Q4 2021 Haynes International Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Haynes International Inc. Fourth quarter fiscal 2021 conference call.
At this time, all participants have been placed on a listen only mode and the floor will be opened for questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host David Van Bibber Controller, and Chief Accounting Officer, Sir the floor is yours.
Thank you very much for joining us today with me today are Mike Shor, President and CEO of Haynes International and Dan Maudlin, Vice President and Chief Financial Officer.
Before we get started I would like to read a brief cautionary note regarding forward looking statements. This conference call contains statements that are forward looking within the meaning of the private Securities Litigation Reform Act of 1995 and section 21 E of the Securities and Exchange Act of 1934.
The words believe anticipate plan and similar expressions are intended to identify forward looking statements. Although we believe our plans intentions and expectations regarding or suggested by such forward looking statements are reasonable such statements are subject to a number of risks and uncertainties.
Could provide no assurance that such plans intentions or expectations will be achieved.
Many of these risks are discussed in detail in the company's filings with the Securities and Exchange Commission in particular Form 10-K for the fiscal year ended September 32021.
The company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise with that let me turn the call over to Mike.
Thank you Dave.
Everyone.
Three and a half years ago, when our team's improvement journey began we.
We were frequently unprofitable for those of you that follow US you know the story our gross margins were just too low and not representative of the high value differentiated alloys products and services we offer.
Because of the low margins pains in fiscal year 17, 18 in early 19 struggled to be profitable below the fairly robust shipment level of 5 million pounds per quarter.
As we complete our fourth quarter of fiscal year 'twenty, one I'm proud to say that our employees relentless focus on what's important has resulted in top of the class gross margin percentage in the second half of our fiscal year 'twenty, one and our slice of the industry.
This was achieved despite the continued low aerospace volumes at the industry is experiencing.
We've done what we said we would do on gross margin improvement on cash generation and on lowering our breakeven point by about 25% with the current mix.
This is not the haynes in the past.
Any prepared to continue to do each of the following.
Prioritize safety and continuing to improve our safety processes.
Profitable at volumes, well below past breakeven points.
Improved gross margins by leveraging both the lower cost structure.
And higher base pricing.
Virtually and strategically allocate capital.
Work with our customers on an ongoing basis on our outstanding alloy and application development and finally be well positioned to capitalize on the upcoming anticipated volume improvement in our largest market that being aerospace.
I'm very proud of our entire team our fiscal year 'twenty. One Q4 performance shows the enormous strides our team has made.
Some of the highlights are as follows.
Revenue was up eight 1% sequentially and 19, 2% year over year.
Net income was $2 $6 million, despite shifting slightly below 4 million pounds.
Our gross margin percentage was 17, 5% up 200 basis points from Q3, and up 1260 basis points from Q4 of fiscal 'twenty.
Next we implemented our capital allocation strategy using cash for the dividend for a building with to address are increasing backlog log.
And for our previously announced stock buyback and for the significant reduction in our U S pension obligation.
Dan will provide additional details, but I'd like to note that after beginning fiscal 'twenty, one with a pension liability of $105 million, we began fiscal year 'twenty two with a liability now at $26 $1 million or.
<unk> pension and healthcare expenses expected to be reduced by $6 million in fiscal 'twenty two versus fiscal 'twenty one.
Continuing with the highlights of the quarter, our backlog increased by $24 4 million or 16, 2% over the past quarter.
Our alloy and application development activities continue to generate the innovative solutions that have always been and continue to be the backbone of our company.
And finally, our company had no osha recordable injuries in the last two months of the quarter.
I'm proud of our team's focus leadership safety process development and communication.
Their efforts continued to make a real difference.
In addition, our work on ESG continues in the quarter, we saw an improvement in our social ESG score.
Labor Health and safety subcategory of the social score improved significantly as we continued to show leadership improvement and transparency in our safety initiatives.
In addition, still related to ESG, we are now, making a significant investment and have begun construction of our first solar installation one that we expect will generate one megawatt of electricity at our Hanes wire facility in mountain home North Carolina. This installation will supply approximately half of our electricity needs at.
Acacia.
Now transitioning to our markets.
From a market perspective.
The numbers show the impact of our IGT share gain initiatives the impact of our continued efforts to grow our applications beyond our three core markets and also the impact of the expected upcoming improvement in aerospace.
