Carpenter Technology Corporation

Good day and welcome to the Carpenter Technology Fourth Quarter Fiscal 2020 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Brad Edwards. Please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to the Carpenter Technology Earnings Conference Call for the fiscal 2020 fourth quarter and year-ended June 30, 2020. This call is also being broadcast over the Internet along with presentation slides. Please note, for those of you listening by phone, you may experience a time delay in slide movements. Speakers on the call today are Tony Tain, President and Chief Executive Officer, and Tim Lane, Vice President and Chief Financial Officer. Statements made by management during this earnings presentation that are forward-looking statements are based on current expectations. Risk factors that could cause actual results to differ materially from those forward-looking statements can be found in Carpenter Technologies' most recent SEC filings, including the company's report on Form 10-K for the year ended June 30, 2019, Form 10Q for the quarters ended September 30, 2019, December 31, 2019, and March 31, 2020, and the exhibits attached to those filings. Please also note that in the following discussion, unless otherwise noted, when management discusses sales or revenue, that reference excludes surcharge. When referring to operating margins, that is based on operating income and sales excluding surcharge. I will now turn the call over to Tony.

Thank you, Brad. Good morning to everyone on the call today. I hope you and your families are well and safe. Let's begin on slide four with a review of our safety performance. Our total case incident rate, or PCIR, was 1.1 for the fiscal year 2020. This is our lowest annual incident rate to date as we continue our journey to a zero-injury workplace. This is an impressive achievement considering the challenges of operating our manufacturing facilities during the COVID-19 pandemic. Our employees have done and continue to do an exceptional job of following the safety protocols in place that keep our plants safe. As we turn to fiscal year 2021, our safety activities built on employee engagement will continue to support our drive to a zero injury workplace. Now let's turn to slide five and review the fourth quarter performance. Just two quarters ago, at the midpoint of our fiscal year 2020, Kupner Technology had significant momentum. Our SAO segment was achieving margins at historic highs. We just completed our 12th consecutive quarter of year-over-year sales and earnings growth. The company was on track for the best financial performance year in our history. And our growth accelerators, such as the investments in the Athens facility, soft magnetic, and active manufacturing, were poised to start contributing to the bottom line in the years to come. Of course, the COVID-19 pandemic was thrust upon us, and it has had a devastating impact on our personal lives and on the economy. Fortunately, corporate technology was in a strong position. Understanding the magnitude of the downturn we aggressively pushed forward with portfolio restructurings and cost reduction initiatives to strengthen an already strong liquidity position and balance sheet. Our actions today include the elimination of approximately 20% of our global salary positions, implementing a hiring freeze and deferring annual merit increases for most salaried employees, reducing our planned capital expenditures by $50 million in fiscal year 2021 compared to fiscal year 2020 after reviewing and prioritizing our capital investments, executing rolling temporary furloughs for certain production, maintenance, and salaried employees, and completing targeted portfolio actions, including the decision to exit the Omega West oil and gas business, idle our West Virginia powder facility, and divest our Rhode Island powder facility. All of those actions were critically important, as sales in the fourth quarter were down 30% year over year and 24% sequentially. This depressed volume will likely continue over the next couple of quarters, and a full recovery will take even longer. We also actively managed the quarter to prioritize free cash flow by accelerating our inventory reduction plan, which was successful in generating cash flow. However, it had a significant negative impact on our operating results. In fact, the primary highlight from our fourth quarter results was our strong free cash flow generation. We drove $100 million of free cash flow in the quarter, which significantly strengthened our liquidity position. We enter fiscal year 2021 with a total liquidity position of $417 million, which we enhanced even further with the bond offering this month. We have ample liquidity to continue managing through the COVID-19 pandemic. Equally impressive is our ability to keep all of our facilities operating continuously, in this challenging environment. This accomplishment clearly demonstrates the power of our core safety value, as well as the steadfast dedication of our employees. Our employees have demonstrated a great commitment to protecting each other and serving our customers during this challenging period. This heightened commitment is resulting in deeper customer relationships and new opportunities for our solutions. Over the past several months, we have enriched and or extended supply agreements at the request of key aerospace, medical, and semiconductor customers. We expressed concern about the stability and long-term reliability of other suppliers. We have demonstrated a resiliency that is resonating with customers and winning us market share. The pandemic has caused near-term challenges for us, as well as our entire industry. However, our long-term wealth potential and that of the markets we serve remains intact. Our core business was strong prior to COVID-19 pandemic, and the long-term outlook for our markets remains robust. Popular Technology is and will remain a trusted solutions provider of critical applications. Our specialty metal alloys are unique, and we are one of a handful of suppliers, in some cases, the sole credible supplier of materials essential to production of aircraft, medical devices, and implants, semiconductors, consumer electronics, automobiles, and other applications. Our established core business and leadership in critical emerging technologies, including additive manufacturing and soft magnetics, supports our long-term sustainable growth profile. Now let's move to slide six and the in-use market updates. Looking first at the aerospace and defense industry market, where sales were down both sequentially and year-over-year. The results were driven by customers across the supply chain, adjusting both their production schedules and inventory levels in response to revised production rates from Boeing and Airbus. A large number of cancellations and push-outs have filtered through the entire supply chain, and there remains a high level of uncertainty. We currently see this challenging operating environment continuing during the second half of calendar year 2020 and then beginning to improve in calendar year 2021. This past quarter, we engaged with many of our customers who suddenly saw reduced need for our materials and together developed forward support plans. These plans included slower shipment of finished products in exchange for share or pricing gains. While conversations with many of our customers are ongoing and at different stages, all are actively engaged with us, but they understand we will remain a vital part of their supply equations moving forward. Over the mid and longer term, we believe in-market demand will return, and we are confident carpenter technology will play an instrumental role in meeting it. Because our solutions are uniquely capable of providing power efficiency, longevity, and performance, They are already found across a wide range of OEMs, platforms, and applications. As airline operators rebuild their fleet with today's and tomorrow's models, they will be flying with Carpenter Technologies' high-quality, technically assured materials. Moving on to the medical in-use market, where we are seeing some near-term impact on demand as the elective surgery market continues to recover. With that said, our cardiology business who is resilient and maintains steady demand throughout the quarter, and we expect it to remain steady in the near term. We expect the recovery of the orthopedic markets to take shape beginning in calendar year 2021, while the market for our dental applications is expected to return to normalized levels later in 2021. During the fourth quarter, we quickly leveraged our industry-leading portfolio and responded to critical demand for materials used in cardiology and trauma devices. We also responded to restocking needs as OEM began preparing to address pent-up demand for elective surgeries. Over the long term, we believe we are well-positioned to continue supporting the medical device market with the largest portfolio of material solutions, coupled with the strategic investments we have made in our capabilities and capacity. Our application solutions are aligned with key industry megatrends. including an aging population and an increased emphasis being placed on improving patient outcomes. In the transportation end-use market, the global light vehicle market was significantly impacted by OEM plant closures related to COVID-19. The pandemic also created challenges in the heavy-duty truck market, which had already been working through a cyclical low. Now moving to the energy-in-use market, where market conditions in North America remain depressed, and international activity is largely stagnant. In addition, the power generation sub-market continues to work off a low base. While sales in the industrial and consumer market were down, we experienced solid demand for our high-end semiconductor applications, and consumer electronics, our proprietary alloy solutions, are gaining an increasing share in applications including smartphones, smartwatches, and other wearable technologies. Now I'll turn the call over to Tim for the financial review.