Q2 2021 Carpenter Technology Corp Earnings Call
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Good morning, and welcome the Carpenter Technology Corporation second quarter 2021 fiscal conference call.
All participants will be in listen only mode. She and he assistance. Please signal conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions. Please note that this event is being recorded.
The turn the conference over the Mr. Brad Edwards Investor Relations. Please go ahead. Thank.
Thank you operator, good morning, everyone and welcome to the Carpenter Technology earnings Conference call for the fiscal 2021 second quarter ended December 31 2020, it's.
This call is also being broadcast over the Internet along with presentation slides. Please note for those of you listening by phone and you may experience, a time delay and sweat and movement speak.
Speakers on the call today are Tony Payne, President and Chief Executive Officer, and Tim Lain, Senior Vice President and Chief Financial Officer.
Statements made by management. During this earnings presentation that are forward looking statements are based on current expectations and risks.
Risk factors that could cause actual results to differ materially from these forward looking statements can be found and carpenter technology's most recent SEC filings.
The company's report on form 10-K for the year ended June 30 of 2020 form 10-Q for the quarter ended September 30 of 2020 and the exhibits attached to those filings.
Please also note that and the following discussion unless otherwise noted when management discusses the sales of revenue that reference excludes surcharge when referring to operating margins that is based on operating income and sales excluding surcharge and I'll now turn the call over to Tony.
Thank you, Brad and good morning to everyone.
Let's start on slide four and a review of our safety performance.
Through the first half of our fiscal year. Our total case incident rate was 0.5.
During this time, we've achieved the lowest incident rate and Carpenter technology's history, and a 60% improvement year over year.
This marks another key step for the mission to achieve a zero injury workplace.
It is also noteworthy to point out that our Pep segment worked injury free during the first half of the fiscal year.
We continue to emphasize key initiatives as we look to secure our next safety milestone.
Our safety results to date are especially impressive.
Given the challenges related to COVID-19.
And importantly every one of our operating facilities has remained open which is an achievement that I know resonates with our customers and shows a clear resiliency and commitment.
Now, let's turn to slide five and review of the second quarter.
Our second quarter results finished largely in line with our expectations and our performance was impacted by ongoing inventory reductions as well as the continued market headwinds.
Despite conditions being challenging we are actively managing our business and have placed consistent emphasis on three key strategic priorities.
The first ensure the safety of our employees.
Second drive cash flow generation and strengthened our liquidity profile.
We have made further progress against this initiative and the second quarter and delivered 51 million of free cash flow.
Fiscal year to date, we have generated almost $114 million and free cash flow.
If you look at the last three quarters, we have generated $214 million of free cash flow.
We ended the second quarter with total liquidity of $665 million, including $271 million of cash and no near term financial obligations.
Third focus on the long term relationships with our customers.
We are successfully deepened our relationships with our key customers across our end use markets as we partner to address evolving material requirement and the initial signs of recovery across our end use markets.
The Great example of this is in the aerospace and defense and huge market, where we have recently extended multiple long term agreements with key customers.
There are a couple of critical takeaways from these contract extensions.
Customers fully understand the capacity was limited for the aerospace materials, we produce prior to the pandemic and that supply of such aerospace materials will be constrained again, when build rates returned to normalized levels.
Carpenter technology is one of only a handful of companies and the world that produce these highly specialized materials and the only one that has invested in capacity, namely the Athens facility.
And the aerospace fundamentals that were present prior to the pandemic remains strong and unchanged going forward.
While we are working to best position of our core business to be stronger on the other side of the pandemic.
And also continued to take steps to advance our capabilities and leadership and critical emerging technologies.
So that and our hot strip mill and ready is now and the commissioning phase.
The mill will be a significant enhancement to our existing soft magnetics leadership position as it expands our capabilities to capitalize on the electrification megatrend that is shaping and growing many of our end use markets.
I will speak more about our leading position and electrification later in my remarks.
