Q3 2022 Carpenter Technology Corp Earnings Call
Yes.
Good morning, and welcome to the Carpenter technology fiscal 2022 third quarter earnings Conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.
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Yes.
Thank you operator, good morning, everyone and welcome to the Carpenter Technology earnings Conference call for the fiscal 2022 third quarter ended March 31 2022.
This call is also being broadcast over the Internet along with presentation slides. Please note for those who get listening by phone you may experience a time delay in slide movement.
Speakers on the call today are Tony James 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 risk factors that could cause actual results to differ materially from these forward looking statements can be found in carpenter technology's most recent SEC filings, including the company's report on Form 10-K for the year ended June 30.
2021 Form 10-Q for the quarters ended September 32021, and December 31st 2021, and the exhibits attached to those filings.
Please also note that in the following discussion unless otherwise noted when management discusses sales or revenue that reference excludes surcharge when referring to operating margins that is based on operating income and sales excluding surcharge.
I will now turn the call over to Tony.
Thank you, Brad and good morning to everyone on the call today.
Let's begin on slide four and a review of our safety performance.
Through the third quarter. Our total case incident rate was 1.0 holding at the same level from the prior quarter. It remains above our fiscal year 2021 performance of 0.6, which was our best fiscal year safety performance on record.
Safety is our number one core value and we continue to push towards our ultimate goal to be a zero injury workplace.
Two zero includes benchmark safety systems leadership and employee engagement.
We continue to invest in training to drive high levels of employee town further enabling our workforce is the first line of defense to injury prevention.
One example of our employee engagement and safety systems in action has led to over 200 bladders being removed from our facility, reducing the sorts of injury risk from our operations.
Now, let's turn to slide five and a review of the third quarter.
We see strong demand in each of our end use markets as we emerge from the pandemic, notably the aerospace ramp is accelerating.
Although the aerospace end use market measured by global passenger traffic is not yet fully recovered our shipments continued to ramp.
Order backlogs have now exceeded pre COVID-19 levels.
The medical end use market conditions continued to improve as the industry recovers from the impact of the omicron theory.
And end use markets like transportation and industrial and consumer have returned to pre COVID-19 levels.
I would like to share three indicators of the demand environment.
First our backlog increased 34% sequentially and 164% year over year, continuing the growth we saw in the second quarter.
Second the backlog growth is driven by the bookings rate.
Which increased 21% sequentially and 119% year over year.
A record quarter in terms of bookings for the company.
And third we continue to realize price gains on both our contractual and transactional business.
We worked with our customers throughout the pandemic preparing for the recovery across our markets.
You will recall that during this time, we continue to negotiate price increases.
And in this last quarter, we increased base prices on our transactional business by at least 12% to 15%.
This marks the third price increase in the last 10 months.
I'll cover the demand environment for each of our end use markets in more detail later in this call.
DSA LS segment finished ahead of our expectations driven by the strong demand environment and our ability to navigate short term operational challenges.
As we reported in March we have completed the repair of the reading press on time and it is fully operational.
Yeah, I'm a crime variant had subsided after a challenging January with significant COVID-19 isolation at key work centers.
And we have addressed the majority of our hiring challenges we had in the first half of fiscal year 2022.
Pets performance aligned with expectations building on a strong second quarter.
Growth in operating income was largely driven by the ongoing recovery in the medical end use market.
Finally, our liquidity remains healthy as we finished the quarter with $388 million in total liquidity and in March we completed the refinancing of senior notes extending our debt maturity profile.
Now, let's move to slide six and the end use market update.
As you can see on this slide each of our end use markets was up sequentially and year over year, reflecting the recovering demand environment.
Our aerospace and defense end use market sales were up 14% sequentially and 11% year over year.
Demand for our materials is increasing substantially its customers prepare for strong future activity.
Although our shipments in aerospace and defense end use market, where approximately 50% of pre pandemic levels. When comparing the 12 months ending March 2022 to the 12 months ending March 2020, we.
We see demand continuing to accelerate across all the aerospace Submarket has a supply chain ramps to meet steadily increasing travel demand.
And despite challenges in the overall supply chain Oems maintained positive outlooks on further build rate increases as a result lead times across the industry have extended and our backlog continues to rise as customers plan for ongoing improvement.
