Haynes International Inc (HAYN) 2010 Q1 法說會逐字稿

Greetings, and welcome to the Haynes International, Inc. first quarter 2010 earnings conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions)

It is now my pleasure to introduce your host, Ms. Stacy Naper, Vice President and General Council. Thank you Ms. Naper. You may now begin.

Good morning. With me today are Mark Comerford, President and Chief Executive Officer of Haynes and Marcel Martin, 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 could contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1933 and section 21E of Securities Exchange Act of 1934. The words believe, anticipate, plan and similar expressions are intended to identify forward-looking statements. Although we believe the plans, intentions and expectations reflected or suggested by such forward-looking statements are reasonable such forward-looking statements are subject to a number of risks and uncertainties. And we provide no assurance with such plans, intentions or expectations will be achieved. Many of these risks are discussed in detail in the filings in the Security Exchange Commission, in particular on the form 10K for the fiscal year ended at September 31, 2009. The company undertakes no obligations to publicly update or revise any forward-looking statements, whether it was a result of new information, future events or otherwise. Thanks, and I would now turn the call over to Mark.

Thank you, Stacy. Good morning everybody and thanks for joining us. I will open the call today with comments about our results by market along with what kind of activity we are seeing in the marketplace. I will also update you on some of our operational activities before handing the call over to Marcel for more in depth look into the financials.

We have seen an improvement in activity and the backlog is expanded. This trend has continued into January. Moving into Aerospace, this market represents approximately 35% of our first quarter business, with revenue of $28.4 million, down 43% from first quarter of 2009. Order entry in the first quarter in this segment improved from fourth quarter 2009 and that trend has continued into January. In engine products, our largest Aerospace end market, we are not yet seeing high volume blanket orders but we are seeing stronger demand for smaller short lead time delivery. Order entry in the Airframe market, which is primarily hydrotic tubing with for us was very low in late fiscal 2009 and first quarter of 2010 but we have seen some improvement here at the beginning of our second quarter of January.

In 2010 passenger miles are projected to increase 4% to 5% and freight miles are expected to rise 7%. As I mentioned, we are seeing an increased in rush orders for this segment. In my recent visits to the west coast and Japan, some customers are also reporting for rush requests for their product serving the Aerospace industry. In prior calls, we've discussed the work the engine manufacturers did in the past 15 months to lien out the supply chain. That effort appears to have aliviate the excess inventory. On the Airframe side, however there still seems appears to be excess inventory in the chain. Specific to Haynes, our overall Aerospace order entry levels have increased over the past 8 weeks or so, favorably impacting the backlog. It will be interesting to watch the market over the next six months to see if this transaction activity yields to larger blanket orders. If and when that happens, we'll know that some level of confidence has returned to the supply chain.

In land based gas turbine market which represented roughly 18% of our business in the first quarter, the destocking and weakness we mention indeed November continued into quarter one. Revenue in this market was $15 million down 53% from our first quarter 2009. If you recall, we saw the downward trend this market in fourth quarter 2009 and sequentially revenues were essentially flat. Both OEM and MRO activity has declined. Interestingly, we have seen some one time rush orders. Jointly with certain customers, we've responded well to pick up small levels of new business over the past 6 to 12 weeks. We are also starting to see some reorders for key materials for which order entry was extremely low for about six months due to over stocking in the supply chain. Broadly, it looks like this market will be at depressed level in the 2010. And the antidotal information I just related to you is indicative that we believe demand in this market will be very spotty, necessitating speed to win whatever orders are out there in the market.

Our sales in the chemical process industry were $20.8 million in the first quarter, which was approximately 26% of our business. Net revenues are down 33% compared to first quarter of 2009. Pricing in this market remains very competitive, off 45% year over year. Our first quarter results also included a mix shift to higher volume, lower price business due the timing of specific project related business. This market has also recently been a contributor to our expanding backlog as we landed a large project in the December-January time frame.

Finally, our other markets have revenue of $13.1 million, which was approximately 16% of our business in the first quarter. This revenue was off 32% compared to the first quarter of 2009. Quote activity and SGD has been strong. And in discussions I've had with key accounts, they feel once the economy improves a bit more the projects will be reopened. Order entry in the automotive and industrial heat treating markets remained at very low levels, but appears to have bottomed.

