Howmet Aerospace Inc.

Good morning, ladies and gentlemen, and welcome to the Helmet Aerospace Third Quarter 2020 results. My name is Thea, 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, Thea. Good morning and welcome to the Helmet Aerospace Third Quarter 2020 results conference call. I'm joined by John Plant. executive chairman and co-chief executive officer, Tolga Ohl, co-chief executive officer, and Ken Giacobi, executive vice president and chief financial officer. After comments by John, Tolga, and Ken, we will have a question and answer session. I would like to remind you that today's discussions 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.

Thanks, PT, and good morning, everyone, and welcome to this morning's call. I plan to give an overview of Hamet's third quarter performance, ask Talcott to speak to segment information, and then Ken will provide further financial detail. Lastly, I will return to talk to the outlook for the fourth quarter and 2020 financial year. Please move to slide number four. The third quarter performance was good. and in line with expectations, including strong cash generation. Revenue in the quarter was 1.1 billion, down 37% year-over-year, and was impacted by commercial aerospace being down 56%, driven by customer inventory corrections. We continue to expect that this is the low point for Hammett revenues, while anticipating that there could be some lingering inventory corrections that could carry over into the fourth quarter and possibly the first half of 2021. Commercial transportation was down year over year, but we had healthy sequential growth of 42%, which favorably impacts the forged wheels and commercial transportation fastening segments. Moreover, we had growth in defense aerospace and in the industrial gas turbine business year over year. The mix of our portfolio has changed with approximately 40% of Q3 revenue being tied to commercial aerospace. Operating income, excluding special items, was $100 million. And this includes the buyout of an unfavorable long-term contract, which costs $8 million. This hopefully should be the last of the cleanup items over the last year. Segment decremental margins, including the contract termination, were 37% year over year. I had indicated on the Q2 call that the third quarter was likely to be more decremented than the second quarter and reflects that we chose not to take out costs for one quarter and risk not having the people assets in place meet what we expect to be an uptick in future demand. For example, early in the third quarter, we completed all of the people reductions in our wheel segment and have since pulled people back from furlough and have begun recruitment in certain countries as we bring production assets back online, both for our forgings and machining lines. Structural cost reductions will continue within each of the aerospace segments to the end of 2020 and in the first quarter in Europe. Third quarter reflects further structural cost takeout of 56 million, making year-to-date cost takeout of 137 million, which is ahead of target. This structural cost takeout is in addition to the flexing of variable costs, which we expect by the end of first quarter 2021 should be at a perfect flex. Further to this, price increases of $14 million were achieved in the third quarter, compared to $9 million in the second quarter. Year-to-date price increases are $28 million. I am pleased that all of the 2020 long-term contract negotiations are now completed and price negotiations are well underway for the 2021 long-term agreements. Now let me move to the balance sheet and cash flow. Adjusted free cash flow in the third quarter was very good at $188 million before further reductions in the accounts receivable securitization program. And cash flow was $143 million after the reduction in the AR program The 45 million of the accounts receivable, sorry, the accounts securitization reduction was effectively repayment of debt. Cash severance payments in the quarter were 14 million. The third quarter cash balance increased to 1.4 billion after the $51 million of common stock share repurchases, which were at an average price of $17.36. Our peak operational cash requirements are approximately $300 million, which results in excess cash in hand of well over $1 billion. Net debt to EBITDA is approximately 3.2 times, and our revolver of $1 billion continues to be undrawn. All plants are running with employee and partner safety being a top priority. We're actively monitoring employee health risk, and all programs meet or exceed local standards. To best serve our customers, we're effectively managing daily adjustments for customer inventory corrections and shutdowns. Regarding cost out, most of the North American permanent personnel reductions have been completed and are ahead of target. Therefore, we will be raising our 2020 permanent cost outlook. We also continue to flex variable spend and labor effectively with revenue. Our strict and disciplined capital expenditure process has been effective, and we will once again be reducing our annual capital expenditure outlook. Lastly, we focused on working capital, but expect it to be use of cash in 2020 as we have reduced our AR securitization program by approximately 95 million year to date. Moreover, we have stranded inventory, which we expect to be a source of cash in 2021. Now let me turn it over to Tolga.