Specifically, our aerospace and defense end use market backlog is up 42% sequentially, 157% year over year, which is 17% higher than our pre pandemic peak.
In the medical end use market sales were up 14% sequentially and up 48% compared to last year.
The results reflect ongoing recovery in elective surgeries after the omicron experience with customers focused on increasing stock levels to meet growing demand.
The overall outlook continues to be positive as medical procedures are expected to rise to pre pandemic levels in the second half of calendar year 2022.
We are seeing replenishment in the supply chain to support the expected growth as our medical end use market backlog is up 51% sequentially and 227% year over year.
We also see an opportunity to increase share in our titanium business as customers look to de risk their supply of titanium from Russia.
In the transportation end use market sales were up 14% sequentially and up <unk>.
11% compared to last year.
Light duty demand remains very high with consumers continuing to buy even if inventories are at historic levels.
The industry continues to deal with the supply chain challenges and chip shortages that are impacting the end use market activity levels.
With strong demand and low inventories, we expect continued improvement.
And we continue to see growth opportunities in the heavy duty truck off road watercraft and after markets Submarkets.
In the energy end use market sales were up 44% sequentially and up 28% compared to last year.
And the oil and gas sub market, a demand and supply imbalance is driving growth and investment.
As the world recovers from the pandemic, requiring more energy global supply has not kept up.
The supply shortage has been further challenged by recent geopolitical disruptions.
As a result global investment and capital expenditures are expected to increase.
In industrial and consumer end use market sales were up 23% on a sequential basis and up 47% on a year over year basis.
Continued to see historically high demand for our semiconductor solutions and expect demand to remain strong throughout the calendar year.
In addition, we continue to see healthy demand and the electronic sub market evidenced by increased sales and growing backlog.
We have strong engagement from our customers in the consumer electronic Submarket and our recently commissioned hot strip mill in writing.
I'll review the long term outlook for each of these markets later in the presentation.
Now I will turn it over to Tim for the financial summary.
Thanks, Tony Good morning, everyone.
Start on slide eight the income statement summary.
Net sales in the third quarter were $489 million and sales, excluding surcharge totaled $369 million.
Sales, excluding surcharge increased 24% from the same period a year ago.
32% higher volume.
Sequentially sales were up 17% on 15% higher volumes.
Gross profit was $39 5 million in the current quarter compared to $12 8 million in the third quarter of last year and $13 1 million in the second quarter of fiscal year 2022.
The improvement in gross profit is primarily due to the higher sales.
The tailwind from higher sales, both sequentially and year over year was partially offset by operational challenges that we worked through early in the quarter related to the press outage in S. E. I was reading facility as well as the ongoing inflationary pressures on operating costs related to critical production supplies freight and labor.
SG&A expenses were $38 4 million in the third quarter down $9 4 million from the same period, a year ago and down $6 2 million sequentially.
The current quarter's SG&A expenses include a $4 $7 million noncash benefit associated with the reversal of a contingent liability from a historical acquisition for which the time period expired.
We have included this benefit as a special item for the quarter.
When normalizing for this benefit SG&A expenses are down $4.7 million from a year ago.
Largely due to additional costs in last year's third quarter associated with the implementing our new ERP system.
Sequentially again normalizing for the special item SG&A costs were down 1.5 million due to the timing of certain expenses and certain legal reserve adjustments.
Operating income was $1 1 million in the current quarter.
When excluding the impact of special items adjusted operating loss was $1 6 million in the current quarter compared to a loss of $29 7 million in the prior year period.
Any loss of $29 8 million in our recent second quarter.
Our effective tax rate for the third quarter was nine 6%.
The effective tax rate is well below the statutory rate given the impact of certain losses for which no benefits can be recorded as well as the impact of discrete items in the quarter.
For the nine months ended March 31, 2020 to the effective tax rate is 24, 5%.
Earnings per share for the quarter was a loss of <unk> 16 per share.
When excluding the impact of special items, specifically, the COVID-19 costs and the benefit from the reversal of the contingent liability I mentioned <unk>.
Adjusted earnings per share was a loss of <unk> 20 per share.
Now turning to slide nine and our S E O segment results.
Net sales for the third quarter were $418 million or $300 million excluding surcharge.
Third to the same period last year net sales, excluding surcharge increased 22% on 34% higher volumes.
