Howmet Aerospace Inc.

Good morning, ladies and gentlemen, and welcome to the HowMed Aerospace Second Quarter 2020 Results Conference Call. My name is Beverlyn, and I will be your operator for today. As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Paul Luther, Vice President of Investor Relations. Please proceed.

Thank you, Beverly. Good morning and welcome to the Hamet Aerospace Second Quarter 2020 Results Conference Call. I'm joined by John Plant, Executive Chairman and Co-Chief Executive Officer, and Kenji Ikobi, Executive Vice President and Chief Financial Officer. After comments by John, we will have a question and answer session. I would like to remind you that today's discussion will contain forward-looking statements relating to future events and expectations. you can find factors that could cause the company's actual results to differ materially from these projections listed in today's presentation in earnings press release and in our most recent SEC filings. In addition, we've included some non-GAAP financial measures in our discussion. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release and in the appendix in today's presentation. With that, I'd like to turn the call over to John.

Good morning, everyone, and thank you for joining the call. Today with Ken, I also have Tolga Ohl, who's on the call, and Tolga is our co-CEO. Tolga has been immersed in the business since his announcement as co-CEO back at How Much Investor Day in February. Now let's move to slide four to cover second quarter results. First, let me paint a picture of the quarter. As you'll recall, we saw the first significant disruptions related to COVID-19 in the last three weeks of March. The initial effects were quarantine-related disruptions within Hamlet plants and certain customers that ceased production. For example, Boeing, Airbus, Safran, et cetera. The full impact was felt in Q2 with customer shutdowns, schedule cancellations, and Hamlet plant disruptions. The results reflecting this impact show sales reduced year over year by some 31% and operating income excluding special items by 42%. Nevertheless, we were pleased with the absolute numbers of 14.4% operating income margin and a 19.7% EBITDA margin. This reflects the swift cost containment actions undertaken starting at the end of the first week of April and you may recall that we took our initial restructuring charge in the first quarter results. These cost reductions continuously take effect each month in the second quarter and will continue into Q3 and Q4. Later in my remarks, I'll begin to focus more on our exit rate trajectory for 2020 as we move into 2021. Further to the second quarter EBITDA margin at 19.7%, Hamlet also generated earnings per share of 12 cents. Now, let's move to the balance sheet and cash flow. Adjusted free cash flow in Q2 was 76 million, excluding $11 million of separation costs. I also point out that the $76 million of cash generation included the effect of three items. Firstly, we reduced our AR securitization. for the second time in 2020 and a customer supplier financing program by some $30 million. Second, we made $12 million of cash restructuring payments. And third, we made additional voluntary cash contributions to our UK pension plan of approximately $45 million to make a large reduction in the gross pension liability. For the absence of that, our free cash flow is after everything And if we had not paid down the accounts securitisation, the UK pension and the restructuring, the cash flows of 76 million would have been higher by some 87 million over 163 million in the quarter. The cash balance for Q2 improved. After the separation of Arconic Corp on April 1st, the opening cash balance of Hammett was approximately $800 million. At the end of the second quarter, the cash balance was $1.3 billion. The increase was due to approximately 65 million of cash generation after separation costs and the net addition of 420 million as a result of refinancing bonds from 2021 and 2022 to 2025. Net debt to EBITDA was 2.73 times. With all the capacity of a billion is undrawn. Now let's move on to slide five. We made rapid response to COVID-19 and the market declines. First, with regard to our employees and customers, employee safety is a top priority, and we are actively managing employee health risks. Programs meet or exceed local standards. All of our sites are now up and running. We are a reliable partner to our customers who are critical to the national defense, to commercial aviation, and to the global economy. Regarding profit and liquidity, management has undertaken the following actions, furthering some of the hourly workforce and reducing overtime, permanently reducing all types of labor, both hourly and salaried, the elimination of temporary workers, flexing materials and services, reducing capital expenditures, and reducing our working capital. Lastly, as I mentioned, we refinanced our 2021 and 22 bonds into 2025. and added $420 million of cash to the balance sheet, and the revolver is undrawn. Now, let me turn it over to Ken to give more details on our second quarter performance, and then I'll begin to speak to the outlook for the second half of the year.