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spk05: Good morning, and welcome to the Carpenter Technology Fiscal 2022 Third Quarter 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 telephone keypad. 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 of Investor Relations. Please go ahead.
spk02: Thank you, Operator. Good morning, everyone, and welcome to the Carpenter Technology Earnings Conference call for the fiscal 2022 third quarter ended March 31, 2022. 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, 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 these 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, 2021, Form 10Q for the quarters ended September 30th, 2021 and December 31st, 2021, and the exhibits attached to those filings. Please also note that in the following discussion, unless otherwise noted, when the 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.
spk04: Thank you, Brad, and good morning to everyone on the call today. Let's begin on slide four and a review of our safety performance. Through the third quarter, our total case incident rate was 1.0, holding at the same level from the prior quarter. It remains above our fiscal year 2021 performance of 0.6, which was our best fiscal year safety performance on record. Safety is our number one core value, and we continue to push towards our ultimate goal to be a zero-injury workplace. Our path to zero includes benchmark safety systems, leadership, and employee engagement. We continue to invest in training to drive high levels of employee empowerment, further enabling our workforce as the first line of defense to injury prevention. One example of our employee engagement and safety systems in action has led to over 200 ladders being removed from our facilities, reducing a source of injury risk from our operations. Now let's turn to slide five and a review of the third quarter. We see strong demand in each of our in-use markets as we emerge from the pandemic. Notably, the aerospace ramp is accelerating. Although the aerospace in-use market, measured by global passenger traffic, is not yet fully recovered, our shipments continue to ramp, and our order backlogs have now exceeded pre-COVID levels. The medical in-use market conditions continue to improve, as the industry recovers from the impact of the Omicron variant. And in-use markets like transportation and industrial and consumer have returned to pre-COVID levels. I would like to share three indicators of the demand environment. First, our backlog increased 34% sequentially and 164% year-over-year, continuing the growth we saw in the second quarter. Second, the backlog growth is driven by the bookings rate. which increased 21% sequentially and 119% year-over-year. This was a record quarter in terms of bookings for the company. And third, we continued to realize price gains on both our contractual and transactional business. We worked with our customers throughout the pandemic, preparing for the recovery across our market. You will recall that during this time, we continued to negotiate price increases. And in this last quarter, we increased base prices on our transactional business by at least 12% to 15%. This marks the third price increase in the last 10 months. I will cover the demand environment for each of our end-use markets in more detail later in this call. The SAO segment finished ahead of our expectations, driven by the strong demand environment and our ability to navigate short-term operational challenges. As we reported in March, we have completed the repair of the Reading Press on time, and it is fully operational. The Omicron variant has subsided after a challenging January with significant COVID-19 isolations at key work centers. And we have addressed the majority of our hiring challenges we had in the first half of fiscal year 2022. PEP's performance aligned with expectations, building on a strong second quarter. Growth in operating income was largely driven by the ongoing recovery in the medical end-use market. Finally, our liquidity remains healthy, as we finished the quarter with $388 million in total liquidity. And in March, we completed the refinancing of senior notes, extending our debt maturity profile. Now let's move to slide six in the end-use market update. As you can see on the slide, each of our end-use markets was up sequentially and year-over-year, reflecting the recovering demand environment. Our aerospace and defense in-use market sales were up 14% sequentially and 11% year-over-year. Demand for our materials is increasing substantially as customers prepare for strong future activity. Although our shipments in the aerospace and defense in-use market were approximately 50% of pre-pandemic levels, when comparing the 12 months ending March 2022 to the 12-month ending March 2020, we see demand continue to accelerate across all the aerospace submarkets as the supply chain ramps to meet steadily increasing travel demand. And despite challenges in the overall supply chain, OEMs maintain positive outlooks on further build rate increases. As a result, lead times across the industry have extended, and our backlog continues to rise as customers plan for ongoing improvements. Specifically, our aerospace and defense in-use market backlog is up 42% sequentially and 157% year-over-year, which is 17% higher than our pre-pandemic peak. In the medical in-use market, sales were up 14% sequentially and up 48% compared to last year. The results reflect ongoing recovery in elective surgeries after the Omicron variant. with customers