Sequentially sales increased 19% on 15% higher volumes.
The improvement in net sales was driven by increased sales of materials across all end use markets as Tony reviewed on the market side.
Moving to operating results.
<unk> reported operating income of $5 8 million for the current quarter.
The same quarter a year ago. After he was operating loss was $9 9 million and in the second quarter of this fiscal year I see a reported an operating loss of $20 3 million.
As we mentioned last quarter. After you work through some near term operational challenges, including the reading press outage that occurred late last quarter.
The press is now back up and running is anticipated to support the growing demand, particularly for aerospace and defense.
Year over year operating results increased by about 15 million when adjusting for the impacts of COVID-19.
In both periods.
The improvement in operating performance was largely due to the incremental margin associated with higher sales.
The benefits of higher sales were partially offset by higher operating costs due to increases in production staff as well as inflationary pressures in critical operating supplies and other areas such as freight.
We have continued to increase production staff in anticipation of increasing production utilization to meet the growing demand.
From a sequential perspective, the higher operating results were largely a factor of the increased sales and increasing activity levels coming off the short term operational challenges that we talked about last quarter.
Looking ahead, our backlogs continue to grow driven by strong order activity in particular, we see increased activity across the aerospace supply chain to meet anticipated increases in build rates by the Oems.
Our teams remain focused on ensuring that we have the appropriate resources to meet the needs of our customers for the foreseeable future.
Activity levels continue to accelerate and critical flow paths.
Based on current expectations, we anticipate S. A L will generate operating income in the range of 14 million to $18 million in the upcoming fourth quarter.
Now turning to slide 10 in our Pep segment results.
Net sales in the third quarter of fiscal year, 2022 were $88 4 million or $86 4 million excluding surcharge.
Net sales, excluding surcharge increased 33% from the same quarter last year and were up 3% sequentially.
The year over year growth in net sales reflects increased sales across all business units.
Led by our dynamic titanium business, where year over year demand increased in both aerospace and defense and medical end use markets.
We've also seen a significant improvement in sales driven by demand in our additive and distribution businesses.
The sequential increase in net sales was led by growth in our distribution business.
In the current quarter Pep reported operating income of $4 2 million.
This compares to operating loss of $3 3 million in the same quarter, a year ago and operating income of $3 million in our recent second quarter.
The year over year operating income improvement is primarily the result of the increase in net sales.
As well as the benefits from the actions we took to restructure the additive business.
Fiscal year 2021 .
As we look ahead, we believe that demand conditions will continue to improve in the coming quarters.
We currently anticipate that the Pep segment will deliver operating income in the range of $4 million to $5 million for the upcoming fourth quarter.
Now turning to slide 11, and a review of free cash flow.
In the current quarter, we generated $35 million of cash provided from operating activities.
We have plans in place to further reduce inventory levels in our upcoming fourth quarter, albeit to levels higher than we previously planned.
Our supply chain has continued to see challenges mainly around longer than anticipated lead times and ongoing logistics challenges.
With that in mind, we are managing our inventory levels to ensure we have adequate supply to meet the strong market pool that we're seeing.
With that said our inventory days on hand metrics are still being targeted at levels well below pre pandemic levels.
I also want to highlight that we are actively managing our supply chain to minimize potential disruptions.
Maintain regular contact with key suppliers to ensure that we have steady supply of our critical raw materials and other operating supplies necessary to service our customers' needs.
With the latest geopolitical events unfolding, we have not identified nor are we do we expect any potential sourcing issues.
Moving down we previously provided guidance that we do not expect to have any required minimum pension contributions for our U S qualified plans during fiscal year 2022.
In the third quarter of fiscal year 2022, we spend 25 million on capital expenditures.
We currently expect that the full year capital expenditures will be closer to 90 million given some delays in projects due to the availability of outside contractors as well as extended lead times for certain materials.
We also continued to fund a constant dividend to our shareholders, which we consider as part of our free cash flow.
With those details in mind, we reported breakeven free cash flow in the quarter.
Our liquidity remains healthy and we ended the current quarter with total liquidity of $388 million, including $94 million of cash and $294 million of available borrowings under our credit facility.
In March 2022, we completed a 300 million dollar bond offering to refinance 300 million of bonds that were due to mature in March of 2023.