While net revenues of $81 million in the quarter were off about 40% compared to first quarter 2009, and off about 5% compared to the prior quarter, backlog dollars in the first quarter grew 3.5% sequentially and that trend of higher order entry continued throughout January. Though it is still too early to tell whether this trend will hold, we're pleased to see that backlog levels finally improving and order activities strengthening.

Also notable, gross profit margin improved to 8.5% in the first quarter, compared to 5.7% in the fourth quarter of 2009 and a negative 8.3% in the third quarter of 2009. This sequential improvement in first quarter 2010 occurred despite a revenue level that was 5% below the first quarter of 2009 and 18% below the third quarter of 2009. Marcel will give you a lot greater detail into this.

Operationally, we finished calendar 2009 with our best safety performance ever, recording no loss work cases at our Kokomo, Arcadia, and Mountain Home manufacturing facilities. We are also building our Haynes history of continuous improvement, by implementing lean techniques at our facilities and incorporating the project management and problem solving rigors of Sig Sigma. Haynes has always had a strong commitment to quality and waste reduction utilizing principals of statistical process, control and continuous improvement. However, we recognize that there are things we can learn and efficiencies we can gain by implementing lean technique in Sig Sigma methodology.

Our UK operations have improved their responsiveness by introducing Lane and significantly reducing dead time between operations. So we're taking those cases and expanding them where applicable across our other operations. We've also incorporated in the last 12 months the methodology of Sig sigma problem solving and project charters at our Kokomo operations. Our black belt and process engineering programs are contributing to the gains we see in the operations, but we recognize we still have tremendous opportunities to drive waste out of our process, take advantage of our CapEX investments and strive to over better product, especially in respect to lead time and reliability to our customers.

During the first quarter, we completed the initial phases of our upgrades the four high Steckel rolling mill by rebuilding the main drive motors and updating the electronic drive system. This will improve our reliability and through put and broaden our capabilities while providing a higher quality, more consistent product to our downstream operations.

I want to take a second to make a comment on the Four High project. Our people did a remarkable job maintaining and improving our cost structure quarter over quarter during a two week outage on the mill. And many of you that know that mill is the centerpiece of our manufacturing. We really had some great people doing some great planning and great execution to attack such a project and get the results they achieve with minimal impact on our customers. With that, let me turn it to over Marcell for more details on the financials.

Thanks. Mark. The key items I want to comment on affect and pricing on gross margin, backlog, liquidity and the outlook on the first two quarters. Net revenues in the first two quarters fiscal 2010 were $81 million, a 39.7% decline from a year ago. This $53.3 million decline is a result of 18.2% decline in volume which accounted for $24.4 million of reduced revenue and a $26.3 million decline in average selling price per pound which account for $28.9 million of reduced revenue.

Gross profit margin in the first quarter of fiscal 2010, was $6.8 million compared to $18.8 million a year ago which was a reduction of $12 million. Our gross margin profit as a percentage of nets revenues was 8.4% in the current period compared to 14% last year. The items that contributed to the reduction of gross profit margin between periods were reduced net revenues caused by significant lower volumes and selling prices, which had the effect of reducing the gross profit margin by approximately $8.6 million. And lower fixed costs absorption due to reduced volumes particularly with that of sheet compared to last year which reduced gross profit margin by approximately $3.4 million. In comparison, performance for the first quarter fiscal 2010 compared to fourth quarter of fiscal 2009 represents a improvement of gross profit margin of $1.9 million. Sequentially between the fourth quarter of fiscal 2009 and the first quarter of fiscal 2010, volumes were flat at 3.9 million pounds and the average selling price per pound declined by about $1.11 between quarters which was offset by reduction in the average cost sold per pound of the average of $1.61. The reduction of cost per pound is equally attributable to lower material and nonmaterial costs between quarters. The reduction in nonmaterial costs reflects the affects of cost reduction efforts and improving equipment efficiencies.

At December 31, 2010 , the backlog increased from $106.7 million to $110.4 million, or 4%. And backlog pounds increased 9% from 4.5 million pounds to 4.9 million pounds.

We continue to believe that the backlog is a very good indication of the level of future revenue. The change by individual markets of the US backlog dollars from December 31, fiscal 2008 to December 31, 2009 , and from September 30th, 2009 , to December 31, 2009 , are as follows. Year-over-year, Aerospace declined by 52% compared to last year. The backlog for CPI declined by 55%. The land based gas turbine backlog was down 40% and the other market was actually up 8.6%. On a quarter over quarter basis from September, 30, 2009 to December 30, 2009, Aerospace was down by 1.5%, chemical processing was down by 3.4%, while land based gas turbin was up 22.2% and other markets were up almost 15%.

