Haynes International Inc (HAYN) 2012 Q2 法說會逐字稿

Greetings and welcome to the Haynes International, Inc. second-quarter FY2012 earnings conference call. At this time, all participants are in a listen-only mode. Question-and-answer session will follow the formal presentation. ( Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Dan Maudlin, Controller and Chief Accounting Officer for Haynes International. Thank you, Mr. Maudlin. You may begin.

Thank very much for joining us today. With me today, as usual, is Mark Comerford, President and CEO of Haynes International; and Marcel Martin, Vice President and Chief Financial Officer. Before we get started, as always, I would it like to read a brief cautionary note regarding forward-looking statements.

This conference call could contain statements that are forward-looking, within the meaning of the Private Securities Litigation Reform Act of 1933 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. Although we believe our plans intentions and expectations regarding or suggested by forward-looking statements are reasonable, such statements are subject to a number of risks and uncertainties, and we can provide no assurances that such plans, intentions or expectations will be achieved. Many of these risks are discussed in detail in the Company's filings with the Securities and Exchange Commission, in particular Form 10-K for fiscal year ended September 30, 2011. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Thank you very much for listening. And now, I will turn the call over to Mark.

Thank you, Dan. Good morning everyone, and thank you for joining us today. Hopefully, you have all seen the press release and had a chance to review it. We'll follow our standard agenda in today's call. I will open with comments about the business and our end markets, and then, Marcel will give you greater detail on the financial results.

Our second-quarter FY2012 posted net revenue of $158.9 million, up 14.2% from the second quarter FY2011. Net income more than doubled to $15.2 million, or a $1.23 per share. Backlog held up despite the strong invoice level, increasing just under 1%, to $264.2 million. If you remember on our last call, we also mentioned that our first fiscal quarter was impacted by some planned and unplanned equipment outages. And as we discussed in the first-quarter call, we did manage to make those up in the second quarter.

Also, as we've been doing, recently, I want to give you a quick update on the April backlog. We shipped more than we booked. Our book-to-bill was slightly under one in April, and the backlog today is that about $261 million. So, it is similar to what we've been seeing over the past few quarters, the backlog is varied between that $240 million and $290 million range. In fact, in recent quarters, it's been more in the, I'll say, $250 million to $270 million range as we manage our product mix.

Also, last year, when we were building the stronger backlog, customers are placing longer-term blanket orders to replenish depleted pipelines from the earlier years, the crisis years, and effectively reserve their spot in our manufacturing queue. In the past six-plus months, business has been more transaction oriented as customers are more comfortable with their inventory levels and their keeping an eye on commodity prices.

Looking at our key markets, net revenue in the Aerospace market for the second quarter 2012 was $61.9 million, up 26.4% over the second quarter of '11. Aerospace accounted for roughly 39% of our revenue during the quarter. The Aerospace market continues to perform well as demand for engine materials and hydraulic tubing are being driven by the end-user requirements. Both Boeing and Airbus backlogs remained strong, and the need for greater fuel efficiency and cost efficiency is driving demand for better engine designs and materials. In recent meetings with designers, new, more fuel-efficient engine platforms are progressing well. As a result, demand for Haynes 282 is increasing.

And, just to give you a rough idea, I've mentioned to you previously that we cannot get into specifics because a lot of the nondisclosure agreements we have with the manufactures, but Haynes 282 volume will double this year, over last year. And, we expect to at least double and likely triple again within the next two years. And, this time period that I stated for you is still well ahead of some of the new engine platforms that we expect to move into production in the 2014, 2015 timeframe. Anyway, so we are very pleased with where we are with 282 and where it is positioned on these platforms. Our backlog in the Aerospace market slipped during the second-quarter, down about 0.7%. We remain very confident that 2012 will be a strong year for our Aerospace products. And, momentum is expected to build in 2013, as ramp-up plans are being suggested by our key accounts and end users.

In our Chemical Processing market, net revenue for the second quarter was $37.8 million, up 1.6% from last year. CPI accounted for 23.8% of our total revenue in the quarter. Business in this market remains very competitive for large project-related applications, and our results reflect much higher selling prices and much lower volumes than a year ago, as a key high-volume project for 2011 has not repeated, but transactional MRO business was strong in the quarter. Our backlog in this area rose 15% during the quarter, mainly due to new applications, and I believe some customers took advantage of the lower nickel prices. Nickel, today, is below $8 per pound. We saw quite a bit of activity moving below $10 and $9 during the quarter.

As I just mentioned, we have major new application last year that did not repeat this year. We may see repeat business in this application the future, but right now, that market is pretty much flush with capacity, so we do not have any indications of a timeframe. We also have second major new application from last year, in this market, that will repeat this year. In fact, we have the order on the books now and the material is in process. It will likely ship in the late-third or early-fourth quarter.

