Arconic Corporation

Good day and welcome to the Arconic Corporation second quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star, then zero on your touchstone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Shane Rourke, Director of Investor Relations.

Thank you, Ren. Good morning, and welcome to the Arconic Corporation Second Quarter 2021 Earnings Conference Call. I'm joined today by Tim Myers, Chief Executive Officer, and Eric Asmussen, Executive Vice President and Chief Financial Officer. After comments by Tim and Eric, we will have a question and answer session. For those of you who would like to follow along with the presentation, the slides are posted under the Investors tab on our website. I would like to remind you that today's discussion will contain forward-looking statements relating to future events and expectations. You can find factors that may cause the company's actual results to differ materially from the projections presented in today's presentation and earnings press release in our most recent SEC filings. In addition, we've included some non-GAAP financial measures in our discussion. Reconciliations to the most directly comparable GAAP financial measures can be found in today's earnings press release and in the appendix in today's presentation. With that, I'd like to turn the call over to Tim.

Thank you, Shane, and good morning, everyone. We'll discuss our second quarter earnings in a moment, but first I would like to share a brief moment of silence. in memory of our colleague, Oleg Rybushkin, who was fatally injured while working at our facility in Samara, Russia, on June 25th. Oleg was 56 years old and had worked at that location for 30 years. Our thoughts and prayers remain with Oleg's family, friends, and coworkers. As a company, we are proud and diligent about our commitment to keep our employees safe and continuous improvement in safeguarding our employees that we continue to pursue. This incident, however, highlights the fact that our operations remain exposed to the ultimate unacceptable outcome and have to continue to improve. To reinforce our individual and collective commitment to safety, we held a company-wide safety stand down earlier this month We all have a role to play in making sure that we're laser focused on following our safety protocols, using our human performance tools, and looking out for each other. We will continue following our safety processes to ensure that we are achieving the highest safety standards possible at all times. I'll now turn to the results of the quarter beginning on slide four. What I hope you'll take away today are three headlines. We delivered another strong quarter. Our end markets support sustainable double-digit earnings growth, and we are well-positioned for free cash flow and have a disciplined capital allocation strategy. As you know, the second quarter of last year was the most severely impacted by the pandemic, with all end markets other than packaging recording double-digit declines. So while we're excited by the progress we've made year over year, our sequential performance provides increasing evidence of the strength of our business moving forward. Sales of $1.8 billion increased 52% over last year and 8% from the first quarter of this year. As expected, the company generated a net loss of $427 million, which included the impact of the pension annuitization we completed in the quarter that Eric will address. Meanwhile, adjusted EBITDA of $187 million increased 89% year-on-year and 4% from prior quarters. All five of our core end markets project an upward trajectory, but our second quarter sales grew the most in industrial, packaging, and aerospace. Packaging does not yet include any growth in North America, which is expected to start generating revenue later this year. While it's true that aerospace growth is from a reduced base in the first quarter, the modest rebound points to an important path of recovery for that industry. Semiconductor shortages continue to impact ground transportation growth, but we were and expect to continue to be able to offset most of the impact by pivoting our capacity to capture sheet demand in the strong industrial market. Due to the strength across all our end markets, we are positioned to deliver double-digit adjusted EBITDA growth for at least the next several years. Substantial and sustained EBITDA growth, in conjunction with significantly lower legacy cash obligations, should drive meaningfully higher free cash flow generation. As we discussed last quarter, we've reduced annual cash payments by approximately $245 million starting in 2022 and beyond. With this additional free cash flow, we have a wide range of opportunities to deliver returns to our shareholders. We've already begun repurchasing shares in according with the program we announced earlier. The further free cash flow deployment will be done in accordance with our discipline capital allocation framework that ranks opportunities based on returns on capital. Moving to slide five, we provide more detail on how we performed across our end markets. As you see on the bottom right of the slide, in Q2, we grew our revenue sequentially across all end markets aside from ground transportation. Ground transportation sales declined 4 percent from prior quarter due to ongoing challenges in the semiconductor market, but increased 100 percent organically year over year. The semiconductor issue is a temporary one, as demand for ground transportation is strong and dealer inventories are at a historic low. The semiconductor shortage created approximately $20 million in EBITDA headwind in the quarter, but we were able to offset approximately $15 million of that headwind with our quick pivot to industrial on capacity that we previously targeted the automotive market. Sales in the industrial market increased 17 percent from the prior quarter and 61 percent organically year over year. The increase was driven by the ongoing influence that U.S. trade actions had on demand for domestically produced common alloy sheet. This is in addition to our ongoing efforts to offset semiconductor impacts on shipment volumes by rapidly switching automotive capacity to industrial. In the building and construction market, we increased 7 percent sequentially, and 10% organically year over year. The modest improvement we were seeing at the end of the first quarter carried into the second quarter. However, that market does continue to remain below pre-pandemic levels. Sales in the packaging market increased 26% sequentially and 4% organically year over year, exclusively as a result of growing demand in our China and Russia packaging facilities. And our reentry into packaging in North America will create additional growth as we head into 2022. Finally, aerospace sales increased 9% sequentially, but we're still down 43% year over year on an organic basis. As you can see in the pie chart, aerospace sales make up roughly half the percentage of our total sales in 2021 as they did compared to full year 2019. Second quarter growth was a modest acceleration from the first quarter. As we previously discussed, we bottomed out in aerospace in the fourth quarter of 2020, and we are still very early in the aerospace recovery. TSA traveler throughput in the second quarter of 2021 reached 67% of 2019 pre-pandemic levels, which we believe is a positive indicator of the ongoing recovery in aerospace demand. In summary, Our team's agility and our network's flexibility allowed us to aim our capacity at the most attractive markets. I'll now turn it over to Eric to discuss the second quarter results.