In aerospace we are seeing the initial signs of a recovery.
Revenue was up 14, 8% sequentially and 16% year on year.
Book to Bill was one three and our backlog grew 13, 6% over the last quarter.
We believe these numbers represent the beginning of the return of our largest market.
A key point to make is that we believe we are just at the beginning of the aerospace recovery.
Consistent with that belief fiscal year 'twenty, one aerospace revenues were just 50% five zero percent of our fiscal year 19 of Aero revenues.
And IGT revenue was up three 9% sequentially and 49% year on year.
Innovative alloys, and our excellent customer service resulted in the market share gains that we've talked about over the past 18 months.
And CPI or revenue was down both sequentially and year on year, but our book to Bill was one six and our backlog grew 40% over the past quarter the reduction.
<unk> experienced in our Q4 is related to the timing of order shipped and we expect special projects and our base CPI business to improve year on year.
Our other markets category includes products that are used in where F. G. D oar flue gas <unk> electronic ceramics, automotive renewable energy oil and gas and waste incineration applications.
Our unique alloys, along with our excellent technical marketing and application development provides solutions for difficult to solve problems in these industries.
This overall segment grew 17, 1% sequentially in Q4.
Led by increases in shipments to the F. G D oil and gas Marine excuse me Marina Navy nuclear and where markets.
As far as F. G D, where the largest growth occurred are business conditions continue to improve in the aerospace as our business conditions continue to improve and the aerospace IGT and CPI markets. We will most likely see a reduction in our <unk> shipments as we utilize our manufacturing capacity on higher value products.
Wrapping up my market comments I'd like to briefly highlight another of our Differentiators.
The growing use of the proprietary alloy Haynes 282 in the industrial gas turbine market.
As I have discussed each quarter innovation, inventing alloys, and developing new applications to help customers meet the demanding needs has been and continues to be a core strength for our company.
Haynes 282 alloy has already been specified specified by certain major Oems into some of their advanced most advanced gas turbines. This alloy was selected due to its unique combination of high temperature strength in fabric ability to increase the efficiency and power generation capabilities engines.
Other major Oems are also in the advanced stages of either conducting field trials are specifying our alloy.
In addition.
Beyond Haynes 282, Haynes 244 alloy due to its low coefficient of thermal expansion and high temperature strength is now being tested in certain major industrial gas turbines finally.
Newest high temp alloys, Haynes 233, with its outstanding combination of high temperature strength and oxidation resistance is now being tested by Oems.
Wrapping up my comments the efforts of the Hanes team have changed the future of our company our focus on providing high value differentiated products on getting paid for the product and service value provided on relentlessly pursuing opportunities to increase our yields and lower variable cost of manufacturing and on finding even more.
<unk> the innovative have all resulted in cash generation higher margins and a significantly lower breakeven point.
We've truly moved from words to actions to bottom line results.
I will turn the call over to Dan for more details on our financial results.
Thank you, Mike let me start with a detailed update of our value, creating capital allocation strategy, including our favorable year end actuarial valuation.
As you'll recall last quarter, we were excited to announce a multifaceted capital allocation strategy that first included a share repurchase plan as we feel this is a unique opportunity to repurchase shares well below the intrinsic value of the company.
This is based upon the outlook in our markets, particularly the anticipated accelerating recovery in commercial aerospace combined with our gross margin expansion strategies.
In the fourth quarter, we repurchased approximately 113000 shares $4 $2 million. This part of the strategy is executing as expected.
The second part of our capital allocation strategy included the recent adoption of a glide path for our U S pension plan, along with a $15 million lump sum contribution in Q4 as we work to reduce what was the largest liability on our balance sheet.
The result of these actions combined with a favorable overall valuation has impressively exceeded our expectations.
The U S pension funding percentage and net liability started the fiscal year at 68% funded and a net liability of $105 2 million.
But ended the year at 91% funded and a net liability of $26 1 million, representing a liability drop of over $79 $1 million.
Combine this with a favorable valuation on our retiree medical plan, reducing the liability $10 4 million.
And improvement in our U K pension of $3 million. All combined this is an improvement of $92 5 million and impactful value, creating balance sheet transformation.
And further our expense for FY 'twenty, two for pension and retiree health care is expected to decrease 6 million compared to FY 'twenty one.
