Q4 2022 Haynes International Inc Earnings Call
Speaker 2: Good morning ladies and gentlemen and welcome to the Haynes International Incorporated fourth quarter 2022 and fiscal year end financial results. At this time all participants have been placed on a listen only mode and the floor will be open for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host Mr David van Biber, Controller and Chief Accounting Officer. David the floor is yours.
Speaker 3: Thank you very much for joining us today. With me today are Mike Schor, President and CEO of Hanes International, and Dan Modlin, Vice President and Chief Financial Officer.
Speaker 3: 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 21e of the Securities and Exchange Act of 1934. The words believe, anticipate, plan, and similar expressions are intended to identify forward-looking statements.
Speaker 3: 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, and we can provide no assurances such plans, intentions, or expectations will be achieved.
Hello Conference Center, may I have your conference access code please? Hi, sure it is 618-714. Thank you. And your first and last name please? Rachel Smith. And your company name please? AYERA. Thank you so much, I'll pass you through to your call. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.
Speaker 3: in the chemical processing industry. One of our latest proprietary corrosion resistant alloys, Hastelloy Hybrid BC-1 alloy, has been accepted for the construction of a heat exchanger and a production step for crop protection chemicals. Corteva AgriScience was experiencing accelerated corrosion attack in a C-276 alloy heat exchanger, which had to be replaced on an annual basis. A Hybrid BC-1 alloy heat exchanger was fabricated and the heat exchanger has provided significantly higher life cycle cost advantage by minimizing downtime for repairs and replacement. Based on this work, I'm very proud to say that MTI, the Materials Technology Institute, has recognized Hanes and Corteva AgriScience with a 2022 MTI Valle Award for collaboration on this Hybrid BC-1 alloy project. It's important for us to go through these type of accomplishments with our application and alloy development. This is just another example of the outstanding work done by our application and... I'm sorry, our alloy and application development teams. Wrapping up my comments, I'd like to cover our current view of fiscal year 23. We believe that our future is bright and is in line with our past projections. Specifically, our current bookings and book-to-bill levels support our anticipated top-line growth rate of 15 to 20 percent year on year.
Speaker 3: Our average gross margin in the second half of fiscal 22, when removing the impact of raw material tailwinds, averaged approximately 22%. We expect a slightly unproven net in fiscal 23 in spite of the expected Q1 headwind because of the benefit of increased volumes, along with our ongoing work on costs and providing high-value differentiated products and services to our customers and end users.
Speaker 3: We expect to set a revenue record within our aerospace market, despite the industry supply chain issues and lack of twin aisle builds at this time.
Speaker 3: We're projecting positive operating cash flow to begin mid-Fiscal Year 23 as our higher levels of order entry turn into shipments and more all-material purchases are more in balance with our order entry.
Speaker 3: With the anticipated 15 to 20 percent growth in revenue along with our ongoing improvement initiatives, we anticipate the fiscal 23 earnings growth to be approximately 20 percent when compared to fiscal year 22.
Speaker 3: Finally, our first quarter revenue is typically lower due to holidays, planned maintenance projects, and customers managing their calendar year-end balance sheets. In addition, in our first quarter of fiscal 23, as I noted previously, raw materials are projected to turn into an unfavorable headwind of approximately $4.5 million and then neutralize for the balance of the year, assuming relatively flat raw material prices for the balance of the year.
Speaker 3: Given these factors, earnings per share is projected to be roughly 55 to 70 cents in the first quarter of fiscal year 23, which would represent the best first quarter in a decade and compares favorably to the 37 cents achieved in the first quarter of fiscal year 22.
Speaker 3: The bottom line is that the actions of our employees have resulted in fundamental and sustainable changes to our business. The future is bright for Hanes because of the efforts of all of our employees.
Speaker 3: My sincere thanks to everyone on our team. With that, I'll turn the call over to Dan to review the financial highlights.
Speaker 3: Thank you, Mike. We finished the year with impressive fourth quarter financial results that included revenue at $143.8 million, which is double-digit sequential revenue growth, and over 50% higher than last year's fourth quarter.