focused on increasing stock levels to meet growing demand. The overall outlook continues to be positive, as medical procedures are expected to rise to pre-pandemic levels in the second half of calendar year 2022. We are seeing replenishment in the supply chain to support the expected growth, as our medical in-use market backlog is up 51% sequentially and 227% year over year. We also see an opportunity to increase share in our titanium business as customers look to de-risk their supply of titanium from Russia. In the transportation end-use market, sales were up 14% sequentially and up 11% compared to last year. Light duty demand remains very high with consumers continuing to buy even if inventories are at historic lows. The industry continues to deal with the supply chain challenges and chip shortages that are impacting the end-use market's activity levels. With strong demand and low inventories, we expect continued improvement. And we continue to see growth opportunities in the heavy-duty truck, off-road, watercraft, and aftermarket sub-markets. In the energy end-use market, sales were up 44% sequentially and up 28% compared to last year. In the oil and gas sub-market, a demand and supply imbalance is driving growth in investment. As the world recovers from the pandemic requiring more energy, global supply has not kept up. The supply shortage has been further challenged by recent geopolitical disruptions. As a result, global investment and capital expenditures are expected to increase. In the industrial and consumer end-use market, sales were up 23% on a sequential basis and up 47% on a year-over-year basis. We continue to see historically high demand for our semiconductor solutions and expect demand to remain strong throughout the calendar year. In addition, we continue to see healthy demand in the electronics submarket, evidenced by increased sales and growing backlog. Further, we have strong engagement from our customers in the consumer electronics submarket and our recently commissioned hot strip mill in Redding. I will review the long-term outlook for each of these markets later in the presentation. Now we'll turn it over to Tim for the financial summary.
spk06: Thanks, Tony. Good morning, everyone. I'll start on slide eight, the income statement summary. Net sales in the third quarter were $489 million, and sales excluding surcharge totaled $369 million. Sales excluding surcharge increased 24% from the same period a year ago on 32% higher volume. Sequentially, sales were up 17% on 15% higher volumes. Gross profit was $39.5 million in the current quarter compared to $12.8 million in the third quarter of last year and $13.1 million in the second quarter of fiscal year 2022. The improvement in gross profit is primarily due to the higher sales. The tailwind from higher sales, both sequentially and year over year, was partially offset by operational challenges that we worked through early in the quarter related to the press outage in SAO's Redding facility, as well as the ongoing inflationary pressures on operating costs related to critical production supplies, freight, and labor. SG&A expenses were $38.4 million in the third quarter, down $9.4 million from the same period a year ago, and down $6.2 million sequentially. The current quarter's SG&A expenses include a $4.7 million non-cash benefit associated with the reversal of a contingent liability from a historical acquisition for which the time period expired. We have included this benefit as a special item for the quarter. When normalizing for this benefit, SG&A expenses are down $4.7 million from a year ago, largely due to additional costs in last year's third quarter associated with implementing our new ERP system. Sequentially, again, normalizing for the special item, SG&A costs were down 1.5 million due to the timing of certain expenses and certain legal reserve adjustments. Operating income was 1.1 million in the current quarter. When excluding the impact of special items, adjusted operating loss was 1.6 million in the current quarter compared to a loss of $29.7 million in the prior year period and a loss of $29.8 million in our recent second quarter. Our effective tax rate for the third quarter was 9.6 percent. The effective tax rate is well below the statutory rate, given the impact of certain losses for which no benefits can be recorded, as well as the impact of discrete items in the quarter. For the nine months ended March 31, 2022, the effective tax rate is 24.5 percent. Earnings per share for the quarter was a loss of 16 cents per share. When excluding the impact of special items, specifically the COVID-19 costs and the benefit from the reversal of the contingent liability I mentioned, adjusted earnings per share was a loss of 20 cents per share. Now turning to slide nine and our SAO segment results. Net sales for the third quarter were $418 million, or $300 million, excluding surcharge. Compared to the same period last year, net sales excluding surcharge increased 22 percent on 34 percent higher volumes. Sequentially, sales increased 19 percent on 15 percent higher volumes. The improvement in net sales was driven by increased sales of materials across all end-use markets, as Tony reviewed on the market slide. Moving to operating results, SAO reported operating income of $5.8 million for the current quarter. The same quarter a year ago, SAO's operating loss was $9.9 million, and in the second quarter of this fiscal year, SAO reported an operating loss of $20.3 million. As we mentioned last quarter, SAO worked through