Carpenter Technology Corporation

good morning and welcome to the carpenter technology corporation third quarter 2024 fiscal conference call all participants will be in listen only mode should you need assistance please signal a conference specialist by pressing star then zero on your telephone keypad 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 John Hewitt, Vice President of Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to the Carpenter Technology Earnings Conference Call for the fiscal 2024 third quarter, ended March 31st, 2024. The 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 presentation that are forward-looking statements are based on current expectations. 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, 2023, Forms 10-Q for the quarters ended September 30, 2023, and December 31, 2023, and the exhibits attached to those filings. Please also note that in the following discussion, unless otherwise noted, When management discuss 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. Through the third quarter of fiscal year 2024, Our total case incident rate was 1.7. This marks an improvement over the last quarter, reflecting the impact of ongoing employee engagement programs. We continue to diligently work towards our goal of a zero injury workplace. Now let's turn to slide five for an overview of our financial performance and outlook. Our third quarter performance was exceptional and has set us up for an unprecedented finish to fiscal year 2024. We beat our third quarter guidance by approximately 18%, generating $90 million in adjusted operating income. This was our most profitable quarter on record, up 29% from the second quarter of fiscal year 2024. And we expect to take another historic step forward in the fourth quarter. We are raising our guidance for the fourth quarter to a range of $110 million to 115 million in operating income. This marks an 8% increase over our previous fourth quarter guidance and a 25% increase over our all-time record third quarter performance just achieved. With our third quarter earnings beat and increased fourth quarter guidance, we expect to end fiscal year 2024 with $339 million to $344 million in adjusted operating income, which would be an annual earnings record for Carpenter Technology. Let's move to the next slide for additional detail on third quarter performance. The strong beat for the third quarter is the result of continuing improvement in productivity, product mix optimization, and pricing actions. Notably, the SAO segment exceeded expectations delivering $103.5 million in operating income, well above the outlook we provided on last quarter's call and 24% above the second quarter performance. In addition, SAO continued to expand margins, achieving an adjusted operating margin of 21.4%, a step up from the 20% in the previous quarter. Importantly, we generated $61.9 million of free cash flow during the quarter, as this quarter serves as a clear turning point into a period of significant free cash flow generation. And to wrap up this slide, we continue to see strong current and future demand for our impressive portfolio solutions. Let's turn to slide seven and take a closer look at our third quarter sales and market dynamics. In the third quarter of fiscal year 2024, sales increased 14% sequentially on higher volumes, improving product mix and pricing actions. Across our in-use markets, we continue to see demand for our premium material solutions well above supply levels. In the third quarter, the increased productivity at key melt work centers was a primary driver of our performance. We continue to remain focused on allocating capacity to where customers value it most, and over the last quarter realized higher sales to aerospace and defense and medical in-use markets. In our aerospace market, customers continue to stress their near and long-term supply needs. Customers remain focused on surety of supply, with increasing requests to extend or secure long-term agreements with us. Additionally, MRO-related needs have emerged as very acute, and we are actively prioritizing areas to help customers mitigate lying down situations. In the defense market, our customers remain very active given ongoing world events. Our defense customers remain highly concerned with long lead times and are asking for more of our capacity to serve them. We have worked over the last quarter to accommodate emergency drop-in needs for critical defense applications. We will continue efforts to prioritize critical defense orders given the essential nature of our support. All together, sales to our aerospace and defense customers, 57% of revenue for the current quarter. We're up 28% sequentially and up 30% year over year. Our long-term outlook for aerospace and defense continues to remain strong. given fundamentals of increasing air travel and air demand, as well as defense needs. Moving to our medical in-use market, our customers continue to see strong forward market demand and maintain very positive outlooks based on robust patient backlogs. As in aerospace, lead times for premium medical products are very extended. More and more, our medical customers are discussing with us the need for tight engagement to secure their supplies and view specialty material supply as a key strategic area. In addition to surety of supply, our medical customers also remain focused on new product innovations, driven by increasing use of robotics, minimally invasive surgeries, and alloy sensitivities, among others. Engagement with customers on new products and applications remains high. with multiple product areas we supply seeing high growth projections. Altogether, our medical sales in the quarter were 15% of total revenue, increasing 15% sequentially and 35% year over year. This was another record quarter for medical sales following a very strong first half and reflects concerted efforts to accelerate shipments. Taken together, our aerospace and defense and medical in-use markets are nearly three-quarters of our overall business. Across our other in-use markets, customer engagement is high, and demand for our premium solutions remains positive. We continue to see strong bookings and increasing lead times. In addition, our backlog remains at record levels, despite ongoing efforts to limit order intake. Specifically, backlog is up 3% sequentially and 12% year-over-year, currently at three times the pre-COVID level. Altogether, the near and long-term demand outlook for carpenter technology remains very positive. Bottom line is that we are operating in a strong market environment right now, and we anticipate that to continue and expand in the near and long term. Tony Doan- We are reminded every day of the critical role we play in supply chains across our market and will probably continue to work to deliver a high quality solutions that our customers rely on to drive performance. Tony Doan- Now I will turn it over to TIM for the financial summary.