Now, let's move to slide six for the end use market update.
Starting with the aerospace and defense end use market, where sales were down year over year and up slightly sequentially.
Many of the trends we were seeing last quarter are still prevalent.
<unk> changing forward material needs and uncertainty around recovery timing.
On a sequential results were up we expect our third quarter performance to be choppy as the recovery takes shape.
And the medical end use market sales were down 3% sequentially as customers continue to manage inventory levels as concerns around hospital capacity and potential resurgence weighed on the supply chain.
And the transportation end use market sales were down year over year, but up sequentially due to a rebound and the global light vehicle sub market and the strength of our high temperature solutions.
Now moving to the energy and use market in terms of the year over year comparison keep in mind that we divested our mega West business earlier this fiscal year.
Within the oil and gas sub market conditions in North America remained challenging.
For the power generation sub market opportunities exist for applications and the gas turbine replacement cycle.
Lastly for the industrial and consumer and use market sales were down year over year and sequentially.
However, we continue to experience strong demand for semiconductor and fluid control application and and.
Additionally, consumer market demand was up across all key application areas.
Let's turn to slide seven and discuss the longer term market outlook and how carpenter technology is positioned to emerge stronger and to the market recovers.
And our industrial end use market, we expect continued strong demand and the semiconductor industry for our highly engineered ultra high purity materials.
The strong demand driven by global growth and semi conductor manufacturing to support <unk> smartphones and cloud infrastructure.
In fact, the demand for semiconductor capital equipment is expected to remain robust for the foreseeable future with the world's largest contract chipmaker planning to boost capital spending by almost 50% and 2021.
Since Carpenter technology is the global leader and providing ultra clean materials to support critical semiconductor applications. We are constantly evaluating customer request to increase our already strong participation in this space.
As we move into the second half of fiscal year 2021, we expect continued strength and the transportation and niche market.
Our high value solutions play significant role and delivering advanced powertrains across both passenger and commercial vehicles.
These are increasingly in demand as global emission standards tightened.
Strong sales had been met with low inventory levels as U S vehicle inventory remains below 50 days of supply.
Approximately 16% year over year.
The heavy duty truck market has rebounded and is projected to be up 40% of calendar year of 2021.
And that's possibly of the news is carpenter technology supplies high temperature exhaust style of materials and specialty fuel delivery solutions to the top three engine producers.
And our aerospace and defense and use market. We continued to build on our already strong leadership position as we look forward to the market recovery.
And the near term demand will likely continue to remain low and choppy at times as the.
Pacific programs and customers of recovering at different rates.
However, we expect a demand reset to higher levels as customers confidently reorient to increasing OEM demand.
Of course, Carpenter technology will benefit from the company as a critical supplier across multiple applications on virtually all aircraft platforms.
Our customers continue to plan for the long term and we likewise on working with them to map out appropriate support plants as.
I mentioned earlier, we continue to secure beneficial long term contracts, even during this downturn with substantial price increases.
These key aerospace customers understand the robust demand will return and value of our support.
We remain very active and our defense debt market I offering advanced solutions is a notable example recently of key customer accomplished a step change and performance of the target platform with the help of our material solutions.
Our solutions are and will continue to be important for designers working on programs from aerospace electrification to next generation defense systems.
Now turning to our medical end use market.
States are beginning to lift restrictions on elective surgeries spring restocking actions that will continue over the coming quarters and both end user OEM customers as well as distributors supporting the medical device market.
These restocking efforts have more impact on elective surgery applications, such as orthopedic and dental as opposed to the more non elective cardiology segment, which has been more resilient.
And the medical market is recovering ahead of aerospace and our role is of critical supplier to the industry has been strongly reinforced and will provide incremental bottom line impact as demand recovers.
As I mentioned earlier, we continue to invest and critical emerging technology and.
