Carpenter Technology Corporation

Good day and welcome to the Carpenter Technology Corporation fourth quarter 2023 conference call. Today, all participants will be in a listen-only mode. Should you need assistance during today's call, please signal for a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. If you'd like to ask a question, please press star then one on your telephone keypad. If you would like to withdraw your question, please press star then two. Please note that today's event is being recorded. At this time, I would like to turn the conference over to John Hewitt, Vice President, Investor Relations. Please go ahead, sir.

Thank you, Operator. Good morning, everyone, and welcome to the Carpenter Technology Earnings Conference Call for the fiscal 2023 fourth quarter ended June 30th, 2023. 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 30, 2022, Forms 10-Q for the quarters ended September 30, 2022, December 31, 2022, and March 31, 2023, and the exhibits attached to those filings. Please note that in the following discussion, unless otherwise noted, when management discusses the 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, John, and good morning to everyone on the call today. I will begin on slide four with a review of our safety performance. For fiscal year 2023, our total case incident rate was 1.7. Although 1.7 injury rate would rank as one of the safest metal manufacturing companies, it is not a rate we've come to expect or accept. at Carpenter Technology. As we've discussed in previous quarters, the rate increase is largely due to the increased employees undertaking new tasks, either as new hires or transfers into new roles. We continue to invest in additional training for any employee new to a job or task with frequent monitoring and follow-up. Our goal continues to be a zero-injury workplace. Despite the increase this year, We believe it is possible and we will continue to invest and work tirelessly to achieve that goal. Now let's turn to slide five and a review of the fourth quarter. More than a year ago, we set out the goal to return to pre-pandemic fiscal year 2019 profitability on a run rate basis by the end of fiscal year 2023. There was an important milestone marking a waypoint on our growth trajectory to doubling our operating income by fiscal year 2027. Not only did we achieve that goal in the fourth quarter, we exceeded it. And with increased productivity, improved product mix, and the realization of higher prices, we demonstrated accelerating momentum on that growth trajectory. Most notably, the SAO segment significantly exceeded expectations for the quarter. delivering 80 million in operating income, above the outlook we provided of 65 to 70 million. Further, SAO realized an operating margin of 16.8%, a step up from the 11.9% in the previous quarter. With increasing high levels of demand, net sales increased across each of the end-use markets. Net sales, excluding surcharge for the quarter, were up 14% sequentially and 39% compared to last year. Driving our performance were continued productivity improvements across our facilities, improving product mix and higher selling prices. In addition to the strong profitability in the quarter, we generated $175 million of cash from operations and $144 million in adjusted free cash flow. This further strengthens our liquidity as we finish the quarter with $393 million in total liquidity. Now let's move to slide six and the end-use market update. The first takeaway is that sales in all of the end-use markets were up year over year and sequentially for the quarter. Our near-term and long-term outlook for each of the end-use markets remains positive. and record backlog levels support this outlook. Our aerospace and defense in-use market, accounting for 53 percent of sales in the current quarter, continues to ramp and was up 22 percent sequentially and 65 percent year over year. Global aerospace traffic continues to increase, pushing the supply chain to ramp production of new planes to meet the growing demand. To support the growing demand, customers across our commercial aerospace submarkets continue to request higher shipments of material as soon as possible. In addition, the defense submarkets saw an increase in sales on a sequential basis, driven by next-generation missile, fixed-wing, and rotorcraft platforms. The medical in-use market, accounting for 12% of sales in the current quarter, was up 7% sequentially and up 24% year over year. The increase in sales was driven by the continued strong customer manufacturing activity to meet the patient demand for elective surgeries. The overall outlook continues to be positive as medical procedures are expected to grow throughout calendar year 2023, supported by a strong procedures backlog. The transportation in use market accounting for 7% of total sales in the current quarter, was up 8% sequentially and up 12% compared to last year. With high demand and low inventories of light-duty vehicles, build rates are expected to remain strong throughout the second half of calendar year 2023. The energy and use market, accounting for 6% of sales in the current quarter, was up 22% sequentially and up 66% percent compared to last year. With the growth in demand for energy continuing to exceed supply, capital investment is expected to increase. And as a result, the demand for our material solutions will rise with it. The industrial and consumer in-use market, accounting for 17 percent of sales in the current quarter, was up 1 percent sequentially and up 17 percent year-over-year. In this in-use market, we remain focused on high-margin, high-growth business, including our material solutions used in semiconductor fabrication and consumer electronics. Now we'll turn it over to Tim for the financial summary.