Carpenter Technology Corporation

Hello and welcome to the Carper Technology Corporation fourth quarter fiscal 2021 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist for 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 touchtone phone. To withdraw your question, please press star then two. Please note, today's event is being recorded. I will now turn the conference over to Brad Edwards, Investor Relations. Mr. Edwards, please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to the Carpenter Technology Earnings Conference Call for the fiscal 2021 fourth quarter and full year ended June 30, 2021. 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 movement. Speakers on the call today are Tony Tain, President and Chief Executive Officer, and Tim Lane, Senior 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, 2020, Form 10Q for the quarters ended September 30, 2020, December 31, 2020, and March 31, 2021, and the exhibits attached to those filings. Please also note that in the following discussion, unless otherwise noted, when management discuss 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, and good morning to everyone on the call this morning. Let's begin on slide four, a review of our safety performance. For fiscal year 2021, our total case incident rate was 0.6, marking the best fiscal year safety performance on record. Today, Carpenter Technology is one of the safest manufacturing companies in the United States. However, our ultimate goal is a zero injury workplace. The continued progress we made in fiscal year 2021 was due to our focus on fundamental safety programs, including hand safety, human performance, leadership development, and employee engagement activities. In fiscal year 2022, we plan to build upon the momentum and take our next step towards a zero injury workplace. Now let's turn to slide five and the review of the fourth quarter. Our fourth quarter results finished ahead of our expectations. The results reflect our efforts to position ourselves to capitalize on the emerging recovery and market opportunities. While the recovery remains in the early stages and varies by end-use market, we are encouraged by the market signals we are seeing. We saw demand conditions improve sequentially across our major end-use markets, including aerospace and defense and medical. During the quarter, we continued to execute a strategy focused on driving liquidity, strengthening key customer relationships and advancing our manufacturing capabilities. We generate free cash flow of 43 million and for the full year delivered free cash flow of 132 million. Quite an accomplishment when many in the industry burned through cash during the market downturn. We finished the fiscal year with 582 million in total liquidity, including 287 million in cash. Customer engagement around Athens remains high as we continue to broaden our capabilities and customer base. Notably, we received another important qualification during the quarter. The Athens facility will be a competitive differentiator for Carpenter Technology as industry build rates rise and lead times begin to extend. In addition, I'm excited to share that our hot strip mill at our Reading campus recently completed its commissioning. The timing for the strip mill coming online is ideal, as prior to the pandemic and now into the recovery, we have seen and continue to see steady growth from existing applications, like high temperature engine gaskets, fasteners, and electrification applications, including motor stack laminations for auxiliary power units and generators. The mill significantly strengthens our soft magnetics capabilities and production capacity at a time when electrification is increasingly disrupting major in-use markets. The higher frequency motors being used for electrification require thinner strip, which is more challenging to produce. As these markets grow, enhanced thin flat-row product capabilities would become increasingly critical to overall system performance. The productivity quality and consistency of our new hot strip mill will create an advantage for carpenter electrification motor stacks assembled from these thin laminations. We are already producing materials to support new EV-ation motors that are in the process of FAA certification. We are also producing products for sensors and resistors that are now in newer, more advanced electric vehicle electronic systems. Now let's move to slide six and the end use market update. As I mentioned earlier, we are seeing increasing signs of recovery across our end use markets. We continue to believe the worst is behind us and that demand conditions across end use markets will further improve as we move through fiscal year 2022. Our aerospace and defense market sales were up 21% sequentially and a growing number of our customers are pointing to further demand acceleration in early calendar year 2022. Activity in the defense sub-market continues to be strong, and we are generating increased interest in our advanced materials as customers source for new programs. In the medical in-use market, sales were up 22% sequentially. Elective procedures volumes increased in the fourth quarter as patient sentiment and hospital capacity continued to improve due to higher global vaccination rates. Conditions continue to vary by region, depending on COVID-19 concerns and impact on procedures. Results in our orthopedic and cardiology submarkets were also strong, and we began to see increased stocking activity in the distribution channels. Looking ahead, our customers expect order rates and backlog to show further improvement in the current quarter as the overall market continues to ramp in support of the ongoing recovery and elective surgeries. It is predicted that orthopedic procedures will reach 85 to 90% of pre-pandemic levels in the coming quarter. Our cardiovascular procedures will reach 80 to 85% of pre-pandemic levels. Although the emergence of the Delta variant could soften the elective surgeries increase in some areas. We had been delivering consistently strong growth in our medical end use market prior to the pandemic. and believe it will return to being one of our fastest-growing markets post-pandemic. In the transportation end-use market, sales were up 25% sequentially and 111% compared to last year. The global light vehicle production forecast for calendar year 2021 remains robust, and we achieved record shipments for heavy-duty truck applications in the quarter due to increasing demand for our exhaust valve solutions. We continue to see markets share growth opportunities in both the light vehicle and heavy-duty truck submarkets and continue to further penetrate key market adjacencies, including off-road, marine, and aftermarket. Now moving to the energy in-use market. In the U.S. oil and gas submarket, we are seeing initial signs of recovery, but the pace is measured. The international markets have largely stabilized, and the outlook is becoming more positive. As a reminder, the prior year fourth quarter results included our Omega West business that was divested early in fiscal year 2021. In a power generation submarket, we are working closely with customers as the maintenance upgrade cycle continues. Lastly, for the industrial and consumer end-use market, sales were up 21% on both a sequential and year-over-year basis. Growth for both periods was driven by historically high demand for our semiconductor solutions, recovery in industrial distribution, as well as increased consumer electronics demand. Now, I will turn it over to Tim for the financial review.