The offering pushes out the maturity date of this tranche of our debt profile to March 2030.
Due to the timing of the offering and the notice requirements for the 2023 bondholders.
We received the proceeds from the new bond issuance in March and redeemed the existing bonds in full in April 2022.
We have excluded $300 million from the presentation of our liquidity measure as of March 31, due to the redemption of the principle of the bonds that was made in April 2022.
With that I'll turn the call back over to Tony.
Thanks, Tim.
I'd like to spend some time reviewing our long term demand outlook.
End use markets.
First rarely do we see demand is strong in both the near term and long term across all of our end use markets.
The combination of the recovery from the pandemic and emerging macro trends has positioned our material solutions for both near term and long term growth and.
In aerospace, we see demand accelerating across the Submarkets.
With global travel the main growing narrow body build rates are expected to increase in calendar year 2023.
Material demand is also expected to continue to increase.
And as you will recall before the pandemic and industry capacity was constrained, especially in the aerospace engine Submarket.
Over the last decade Carpenter technology was the only specialty metals provider to add capacity with our Athens facility, which positions us to capture additional growth.
In defense, we are partnering with customers on the development of the next generation programs and platforms that require a material solutions.
And given the geopolitical environment investment is expected to continue well into the future.
The medical market was our fastest growing market before the pandemic and we anticipate similar growth as the industry recovers from the pandemic with the.
Focus on improved patient outcomes and medical device industry continues to innovate requiring high value materials solutions.
And the aging population and growth in expected procedures should drive demand well into the future.
The transportation industry has led the recovery from the pandemic with high demand for light and heavy duty vehicles.
Energy market demand has already exceeded pre COVID-19 levels with supply not keeping up with the rapid growth in demand.
To readjust the supply imbalance the industry is expecting growth in oil and gas investment in the near term, which will drive demand for our materials and.
In the industrial and consumer market, we focus on providing high value materials to specialized applications with the broader trends in consumer electronics Internet of thing and greater connectivity. We expect continued growth in the use of our materials.
Finally, we have our two growth platforms electrification and attitude.
For each of these we anticipate growth in the medium to longer term as the macro trends continue to evolve.
Let's turn to slide 14, and my closing comments.
We are in an environment in which demand in every end use market is strong for both the near term and long term, we saw substantial increases in bookings and backlog during our current third quarter and we expect them to remain strong for the foreseeable future.
We continue to realize share and price gains through contract renewals and price increases on our transactional business.
With a strong demand environment, we are focused on execution.
We continue to implement the carpenter operating model to address any short term challenges and increase productivity across facilities.
Repairs to the rating press are complete and it is fully operational.
We continue to work closely with key customers navigating the recovery in supply chain challenges and partnering to solve their critical needs.
To maintain a healthy liquidity position.
Finally, our soft magnetics and additive manufacturing platforms offer long term growth opportunities.
Thank you for your time and now I will turn it over to the operator to take your questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
The first question comes from Josh Sullivan with the Benchmark company. Please go ahead.
Hey, good morning.
Good morning, Josh Good morning, Josh.
Just on the on the aerospace backlog and dynamics you know how much of the acceleration on your estimate is restocking versus just aligning with the current build rates.
Hey, Josh this is Tony and good morning, I think it's a combination of both right I mean, when you take a look at where the backlog growth has been over the last couple of quarters. It's extremely strong. So both of those are taken into account I think the biggest driver though is on the build rate side.
When you take a look at what's going on with the 737, Max the a 320 <unk>.
Very strong demand from our customers there and.
You see it in the backlog growth.
And have you seen any reaction in the market titanium fastener, otherwise just on the 787 and triple Southern acts timelines.
It's a good question. If you think about the news that just came out on the triple seven I mean from a shareholder a carpenter technology.
Really not.
Meaningful in the short term and maybe even the long term I mean, it's a lower rate production plane. They already said there wasn't going to deliver until 2024. So they just pushed it out one year.
And our order bookings.
And going forward. So the biggest news for us coming out of niche calls like that is what they said about the 737 Max and.
They are still on pace to hit the rates that they want to there and from what we see is we see customers now.
Inquiries and orders for 737, Max So that's extremely positive news and I think thats the focus point recovery technology versus what may or may not happen with the triple chamber.