Speaker 3: Gross margin as a percent of revenue was 22.2% in Q4. This revenue strength combined with margin strength drove our adjusted EBITDA to $24.2 million which was 16.8% of revenue and net income to $16.3 million which is 11.4% of revenue. This revenue strength combined with margin strength drove our adjusted EBITDA to $24.3 million which was 16.8% of revenue and net income to $16.3 million which was 16.3% of revenue. This revenue strength combined with margin strength drove our adjusted EBITDA to $24.3
Speaker 3: This was accomplished at a volume level of 4.9 million pounds shipped.
Speaker 3: Our successful efforts to increase melt rates driven by our continued investment in inventory have driven increasing shipments and strong profitability as well as an optimistic forward outlook.
Speaker 3: Gross margin was impacted this quarter by raw material tailwinds neutralizing faster than we expected.
Speaker 3: The estimate of raw material impact this quarter from nickel and cobalt was favorable by only $1 million compared to $4.1 million in Q3 and $1.8 million in last year's Q4.
Speaker 3: If we remove the raw material impact out of this quarter's results and last year's Q4 results, the gross margin improved 580 basis points.
Speaker 3: This was driven by our price and cost improvements, combined with higher production and sales volumes.
Speaker 3: Looking forward, we expect Q1 FY23 raw material impact to flip to an unfavorable headwind estimated at $4.5 million, then neutralize for the balance of the year depending on where raw material prices go.
Speaker 3: It's tough seeing this impact go from a tailwind to a headwind.
Speaker 3: Nickel started in fiscal year 22 at about $9 a pound, then hit roughly $15 a pound about mid-year driving this tailwind.
Speaker 3: Then it's come back down to around $10 to $11 causing the headwind.
Speaker 3: Trends are similar with cobalt going from $25 to $39 then back down.
Speaker 3: This is expected to neutralize assuming prices stabilize.
Speaker 3: We continue to encounter inflationary pressures, a tight labor market, and supply chain delays like every industrial business has.
Speaker 3: Our team continues to successfully navigate our way around these issues.
Speaker 3: Our goal continues to be offsetting inflationary pressure with price increases and or cost reductions such as improving yields, productivity enhancements and process improvements.
Speaker 3: Continuing down the P&L, SG&A, including research and technical expense, was $13.1 million in the fourth quarter, or 9.1% of net sales.
Speaker 3: Operating income was $18.8 million this quarter, which is $14 million higher than last year's fourth quarter.
Speaker 3: Sequentially operating income declined $1.6 million, mainly due to the raw material tailwind neutralizing faster than we expected.
Speaker 3: Non-operating retirement benefit income was $1.4 million and was favorable to last year's quarterly expense of $1.8 million.
Speaker 4: and a $6.1 million improvement for the full year.
Speaker 4: The US pension funding percentage remained relatively stable, holding at 91%, even during recent market volatility due to our customized LDI strategy.
Speaker 4: Our year-end valuation resulted in the U.S. pension net liability at September 30th, 2022, dropping to $20.6 million, which is a 5.5 million decrease over the year.
Speaker 4: And our retiree healthcare liability dropping to $64 million at 9-30-22, which is an $18.9 million decrease. For Those Who gleam on the high streets of Non- troops fromic
Speaker 4: both combined representing a $24.4 million liability reduction.
Speaker 4: Our effective tax rate for the fourth quarter was 15.3%.
Speaker 4: The lower fourth quarter rate includes a higher utilization of tax credits and deductions as well as discrete tax benefits related to stock compensation.
Speaker 4: The effective tax rate for the full fiscal year was 21.7%.
Speaker 4: And current year estimates for next year's effective tax rates are moderately higher, in line with federal and state statutory rates.
Speaker 4: All in our net income this quarter was $16.3 million with a diluted earnings per share of $1.30 compared to $1.24 in the third quarter and 20 cents in last year's fourth quarter.
Speaker 4: To summarize our full fiscal year results, we had revenue at $490.5 million, a 45.3% increase, or $152.8 million over last year.
Speaker 4: Gross margin was 21.7%.
Speaker 4: Operating income, which was negative last year, was $55.4 million this year, an improvement of $62.6 million.
Speaker 4: Net income for fiscal year 22 was $45.1 million, an improvement of $53.8 million over last year's COVID-driven net loss of $8.7 million.
Speaker 4: The second half of this year represented over 70% of the net income, showing the current trends of profitability are strong. We look forward to FY23 with more normalized volumes with our lower breakeven point.