Our pension asset allocation at year end was 30% equity and 70% fixed income but.
But additional glide path triggers were hit in October and November as we are now at a funded percentage of 93%, putting the current allocation today at 19% equity and 81% fixed income.
With the fixed income portion in hundreds of individual bonds designed to match the duration of cash flows of the pension plan essentially creating an interest rate hedge.
This reduced the interest rate risk combined with the reduced equity risk is expected to reduce volatility creating more stability at this lower expense level.
Overall this strategy is executing well and we can see the path to achieve our goal of zero net liability for the U S pension plan potentially sooner than we expected.
This is an all around favorable outcome from this value creating strategy.
Moving onto the financial results for the quarter.
We expanded our revenue and profitability this quarter with revenue at $95 3 million and net income at $2 6 million.
This profitability level was accomplished.
At just under 4 million pounds shipped proving once again, our lower breakeven point with the current mix.
Our gross margin percentage expanded by another 200 basis points to 17, 5% in the fourth quarter of fiscal 'twenty, one which exceeds the gross margin percentage in the quarters, leading up to the pandemic.
Our margin improvement strategies have been successful and are expected to continue to gain momentum going forward.
We expect volumes to increase in the anticipated accelerated growth in the aerospace recovery, which should further improve our fixed cost absorption and more fully realize the benefits of our cost reduction efforts.
These cost reductions have been related to improved yields productivity and process improvements, which are expected to be further realized with higher mill production volumes.
In addition, as we ship volumes, increasing as expected we anticipate that our previously announced price increases will continue to help margins.
Market price increases for nickel and cobalt provided a moderate tailwind to margins this quarter of roughly $1 $8 million.
The direct charge was only 800000 this quarter with better absorption of overhead costs compared to $2 million in the third quarter of fiscal 'twenty, one and $4 million in the fourth quarter of last year.
We have not been immune to the industry wide challenges in the labor market or supply chain issues as well as inflationary cost pressures. These have been significant issues to manage through and at this point, we have been rather successful with no material impact on our financial results.
We expect it will continue to be a challenge that will require ongoing management team focus.
Mike already covered a discussion of each market, but here's a bit more detail on the numbers.
This quarter sales to the aerospace market accounted for 41% of our revenue at $39 million. This is an increase of 14, 8% sequentially from Q3, and an increase of 16% from the same period last year.
This appears to represent the beginning of the recovery however, much more is expected.
Aerospace volumes in FY, 'twenty, one with 31% below volumes in fiscal year, 'twenty and nearly 52% the low volumes of fiscal 2019.
Published build rates of single aisle aircraft show significant growth expected in fiscal year 'twenty, two and generally a return to 2019 levels in fiscal 2023.
Backlog dollars in aerospace increase sequentially from Q3 to Q4 by 13, 6% and were relatively flat year over year.
Sales to the chemical processing market accounted for 17% of our revenue at $15 $8 million. This is down 7% sequentially from Q3 and down 14% from the same period last year.
Special project revenue most of which is reflected in chemical processing was $3 2 million, which is $1 6 million lower than the third quarter and $2 6 million lower than the same period last year.
As Mike mentioned this reduction relates to timing issues and the products being shipped in the quarter.
Backlog dollars in CPI increased by 40% Q4 versus Q3 and is up 68% year over year.
Sales to the industrial gas turbine market accounted for 20% of our revenue at $18 $5 million. This is an increase of three 9% sequentially from Q3 and up 49% from the same period last year.
Shipments from market share gains continued to be more consistent quarter to quarter in this market.
Backlog dollars in industrial gas turbines increased sequentially from Q3 to Q4 by 13, 4% and 35, 1% year over year.
Sales to other markets accounted for 17% of our revenue was $16 $1 million. This is an increase of 17% sequentially from Q3, and an increase of 73% from the same period last year.
Backlog dollars were up four 9% sequentially and up 22% year over year.
Other revenue accounted for 6% of our revenue and $5 $9 million. This.
This is an increase of four 8% sequentially from Q3, but a decrease of four 2% from the same period last year.
SG&A, including research and technical expense was 11 $9 million or 12, 5% of net sales in the fourth quarter, which was lower than the third quarter's $12 3 million, but higher than last year's fourth quarter of $9 1 million.
The year over year increase was mainly due to last year's fourth quarter reversal of incentive compensation accruals, creating a credit for the fourth quarter of last year.