Got it got it and then just one last one as far as customers looking to Derisk from Russian supplies can you just outline carpenter's titanium feedstock quite a lot about Russian forging and castings tough tough to replace but nowhere and wives Carpenter derisking element for anybody exposed to Russian squad.
Yes, I'll, let Jim take that one since the procurement group books for him.
Yes, Josh so the conversations we're having with our customers is more about.
There are supply chain.
So we source nickel billet for the most part our sourcing is not through Russia, the bulk of our material come through.
Domestic producers of that nickel billet and they're sourcing their material from Japan.
So as our customers are looking at their supply chain they do have.
Supply chain that do some similar activities that are dining met business does with titanium.
So they're looking to move away from from the Russian based supply chain into more stable supply chain, which is to which are the conversations we're having today.
Yeah.
Got it thank you for the time.
Our next question comes from Michael <unk> with Keybanc capital markets. Please go ahead.
Hey, good morning.
I just wanted to ask on the base price increases of 12% to 15% on your transactional business is there some element of stickiness. There did those increases if we see some easing of inflation or even deflation.
What have you seen historically and what can we expect.
You Shouldnt expect that we will decrease prices.
Okay.
And then on labor how much more head count do you expect to need to meet the recovery as we get back to some pre pandemic level. Then when do you expect to get there given the cadence of hiring thus far.
Yeah. Good question, Michael So it's.
Its a mixed answer now and if you look at some of the more specialized skills.
There's some areas that are very tight right now if you look at operations on our shop floor.
Some of our geographic location have some still have some hiring difficulty however, I know the larger plans.
Physically ready.
We're in good shape and we're at the <unk>.
Head count level, we want to be so that's the that's the good news amongst the most impactful.
Yes.
Great and then following up on the nickel question I think you generally source nickel supply from Canada, but wanted to get an update on how you navigated the alami market issues and any impact you saw there on the transactional business as well.
Contract if there were any impacts there.
Yeah I'll take that question certainly when you have such a drastic change in the nickel price you have some discussions with you or your customers.
We were able to work through all of them all of that and then just on the transactional standpoint, we pause taking orders for a period of time to let that to let that settle out.
Okay, and then did you give a jet engine revenues for the quarter.
I did not give jet engine revenues for the quarter I can't tell you that.
<unk> are up 16%.
Sequentially and 13% year over year.
Yeah.
Okay, great. Thank you guys for the time.
Youre welcome.
Again, if you have a question. Please press Star then one.
Our next question comes from Gautam Khanna with Cowen. Please go ahead.
Hi, good morning, guys.
Hello.
Hey, just wanted to ask.
You know at one point you thought that.
Fiscal 'twenty three could be somewhere close to fiscal 19 and earnings per share.
Can you give us an updated view on that.
Yes, so I did say that the last time I sit on a run rate basis, So maybe not the full four quarters.
But I said, we could be at a run rate.
Equivalent to FY 19.
If you take a look then at FY 'twenty three what it would take to get there.
All of our markets.
Our at home could be could be exceeding FY 19 levels.
But the big market is aerospace as you all know Gautam, that's 50% of our market and if you look at this quarter.
We were about 50% of what it was pre pandemic sales if you get into FY 'twenty three maybe.
60% to 65%, so theres still a point there that that could be.
Initiatives of course, and you have.
The impact of inflation.
Pretty strongly here in the last quarter or two will offset a big chunk of that.
And what we've done over the last couple of years, which has been significant.
And some other items, we have so I've not changed my view on on that got them only to remind you that answer but I want to once you're on a run rate basis.
We could get there and I think you know quite frankly to talk a little bit more about the upcoming year FY 'twenty three you've got we've given guidance on Q4, you look at Q1, we probably look at those two quarters in tandem.
Say you.
You know as your recovery, but then you get into our second third and fourth quarter.
You know, obviously, we have to execute but from a market standpoint, I think you will you could see significant kicking up we can grow.
Oh on the sales side.
Okay and then.
Could you tell us what's going on in the fastener business so across all.
Alloy types titanium stainless nickel et cetera on the Aero side and I'll tell you can follow up on your comment Oh, sorry go ahead. Please yes go ahead and answer the fastener one I'll give you a couple numbers faster on a sequential basis sales were up 18% back.
