Haynes International, Inc.

Greetings. Welcome to the Haines International Inc. Third Quarter Fiscal 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Controller and Chief Accounting Officer, David Van Bibber. You may begin.

Thank you very much for joining us today. With me today are Mike Schor, President and CEO of Hanes International, and Dan Modlin, Vice President and Chief Financial Officer. Before we get started, I would like to read a brief cautionary note regarding forward-looking statements. This conference call contains statements that are forward-looking within the meaning of the Private Securities Litigation and Reform Act of 1995, in Section 21 of the Securities and Exchange Act of 1934. The words believe, anticipate, plan, and similar expressions are intended to identify forward-looking statements. Although we believe our plans, intentions, and expectations regarding or suggested by such forward-looking statements are reasonable, such statements are subject to a number of risks and uncertainties, and we can provide no assurances such plans, intentions, or expectations will be achieved. Many of these risks are discussed in detail in the company's filings with the Securities and Exchange Commission, in particular, Form 10-K for the fiscal year ended September 30, 2022. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. With that, let me turn the call over to Mike.

Thank you, Dave. Good morning, everyone. As previously disclosed, On June 10, 2023, Haines began experiencing a network outage indicative of a cybersecurity incident. At that point, our incident response team, in conjunction with third-party specialists, began to investigate the incident, determine the impact, and restore functionality to our systems. On June 21, just 11 days after the incident, we announced that we were back up and running and had substantially restored our operations, including our administrative, sales, financial, and customer service functions. I'm very proud of our entire team for reacting, communicating, and recovering very well as we fought through the incident. Despite our rapid actions and responses, we did incur significant outages in many of our operations. Approximately 11 days of manufacturing, or over one-third of the month of June, was impacted. The outage led to an estimated $18 to $20 million reduction in shipments in June and therefore in our third quarter. That reduction in shipments, along with the impact the outage had on efficiency and the costs incurred related to our investigation and restoration efforts, resulted in an estimated reduction in earnings per share of approximately 40 to 45 cents. Although it will be difficult to offset the missed third quarter shipments in our fourth quarter due to our high operating levels, We have regained good momentum with the flow of orders at each of our operating locations and expect our fourth quarter revenues to be the highest of our fiscal year. Our team is now once again focused on the actions that have resulted in excellent financial performance over the past year. These actions include the following three items. First, a focus on gross margins that when removing the third quarter impact of the cyber incident and raw material fluctuations continues to be top of class in our slice of the industry. Next, a reduction in our break-even point that is approximately 25% below where it was when we began this improvement journey five years ago. And finally, our continuing efforts to focus on and improve our core competencies and differentiators, including alloy and application development, the supply of high-value products and services, and outstanding sales and technical service. To illustrate the positive effect of reducing our breakeven point, in Q3, we shipped just 4.4 million pounds because of the impact of the network outage, yet we made $8.8 million in net income. This is despite being below our previous breakeven point of 5 million pounds a quarter. I'll now move on to revenue and market performance in our third quarter. Despite the one-time impact of the cyber incident, the numbers tell a very compelling story. Revenues were $143.9 million, down 5.8% sequentially, but up 10.6% year-on-year. As far as our markets, our sequential and year-on-year CPI revenues were down significantly because of both the cyber incident and our ongoing mix management and pricing for value initiatives. Our IGT revenue, while being down sequentially due to the cyber incident, was still up 17% year on year. This is primarily due to our share gain, excellent sales and technical service, and increasing use of our proprietary alloy, Haines 282, in land-based gas turbines. Our other markets declined both sequentially and year over year due to both cyber incident and our withdrawal from the majority of the low margin flue gas desulfurization or FGD market. As far as our aerospace market, our third quarter numbers truly emphasize the strength of the aerospace market for Hanes. Despite the gap in June shipments, our aerospace revenues increased 27% year on year and 16.3% sequentially. These increases show the unprecedented demand and growth that we are experiencing in this market. Further emphasizing the strength of the aerospace market, I'll touch on the Paris Airshow which occurred in June where we met with many customers along with engine and airframe builders. Each meeting was very similar with three main themes. First, the industry's inability to build inventory in the engine supply chain. Second, the anticipated need for increasing volumes of nickel-based superalloys and titanium tube for years to come. And third, the outstanding sales and technical service provided by Hanes due to our combination of excellent people, unquestioned quality, and outstanding service out of our company-owned, customer-facing service centers. To put some additional color on this, the news out of the aerospace industry continues to be very positive. Per recent communication from Safran to suppliers, there is a backlog of more than 10,000 LEAP engines and their objective is to deliver 50% more LEAP engines in 2023 versus 2022. In addition, numerous published projections show significant commercial aerospace growth, both short-term and through the balance of this decade, with passenger traffic returning to peak 2019 levels this year, and the commercial aircraft fleet anticipated to double over the next 20 years. Finally, As far as backlog and book to bill, our backlog in June increased for the 27th consecutive month, reaching a new record with our end of Q3 backlog now at $468.1 million. For comparison, before this ramp up, our prior backlog record was $288.6 million. Our Q3 total book to bill based on revenue was $1.2 million. with Arrow at 1.1, CPI and other markets at 1.0, and IGT continuing very strong at 1.5. Our past, current, and anticipated future work on both cost reduction and our supply of high-value differentiated products and services, along with our record backlog, gives us great hope and excitement for the future of our company. Before wrapping up my comments, I have a few additional points to cover. First, I am pleased with the ongoing proactive approach on safety within all of our facilities. Our most recent accomplishments include the addition of a safety training specialist to our staff, our focus on maintaining and updating key safety procedures within all of our plants, and our safety suggestion system throughout each one of our facilities. In addition, in 2023, our WIRE facility in North Carolina received 10-year SHARP recognition. which stands for Safety and Health Achievement and Recognition Program, is designed for small and medium-sized plants that have established, implemented, and maintained exceptional workplace safety standards. Next, we are very pleased to announce that we have reached a five-year agreement with our Kokomo United Steelworkers Union. The agreement has been overwhelmingly ratified by our workforce. We have a dedicated and talented group of employees throughout Hanes and we look forward to continuing down our path of further safety, quality, delivery, yield, and cost improvement. The next item I want to touch on is Hanes' innovative alloy and application development, which are true core competencies that are the heart of our company. Our strength is developing and bringing to market niche, highly differentiated products that are the result of long-term research and application development efforts. Four of our newest alloys, Haines 233 alloy, Haines 244 alloy, Hastelloy Hybrid BC1 alloy, and Haines HR 235 alloy, are at different stages of commercialization and have shown clear initial signs of market acceptance. Our newest high temperature alloy, Haines 233, was developed with an outstanding combination of high temperature strength and oxidation resistance. Unlike many other alloys, 233 alloy is extremely versatile and is currently being tested or has already been selected by some major OEMs in the aerospace, IGT, industrial heating, and chemical process market segments. Finally, my sincere thanks to our Hanes team for their performance and teamwork as we worked our way through the issues and the opportunities of this past quarter. Because of the people of Haines, our future is bright. I'll now hand the call over to Dan for comments on our financial results. Thank you, Mike.