Nonoperating retirement benefit expense in the P&L of zero point $4 million was lower by $1 $3 million this quarter as compared to the same period last year due to our favorable actuarial valuation last year.
This line in FY 'twenty two is expected to be an income of $1 1 million per quarter versus the current zero point $4 million expense or a reduction of $1 5 million per quarter, where a significant 6 million annual improvement for FY 'twenty two.
Our effective tax rate was high at 37, 7% in the fourth quarter of fiscal 'twenty, one primarily related to a change in the U K tax rate, which required a reevaluation of their deferred tax liability, creating a $400000 charge to earnings this quarter.
We achieved these results despite shipping volumes, 20% below our previous breakeven point.
All of the above contributed to a net income for the quarter at $2 6 million compared to a net income of 0.4 in the third quarter and a net loss of $5 7 million in last year's Q4.
It certainly feels good to see the anticipated beginning of our recovery with profitability expanding and a more robust positive outlook for the commercial aerospace industry.
What our entry in backlog, we are not yet back to pre pandemic order entry levels. However, order entry rates continue to increase each quarter of fiscal 'twenty one.
Backlog was $175 3 million.
September $30 21, an increase of $24 4 million or 16, 2% from June 30, 'twenty one levels.
After year end, our backlog continued to increase ending October 31, 21, and $186 4 million.
As far as our outlook for next quarter.
The first quarter is historically, our lowest revenue quarter impacted by holidays, and planned maintenance outages and customers managing their calendar year end balance sheets.
We believe this first quarter seasonal impact will be offset by our business improvements and the strengthening demand. We are experiencing therefore, the company expects both revenue and earnings in the first quarter of fiscal 'twenty two to be similar to the fourth quarter of fiscal 'twenty one.
Based on our increasing backlog and accelerating commercial build rate schedules, we expect to see significant year on year aerospace growth.
That will positively benefit the company over the balance of the fiscal year.
Capital spending was $5 9 million in fiscal 'twenty one.
And we are increasing our expected capital spending in FY 'twenty two to $17 7 million a sizeable increase in approaching our depreciation levels.
Liquidity.
<unk>.
Cash on the balance sheet was $47 7 million at September 30 to 21 after outlining a $15 million lump sum pension contribution and $4 2 million in share repurchases in accordance with our value creating capital allocation strategy.
We have strong total liquidity of $147 7 million of which $100 million available on our Undrawn credit facility.
In conclusion.
It is encouraging to see expanding profitability with the recovery of our gross margin percentage now exceeding pre pandemic levels. While still ahead of US. We also have expectations of significant growth in volume and revenue from the anticipated aerospace recovery combined with the expected additional margin.
Percentage expansion.
Our process improvements are more fully realized as our process improvements are more fully realized.
This transformation of the business combined with the significant value creation achieved from the execution of our capital allocation strategy results in a truly different company.
We are a company with impressive earnings power potential and a strong transform balance sheet as the foundation for growth and continue value creation for our shareholders.
Mike with that I will now turn the discussion back over to you.
Thank you Dan.
Our team is encouraged by both the progress and the future potential for our business.
I want to thank all of you for your continued interest in Haynes.
With that Holly, let's open the call up to questions.
Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time, we ask that law posing. Your question you. Please pickup your handset listening on speaker phone to provide optimum sound quality. Please hold while we poll for questions.
Your first question for today is coming from Marissa Hernandez. Please announce your affiliation then pose your question.
Okay.
Hi, Good morning, Manny Fernandez from Sidoti <unk> company Good morning Marshall.
Melissa.
Hi, so congratulations on the results.
A couple of questions here, so I think of it.
You called out the.
Contribution of higher nickel prices in the quarter.
Thank you provide that's on a reported basis I think you provided is on an annual basis.
<unk>.
So let me actually.
The numbers that I had in my script was $1 8 million.
Was the.
Was the tailwind for nickel and cobalt because cobalt is going up quite dramatically as well and that is just for the quarter now last quarter. We also had a bit of a tailwind for raw materials of about $1 million. So the delta between Q3 and Q4 is about 800000 does that help Orissa okay.
If you don't mind I'll add to that because certainly we had the tailwind related to the $1 million, one way and eight in nickel and cobalt, but I think it's really important emphasize there is so much more of its driving our margins as <unk> as all of US have talked about before the 18% we hit in January and February of 2020, if you look at it.