Backlog was a was a big driver as well as sequentially up 42%, 182% year over year, that's fasteners only and then.
Real key went on bookings sequentially fasteners up 43%, that's probably the one and almost 200% year over year the year over year comparisons as you know aren't as meaningfully since a year ago, we were right in the middle of the pandemic, but I know that.
One of your question the Big driver there is probably the bookings one and sequentially that was up 43%.
Okay and then.
No.
I remember <unk>.
Facility in <unk>.
That does.
Medical fasteners as well and I was curious so is that what you're referring to earlier.
Our remarks about opportunities from Russia, and if so kind of.
Let me to displace.
The Russian supplier.
How big of an opportunity would you describe it as.
I wasn't really specifically calling out any.
You know plants, specifically, what I would say as you well know we don't we purchased titanium and then convert that into different shapes products applications and that conversion is the area that we're working with some customers who say.
Could we could we do some work for them.
There's been.
It's been a couple of simple that we've had discussions with how meaningful is it that's part of our overall dynamite.
Growth strategy, where we think that that can be.
You know significantly higher than it is right right now even prior to the pandemic and wanted to grow players could be in that conversion because if we pick some of that up.
Obviously, it would be to lock that in.
Right, but on the medical side Youre, not youre not seeing increased inquiries from like the baxter's whatever the big Oems that are.
Currently buying from <unk> as they come across your desk asking yeah. I don't you know you know my style I won't talk about any specific customers I would just say, okay. We have had inquiries and activity because of because of that situation.
Tony I wanted to also get your opinion on there's been a RPX Raytheon had talked about.
Casting delays and others have complained about forging and castings broadly as a bottleneck.
Where some suppliers or maybe it's one supplier is behind are you seeing anything in your order book.
Q.
So skus.
To any particular Oems over another I mean are you seeing evidence of this in the types of order flow youre getting the nickel billet on.
From your various forging customers.
That would qualify and behind and there was an opportunity for catch up.
Yeah, I think you know listen overall the supply chain.
It should stay that demand.
It's coming back accelerating maybe quicker than people thought at least that's what we see and we've heard from several people in the industry worried about the supply chain ramped back up quickly.
So we heard that.
Certainly our customers take that under consideration and are laying in more orders not insurance reinsurance I mean these are real demand.
Orders certainly are Chris Savage.
For us personally hurt us now that we've got that behind us, but I would say gautam.
Overall, we are seeing that type of thing.
If I can use the word urgency in terms of.
The bookings and I will say they are.
100% related to real demand.
As we look out over the next several quarters.
A couple of years.
Okay, and then just one last one on the under long term contracts that you have in there.
The aerospace business do you guys have.
Full protection on element.
Element costs.
Energy costs labor inflation et cetera, and Thats.
Sort of how does how does what's the mechanism now.
How quickly do.
The linkages to the indices, we use that as a quarterly is it annually do you get or we going to get hit with a lag at some point, where yes margins get caught we just should be aware of that.
Well across all of our long term contracts the primary.
Pass through element materials, nickel, and specifically you're talking I'm talking about and that's 50% of our costs. So like there you've got you've protected against 50% of your any inflation in costs that can be different on every long term contract, but the majority of I'd say you're about at a three month lag. So if you buy something.
This quarter, it's the pricing last quarter and going forward certainly when you're in a increasing nickel price that yet.
Uh huh.
Has that has that has an impact to the customer but it goes the other way when you're in a decrease in Brooklyn.
Local price if you look over a longer period of time several years that that all balances out pretty close to zero, but it could be some lag impacts quarter to quarter. As you. All know gautam, we very rarely talk about that because it's usually not material to us now here lately. If there was a time, we could have talked about it may be now because you have.
<unk> got such a significant increase.
In the nickel price.
Another piece on energy, we do some natural gas.
<unk>.
Energy is 5% of our overall cost so not insignificant, but it doesn't compare to the materials. So we do protect ourselves by rolling in a different trumped yourself energy hedges.
Thanks again appreciate it yep. Thank you.
Okay.
This concludes our question and answer session I would like to turn the conference back over to Brad Edwards for any closing remarks.
Thank you and thanks to everyone for joining us today for our third quarter Conference call. We look forward to speaking with all of you again on our year end call. Thanks, again and have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.