At the end of January backlogged dollars increased to $121.6 million from the end of December and pounds increased to 5.5 million pounds from 4.9 million pounds. The increase in backlog for January was primarily was Aerospace frame allocations into a lesser degree CPI project business, which really represent one off type business and will be recognized probably in the latter part of fiscal 2010. Based on the current level of order entry and sales, it is anticipated that the backlog will increase moderately through the second and third quarters of fiscal 2010. The improvement in backlog may begin to positively impact net revenues in the fourth quarter of fiscal 2010.

Our key focus has been to position ourselves so that the inventory build required to support the eventual economic upturn will not be as demanding as it was in fiscal 2007 and 2008. Inventory and cost reduction efforts continue to be a high priority within the organization. We finished fiscal 2009 with controllable working capital which consists of inventory, AR and AP net of tax AR and AP as a percent of net revenues at 59.4% and were able to maintain that same percentage through December 31, 2009.

The goal over the next several years is to reduce the ratio to 45% which is similar to levels in fiscals 2006 and 2007. If that can be achieved, assuming that raw material costs remain steady, the Company will be able to increase sales without any additional cash requirement for working capital.

Our liquidity position remains strong. Haynes has generated significant cash since our restructuring in fiscal 2004. During the five year subsequent to the restructuring, Haynes generated $161 million in cash from operations which was used to reduce the 9-014 revolver debt of $85 million to $0.00, and to fund $77 million in CapEx projects. In addition, the Company also generated a total of $102 million in cash from the 2007 stock offerings and the proceeds from the time hylic conversion agreement.

Currently, we have availability of $121 million subjects to reserves and borrowing base. along with cash of $97.5 million at December 31, 2009. The reduction of cash at the beginning of the year, is due to CapEx of $5.1 million and dividends of $2.4 million. Of the CapEx spending in the first quarter, approximately $3 million of $5.1 million was spend on the Four High equipment including motor room upgrades and furnish rebuilds. $900,000 was also spent on Arcadia at our tubular facility upgrading pilerguring and piffling operations. Based on our current operating plan and adjusted for the newly initiated dividend, it is our objective to finish the year with approximately $90 million in cash, which is approximately $10 million lower than the previous guidance due to the initiation of the dividend. For at least the next two quarters, net revenues should be similar to revenues in the first quarter, with net income of break even to is a slight loss in the second quarter and break even to a slight profit break or small profit in the third quarter. Poundship in the next two quarters should also approximately equal the poundship in the first quarter.

In summary, significant progress has been made at Haynes over the last five years. We are focusing on the current environment to optimize our position and most importantly we are planning our next five years in order to continue the process of creating value for the shareholders.

As noted the Company generated significant cash in the most recent five years and has managed the opinion that despite the current challenges the Company will generate significant reoccurring earnings and cash flow to fund all corporate requirements, including working capital, CapEx spending, pension funding, dividend payments and also increase our liquidity on a perspective basis. With that, let me now turn it back over to Mark.

Thanks Marcel. We've mentioned to you previously the work we have been doing in the energy sectors of solar, advance ultra super critical turbines, fuel cells and also some work we are doing in the chemical areas, supporting the nuclear and pharmaceutical supply chains among the meryard of other things. Our Hasteloid G35, Hybrid BC1, Haynes NS163, Haynes 282 and Hastloid C22HS alloys are gaining traction with order the books. Some of those orders are production orders and some of them are still in the prototype stages. Along with several new applications we are developing for established alloys, I think you can see we are committed to and having success in broadening the demand for nickel based and colbol based alloys worldwide. In short, our new product and new application pipeline is strong and we're investigating further and broadening and deepening it.

I think also of note is you may have heard recently the carpenter announced an introduction of a primo met material and some longer term initiatives with nano materials, Allegheny announced the success they are having with AT I-425, the 17-18plus and the ATI500-MIO. In my opinion, all of these things are great advancements in specialty materials. I know there are companies with specialty materials, as well. And really what we are seeing is a real committment to advancing core applications and continuing to expand the overall market for high performance alloys. In my opinion, technology like this is good for all of us in this industry.

Finally, summarizing what Marcel and I just covered with you, we have seen solid progress in our operating results as we battle through these lower business levels. Order entry is increasing as is quota activity. And of course we are seeing a stronger backlog. Our pipeline for new products and new applications is very strong. We still have more work to do in driving more waste out of our processes and developing new markets. And that being said, Jackie, let's open the call to questions.