In addition to supporting an already strong aerospace position and auxiliary power units and generators are new Hot strip mill will enable the launch of products to provide lead time benefit and capacity for growing aerospace of electrification applications automotive based engine turbocharging designed and the transition.
The electric vehicles.
As electric vehicle demand continues to grow and program activity increases for electrify and short range Air travel, we are increasing our investment and motor technology, and our soft magnetic solutions specifically.
Specifically, we are investing and advanced part capability and state of the art and modeling and testing.
These capabilities to ensure our customers realize the full material performance benefits and their motor and powertrain designs.
We've also invested and emerging technologies related to additive manufacturing and digital platforms, where adoption could be accelerated due to changes caused by this pandemic.
All of our exciting developments to say, the least and accelerators of earnings growth moving into the future.
Now I will turn it over to Tim for the financial review.
Thanks, Tony Good morning, everyone.
I'll start on slide nine the income statement summary.
Net sales and the second quarter were $348 8 million and sales excluding surcharge totaled $299 4 million.
Sales, excluding surcharge decreased 3% sequentially on 11% lower volume.
Compared to the second quarter of year ago sales decreased 36% on 33% of on.
As Tony covered in his review of the end use markets. The year over year decline is attributable to the ongoing demand headwinds and our key end use markets of aerospace and defense and medical.
As a result of the global pandemic.
As expected the demand was similar to our recent Q1 levels.
Given the current demand environment, we continue to actively manage our production schedules and focus on executing against their targeted inventory reduction program.
As we said on prior calls while the reduction and inventory drives near term cash flow generation as evidenced by our growing liquidity it negatively impacts our operating income performance.
SG&A expenses were $42 2 million and the second quarter down $13 million from the same period, a year ago and flat sequentially.
The lower year over year SG&A expenses, primarily reflect the actions, we took to reduce costs, including the elimination of about 20% of our salaried positions.
Managing discretionary spend closely.
As well as the impact of remote working conditions that reduce certain administrative costs, such as travel and entertainment.
The current quarter's operating results include a $52 8 million goodwill impairment charge associated with our additive reporting unit that is and our Pep segment.
In addition, our results for the quarter include $3 9 million and COVID-19 related costs.
Included in this amount are direct incremental operating costs, including outside services to execute enhanced cleaning protocols.
Isolation and pay for employees potentially exposed to COVID-19.
And additional personal protective equipment and other operating supplies necessary to maintain the operations, while keeping the employee safe against possible exposure.
The operating loss was 89 million and the quarter.
When excluding the impact of the special items, namely the goodwill impairment charge and the COVID-19 costs and.
Adjusted operating loss was $32 3 million compared to adjusted operating income of $57 3 million and the prior year period and.
On an adjusted operating loss of $30 9 million and the first quarter of fiscal year 2021.
Again, the current quarter's results reflect the impact of significantly lower volume combined with the targeted inventory reduction partially offset by the cost reduction efforts.
Our effective tax rate for the second quarter was 11, 2%.
When factoring out the disproportionate impact of the goodwill impairment charge on the tax rate.
The income tax rate for the quarter would have been approximately 25%.
For the balance of the year. We currently expect the tax rate to be and the range of 28 to 32 per cent.
Earnings per share for the quarter was the loss of $1 76 per share.
When excluding the impact of the special items adjusted earnings per share was the loss of 61 per share.
Before we move on to the segment slides I would like to highlight a couple of modeling items.
The first is related to interest expense.
We provided fiscal year 2021 guidance for net interest expense of $35 million.
Which reflected the impact of the bond refinancing we completed in Q1 and.
And the assumptions around capitalized interest for the large projects and expected to be placed in service and 2021.
Through six months, we reported interest expense of about $15 million and continue to expect full year fiscal 'twenty, one interest expense to be about $35 million.
The second is depreciation and amortization.
Our guidance for fiscal year 2021 remains at $130 million.
Through six months, we reported depreciation and amortization of $60 million.
Now turning to slide 10, and our sales segment results.