Starting point as we continue to get our volume back.
Over the last three years as Dan said in the call we've reduced our breakeven significantly our best estimate is down 25% of the current mix and I think we've been able to do that because of the incremental work on both cost reduction sustained cost reduction.
The yield improvement in pricing. So we're very encouraged about what the future holds.
Excellent so.
Let's see so if we were to adjust your gross margin in the September quarter to compare it apples to apples to the June quarter.
The approximately 16, 7%.
I think what we have not done is give specific estimates related to gross margin. What I can say, though is our volume is coming back our aerospace business is coming back we saw.
On special projects the lowest.
Quarter end revenue than we've seen in a long time. They are direct charge is obviously behind us as we move forward and start to exceed this 4 million pound level that we're at.
And so we feel good about where everything is related to our products and we feel great about what we're doing both on the pricing side and on the cost side. So again as far as we're concerned and we're not giving estimates as far as when but we do look at our 18% we hit in the two months before the pandemic struck as a starting point.
So we expect to exceed that as we move forward.
Yeah, I wasn't asking about that an estimate that was asking for the quarter. That's just it but.
That's okay.
Yeah no worries.
We then take that offline, but yeah. So what I wanted to ask on the aerospace demand that youre seeing I believe.
<unk> on order pickup to start materializing later in 2021 is still around right now I guess.
It appears that it's happening a bit earlier is is that after they've how would you characterize it versus your prior expectations.
Yeah, I think what we're hearing from the engine manufacturers and the airframe manufacturers are concerned for ability to supply metal in the supply chain. So we are having.
A large amount of contact and we as you can see by our numbers, where the aerospace sequentially up and certainly year on Europe, we're beginning to see that to me.
Really at this point as simple as looking at the leap engine. We know single aisle jets are 75%, 80% of what's going to be built and when you look at what's happened with the leap engine count.
It was down to 815 from 770, 250, or 7500, plus a $19 15 in 'twenty over 100 now in 'twenty, one and somewhere in the 500 plus range in 'twenty two when if thats what has to happen theres about a year between us making metal and when the <unk>.
Engines are being built to be put on a plane. So its good timing and timing is about right for us to begin to see this pop that we are.
I think the other thing.
The other thing that I think is really worth, noting even though our business has improved.
The numbers are striking so we've talked about this 14.
8% increase in aerospace up to $39 million.
And how much it is greater than 2020, but when you compare that to 19, our sales in Q4 19, obviously pre pandemic were $68 million in aerospace so theres a lot of room to move obviously and.
I believe because of everyone's belief in what's happening with the <unk> hundred 20, and the and the Max and certainly seeing it in the late numbers, but it's got to start to happen now and it is.
Okay.
So wanted to ask about a couple of.
Other markets.
You've had a lot of our market share gains on the turbine market.
How is that those gains from a sustainability perspective, and how would you characterize the outlook for that market.
I think.
The outlook is good.
Just a small amount of history.
Everyone went through five plus years of no growth in large frame power generation and a lot of inventory in the supply chain and now we're beginning to see growth.
And we're beginning to see much less metal in the supply chain. So lenders demand, we're feeling the pull for it.
Our share gain is sustainable these are contracts that we have signed we feel great about it.
Not only seen some share gain that we've talked about for the last 18 months, but we're also seeing obviously, we've seen some work stoppages out there by others and we've been able to see certainly not to the extent of our major share gain but some additional business coming into us.
And then on top of that what I talked about with our innovation with Haynes 282. This is an alloy that is being substituted into both existing.
Large frame engines, and also and some being stacked and so this is definitely sustainable.
And one thing I noted marissa related to IGT is the market share gain that we have is a little more consistent as well.
At first it was a little spotty quarter to quarter, but now we are seeing more consistency quarter to quarter in what were shipping related to that that share gain.
Got it and I think I heard you say that the decline.
Yeah Bob.
Chemical processing business is.
Due to the timing of sales is that correct.
Yes.
When you look at what's happened with our backlog.
Being up in CPI, 40%, our book to Bill, which I like to look at being at one six.
And the fact that we've hit.
And special projects.
Our multi level multiyear low we feel good about the future both in our base CPI business and in special projects.