Speaker 4: Quarter entry and backlog continued to be at extremely high levels. Backlog ended the fiscal year at 373.7 million, up 10.5% over the quarter and 113.2% year over year. The Realacters wereno longer needed to return to explanation for changes from the working
Speaker 4: And to look one month into the new quarter of FY23, October backlog ended at $388.7 million.
Speaker 4: October order entry represented our 11th straight quarter of order entry over 50 million per month clearly strong demand signals.
Speaker 4: A few comments on cash flow and the utilization of our revolver. The primary item which drove our cash deployment this fiscal year was inventory increasing driven by our backlog strength and the inventory cost per pound rising.
Speaker 4: The pace of this inventory increase is slowing. Inventory rose $13.5 million over the fourth quarter and roughly 87% of that was the average cost per pound rising.
Speaker 4: Other components of our controllable working capital increased over the quarter such as accounts receivable with higher revenues.
Speaker 4: Looking into FY23, we estimate that with our improved profitability, combined with our melt rates more in line with our shipping levels, the utilization of the revolver will ease.
Speaker 4: and free cash flow is expected to turn positive in mid-year 23.
Speaker 4: We expect to be using the positive cash flow in the back half of the year to begin to pay down the revolver.
Speaker 4: We had cash on the balance sheet of $8.4 million on September 30th, 2022, and $74.7 million borrowed on the company's credit facility.
Speaker 4: This represents a net debt change over the quarter of $29.2 million.
Speaker 4: Controllable working capital increased by $38.9 million, with inventory increasing $13.5 million, AR increasing $15.5 million, and accounts payable and accruals decreasing by $10 million.
Speaker 4: In early October , we expanded the size of our credit facility from 100 million to 160 million.
Speaker 4: which is better aligned with our borrowing base and provides strong liquidity moving forward.
Speaker 4: Capital spending was $15.1 million in fiscal 22, and we're forecasting to spend $20 to $24 million in fiscal 23, which is slightly higher than our depreciation rates.
Speaker 4: outlook for next quarter and fiscal 2023. Current full year expectations for fiscal 23 include revenue growth of 15 to 20% and earnings growth at approximately 20% compared to fiscal year 2022.
Speaker 4: The company's record backlog and fourth quarter performance provide the foundation for these estimates.
Speaker 4: The first fiscal quarter is typically our lowest revenue and earnings quarter due to the holidays, planned maintenance projects, and customers managing their calendar year and balance sheet.
Speaker 4: In addition, in our first quarter of fiscal 23, the impact of raw materials is expected to turn into an unfavorable headwind estimated at 4.5 million, then neutralized for the balance of the fiscal year assuming relatively flat raw materials.
Speaker 4: Given these factors, earnings per diluted share is projected to be roughly 55 to 70 cents per share in the first quarter of fiscal 23, which would represent the best first quarter results in a decade and compare favorably to the 37 cents in the first quarter of fiscal 22.
Speaker 4: In conclusion, continuing our strong financial performance in the fourth quarter and our expectations for a high growth fiscal 23 provides us enthusiasm and great evidence that our strategy is working.
Speaker 4: While utilizing our revolver to enable investments in working capital, these were required for this growth. It is projected to set us up nicely to generate positive cash flow starting around the midpoint of fiscal 2020 and strengthening over FY24 and 2025.
Speaker 4: Combine this with expectations of growing EBITDA, which the second half of fiscal 22 is at a hundred million annual run rate.
Speaker 4: provide an optimistic view of our growing shareholder value.
Speaker 4: And Mike, with that, I will now turn the discussion back over to you.
Speaker 3: Thank you, Dan. Wrapping up, I'm proud of the Hanes team.
Speaker 3: and all that they are doing for our company.
Speaker 3: The best part of our story is that further improvement is truly possible in everything that we do.
Speaker 3: At this point, Jenny, please open the call up for questions.
Speaker 2: No problem. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question you please pick up your handset if you're listening on a speakerphone to provide optimum sound quality. Please hold or ask the poll for questions.
Speaker 2: Thank you. Your first question is coming from Steve Ferrazzani of Sidoti & Company. Steve, your line is live. I'm Steve Ferrazzani, and welcome to Sidoti & Company.
Speaker 3: Good morning thanks for all the detail on the call everyone. I wanted to ask your take on the aerospace market. You noted some delay in the recovery of double aisle when you think about your backlog.