Net sales for the quarter were $300 4 million or $251 6 million excluding surcharge.
Compared to the second quarter last year sales, excluding surcharge decreased 34% on 32% lower volume.
Sequentially sales, excluding surcharge were essentially flat on 11% lower volume.
The sequential results reflect similar demand conditions, and our largest end use market of aerospace and defense.
As the supply chain continues to deal with near term reductions and OEM build rates.
This was partially offset by stronger shipments and transportation and.
North American light vehicle production continues to ramp back up.
The industrial and consumer end use market saw weaker demand and general industrial applications that was partially offset by higher demand for consumer applications.
<unk> reported an operating loss of $11 6 million for the current quarter.
The same quarter, a year ago <unk> operating income was $76 3 million and and the first quarter of fiscal year 2021.
<unk> reported an operating loss of $18 6 million.
The year over year reduction and operating income primarily reflects the impact of lower volume as well as the negative income statement impacts of reducing inventory.
Partially offset by the actions taken to reduce operating costs.
During the current quarter <unk> reduced inventory by approximately $58 million and year to date has reduced inventory by $131 million.
Sequentially the lower operating loss is principally the result of lower volume offset by a favorable product mix and a less pronounced impact of the inventory reduction relative to the first quarter due in parts of rising raw material prices.
In addition, the current quarter's results reflect approximately $3 2 million of direct incremental costs associated with our efforts to protect our facilities and employees in light of COVID-19.
And this compares with $7 $3 million and COVID-19 costs in Q1, which as we disclosed last quarter included $3 1 million associated with the bad debt write offs.
Looking ahead, we expect demand conditions across most end use markets will stabilize and begin to gradually recover and the second half of our fiscal year 2021.
Based on current expectations, we anticipate <unk> will generate an operating loss of approximately 8% to $11 million in the third quarter of fiscal year, 'twenty and 'twenty one.
The anticipated results reflect incremental operating expense reductions as a result of cost savings actions taken to date and.
And bind with a less pronounced impact of inventory reductions.
Partially offset by higher sequential depreciation and amortization costs as.
As our global ERP system, and Hot strip mill investments come online.
This estimate includes similar sequential COVID-19 related costs and the upcoming third quarter.
Now turning to slide 11, and our Pep segment results.
Net sales, excluding surcharge were $54 1 million, which were down 48% from the same quarter, a year ago and down 12% sequentially.
The year over year decline and sales was driven by market headwinds largely due to the global pandemic.
Additionally, sales and the energy and use market declined as the result of our exit of the of Mega West oil and gas business and the first quarter of this fiscal year.
The sequential decline and sales reflects near term demand pressures and aerospace and defense and medical end use markets.
Primarily to the impact of the global pandemic and its impact on aircraft OEM build rates and medical elective procedures.
These declines were partially offset by modest growth and sales and our distribution business.
And the current quarter Pep reported an operating loss of $7 2 million.
This compares to an operating loss of $3 6 million and the first quarter of fiscal year of 2021.
And the operating income of <unk> 4 million and the same quarter last year.
The sequential operating results reflect the unfavorable impacts of lower sales.
We continue to drive opportunities for incremental cost reductions across the businesses, while realizing the ongoing benefits of the cost reduction and portfolio actions already taken.
As we look ahead, we believe that demand conditions will gradually begin to improve and the coming quarters, and we continue to evaluate opportunities to reduce costs and manage working capital closely all while maintaining our ability to meet future anticipated demand.
We currently anticipate pepco generate an operating loss of $3 million to $5 million and our upcoming third quarter.
Now turning to slide 12, and a review of free cash flow.
And the current quarter, we generated $84 million of cash from operating activities.
This cash generation was driven by improvements in working capital primarily inventory.
Within the quarter, we decreased inventory by $71 million.
This reduction is substantial on the result of the considerable effort to continue to execute against our targeted inventory reduction programs across our facilities.
