Kaiser Aluminum Corporation

Greetings and welcome to the Kaiser Aluminum Corporation fourth quarter and full year 2022 earnings conference call. At this time, all participants are on 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kim Orlando, with Addo Investment Relations. Thank you. You may begin.

Thank you. Good morning, everyone, and welcome to Kaiser Aluminum's fourth quarter and full year 2022 earnings conference call. If you have not seen a copy of our earnings release, please visit the investor relations page of our website at kaiseraluminum.com. We have also posted a PDF version of the slide presentation for this call. Joining me on the call today are President and Chief Executive Officer Keith Harvey, Executive Vice President and Chief Financial Officer Neil West, and Vice President and Chief Accounting Officer Jennifer Huey. Before we begin, I'd like to refer you to the first three slides of our presentation and remind you that the statements made by management and the information contained in this presentation that constitute forward-looking statements are based on management's current expectations. For a summary of specific risk factors that could cause results to differ materially from the forward-looking statements, please refer to the company's earnings release and reports filed with the Securities and Exchange Commission including the company's annual report on Form 10-K for the full year ended December 31, 2022, which will be filed later today, February 23, 2023. The company undertakes no duty to update any forward-looking statements to conform the statement to actual results or changes in the company's expectations. In addition, we have included non-GAAP financial information in our discussion. Reconciliations to the most comparable GAAP financial measures are included in the earnings release and in the appendix of the presentation. Reconciliations of certain forward-looking non-GAAP financial measures to comparable GAAP financial measures are not provided because certain items required for such reconciliations are outside of our control and or cannot be reasonably predicted or provided without unreasonable effort. Any reference in our discussion today to EBITDA means adjusted EBITDA, which excludes non-run rate items for which we have provided reconciliations in the appendix. At the conclusion of the company's presentation, we will open the call for questions. I would now like to turn the call over to Keith Harvey. Keith?

Thanks, Kim, and thank you all for joining us for a review of our fourth quarter and full year 2022 results. Turning to slide six, Before we begin today, I wanted to remind everyone of our recently announced change to the presentation of our adjusted EBITDA to discontinue the use of adjustments to plant-level LIFO and the consequential impact on certain other non-GAAP measures. Please refer to our press release issued on January 26, 2023, as well as our earnings press release and supplemental slide presentation for further details on this matter. While 2022 was a highly challenging year for Kaiser amid unprecedented supply chain disruptions and ongoing inflationary cost pressures, we made remarkable progress to position the business for success, beginning first with our results. As anticipated, the challenges at our packaging operations at Warwick continue to weigh on our performance in the fourth quarter. Adjusted EBITDA in the fourth quarter was relatively consistent with the prior quarter at approximately $30 million, primarily reflecting headwinds associated with our ability to increase prices to recover higher commodity and input costs, coupled with lower packaging shipments as we experienced some destocking, primarily by beverage customers at the end of the year. For the full year, adjusted EBITDA declined to $142 million, due mainly to significant supply chain disruptions at work that have since been resolved. Additionally, a compression in market-driven scrap discounts negatively impacted both the fourth quarter and second half of the year in 2022. In an effort to minimize the impact on our customers due to ongoing supply disruptions we experienced last year, we purchased metal in the second half of 2022 at a higher cost, which led to a metal inventory imbalance due to lower scrap utilization. We estimate incremental cost in the fourth quarter of $19 million due to inventory imbalance and unrecovered alloy cost. For the full year, total incremental costs of $73 million included those costs previously identified due to supply chain disruptions at Warwick, along with unusual freight and third quarter outage costs at our Trentwood facility. We expect the majority of these imbalances and the resulting higher costs associated with these actions to dissipate over the next several quarters. The demand environment for the quarter was mixed as we experienced destocking in general engineering rod and bar and packaging in the quarter. Aerospace demand continued to improve and shipments sharply increased in the quarter as our Trentwood facility resumed normal operations after successfully completing a major outage in the third quarter. Automotive demand remains steady as the industry continued to recover from its semiconductor and other supply chain challenges. Now turning to slide seven, I'd like to now discuss some of the areas in which we've made significant progress in 2022 to position Kaiser for success. Beginning with Warwick. After completing this transformative acquisition in 2021, and resolving the various supply chain issues that hampered our performance in 2022, we have refined our strategy to best capitalize on the long-term growth opportunity ahead of us. First, we made changes to our organizational structure at Warwick, which went into effect at the beginning of this year, to augment the existing management team with several seasoned Kaiser leadership members. The combined team is highly focused on accelerating the integration of Warwick into Kaiser's operating system. Second, we made solid progress working with our packaging customers to negotiate improvements related to the timing of contained metal and alloy price adjustments, facilitating the pass-through of higher commodity and input costs in existing customer contracts to help mitigate the quarterly impact of higher material and other inflationary costs on our business. While we were pleased to have successfully renegotiated certain of our contracts with key customers, additional discussions are ongoing. Third, we further diversified our supply base to lower our reliance on any single supplier or geographical region. Our new contracts enable us to flex our volumes to better align with customer demand. And finally, we are prioritizing investments for growth through our roll coat capacity expansion project, which is expected to convert approximately 25% of our current output to higher margin coated products. With the building mostly completed and equipment now beginning to arrive, we are focused on readying the site for startup in early 2024 with the goal of being fully operational by mid to late 2024. In addition, we are continuing to make progress with the physical separation of our Warwick facility from the adjacent Alcoa smelter and power plant, which we anticipate finalizing by early 2024. Longer term, we intend to increase our use of recycled materials as a percentage of raw materials at Warwick to increase the sustainability of our packaging products. Lastly, following the abrupt cessation of magnesium deliveries to Warwick last year from one of our suppliers, US Mag, which led us to declare force majeure during the third quarter of 2022, we are actively pursuing damages through litigation. Currently, all of our magnesium requirements have been secured through 2023 and partially into 2024. We remain bullish on the long-term outlook for our packaging business, following the positive strides we made in 2022 and guided by our refined strategy as we move forward. Moving to slide eight. Beyond our packaging operations, we remained well positioned to benefit from the recovery we've been experiencing in aerospace and continued demand for general engineering products following the completion of a long-planned major outage at our Trentwood facility in the third quarter of 2022. The mill is back up and running with lead times remaining extended. In summary, 2022 was a pivotal year in Kaiser's evolution as we laid the necessary groundwork to position our company for long-term sustainable growth. I want to thank our team for their dedication and perseverance through the various supply chain disruptions and for maintaining a commitment to safety. Our teams again achieved strong safety performance in 2022, even as we experienced historically high turnover rates, hiring and training more than 900 employees, a strong testament to our safety-minded focus and processes. While many monumental hurdles are now behind us, we believe that challenges will continue as they relate to broader macroeconomic uncertainty marked by ongoing inflationary pressures, supply chain inconsistencies, and labor turnover. As such, we remain intently focused on continuing to pursue cost reduction efforts in our operations, improving efficiencies as our operations stabilize, and continued commercial actions to improve our margins. While our efforts will take time to manifest, We are confident in our go-forward strategy and our ability to execute, given our solid market position as a key supplier in diverse end markets with strong secular growth characteristics, strong customer relationships, and multi-year contracts with key strategic partners. I'll now turn the call over to Neil for more detail on the quarter. Neil?