Howmet Aerospace Inc.

Good morning, ladies and gentlemen, and welcome to the HowMet Aerospace second quarter 2021 results. My name is Catherine, 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, Catherine. Good morning and welcome to the HowMet Aerospace second 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 those 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, BT. Good morning and welcome to the second quarter call. I'll start with an overview of how I met the second quarter performance, then pass to Tolgo, who'll talk more to our markets, and then Cain will provide further financial detail. I also plan to talk to ESG, and we'll do so in about once a year going forward, and then provide guidance and talk to guidance for the third quarter and the fall year 2021. So let's move to slide number four. Let me start with some commentary on the second quarter, which was the first comparable quarter for Hamet post-separation with no pro forma numbers. Revenue was $1.2 billion and in line with expectations, while EBITDA, EBITDA margin, and earnings per share exceeded our expectations. Adjusted EBITDA was $272 million. and adjusted EBITDA margin was on par with Q1 2021 and Q4 2020 at 22.8%, despite the addition of costs to prepare for the second half ramp up in commercial aerospace production. Earnings per share excluding special items was 22 cents and ahead of our expectations. Historically, the first half has been a cash outflow for the company. the increased operating performance focus of Hermat has led to improved margins, enhanced working capital control and capital discipline, which generated $160 million of cash in the first half of the year. We expect continued cash generation in the third and fourth quarters. Year to date, we have reduced debt by approximately $835 million by completing the early redemption of the 2021 notes in Q1, and the 2022 notes in Q2 with cash on hand. These transactions reduced 2021 interest expense by approximately $28 million and approximately $47 million on an annual run rate basis. This helps with increased 2022 free cash flow. In the second quarter, we continue to return money to shareholders with the completion of a 200 million share buyback program. The weighted average acquisition price was $34.02 per share on approximately 5.9 million shares. The second quarter end cash balance was $716 million. Lastly, we continue to focus on reducing legacy liabilities. Year to date, we have reduced our pension and OPEB liabilities by approximately $160 million. Moreover, Four-year pension and OPEX expense is expected to improve approximately 50% compared to last year. Now let's move to markets and performance on slide five. Q2 revenue was 5% less year-over-year and in line with our expectations. On a year-over-year basis, commercial aerospace was 31% less, driven by lower aircraft bills, spares, and the lingering effects of customer inventory corrections. Commercial aerospace continues to represent approximately 40% of total revenue compared to pre-COVID levels of 60%. The commercial aerospace decline is partially offset by our continued strength in other markets. The industrial gas turbine business continues to grow and was up 13% year over year, driven by new builds and spares. The commercial transportation business was up 89% year over year, as it rebounds from customer shutdowns in Q2 of 2020. Truck demand remains strong as our customers manage through their own supply chain issues with several components, which are in short supply. At the bottom of the slide, you can see the progress on price, cost reduction, margin expansion, and cash management. Price increases are up year over year and continue to be in line with expectations as they are tied to long-term agreements. Structural cost reductions are also in line with expectations with the $37 million year-over-year benefit, which reflects the decisive actions we started in the second quarter of 2020 at the onset of the pandemic and continued through last year. Year-to-date structural cost reductions are $98 million, which have essentially achieved already a target of approximately $100 million. The aerospace decremental operating margins continue to be very good at only 19%. while the wheel segment had an incremental margin of 47%. EBITDA margin expanded by 310 basis points year-on-year, driven by price, variable cost flexing, and fixed cost reductions. The team delivered strong margin expansion despite a reduction in revenue. Capital expenditure was $36 million for the quarter and continues to be less than depreciation and amortization, resulting in a net source of cash. Lastly, free cash flow was $164 million for the quarter, resulting in a record first half. Now let's move to slide six. Adjusted EBITDA margin for the quarter is 22.8% and consistent with the last couple of quarters on approximately $43 million of less revenue. The margin results overcame both the effects of the low revenue and the costs of many additional employees to meet the increasing production demand coming in the third quarter. Q2 revenue at $1.2 billion was in line with expectations. You can see the benefit of our actions since the start of the pandemic in Q2, with a solid 310 basis points EBITDA margin expansion, while revenue is approximately $58 million less in the same period. Now let me hand it over to Tolga to give an overview of the markets.