Over the last three quarters, beginning with our fourth quarter of fiscal year 2020, we've reduced inventory by $273 million.
We remain in constant communication with key customers to ensure that we maintain the appropriate inventory levels and lead times are aligned as demand patterns change.
And the second quarter, we spent 27 million on capital expenditures.
We remain on track the spend about $120 million and capital expenditures for fiscal year 2021 as planned.
And as a reminder, our fiscal year 2021 capital spend includes completing the $100 million.
Multi year Hot strip Mill project, which will come online later this fiscal year.
Tony will comment on the keep the use of the new Hot strip mill and how it fits into our strategy and the coming slides.
With those highlights in mind, we generated 51 million of free cash flow on the quarter.
From a liquidity perspective, we ended the current quarter with total liquidity of $665 million, including $271 million of cash and $394 million of available borrowings under our credit facility.
Our focus on liquidity is essential and the near term as we work our way through disruptions brought on by COVID-19 and on.
Our end use markets.
It's also important to note that as a result of the actions we have taken to date to reduce cost and protect liquidity, we've been able to maintain a constant dividend to our shareholders.
We believe that demonstrates our conviction and our ability to deal with the temporary impacts of the market disruption and our confidence and the long term future for our business.
With that I will turn the call back over to Tony.
Thanks, Tim.
On last quarter's earnings call I announced the launch of the Carpenter of electrification brand <unk>.
Interest has been extremely high and I wanted to take some time to give you more insights into our vision.
Corporate technology and spent decades perfecting the processing of soft magnetic materials with.
And with the highest induction.
And the ability and lowest core losses.
Historically, our materials have supported our leading position and say solutions provider for generator and auxiliary power unit.
Applications and this business has grown consistently with the aerospace market.
Our hydro co alloy motor technology is well known and the aerospace market are hyper KOL state of cores are used and over two thirds of the Aps, which generate the power to kick off the main engine and aircraft.
To support our existing business and further capitalize on the growing trend and electrification.
We're in the final stages of commissioning, our new Hot strip mill on the already and campus.
The new strip mill is another critical component of our electrification strategy.
The bulk of the construction is complete and the team is working diligently on the commissioning process.
And early December we hit an important milestone and.
And the first hot metal was rolled on the new mill.
Although there is still work to be done to ensure the facility is up and running and it's fair to say we are all excited about the potential for this facility.
I thought I would highlight some of the technical details of the mill.
The mill is designed to ROE slabs from five inches thick down two coils with a minimum size of 0.08 inches with with ranging from eight to 19 inches.
It is designed to run iron nickel and cobalt materials and is also capable of rolling copper manganese and taking them.
The mill and includes automated surface inspection equipment, and a digital real time quality and maintenance system.
The mill will also enable us to produce materials and our existing portfolio with improved throughput and quality and responsiveness.
To serve customers at every step of the way and to realize improved motor responses. Using these high performance alloys. We have continued to expand our expertise and to the production of stater and rotor stacks.
And I understand that soft magnetic materials are sensitive to processing steps that can reduce their performance.
Our material experts are further advancing technical and manufacturing knowhow associated with the production of motor stack through a multitude of methods tailored to customers' performance requirements.
These capabilities ensure our customers realize the full material performance benefits and their motor and powertrain designs.
As we build our motor technology capabilities, we are already engaging with a wide variety of customers to utilize our hyper cold stack technology to solve the need of January orders of magnitude improvements and power compared to conventional systems.
The electrification trend across several of our end use markets is clearly gaining significant momentum.
And electrification of passenger vehicles, it's already a growing reality.
The number of electrical vehicles sold as expected by some industry experts to increase from $2 5 million to over 10 times debt by the year 2030 and.
In addition, there is clearly momentum building for the electrification of transport trucks that could enable lower maintenance better efficiency and lower ownership cost of transporting the payload not to mention the substantial environmental benefit of zero emission trucks.
