Howmet Aerospace Inc.

Good morning, ladies and gentlemen, and welcome to the Helmet Aerospace fourth quarter 2020 results conference call. My name is Thea, and I will be the operator for today. As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the conference call 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 fourth quarter 2020 and full year 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 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 filing. In addition, we've included some non-GAAP financial measures in our discussion. Reconciliation 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, P.T., and welcome, everyone, to our fourth quarter call. Following the same format as last quarter's earnings call, I plan to give an overview of the fourth quarter HMET performance. Tolga will then speak to segment information, and Ken will provide further financial detail. I will return to talk to the outlook for the 2021 financial year. So please move to slide number four. And first, let me provide some qualitative commentary regarding the fourth quarter before moving on to specific numbers. The fourth quarter played out as expected and guided. In fact, the results were above both consensus and the improved outlook that we provided in November. Revenues rose compared to the third quarter due to the lesser impact of commercial aerospace inventory corrections. Performance improved again, and the decremental margin year over year was 24%. which was an improvement from the decremental margin in the third quarter, which was 37%. The incremental margin on the revenues benefited from the utilization of labor that were held on to in the third quarter in order to meet the expected increase in fourth quarter revenues, which were 9% as approximately forecast. Furthermore, the third quarter included the $8 million write-down of a long-term contract that we bought out Moving to specific numbers, revenues improved over the third quarter by 9% and were 29% lower than the fourth quarter of 2019 due to the reductions in commercial aerospace. The fourth quarter EBITDA margin was 22.8% and ahead of outlook. The fourth quarter EBITDA margin in 2020 was in fact the same as the fourth quarter of 2019 while mitigating the market reductions and commercial aerospace adverse mix. Performance was driven by permanent cost reductions and price increases. Lastly, the fourth quarter earnings per share was 21% again ahead of consensus and at the top end of our outlook range. Moving to cash, free cash flow for the fourth quarter was positive at $268 million. which is the third consecutive quarter of positive free cash flow since separation. As you know, we define free cash flow very conservatively as the net cash after everything, i.e. after pension, after AR, securitization, pay down, et cetera. Q2 through the Q4 free cash flow was 487 million and above the outlook. The 478 of 487 million includes an 80 million reduction in accounts receivable securitization, a $70 million of cash flow to pay down in incremental voluntary pension contributions, $47 million of severance costs, and we did receive a $45 million tax refund. Without these one-time items, free cash flow would indeed have been $638 million. Full-year free cash flow as a percentage of net income was 115%, well above our guide of approximately 90%, and would have been approximately 160%, excluding the one-time items mentioned. Year-end cash balance was also ahead of outlook at $1.6 billion after repurchasing $73 million of common stock throughout the year at an average price of $18.98. Now let me turn it over to Tolga to highlight segment performance. Thank you, John.