and steady to down more So of have is holding looked LTAs up more

time, But I for a start XXX more can XX, have come we here approach business the that will see the my transactional the is, the MAX really lead higher do to if the shorter think opportunity back and and go. price mantra

So, us. it for can be good

Chris Olin

Okay, good.

or the any the issues thinking a with good or XXXX? MAX there kind some Arcadia did I maybe talking there XXX the or maybe any Is guys job of about overlap pretty was pushbacks? is You net with impacts. risk tubing

Michael Shor

titanium times No. you obviously Arcadia I chagrin We continuing out, push the all on steady extremely industry. airframe. and means strong side, have which lead much will – titanium which are that is tell is takes There in now, puts right is for demand fairly we to to my their demand. the

seen for tubing going the pullback well we’ve that’s far no us. titanium as demand so, for whatsoever And and as

Chris Olin

and for of in my last fall like that the am I business? type CPI has of one-to-one just now I question, visibility at – and terms all But been any And a your we've realize that rig or count does it's if months Okay. the not – number wondering any a impact watching change relationship.

Michael Shor

connection to are somewhat of to indirect the kind oil Well, we an tied industry.

did that the So, had ago it’s have if chemical on We years oil that that going market impact and and the on price business. a spillover have impact counts us call rig impact companies our when an could – a we they collapsed a oil down is that few CPI see weakening.

down significant at not So, the slightly. direct this with and not even rig it’s count point going it’s

Dan Maudlin

And tends this we in year business. anticipating us project Chris, for CPIs the needle and to what special special move projects continued growth are in are our

Chris Olin

Thanks guys. Okay.

Dan Maudlin

Thank you.

Operator

Mr. coming or we And phones. closing to I signals our have and team [Operator turn no from remarks. the back Instructions] additional for Shor leadership it any will

Michael Shor

today of Thanks, We support forward Jim. you your again to Thanksgiving. everyone Thank look time thank and next you interest quarter. and for you for Haynes. updating Happy your

Operator

thank and this earnings Ladies your for you does today’s gentlemen, participation. conclude conference do we and all

You and your may enjoy lines now your we that hope you weekend. disconnect

Haynes International (HAYN) 15 Nov 192019 Q4 Earnings call transcript