Thank you so much I'll go back in queue. Thank you. Thank.
Thanks Meredith.
The.
Question is coming from Michael the shark. Please announce your affiliation then pose your question.
Okay.
Hey, guys, Mike with Jack with Keybanc capital markets. Good morning, Mike Good morning, Mike.
First I just I wanted to ask on your outlook commentary, how should we think about the term substantial for aerospace growth in fiscal 'twenty two.
Just per the verbiage in your guidance.
Do you think of that as a percentage change year over year on an absolute basis relative to historical levels.
Could we get back to pre pandemic levels in aerospace this year I'm, just trying to get a better sense on how to frame frame that.
That wording there sure.
I will do is is us.
We've heard and what everyone has heard.
Related to build rates on the single aisle jets.
80% of the market what we have heard is by the end, but we've actually heard mid to late but I'll say by the end of 2022 build rates pretty much equivalent to what was steady state in 2019 and again, we're talking in build rates of engines and claims and so from a metal standpoint, it's got to start coming sooner.
Obviously, what's what's not in there is the wide body that 20, plus or minus percent component, which is which is going to be a couple years out from now so we feel great that we believe build rates certainly on the leap engines and therefore on pretty much. The single aisle aircraft are going to be at 2009.
<unk> levels on a on a bit.
Engine build rate level by the end of 2022 is what we continue to hear.
And then as I shift to CPI I know those you had mentioned that you're seeing an improvement year over year off these lower 'twenty fiscal 'twenty, one levels, but I know those projects are typically higher margin as well as the spot business, which is pretty good.
I'm pretty hot right now versus historical levels.
So do you expect those special projects within CPI to drive a stronger mix then in 'twenty. Two is that fair to think about it that way I think when you look at our revenues in special projects in 'twenty one.
Full year fiscal 'twenty, one they were little over $19 million in revenue versus the prior three years, all ranging between 24 and $26 million.
Great reason, why we were down at $19 million in why we were down at $3 2 million in the fourth quarter. These projects take.
Long time once from idea to finish and were still in the timeframe that the ideas would've been right in the middle of pandemic. So yes to answer. Your question. This is higher margin products. We expect special project work to expand and as you said. We also are seeing on the transactional side and our base CPI business significant improvements in average selling price.
And some very strong improvements in the backlog that we mentioned so.
Orders are starting to come in.
Got it.
And then just lastly for me on the pension payment that you made in the quarter.
Would you expect to make any more lump sum payments like that in the coming year and then if not what's your strategy behind any excess cash going forward.
Well I'll start with that one.
We have the.
Capital allocation strategy and one of the main goals of that strategy is too.
Get the U S pension plan to a net liability of zero as quickly as possible and we kind of were thinking when we started this that'd be two to three years and you know obviously, we're a bit ahead of schedule going from 105 down to 26, all in one year. So we'll be watching this will we make another lump sum payments this year, possibly.
I think what we're going to do is look at our cash positions look at other capital allocation.
Opportunities that are out there and we will make a determination what is the best capital allocation for the cash that we have so it is a possibility, but I will tell you with.
Such great strides we've made this year.
It may not be to that magnitude or it may be pushed to later as we are.
As we look forward and see where our capital allocation strategy will go from here.
And just add to that you know the story of the capital allocation for us.
We used our cash for dividend now we're using it especially in our Q4 to fund our inventory growth. We've got the current stock buyback going on we've got what Dan has talked about with the pension.
And so obviously, that's that's using our cash right now, but we do believe as we look at the aerospace cycle that it'll continue to grow and we continue to look at what else is out there once we get beyond these specific items to two.
Invest in to improve shareholder value.
Got it I appreciate the color guys.
Thank you thanks, Michael Thank you.
Once again, if there are any questions or comments. Please press star one.
Okay.
Your next question is coming from Chris Olin. Please announce your affiliation then pose your question.
I am with tier four research.
Good morning, everyone that we're doing.
So it it looks like the strategy is starting to come together, Mike So congratulations there.
Thanks, Chris.
Our team has spent a great deal of time focusing on.
Making sure we are supplying these high value differentiated products, making sure we get paid for them and that's been a journey since 2019, and then these relentless sustained cost reductions and I'm thrilled with where we're headed.
Great great to hear.
I don't believe your opening remarks you.
You mentioned, it or maybe I missed it but the 787 hundred situation.