The anticipated growth of our electric truck is one that we're watching closely as we continue to hear from Oems and a significant challenge to the expansion of electric trucks is the lack of sufficient energy density and the battery.
We believe our materials and expertise can provide innovative solutions for this challenge.
In addition, with our longstanding position and the aerospace supply chain, we see a concerted effort and commercial aerospace to move toward more efficient electric applications and existing aircraft and future path to hybrid and full electric aircraft.
Electrification benefit can also be seen and highly efficient and responsive motives for medical equipment.
And consumer electronic and high performance high induction high permeability and low loss soft magnetic alloys are important for device performance benefits and product development flexibility.
And you can see the market opportunity is substantial.
<unk> that the total electrification market, which includes motors power electronics and legacy applications, such as <unk> will grow from approximately 1 billion today to as much as five times net number by the year 2030.
With this type of growth it is easy to see why carpenter of electrification is an important component of <unk>.
Our strategic plans going forward.
The collaborations we're having with customers across many markets and support of their innovative designs the increased power range or efficiency can be truly revolutionary and shaping the future.
Now, let's turn to slide 15, and my closing comment.
While the past nine months of presented significant challenges, we have acted decisively and quickly and response to unpredictable market conditions.
First we implemented enhanced safety protocols and a strategic action plan aimed at safeguarding our employees and facilities as well as continuing to fulfill customer needs.
Second we moved quickly to align our cost structure and portfolio to new market conditions, we have reduced our cost idled facilities and divested businesses.
And third we have placed an emphasis on driving increased cash flow and strengthening our liquidity position.
And the last nine months, we have generated $214 million and free cash flow and our total liquidity at the end of this quarter was $665 million, including $271 million and cash.
Our enhanced liquidity and streamline cost structure places us on solid ground to drive accelerated growth as markets continue to recover.
Today, we are confident that we will emerge on the other side of the COVID-19, and a stronger company and one with an established and profitable core business as well as a leadership position and disruptive technology that will impact the future of our industry and our customers.
Our capabilities and of soft magnetic space will be significantly strengthened following the completion of our hot strip mill and rating.
And the potential of our additive manufacturing platform, while delayed a bit through the COVID-19 remains highly attractive.
We have taken significant steps and made difficult decisions. During these last nine months, but believe we will be a stronger leaner and more flexible company moving forward.
As I mentioned, the long term outlook across our end use markets remained strong and.
And we are and established and trusted supply chain partner in each.
At the beginning of the this fiscal year, we stated that it was our expectation to generate positive free cash flow and positive adjusted EBITDA in fiscal year 2021, despite volume headwinds and increased costs related to COVID-19.
We're well on our way to over delivering on that expectation.
From a free cash flow perspective, we have generated $114 million through the first half of the fiscal year and we remain confident that there is opportunity to generate incremental free cash flow and the upcoming second half of our fiscal year.
Thank you for your interest and I'll turn it back to the operator to field your questions.
And then I'll get again, the question and answer session. That's.
Ask the question. Please press star one on your Touchtone phone.
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At this time of pause momentarily to assemble the roster.
First question comes from Gautam Khanna of Cowen. Please go ahead.
Yes. Good morning, guys I was wondering if you could elaborate on what youre seeing on the aerospace sub markets fasteners engines structural.
Components and maybe how if at all things have changed with the 787.
Production reductions thank you.
Yeah. Good morning, Gautam. This is Tony from the last time, we spoke three months ago at the first quarter earnings call.
Things are relatively the same and you have a little bit of movement here or there. Obviously this quarter on the engine side that was a little bit better than what we had expected.
But on some other areas, primarily fasteners, maybe a little bit worse. So.
You know as many people of said if you look over the next couple of quarters, I think youre going to see us bounce.
Bounce around this level of activity, it's going to be choppy could see a couple of spikes here and there I believe I said last quarter that we think our second half is because of the better we still believe that it's not going to be substantial maybe you see a couple of points better, but I think thats the <unk>.