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) One moment please before me pull for questions. Thank you. Our first question is comes from Edward Marshall of Sidoti and Company.

Good morning. Thanks for taking my call. My first question surrounds pricing. We saw the quarter over quarter and year-over-year pricing on the individual segments. Could you comment on where you see pricing go over the next couple of quarters, and as volumes stabilize, do we expect that will also stabilize the pricing environment?

Ed, I think pricing is starting to firm up a bid. Alloy content and things like that are starting to -- it has pulled back recently, but that seem to have been firming little bit, as well. We like what we are seeing from the point of view of, I can't really say that, I will say the aerospace supply chain is booming, but it looks like the engine manufactures maybe have hit bottom. So the reorders are nice to see. All these things really contribute to us probably having a little more pricing leverage in the future and being able to see things firm up a bit. That being said, everybody in this industry is still operating as 50%-type capacity numbers. There is still going to be some dog fights out there. Not only in existing applications, but substitution is clearly a factor right now, as well, and users have more down time. I am talking mainly about chemical process. They have more down time so they can put in a less expensive material if they want to because they have more ability to change out and make those changes. So I think we will continue to see pricing pressure in the chemical process industry. And it will still be tough out there but we encouraged that things are starting to firm up a bit. Marcel, anything to add?

No, I think that's right on point.

Is there any loss revenue or did you take advantage of the reduced demand for down time?

Actually, just leveraging off of what Mark just said. The folks out there who were responsible for that, had up front planning and we typically take outage during that time anyway with the holidays and the carryover into January. They did a great job planning. There was literally no loss revenues. It was very efficient and no extraneous costs. It was all very well done. So, it didn't really impact the Company at all negatively.

Perfect. Thank you guys.

The next question is coming from Mark Parr with KeyBanc Capital Markets.

Thanks, very much. Good morning.

Good morning Mark.

Just a couple of quick ones. I think if my memory serves me right, you had a base price increase announcement of 6% to 8% in the not too recent past? Now, Mark, your comments saying that pricing is looking a little better. Could you speak specifically around those price increase announcements as to whether or not they are actually sticking?

Just to give you an idea, Mark, we said the backlog is firming up a bit in December and January. You can imagine, that gives kind of directives to the people in the field that right now it is time to test price points. So, we are doing those things. The impact of the price increase, we announced it in December, to take affect with orders entered in January. The impact to have price increase itself we don't think will really hit the top line, the revenue line until probably our fourth quarter, would be the best way to characterize it.

Okay. All right. So, your comments could indicate that some of those higher numbers are moving into the backlog right now?

Yes. You might even say, too, Mark, on occasion, and some to have transactional business, if it is not hitting the price point that we are offering, maybe someone else is picking it up, but we have been holding pretty firm to the price points over the last 7 or 8 week.

Just a point of clarity there. I would hope you would not anticipate to see 6% to 8% uplift in the fourth quarter, Mark. Where he really talking about some percentage of that 6% to 8% starting to be reflected in that fourth quarter, and increasing amounts over the balance of fiscal 2011.

Marcel, if everybody paid that up front, you clearly didn't raise it enough. [ LAUGHING ]

Just want today make sure.

Just in general Mark, I think you realize, the capture rates are usually a bit lower than that.

I have a couple others, if you wouldn't mind. The Steckel Mill outage that you did, can you talk about any capacity, enhancements, productivity enhancements, something other than just required maintenance that might have a positive impact on under lying profitability over the next, call it 12 to 18 months?

Both of us will talk a little to this. Mark, I will start it off. You can imagine when you are running an operation like that, it is a huge mill, great separating force. And by allowing the electronics and the drive systems to really just never be upgraded since they were put in the 1982, you had is a situation where maybe you weren't hitting the gage that you were targeting when you were rolling the product. By upgrading these things, we are pretty much nailing the gages we were targeting. How does that manifest itself downstream? You can imagine if you are aiming for a quarter inch or .200, let's say your aiming for a .220 type of gage, and the materials are coming off the mill at .240 or .250, that results in increased operations downstream, cold rolling sessions, those types of things to get yourself down to the finish gage where you have to the meet the customers objectives.

Was the mill hydrolically controlled prior to this upgrade?