some near-term operational challenges, including the Reading Press outage that occurred late last quarter. The press is now back up and running as anticipated to support the growing demand. particularly for aerospace and defense. Year-over-year operating results increased by about 15 million when adjusting for the impacts of COVID-19 in both periods. The improvement in SAO operating performance was largely due to the incremental margin associated with higher sales. The benefits of higher sales were partially offset by higher operating costs due to increases in production staff as well as inflationary pressures in critical operating supplies and other areas such as freight. We've continued to increase production staff in anticipation of increasing production utilization to meet the growing demand. From a sequential perspective, the higher operating results were largely a factor of the increased sales and increasing activity levels coming off the short-term operational challenges that we talked about last quarter. Looking ahead, our backlogs continue to grow driven by strong order activity. In particular, we see increased activity across the aerospace supply chain to meet anticipated increases in build rates by the OEMs. Our teams remain focused on ensuring that we have the appropriate resources to meet the needs of our customers for the foreseeable future. Activity levels continue to accelerate in critical flow paths. Based on current expectations, we anticipate SAO will generate operating income in the range of $14 million to $18 million in the upcoming fourth quarter. Now turning to slide 10 and our PEP segment results. Net sales in the third quarter of fiscal year 2022 were $88.4 million, or $86.4 million, excluding surcharge. Net sales excluding surcharge increased 33% from the same quarter last year and were up 3% sequentially. The year-over-year growth in net sales reflects increased sales across all business units, led by our Dynamet titanium business, where year-over-year demand increased in both aerospace and defense and medical end-use markets. We've also seen a significant improvement in sales driven by demand in our additive and distribution businesses. The sequential increase in net sales was led by growth in our distribution business. In the current quarter, PEP reported operating income of $4.2 million. This compares to operating loss of $3.3 million in the same quarter a year ago and operating income of $3 million in our recent second quarter. A year-over-year operating income improvement is primarily the result of the increased net sales, as well as the benefits from the actions we took to restructure the additive business in fiscal year 2021. As we look ahead, We believe that demand conditions will continue to improve in the coming quarters. We currently anticipate that the PEP segment will deliver operating income in the range of $4 to $5 million for the upcoming fourth quarter. Now turning to slide 11 and a review of free cash flow. In the current quarter, we generated $35 million of cash provided from operating activities. We have plans in place to further reduce inventory levels in our upcoming fourth quarter albeit to levels higher than we previously planned. Our supply chains continue to see challenges mainly around longer than anticipated lead times and ongoing logistics challenges. With that in mind, we are managing our inventory levels to ensure we have adequate supply to meet the strong market pull that we are seeing. With that said, our inventory days on hand metrics are still being targeted at levels well below pre-pandemic levels. I also want to highlight that we are actively managing our supply chain to minimize potential disruptions. We maintain regular contact with key suppliers to ensure that we have steady supply of our critical raw materials and other operating supplies necessary to service our customers' needs. With the latest geopolitical events unfolding, we have not identified nor do we expect any potential sourcing issues. Moving down, we previously provided guidance that we did not expect to have any required minimum pension contributions for our U.S. qualifier plans during fiscal year 2022. In the third quarter of fiscal year 2022, we spent $25 million on capital expenditures. We currently expect that the full-year capital expenditures will be closer to $90 million, given some delays in projects due to the availability of outside contractors as well as extended lead times for certain materials. We also continued to fund a constant dividend to our shareholders, which we consider as part of our free cash flow. With those details in mind, we reported break-even free cash flow in the quarter. Our liquidity remains healthy, and we ended the current quarter with total liquidity of $388 million, including $94 million of cash and 294 million of available borrowings under our credit facility. In March 2022, we completed a $300 million bond offering to refinance 300 million of bonds that were due to mature in March of 2023. The offering pushes out the maturity date of this tranche of our debt profile to March 2030. Due to the timing of the offering and the notice requirements for the 2023 bondholders, We received the proceeds from the new bond issuance in March and redeemed the existing bonds in full in April, 2022. We have excluded 300 million from the presentation of our liquidity measure as of March 31st, due to the redemption of the principle of the bonds that was made in April, 2022. With that, I'll turn the call back over to Tony. Thanks Tim.