Is that not much of a factor in terms of your guidance or your business.
Indirect direct is there anything going on.
We don't believe at this point going forward that it will have a negative effect on us.
Faced with the build rate was already down at two a month and so if we see any increase call it up to for up to five by the time, we get to 2023, then it'll be a good thing for us, but right now it's not in the base because it's so low so really don't see any issues with it and then the other side of that is the 777, we've talked about this quite a few.
<unk>, but <unk> is our two proprietary alloys and they're actually talking about building 38 engines in 2023, So that's certainly going to help.
The titanium tubing business did that contribute to the sales growth quarter to quarter.
They are in terms of like the inventory.
Situation with your customers.
Your.
Dan Youre going to have to help me if it contributed to the sales growth this year.
But I will tell you that we have seen in the titanium tubing area until this current quarter.
And oversupply of titanium tube and we're beginning to see that coming to an end and beginning to see things pick up again for a specific related to Boeing and the airframe business.
Okay.
Yes. The other question I had is related to the issues that seem to be going on with some of your competitors today.
Labor related or tech related and I guess I'm wondering if that helped you in terms of picking up business or changing market share any positive benefits from that.
Yes.
<unk> seen.
Some benefits related to some smaller.
Contracts in particular.
The power generation segment that has helped us.
Yeah.
Also obviously as people are out on strike there is.
Less supply and therefore, there is the opportunity to continue to focus on making sure that we at least offset our inflationary pressures with price increases and even more if possible. So yes, we're seeing that.
There is no doubt about it.
That price increase topic there.
Then a number of them announced by teams over the past few weeks or months and I guess I'm wondering right now how big the spot business is in terms of that realization and.
How should we think about contract rollovers.
When that starts to kind of flow through to the other customer groups.
Our largest group of contract rollovers are in January.
And we have set ourselves up because of the transactional price increases that were put in place.
Difference now Chris versus pre pandemic is when we talked about transactional or price increases or even contract price increases in the past I always talked about it being on the top end of our mix. If you go back two to three years ago, I talked about our 50% of the product, which is truly high value differentiated product.
Difference today in what we're doing our price increases are across the board. We're getting we're getting price increase is pretty much on every product that we manufacture so it's a different world than it was and it's our opportunity to continue to sell the value that we provide including our company owned distribution facilities and make sure we were getting what we need.
As far as increased.
It's been a big number of contracts rolling over in any way or how do you think about it for some noise in it.
I don't have the percentage wise at this point Dan.
Not an exact percentage, but I would estimate our overall contracts are about 45% to 50% of our business and about probably 20% of that is.
Annual type of contracts, so maybe a third or half of that would rollover. This year would be my estimate.
Okay. That's all I have congratulations on that solar panel investment I didn't realize actually hit Indiana, So great to hear that and.
By the way Thanks, Chris we appreciate the little slap in Indiana, but the solar installations in our facility in mountain held North Carolina Okay.
Sure.
Sure.
Okay.
There is a follow up question coming from Marissa Hernandez Marissa Your line is live.
Thank you. Thank you for taking my follow up.
The other market revenue you have there.
Very good growth this year and you called out the F. T. D market is that a significant portion of that other market revenue and can you talk about.
The outlook for that market.
Yes.
I would.
Flue gas <unk> F G D business.
On the commodity side on the low end of the commodity side of our mix.
What we did when we were in the pandemic and when we were incurring significant direct charges because of our absorption issues, we had with lack of volume we pursued.
More <unk> business and we're successful in it was a great business decision for us because it helped keep our employees at work and it help steel moving through our assets what I said in my my my script comments, though.
Is that as our business improves and the arrow and IGT in the chemical processing market.
Will.
Deemphasize significant growth in F. G D. Because it uses the same assets and quite frankly, it's not nearly as profitable. So the outlook for that market is very strong, but it typically is very high volume business.
It is not our wheelhouse of business and so I would say that we will begin to see over the next couple of quarters. Some decline in the <unk> business for us and that would be an intentional move our mix move.
Thank you.
Thank you.
There are no more questions in queue I would now like to turn the floor back over to Mike for any closing comments.
Thank you Holly thanks, everyone for your time today today and thank you for your interest and support of our company. We look forward to updating you again next quarter.
Have a good weekend everyone.
Yeah.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.