Arconic Corporation

Good day, and thank you for standing by. Welcome to the Arconic Corporation third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require assistance during the conference, please press star 0. I would now like to hand the conference over to your speaker today, Shane Ward, Director of Investor Relations.

Thank you, Daniel. Good morning, and welcome to the Arconic Corporation third quarter 2021 earnings conference call. I'm joined today by Tim Myers, Chief Executive Officer, and Eric Atkinson, 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 discussions. 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. I'll start on slide four with three major takeaways for today's call. First, we continue to grow profitably year over year in the face of several external headwinds. Second, those headwinds, while substantial, are fluid and And the overriding fact is demand in our key markets is still very strong. And third, we are well positioned to leverage our strong balance sheet and cash flow to both return capital to shareholders and invest in high return organic growth. I'm looking forward to sharing two of those projects with you later in the presentation. Summarizing the quarter, sales were $1.9 billion, an increase of 34% and 10% organically year over year. Net income was $16 million, or 15 cents a share. Adjusted EBITDA was $171 million, up 4% over last year, but down 9% sequentially. The ongoing semiconductor chip shortage in automotive, hiring challenges in our U.S. operations, and a spike in COVID-related quarantines over the last few months limited our ability to pivot capacity to serve the industrial segment. The impact of not being able to pivot that capacity was a $15 million reduction in third quarter adjusted EBITDA. To resolve staffing issues, we undertook a number of initiatives, including backfilling our workforce with salaried employees, recalling retirees, offering overtime incentives, launching an enhanced employee referral program, and we continue to pursue many other site-specific initiatives. During the quarter, we hired 759 new employees resulting in the addition of 191 net new employees. The result is we've already seen improved availability of staffing at our operations in the early weeks of this quarter. Cost inflation, of course, is an issue across many industries, and our businesses are not exempt. In this quarter, we experienced an impact of approximately $8 million related to energy, and the additional employees I just mentioned increased labor costs by another $8 million. In addition, energy curtailments in China triggered a sudden rise in magnesium prices, which will be an issue in future quarters. We've responded with price increases, including a magnesium surcharge in the US to protect our margins. Of course, there's a short lag between when we will realize the price inflation and when we capture the benefit of higher prices, but they will essentially offset each other as we enter 2022. As we've talked about before, We are a converter, and we actively manage the impacts of aluminum to our margins. But the sustained price increases throughout this year have put pressure on our cash flows. While this is challenging in the near term, the working capital investment will increase cash flows when aluminum prices stabilize and eventually return to historic levels. As I look beyond those headwinds, demand in our key markets remains strong, and we will continue to grow adjusted EBITDA by double digits going into 2022. Furthermore, as we've discussed, our declining legacy cash obligations will create a step change in our generation of free cash flow. This means we'll have more opportunities to invest in high return organic growth and continue returning capital to shareholders in the form of share repurchases. In fact, during the third quarter, we repurchased almost $100 million of our shares. Now let's move to slide five to discuss our end markets. As you can see on the bottom right of the slide, in the third quarter, we grew organic revenue year on year in all end markets other than aerospace, which only declined modestly. Ground transportation sales increased 6% organically from third quarter 2020, primarily due to strength in commercial transportation while the automotive segment continued to be challenged by semiconductor shortages. Our automotive volumes were down 10% year over year in the quarter, but North American light vehicle production declined 25% in the same period. Through the first nine months of 2021, our automotive volumes have increased 18% over last year, while the North American light vehicle production is up only seven. So clearly, we continue to gain share in this market segment. Consumer demand for light vehicles remains very strong, and dealer inventory levels are near historical lows. This bodes well for the recovery in automotive, semiconductor supply chain issues are resolved. Sales in the industrial market increased 20% organically year over year, but declined 14% sequentially. As I mentioned on the previous slide, demand for industrial goods remains very strong, but staffing limited our ability to service orders in the quarter. In the building and construction market, sales increased 7% organically year over year. While we are seeing modest growth, the construction market continues to be challenged by supply chain and cost issues. Sales in the packaging market increased 23% year over year, driven by continued strength in our Russia and China packaging sales and a small impact from the early beginnings of the ramp-up of packaging operations at our Tennessee facility. Finally, aerospace sales were down 5% year over year on an organic basis. As you can see in the pie chart, aerospace sales continue to make up roughly half the percentage of our total sales compared to what they were in 2019. Our aerospace sales reached a bottom in the fourth quarter of last year, and we are experiencing the beginning of a long, steady recovery in our aerospace sales over the next several years. We continue to be excited about the ramping production rates of single aisle aircraft as Boeing is making progress on the recertification of the 737 MAX in China, and Airbus has recently announced additional production rate increases. So bottom line, our end markets are very strong, and with the exception of the temporary semiconductor constraint, all are growing well above GDP. With that, I'll turn it over to Eric to discuss third quarter results in more detail.