spk04: I'd like to spend some time reviewing the long-term demand outlook of our end-use markets. First, rarely do we see demand this strong in both the near-term and long-term across all of our end-use markets. A combination of the recovery from the pandemic and emerging macro trends have positioned our material solutions for both near-term and long-term growth. In aerospace, we see demand accelerating across the sub-markets. With global travel demand growing, narrow body build rates are expected to increase in calendar year 2023. Material demand is also expected to continue to increase. And as you will recall, before the pandemic, industry capacity was constrained, especially in aerospace engine submarkets. Over the last decade, Carpenters Technology was the only specialty metals provider to add capacity with our Athens facility, which positions us to capture additional growth. In defense, we are partnering with customers on the development of the next generation programs and platforms that require our material solutions. And given the geopolitical environment, investment is expected to continue well into the future. The medical market was our fastest-growing market before the pandemic, and we anticipate similar growth as the industry recovers from the pandemic. With a focus on improved patient outcomes, the medical device industry continues to innovate, requiring high-value material solutions. And the aging population and growth in expected procedures should drive demand well into the future. The transportation industry has led the recovery from the pandemic with high demand for light and heavy-duty vehicles. Energy market demand has already exceeded pre-COVID levels, with supply not keeping up with the rapid growth in demand. To readjust the supply imbalance, the industry is expecting growth in oil and gas investment in the near term, which will drive demand for our materials. In the industrial and consumer markets, we focus on providing high-value materials to specialized applications. With a broader trend in consumer electronics, Internet of Things, and greater connectivity, we expect continued growth in the use of our materials. Finally, we have our two growth platforms, electrification and additives. For each of these, we anticipate growth in the medium to longer term as the macro trends continue to evolve. Let's turn to slide 14 and my closing comments. We are in an environment in which demand in every in-use market is strong for both the near term and long term. We saw substantial increases in bookings and backlogs during our current third quarter, and we expect them to remain strong for the foreseeable future. We continue to realize share and price gains through contract renewals and price increases on our transactional business. With a strong demand environment, we are focused on execution. We continue to implement the carpenter operating model to address any short-term challenges and increase productivity across facilities. Repairs to the rating press are complete and it is fully operational. We continue to work closely with key customers, navigating the recovery and supply chain challenges, and partnering to solve their critical needs. We continue to maintain a healthy liquidity position. Finally, our soft magnetics and active manufacturing platforms offer long-term growth opportunities. Thank you for your time, and now I will turn it over to the operator to take your questions.
spk05: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2.
spk03: At this time, we will pause momentarily to assemble our roster. The first question comes from Josh Sullivan with the Benchmark Company. Please go ahead. Hey, good morning.
spk05: Morning, Josh.
spk06: Morning, Josh.
spk01: Just on the aerospace backlog and dynamics, how much of the acceleration, in your estimate, is restocking versus just aligning with the current build rates?
spk04: Hey, Josh. This is Tony. Good morning. I think it's a combination of both, right? I mean, when you take a look at where the backlog growth has been over the last couple quarters, it's extremely strong. So both of those take into account. I think the biggest driver, though, is on the build rate side. When you take a look at what's going on with the 737 MAX, the A320, very strong demand from our customers there. And, you know, you see it in the backlog growth.
spk01: And have you seen any reaction in the market, titanium fastener or otherwise, just on the 787 and 777X timelines?
spk04: That's a good question. If you think about the news that just came out on the 777, I mean, from a shareholder of Carpenter Technology, that's really not meaningful in the short term and maybe even the long term. I mean, it's a lower-rate production plane. They already said they wasn't going to deliver until 2024, so they just pushed it out one year. And, you know, our order book is already full going forward. So the biggest news for us coming out of news calls like that is what they said about the 737 MAX and that they're still on pace to hit the rates that they want to there. And from what we see is we see customers now inquiries and orders from 4737 max. So that's extremely positive news, and I think that's the focus point for carpenter technology versus what may or may not happen with the 777.
