Carpenter Technology Corporation

Good day and welcome to the Carpenter Technology Corporation fourth quarter fiscal 2022 conference call. All participants will be in a 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 a touchtone 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 the management. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to the Carpenter Technology earnings conference call for the fiscal 2022 fourth quarter and year ended June 30th, 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 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 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 30th, 2021. Form 10-Q for the quarters ended September 30th, 2021, December 31st, 2021, and March 31st, 2022, 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 adjusted operating income, excluding special items, and sales excluding surcharge. I will now turn the call over to Tony.

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. For our fiscal year 2022, our total case incident rate was 1.0. It is above our fiscal year 2021 performance of 0.6, which was our best fiscal year safety performance on record. A rate of 1.0 is approximately 65% lower than an all-industry rate. However, our ultimate goal is to be a zero-injury workplace. We believe it is possible, and we will continue to work towards that goal. Now let's turn to slide five and a review of the fourth quarter. We continue to see strong increasing demand in each of our in-use markets. Most notably, we see the aerospace and defense in-use market continue to ramp to pre-COVID levels. Although global passenger traffic is not yet fully recovered, the aerospace ramp is accelerating, and our order backlogs are likewise increasing rapidly. And medical in-use market conditions continue to improve. as the industry addresses the backlog of surgeries delayed by COVID-19. We see many indicators across our in-use markets of the strong demand environment. Let me highlight two. First, our backlog increased 29% sequentially and 191% year over year. This marks the sixth consecutive quarter of backlog growth. Second, we continue to realize price gains on both our contractual and transactional business. Specifically, we recently increased base prices on our transactional business by 12% to 15%. This was the fourth such price increase in the last 14 months. We are working closely with our customers, as most are requesting additional volume with accelerated delivery dates. Our focus is on increasing productivity across our operations to meet this aggressive demand. For the quarter, our SAO and PEP segments exceeded our expectations, driven by higher net sales as a result of the growing market demand. And importantly, our liquidity remains healthy. During the quarter, we generated $65 million of free cash flow and finished the year with $448 million in total liquidity. Now let's move to slide six in the in-use market update. Most of our in-use markets were up sequentially and year-over-year, reflecting the recovering demand environment. Our aerospace and defense in-use market sales were up 17 percent sequentially and 8 percent year-over-year. Demand for our materials is increasing substantially as customers across each of the aerospace submarkets accelerate their activity to meet build rates. As a result, lead times across the industry have extended and our backlog continues to rise. Specifically, our aerospace and defense in-use market backlog is up 36% sequentially and 224% year over year. In the medical in-use market, sales were up 16% sequentially and up 41% compared to last year. The results reflect ongoing recovery in elective surgeries with customers focused on increasing stock levels to meet 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 31% sequentially and 249% year over year. In the transportation in-use market, Sales were up 2% sequentially and down 10% compared to last year. Light duty remains very high, with consumers continuing to buy even as inventories are at historic lows. The industry continues to make modest improvements in the supply chain challenges, namely the chip shortages that are impacting production. With strong demand and low inventories, build rates are expected to increase through the end of this calendar year. In the energy in-use market, sales were down 9% sequentially and up 57% 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. In addition, we are seeing growing demand for advanced premium alloy solutions for drilling activity in harsh environments. In the industrial and consumer end-use market, sales were flat on a sequential basis and up 22% year over year. We continue to see historically high demand for our semiconductor solutions and expect demand to remain strong throughout the year. In addition, we continue to see healthy demand in the electronic sub-market, with increased sales and backlog growth of 70% year over year. Growth in the electronic sub-market is largely driven by customer engagement on a recently commissioned hot strip mill in Redding. Now I will turn it over to Tim for the financial summary.