Howmet Aerospace Inc.

Good morning, ladies and gentlemen, and welcome to the HowMet Aerospace First Quarter 2021 results. My name is Shelby and I'll 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, Shelby. Good morning and welcome to the HowMet Aerospace First Quarter 2021 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 and 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, BT. Good morning and welcome to the call. Similar to last quarter, I will give an overview of Hammett's first quarter performance, then pass to Tolga, who will talk to our markets, and then Ken will provide further financial detail. I'll return to the call to talk to guidance for the second quarter and the full year 2021. Please move to slide four. Let me start with some commentary on the first quarter. Revenue was $1.2 billion and in line with expectations. while EBITDA, EBITDA margin, and earnings per share exceeded expectations. Adjusted EBITDA was $275 million, and adjusted EBITDA margin was a healthy 22.7%, similar to the fourth quarter of 2020. Earnings per share, excluding special items, was 22 cents, which was ahead of expectations and ahead of Q4 2020. Historically, Q1 has been a significant cash outflow for the company. However, with improved margins and enhanced working capital control, the outcome has noticeably improved. This will be followed by cash generation in quarters two, three, and four. Lastly, in the first quarter, we focused on deleveraging, completing the early redemption of the 2021 notes at par for approximately $360 million of cash and reusing cash in hand. The resulting quarter in cash balance is 1.24 billion. Moreover, on May 3rd, we completed the early redemption of the $476 million of notes due in 2022 for approximately 500 million, inclusive of the accrued interest and fees. Both transactions were completed with cash on hand. Year to date, we have reduced debt by approximately 840 million, which reduces the 2021 interest expense by $38 million and $47 million on a run rate basis. In addition, in 2022, there'll be a carryover interest savings of $10 million. Now let's move to markets and performance on slide five. Q1 revenue was the same as the Q2 to Q4 2020 average and in line with our expectations. On a year-over-year basis, commercial aerospace was down 52%. driven by the lingering effects of customer interjections and fundamentally lower bills, starting with the Boeing MAX. Commercial aerospace continues to represent 40% of the total revenue of the company, compared to pre-COVID levels of 60%. The commercial aerospace decline is partially offset by continued strength in our other markets. Defense aerospace was up 12% year over year, driven by the Joint Strike Fighter, new builds and spares. The industrial gas turbine business continues to grow and was up 35% year over year, also driven by new builds and spares. Lastly, the commercial transportation business was up 15% year over year, despite customer supply chain constraints. Although truck demand is very strong, our customers manage through supply chain issues with several commodities, which are in short supply, including semiconductors, tires, and glass, to name just a few. We are working closely with our customers to meet demand, which is showing some interruptions. At the bottom of the slide, you can see the progress on price, cost reduction, and cash management. Price increases are up year over year and continue to be in line with expectations. Structural cost reductions are also in line with expectations with a $61 million year over year benefit. Segment decremental margins continue to be good at 27%, driven by price variable cost flexing and fixed cost management. CapEx was $55 million in the quarter and continues to be less than depreciation and amortization, resulting in a net source of cash. Adjusted EBITDA margin for the quarter was 22.7% and consistent with Q4 2020 on approximately $30 million of less revenue. Q1 revenue at $1.2 billion was consistent with the Q2 to Q4 2020 average. You can see the benefit of our actions since the start of the pandemic with a 300 basis point EBITDA margin expansion, while revenue was approximately $45 million less than the same period, so good year-on-year performance. Now let me turn it over to Tolga to give an overview of the markets.