spk01: Got it. And just one last one. As far as customers looking to de-risk from Russian supplies, can you just outline carpenters, titanium feedstock? We've heard a lot about Russian forging and castings, tough to replace, but where and why is carpenter a de-risking element for anybody exposed to Russian supplies?
spk03: Yeah, I'll let Tim take that one since the procurement group works for him.
spk06: Yeah, Josh. So the conversations we're having with our customers is more about their supply chain. So we source nickel billet for the most part. Our sourcing is not through Russia. The bulk of our material comes through domestic producers of that nickel billet, and they're sourcing their material from Japan. So as our customers are looking at their supply chain, they do have – supply chains that do some similar activity that our Dynamet business does with titanium. So they're looking to move away from their Russian-based supply chain into more stable supply chains, which are the conversations we're having today.
spk03: Got it. Thank you for the time. Our next question comes from Michael Leshock with KeyBank Capital Markets.
spk05: Please go ahead.
spk00: Hey, good morning. I just wanted to ask on the base price increases of 12 to 15% on your transactional business. Is there some element of stickiness there to those increases? If we see some easing of inflation or even deflation, what, what have you seen historically and what can we expect?
spk03: You shouldn't expect that we will decrease prices.
spk00: Okay. Um, And then on labor, how much more headcount do you expect to need to meet the recovery as we get back to some pre-pandemic levels? And when do you expect to get there given the cadence of hiring thus far? Yeah, good question, Michael.
spk04: So it's a mixed answer now. If you look at some of the more specialized skills, there's some areas that are very tight right now. If you look at operations on our shop floor, Some of our geographic locations still have some hiring difficulties. However, at our larger plants, specifically Reading, we are in good shape and we're at the headcount level we want to be at.
spk03: So that's the good news and that's the most impactful piece.
spk00: Great. And then following up on the nickel question, I think you generally source nickel supply from Canada, but I wanted to get an update on how you navigated the LME market issues and any impacts you saw there on the transactional business as well as contracts, if there were any impacts there.
spk04: Yeah, you know, I'll take that question. Certainly, when you have such a drastic change in the nickel price, you have some discussions with your customers and we are able to work through all of that. And then just on the transactional standpoint, we pause taking orders for a period of time to let that settle out.
spk03: Okay. And then did you give jet engine revenues for the quarter?
spk04: I did not give jet engine revenues for the quarter. I can't tell you that they are up 16%. Sequentially and 13% year-over-year.
spk00: Okay, great. Thank you guys for the time. You're welcome.
spk05: Again, if you have a question, please press star, then 1. Our next question comes from Gautam Khanna with Cowan. Please go ahead.
spk04: Hi, good morning, guys.
spk03: Hey, Gautam. Hello. Hello.
spk04: Hey, just wanted to ask, you know, at one point you thought that fiscal 23 could be somewhere close to fiscal 19 and earnings per share. Can you give us an updated view on that? Yes, so I did say that the last time. I said on a run rate basis, so maybe not the full four quarters. But I said we could be at a run rate equivalent to FY19. If you take a look then at FY23, what it would take to get there, all of our markets are at, some could be exceeding FY19 levels, but the big market is aerospace, as you all know, Gautam. That's 50% of our market. If you look at this quarter, we were about 50% of what it was pre-pandemic sales. If you get into FY23, maybe you maybe you're at 60 to 65%. So there's still a point there that that could be an issue, of course. And you have, you know, the impact of inflation that has hit us pretty strongly here in the last quarter or two. Now, we'll offset a big chunk of that through the pricing that we've done over the last couple of years, which has been significant, and some other items we have. So I've not changed my view on that, God, I'm only to Remind you that I said for FY23 on a runway basis we could get there. And I think, you know, quite frankly, to talk a little bit more about the upcoming year, FY23, we've given guidance on Q4. You look at Q1, you probably look at those two quarters in tandem and say, you know, as your recovery, but then you get into our second, third, and fourth quarter. You know, obviously we have to execute, but from a market standpoint, I think you could see significant growth on the sales side.
spk03: Okay.