And with that we're in over the next couple of quarters.
Thank you.
Thank you and next question's from Josh Sullivan The benchmark company. Please go ahead.
Hey, good morning.
Just the broke out the question there a little bit I know you said things haven't changed much but can you talk about lead times, just with the airlines pushing out and air traffic recovery almost three months here from early summer to Q3, just curious if your lead times mirror that or it sounds like maybe the maybe the oven.
Maybe you can clarify when you say lead times lead times for us supplying.
Aerospace Bill it to our customers, yes, yes.
Yeah, Okay, Josh So I just want to make sure. If you look back of a year ago, and if youre speaking specifically on the aerospace Bill at those lead times were approaching the one year.
As we set right now of those lead times are in the range from eight to 12 week and dependent on the specific.
On it.
And then just one on the medical business.
What does the rebound look like on electric surgeries return.
Is there any break on the number of electric and elective surgery.
You can supply into the hospital or do you think the the restocking can be pretty quick for the suppliers just with regard to the medical restocking cycle.
I believe that the recovery and medical can be pretty Swift. So I think you can see of night of nice rebound now to be fair and we thought that that rebound would come sooner and we really thought we'd see it in this quarter, however, with the resurgence of the virus and you're seeing it.
Capacity and hospitals, it's higher.
And that didn't happen. So that's been a bit delayed so that's going to go into the third quarter, it's kind of it's going to be you don't rely on those.
And those hospital capacity getting under.
Under control the <unk>.
And the vaccine continued to rollout and we'll see that comfort level, but theres no doubt once we get that and to that.
Setting and Youll see those procedures I think come back pretty quickly.
Okay.
And then just one last one on the Hot strip mill with the change in administration here and some of the efforts and clean energy have you seen any uptick in demand or interest and the capacity from the hot strip mill from automotive customers or aerospace or elsewhere, just since the administration change.
Yeah, I think that the momentum behind the electric vehicles.
Electrification and total is extremely strong and it was strong before any administration change so.
That specific event I don't think it changes the dynamic much.
Much at all.
Is that in totality that is a trend that is going to accelerate I think going forward regardless.
Of the.
Of the current administration, certainly as we push to become more and more.
In tune with the environmental impacts.
That's going to be of big that would be a positive factor.
Thank you for the time.
Yeah.
Okay and if you have a question. Please press Star then one.
Next question is from Michael Alicia Keybanc capital markets. Please go ahead.
Hey, good morning. So you you mentioned opportunities within the land based gas turbine replacement cycle.
Could you talk about what youre expecting there and where we're at and the current replacement cycle.
Michael.
And an area that quite frankly, very low very low percentage of our sales.
Right now, we do see some improvement there and the whole scheme of things, it's not overly material to us so theres not a lot of not a lot more color I can I can give you on that one.
Okay, and how much more do you see in terms of net working capital benefits inventory has gone down and the past four quarters or so so I'm wondering if we're near the low point there, but any any color you can provide on how youre thinking on net working capital going forward.
Yeah.
And there's still opportunity as I said it won't be at the same magnitude of the first half. So there will be less than the first half when I say less of the second half will be less and the first half, but still material and.
We still have the.
Some opportunities out there so we'll keep pushing on.
And then lastly could you provide jet engine sales in the quarter.
I, usually I will tell you. This on the engine sales sequentially they were up almost 20%.
No I wouldn't read too much into that to think that that's some type of recovery of sites that we've said.
And all of the sub segments. It can be a bit choppy. So you see some things pull into the things push out but they were up.
Almost 20% sequentially for aerospace and.
Got it thank you.
Youre welcome.
This concludes our question and answer session and I would like to turn the conference back over to Mr. Brad Edwards for closing remarks.
Thanks, Nick and thanks, everyone for joining us today for fiscal 'twenty and 'twenty, One second quarter conference call. We look forward to speaking to all of you on our next earnings call take care and stay healthy.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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