Yes. And really what we're talking about principally here is maybe the feed back systems, and electronic systems. They were analog systems and we updated all the drive to digital now. We've also sequenced things like potesion systems between the Steckel boxes and rolling mills itself. We've always had a great mill, but now we are moving it up and upgrading it into today's technology, might be the best way.

Round numbers, thinking in terms of 8% to 12% productivity improvement?

I think how we characterize it, with the better gage control, more reliability in hitting the gages off the Floor high, where you see the dramatic improvement is downstream operations in the cold rolling operations. If you have a five-session product, for example, well, that is five sessions through the cold rolling mill, probably several sessions through the kneeling lines. What you are doing is you are removing one whole session, a 20% reduction in operating costs. And in addition it impacts your velocity through the facility. So it is not tonight cost but reduction in lead time or working capital management.

It could be more than 10% on some products?

On some products, absolutely.

It is product specific, too, Mark. That is the key. We beat up pretty high separating force materials here. We have strong materials at high temperatures. It is what we do for a living. So, if you can imagine, if we run a soft material through that mill, we had a tendency in the past to butcher it pretty badly. This is introducing a better level of precision and control, so we can run a broader variety or even our own range of alloys much more efficiently with a much better shape coming off the mill, like I said, much better dimensional control coming often the mill which just improves the quality and efficiency all the way through the downstream operations.

That's very helpful. Thanks very much. One last question I had, and then I'll get back on the que after this. On the backlog, the sequential backlog commentary, I think you indicated that the areospace and chemical processing markets were down a little bit from the end of September to the end of December.

Yes.

But the land based gas turbine backlog was up pretty meaningfully.

Yes.

I was wondering, it seems like given your commentary in the pick-up in after market aerospace business, it seems like there is a little disconnect there. And also our thought process here is the land based market is extremely late cycle in nature, and, probably is going to be the last place that you would expect to see a meaningful, sustained pick up in bag logs. I was wondering if you could talk to those two issues and provide a little more color in the some recent changes in backlog momentum.

I think part of what you are saying, particularly with the land based gas turbines, that is suspectable to project business, one off-type business. It is oriented right now to MRO-type business. We are seeing a higher level of activity there, although at a very low level, it is increasing. But it's still very spotty. So, we will get bumps from quarter to quarter based on just some project business relative to that. A lot of pounds, but it's a very quick turn around times, and you have to have the material within the next 30 days kind of process.

Okay. Thanks, Marcel.

Yes.

Thank you. (Operator Instructions) The next question is coming from Matt Kellogg of Net Equities Research.

Thank you. It sounds like you are giving more color to it, but there has been a more quick turn. Little bit more of transactional business in the quarter. So, I was just wondering if you can give a little color to on how the mixed shift been over the last quarter, this quarter and what you see to over next quarter or two?

We have had a higher level of transactional business to over last quarter, but primarily oriented in the other category. Where he talking about wear corrosion, waste incineration, geothermal, nuclear flue gas, oil and gas, heat treating. We are seeing more transactional business there. I think it is more of a reflection of the suppliers, fabricators, not really replenishing their inventories, but working their specific problems. You see it there just because It is typically again quick turn around. It's not a blanket or replenish order. It's, I have a job, I need to get it done, can you help me out right now? That is what we are seeing there. I don't think we are seeing as much of that right there, but we are seeing it in the aerospace and chemical processing business. The primary areas in the other category.

Ok, That is helpful. Mark, I wonder if you could give us a little color on the other opportunities out there. Maybe a little on sort of what you think might be the biggest opportunity and maybe what you think is most likely to sort of most significant near term opportunity?

As far as the total markets or other markets we are looking at?

The other markets that you're looking at. (inaudible) But, just some to have other applications. I realize they will be smaller, but a little more clarity there would be great.

I think a lot has to do with alternative energy. And you can further segment that down. As Marcel just mentioned to you, we had had a lot of activity in the last quarter, in the markets might be the best way to put it. And the mix changed quite a bit. In other markets, things like the automotive business, our industrial heat treating business and even our FTG business has not been extremely strong. We had a real strong quarter this past quarter in shipping things into, chemical application, but supporting the solar industry. And another one for really a heat transfer or storage application into the solar industry. So the alternative energy does prospect a real good opportunity for us going forward. There is a lot small things going on. As people talk about engines burning hotter. And this is engines, of course jet engines, but all the way down to automobile engines too, burning hotter, and burning effluence is a better way to put it, that will create better demand, or at least people who never looked at our types of materials before are starting to look at our materials because of these higher temperatures. There is still some application work going on in that area. In fact, there is one application, an old application but a new one for us and a new materials that they are looking at, as well. There is really just as things run hotter, which is a lot of this clean energy that people talk about, and as chemicals get more aggressive, as we talked about in things like pharmaceuticals, turn around times and things like that. There is just a broader demand, I think, coming on for these types of materials. Another good example, to, and I don't mean to bore you with this, but I get excited about the application side of it. Solid gasses, deep wells. There is an area starting to look real hard at the newer materials that Haynes is putting out, things like the C22HS. If they go deeper into our solid environments, a lot of our materials could be potential solutions. We're being looked at in those types of areas too.