Speaker 4: how you get there. What's your take on the consistency of your expected shipments in that market next year given the delay in some of the recovery?
Speaker 3: We, the delay is real, 80% of the market as we see it is single aisle versus double aisle. So we've known all along, obviously, that the double aisle planes for a variety of reasons are being pushed out. But we see no impact on our view that this market is going to grow significantly. And just some facts and figures for you. You know, the LEAP engine is the dominant engine in single aisle. And yes, it is true that the LEAP engine builds have come down a bit forecast.
Speaker 3: to show significant build rates from this year to next year and beyond. On top of that, Airbus and Boeing are expected to surpass the pre-pandemic build rates by 2023, and that's a heck of a statement. And finally, this line that I'll give you now, I heard very recently lack of engines, not the lack of customer appetite, is the main factor for holding back planes. So we're seeing no hold back whatsoever in the aerospace supply chain and customers are still pushing us.
Speaker 4: to get as much out as possible. One thing we track is the book to bill. And over the quarter in aerospace, that book to bill was 1.4. So still very strong over one. And if you look at our, one thing we always compare back to FY19 on aerospace, that was a record year for us in volume. But if you look at the average in revenue for aerospace, it was about $64.5 million per quarter in 2019. Now that was with single aisle and double aisle was doing well.
Speaker 4: And this quarter was $67.6 million in revenue, with really just the single aisles driving that. The double aisles still yet to come.
Speaker 3: Excellent, excellent. That's helpful. Thank you. I also wanted to follow up on your commentary about the CPI book to bill and how that was planned. Can you can you provide a little bit of color on, given your significant backlog, how you're handling new orders in terms of commoditized versus clearly the more higher margin orders that are more beneficial to?
Speaker 3: Sure, you've got to look at this as we look at this. It's really three markets. And the aerospace market is full steam ahead with the book to bill at 1.4. Power generation, this is the most optimistic I've heard the market about power land-based gas turbines in over a decade. There is definitely a positive build rate. There's a huge number of engines that are supposed to be built. And quite frankly, there's also positive substitution with one of our proprietary alloys.
Speaker 3: which helped these engines run hotter and more efficiently. That's Hanes 282 alloy. So those are good. But what's happened to us, Steve, is as Dan said, we've now had 11 consecutive months of over $50 million in order entry. We have a record backlog. The average of the last six months in order entry is over $60 million. Our lead times, like everyone in the industries, are starting to extend. So we look at the CPI market and we really say there's two pieces to it. There's the special project piece to that, which is high value, very differentiated.
Speaker 4: as well as aerospace is where most of our long-term agreements.
Speaker 4: reside. So we're certainly servicing those long-term agreements on the on the commoditized side of CPI that's more you know kind of spot type business that is not part of long-term agreement so it's a little easier to mix manage on the commodity side of that that market.
Speaker 3: Great, that's very helpful. If I can just squeeze one last quick one in, in terms of the expanded revolver. How you're thinking about inventory conversion into the second half of the year makes sense as sales and deliveries and shipments match up with new orders. I'm trying to think, do you feel the expanded backlog now gives you a cushion to get to the second half? Do you think that you have enough room now?
Speaker 4: Yeah, certainly. I mean, that was a 60% increase in the revolver. It lines up much better with, you know, we're an asset-based lending agreement, so it lines up much better with our borrowing base, which as you can imagine is driven by inventory and accounts receivable and such. So yeah, I think that's going to give us plenty of capacity moving forward. And, you know, once we hit kind of the midpoint of the year, we'll certainly be thinking about paying the revolver lower and go from there as we generate cash over the next couple of years probably.
Speaker 5: Fantastic. Thanks, Mike. Thanks, Dan. Thanks, Steve.
Speaker 2: Thank you very much. Your next question is coming from Michael Leschok of KeyBank Capital Markets. Michael, your line is live.
Speaker 6: Hi Mike. Hey Mike. Hey, good morning guys. First, I wanted to ask you on volume absorption, do you see further leverage here as the ramp continues and you're nearing that 5 million plus pounds per quarter mark? And secondly, you have a very strong backlog and demand looks solid across all your end markets. At what level of volume do you see a need to add capacity? 1 more minute? 2 more minutes? Yeah. All right. The economical demand dollar can be down 15 miles an hour. We're only around 2.5 million per dollar. So tosync up, do we either have capacity for durable incentives to increase in costequodcast scraping rate under our demand?