spk04: And then could you tell us what's going on in the fastener business? So, you know, across all alloy types, titanium, you know, stainless, nickel, et cetera, on the aero side. And also just to follow up on your comment. Oh, sorry. Go ahead, please. Yeah, I'll go ahead and answer the faster one. I'll give you a couple of numbers. Faster on a sequential basis, sales are up 18%. Backlog was a big driver as well, sequentially up 42%, 182% year-over-year. That's fasteners only. And then the real key one on the bookings, sequentially fasteners up 43%. That's probably the one in almost 200% year-over-year, the year-over-year comparisons, as you know. aren't as meaningful since, you know, a year ago, we were right in the middle of the pandemic. But I know that, you know, the point of your question, the big driver, there's probably the bookings one and sequentially that was up 43%. Okay, well, and then, you know, I remember VSMPO has a facility in PA that does medical fasteners as well. And I was curious, so is that what you were referring to earlier? any remarks about opportunities from Russia? And if so, kind of, I mean, to displace the Russian supplier. And if so, how big of an opportunity would you describe it as? I wasn't really specifically calling out any, you know, plant specifically. What I would say is you all know we don't, we purchase titanium and then convert that into different shapes and products or applications. And that conversion is the area that we're working with some customers that say, could we do some work for them? And there's been a couple or several that we've had discussions with. How meaningful is it? That's part of our overall dynamic growth strategy where we think that that can be significantly higher than it is right now, even prior to the pandemic and and one of the growth errors could be in that conversion. Because if we pick some of that up, our plan, obviously, would be to lock that in. Right, but on the medical side, you're not seeing increased inquiries from the Baxter's or whatever, the big OEMs that are currently buying from DSMPO, have they come across your desk yet asking for that? Yeah, I don't – you know my style. I won't talk about any specific customers. I will just say that we have had inquiries and activity because of that situation. Cool. Tony, I wanted to also get your opinion on – there's been a RTX ratio I've talked about. Casting delays and others have complained about forgings and castings broadly as a bottleneck where some suppliers or maybe it's one supplier is behind. Are you seeing anything in your order book that skews to any particular OEMs over another? I mean, are you seeing evidence of this in the types of order flow you're getting for nickel billet from your various forging customers? I think, you know, listen, overall, the supply chain, or I should say the demand, is coming back, accelerating, maybe quicker than people thought. At least that's what we see. And we've heard from several people in the industry worried about can the supply chain ramp back up quickly. So we've heard that, and certainly our customers take that into consideration and are laying in more orders, not insurance for insurance. I mean, these are real demand orders. Certainly our press average for us personally hurt us now that we've got that behind us. But I would say, Gautam, overall we are seeing that type of, if I can use the word, urgency in terms of, the bookings, and I would say they are 100% related to real demand as we look out over the next several quarters, couple years. Okay, and then just one last one. On the long-term contracts that you have in the aerospace business, do you guys have, you know, full protection on element costs, energy costs, labor inflation, et cetera. And it's not sort of, what's the mechanism? How quickly do the linkages to the indices reset? Is it quarterly? Is it annually? Are we going to get hit with a lag at some point where margins get caught? We just should be aware of that. Well, across all of our long-term contracts, the primary past year element is materials. nickel specifically you're talking about, and that's 50% of our cost. So right there you've protected against 50% of any inflation cost. That can be different on every long-term contract, but the majority I'd say you're about a three-month lag. So if you buy something this quarter, it's the pricing last quarter and going forward. Certainly when you're in an increasing nickel price, that – has an impact to the customer, but it goes the other way when you're in a decreasing nickel price. If you look over a longer period of time, several years, that all balances out pretty close to zero. But it could be some lag impacts quarter to quarter. As you all know, Gautam, we very rarely talk about that because it's usually not material to us. Now, here lately, if there was a time we could have talked about it, maybe now because you've got such a significant increase in the nickel price. Another piece on energy, we do some natural gas hedging. Energy is 5% of our overall cost, so not insignificant, but doesn't compare to the materials. So we do protect ourselves by rolling in different tranches of energy hedges.
spk03: Thanks again. Appreciate it.
spk04: Thank you.
spk05: This concludes our question and answer session. I would like to turn the conference back over to Brad Edwards for any closing remarks.
spk02: Thank you. Thanks to everyone for joining us today for our third quarter conference call. We look forward to speaking with all of you again on our year-end call. Thanks again and have a great day.
spk05: The conference has now concluded. Thank you for attending today's presentation.
spk03: You may now disconnect.
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