That is helpful and that is great. On the cap X side, I know you guys gave a, back in the fourth quarter call, sort of the two year plan. Could you give me an update on what CapEx is supposed to look like for this year. I know it was at $5 million in the first quarter and what you might expect over the next couple of quarters.

The guidance we provided at the beginning of the year was that we were looking to spend approximately $15 million this year. I think we are on track with that with $15 million, $16 million, with probably $5 to $6 million on the Floor high. So, that is pretty much tracking at this point where we thought we would be.

That is great. Thanks again for the color, guys. I will head back into cue.

Thank you. (Operator Instructions) The next question is coming from Dan Whalen of Cap Investments.

Hi everyone. Thank you for taking my call. My question is more on a follow up question to Mark Parr's on the capital and efficiency programs you have under way. Do you have any cost production per pound or profit improvement per pound target you can share with us, any order of magnitude.

We don't get that specific relative to the guidance we provided. I think the thing is, part of what impacts that is the timing, the product mix that we produce to. So we really haven't provide that had kind of specific guidance. I think the guidance we did talk about, if you think about what we do here at Haynes and the number of sessions and the difficulty in producing our product, when we can take a session out of a rolling session, a kneeling session, those are pretty specific items and they are pretty dramatic. When we talked about something that takes four or five sessions, can reduce a session, that is pretty dramatic. That is 20%, so I think that is, you remember, sheet is our primary product plate. That is 70% of what we do. You get the flavor for the direction, if not the specific pound impact.

Okay. That is helpful. Appreciate that. And just regarding your expenditures. You mention the pension plan funding. Any color you can add on that in terms of your anticipation for the year?

For this year?

Yes.

As far as pension goes, we are looking over the course of this year to fund approximately $15 million into the pension plans. In the liquidity section of the NDandA there is a cash on allegation schedule that indicates over the next five years. We are looking to fund the pension plans to the tune of about $80 million. That will get all the plans fully funded. So, that is essentially where we are at in that process.

Great. Thanks a lot.

Thank you. Our next question is coming from Tony Rizzuto, of Dahlman Rose & Co.

Thank you. Gentlemen, I have a question. A couple were asked already. Could you refresh my memory on the terms of the time that Titanium toll processing agreement you have at the Steckel mill and I wonder how long it runs. And with the upgrades that you are making in terms of gage control, are you able to secure other agreements such as this?

As far as the time the agreement goes, it is initially 10 years to renew and run over 20 years. It was a $50 up front payment. From that perspective, on the perspective basis, we will convert material for them up to 20 million-pounds, and we have a schedule, conversion rate schedule that will charge for that product converted. So it is much like any other conversion agreement now that they made the initial payment. So, 20 years, up to 20 million-pounds, at a predetermined rate schedule.

With these upgrades you guys are making to the Steckel Mill now, does this, a lot of questions have been asked about the productivity enhancement. You must have a number that you talk about in terms of what this could do to further optimize the capacity there?

Well, as far as the Floor high goes when, we took on the agreement, we had, what we did was monetize excess capacity, is. What will happen is, with the upgrades on the Floor high, we will have additional capacity, but as far as the titanium goes, we are limited in what we can do from a conversion perspective, relative to titanium. As to other sheet products, other rolling slabs for other nontitanium products, that is always a possibility.

All right, Marcel. Thank you very much.

Thank you. There are no further questions. I would like to hand the floor back over to management for any closing comments.

Thank you, Jackie. In closing, we would like to say thanks everybody very much for the support of Haynes. We would like to wish the employees, customers in Asia a healthy, prosperous New Year. And again, thanks everybody and we will look forward to talking to you in a couple of months. This concludes today's teleconference.

You may disconnect had lines at this time. Thank you for your participation.