Speaker 4: And is that something that would make sense to do? Sure, I'll take the first question there. Yeah, certainly we believe, you know, we'll keep getting what I call profitability leverage in the higher volumes.
Speaker 4: We've certainly seen that with that lower break even, it really makes a tremendous difference. The incremental margin we get with higher volumes is fantastic. So yeah, as we get back to the five million pounds a quarter and start exceeding that, which we expect over the next year, then incremental margins will continue to improve. And that's one of the main drivers of an expectation of improved gross margin over the course of the year.
Speaker 3: And Mike, let me just talk for a second about the capacity and where we are. We feel very comfortable.
Speaker 3: given what we've already invested in, that especially in the aerospace side, we're in very good shape. You remember we spent a significant amount of money between 2012 and 2018, and we significantly expanded our cold finish flat capability, which is our core product going into aerospace, and our titanium tube capability also for aerospace. So we feel very good about those items. We have a couple of lines, a couple of pieces of equipment that are constrained. One.
Speaker 3: is a piece of equipment that is between our hot rolling and our finishing for strip products. And we've got $6 million in the budget to over the next year through a multitude of phases, improve the processing capability on that line. So that feels good. And the last one is vacuum induction melting, which is very full right now. And one of the things that we are focused on is on some of our core products significantly improving the yields or manufacturing people led by Dave Strobel.
Speaker 3: have done an outstanding job with that. And the higher the yields, the less we have to melt. In addition, on VIM, we're looking at whether there is availability outside for us to use conversion, and we're also evaluating whether it makes sense a few years down the road to put in additional VIMs. So we're going through all of that.
Speaker 6: Great, thanks. And I wanted to touch on the guidance as well. Given the seasonally subdued first quarter that you're expecting, as we look into the balance of the remaining three quarters of the year, do you expect from a linear ramp there in line with the ramps of your end markets, or is that something that could be fairly consistent quarter to quarter given you clearly have the backlog to support that level of shipments?
Speaker 4: Certainly with the increased melt rates that we've done over the past quite a few months, that's queuing up a lot of work in process inventory to be able to finish the processing and raise those revenue rates. Once we get past Q1, which is always, as you mentioned, seasonally subdued, it definitely will pick up from there to get to that 15 to 20% increase over 22. It'll be pretty linear. There's no big hockey stick at the end or anything like that.
Speaker 6: Once we get past Q1, it'll be pretty linear. And then on labor, I wanted to get an update on where you're at in the hiring process, as well as the training process for your recent headcount additions. Is the bottleneck still in finding labor, or is it more on the training side now? When do you think the productivity improvements from these new hires will begin to show? Is it a six or 12 month lag, or what do you see there in terms of...
Speaker 3: while and many are coming up to speed and in fact we've begun to see increases in particular in the volumes we're getting through our cold finish flat areas. So we feel very good about where we are. Of course it's not just on the production side, it's also on the sourage side and we continue to look there for what we need within our headquarters within Kokomo. So I'd say we're not at full staff on the sourage side but close and we are just about there on the production side.
Speaker 3: A little different story in our other operations, whether that's the distribution centers or wire facility or our tube facility. Those, it's a little tougher to be able to access people, but we're at this on a regular basis, almost on a daily basis, with job fairs and things like that. So we continue to work to secure what we need.
Speaker 6: Then lastly, for me, I wanted to ask on pension, just given the plan returns and interest rates and the changes you've seen there, how should we think about the balance of that pension liability and also the impact of the non-cash expense in 2023 versus fiscal 2022? Thanks.
Speaker 4: Great question. We're very happy with the progress we've made on that. And I quoted the percentage funded 91%. Actually, if you get into this year a little bit, it's slightly higher than that. And we have trigger points at certain levels that once we hit those, we shift more into the customized LBI strategy and less inequities. So we'll see if we make progress there. Currently, we're funding $6 million a year, $500,000 a month,
Speaker 4: into the plan and that's helping a bit as well. We talked about capital allocation decision at some point, making maybe a lump sum contribution to also garner some additional progress towards 100%. So that's still a consideration, certainly up against all the other capital allocation decisions that we're going to make into the future, but we'll see when we make that decision.
Speaker 4: As far as expense for 23, yeah, you're right with where discount rates have moved to, helps your liability, but the next year expense may be slightly higher on the interest piece of your expense. So the non-cash interest expense does tick up a bit from where it was last year. So we make that into these forecasts, into these projections that we have provided you, and still believe that net income strength at 20 percent.
Speaker 4: is still very doable even with those increases in the pension. Great. Appreciate the level of detail. Thanks, guys. Yep. swamp flowes.
Speaker 2: Ladies and gentlemen, as a reminder, if you do have any questions or comments, please press star 1 on your phone handset.
Speaker 2: Your next question is coming from Sam Douglas of Marra River Capital. Sam, your line is live.
Speaker 7: Bye, Sam.
Speaker 8: Hi, I have two questions if I can. First, given the significant backlog in ramp and aerospace production, how should we think about seasonality drop off from Q4 to Q1 compared to pre-pandemic years? Could we expect a little bit of a lower drop off? I know you mentioned there's some maintenance and some customer scheduling, but just didn't know how that compared.
Speaker 8: Given the significant backlog and ramp up. And then second, if I look at gross margin, X commodity tailwinds Q4 to Q3, it's about 90 base points lower, but on higher volumes. And I think you guys mentioned that it's mixed. But I guess...
Speaker 3: If you could give a little bit more color on what about that mix is driving that light. Sure. I'll start with a second question then I'll hand it over to Dan for the first part. When you look at our gross margin, that's why we try very hard to every quarter talk about what we're dealing with as far as raw material headwinds or tailwinds. When you look at Q3.
Speaker 3: Our reported gross margin was 25.5%, but we talked about the tailwind of 4.1 million. So it was really down a little over 22%. And then in Q4, when you go through the same math, we're at about 21.5%. And as we go through these numbers and look at what is the delta, the raw material tailwind, the amount of it is obviously the key item.
Speaker 3: But as we've talked about and as you mentioned, mixes the second. An example of that in what we're talking about is the mix we have in aerospace versus certain chemical processing products as an example. And so, as if you remember, I talked about on chemical processing, our book to bill was down. Because what we are cleaning or what we are going through now are orders which were taken to help us with absorption, which obviously we don't need as much help with. So those orders are in, we're shipping them, and then they're falling off the books going forward.
Speaker 4: And I can handle the first question related to seasonality. You know, it's interesting. We looked back at many years to see, you know, what kind of pattern we would have there, and it's a bit volatile. Even last year, it was higher in Q1 than this year, but of course, that was coming out of the COVID pandemic. In other years, if you try to look for a pattern, you know, we've seen seasonality drop, you know, 10% in Q1 compared to Q4. You know, probably won't be that bad. That, as you mentioned, our backlog is stronger, so...
Speaker 8: probably don't expect that much of a reduction, but that would be in the territory maybe 7-8%, something like that. Okay, thank you. And then I guess just one follow up on the pension expense. I know you mentioned higher interest expense and...
Speaker 8: Sorry if I missed, but is that the actual expense that's going through the non-operating retirement line in the P&L? Is that expected to be an expense this year?
Speaker 4: It's expected to be less of a benefit. So no, it's not going to be an expense this year. But yes, that is where it shows up in the non-operating retirement benefit expense. It just won't or.
Speaker 4: It'll be a benefit just not quite as high as it was this past year. When discount rates go up, the interest component of that goes up with it. So that's really where we're seeing that elevation. We do see kind of buried in cost of goods sold, the service cost is actually going down a bit. So we've got a reduction on the service cost side, but a slight increase on the interest portion of the expense. So net net, when you look at both of those combined, only a couple hundred thousand increase.
Speaker 4: from last year to this year. But you will see a little of that more in the non-operating retirement benefit line.
Speaker 8: Okay, great. Thank you very much. Thank you. Appreciate your questions.
Speaker 2: Thank you very much. We appear to have no further questions in the queue. I will now hand back over to Mike Shaw for any closing comments.
Speaker 3: Thank you, Jenny. To our shareholders and audience on the call today.
Speaker 3: Thank you for your ongoing interest in our company and for being part of our improvement journey.
Speaker 3: We look forward to talking to you again next quarter. Thank you.
Speaker 9: Thank you.
Speaker 9: Thank you.
Speaker 2: 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.