Our Application Engineering and Marketing groups have done an excellent job this year, filling in the gap from that first non-repeating application, as I've mentioned. For our revenues to be holding up in this market without that application is, in my opinion, testament to the strength of our pipeline, of prototype applications in alloys like HASTELLOY C-22HS, HASTELLOY G35 and HASTELLOY HYBRID-BC1, and our people are out there developing these applications with customers. It is interesting, sometimes these applications hit and sometimes there are gaps, especially in reorder patterns. It's critical to have these applications in the pipeline and the sales and marketing and technology people, as well as production personnel in our plant, who can respond and step up when these applications do hit.

Turning to the Land-based Gas Turbine market, our net revenues totaled $32.2 million during the quarter, up roughly 16% from last year. This market was 20.2% of our total revenues for the quarter, and backlog increased 1.7%. End users remain bullish on hitting their shipping targets in this market. Especially in the US, where natural gas prices remain at or near multi-year lows. We have seen increased quote activity globally, with OEMs, and we are having success booking orders with non-US manufacturers, as well as the US-based manufacturers. Similar to CPI, this market remains very transaction oriented. However, we have seen some slightly increases in longer-term blanket orders. Compared to six months, or longer, ago, our customers are indicating greater confidence.

Finally, our Other markets had net revenues of $23.1 million in the quarter, up 5% from the second quarter of FY2011. These markets accounted for about 14.5% of our total revenue in the quarter. Backlog in this area fell about 8.7%. As we said previously, this market is project-timing dependent, and we are seeing increased activity in the industrial heat treating and FGD quoting areas. That is usually a good precursor to increased order entry. Pricing in this area remains very competitive and transactional. With that, let me turn it over to Marcel for details on our financials.

Thanks, Mark. I will start with the year-over-year comparisons of margin contribution and costs between the second quarters of for FY2011 and 2012. The combination of the noted revenues and cost changes between last year's and this year's second quarter, as discussed in the 10-Q and press release, resulted in gross profit margin in the second quarter of FY2012 of $34.5 million compared to $20.6 million in the same quarter a year ago, an improvement of $13.9 million between periods.

The volume contribution to the gross margin improvement was approximately $200,000, and the change in product pricing netted against the change in product cost per product pound contributed $13.7 million to gross margin improvement. The result was that gross profit margin as a percentage of net revenues was 21.7% in the current quarter compared to 14.8% in the comparable period of last year. The contribution to the improved gross margin from the volume change for the second quarter of FY2012, as compared to the comparable period of FY2011, was due to the volume increasing between quarters approximately by 1.6%.

The most significant contributor to the gross margin improvement for this year's second fiscal quarter compared to the prior year, was the increase in the average gross margin per pound of $2.10, or in total for all pounds of $13.7 million. Last fiscal year's second-quarter gross margin per pound was $3.23 per pound, and this year's second-quarter gross margin per pound is $5.33, a 65% increase between years. The year-over-year improvement of performance in second fiscal quarter reflects the improving economic environment and the favorable impact on the markets we service. It also highlights the effect of continuing to improve product mix by managing what markets we sell into, what forms we sell, what alloys we sell and our continuing effort to improve manufacturing cost structure.

SG&A, including R&T, for the current quarter was $11.5 million, an increase of $0.5 million, or 4.3%, compared to the prior-year fiscal second quarter. Factors contributing to higher SG&A cost in the second quarter FY2012 compared to last year, included additional headcount, salary increases and increased marketing costs due to the increasing levels of activity. From last year second quarter to this year second quarter, SG&A plus R&T as a percentage of sales, declined 7.9% to 7.2%. The forecast for FY2012 of SG&A, including R&T, continues to be approximately $45.2 million for the year.

For the second quarter of this fiscal year, pretax income was $23 million compared to pretax income of $9.6 million in the second quarter of FY2011. For the second quarter FY2012, there was tax expense of $7.9 million versus a tax expense of $3.3 million in the second quarter FY2011. The effective tax rate for the second quarter of FY2012 was 34.2% compared to 35% in the comparable period of last year. The rate for this year was lower primarily due to reduced state taxes. It is anticipated that the rate for FY2012 will be approximately 34%. Net income for the second quarter FY2012 was $15.2 million, or $1.23 per diluted share, compared to net income of $6.2 million, or $0.51 per diluted share in last year's fiscal second quarter. Gross margin fell between the first and second quarters of FY2012.

The combination of the improved volume revenue and cost changes between quarters resulted in gross margin in the second quarter FY2012 of $34.5 million, compared to $23.5 million in the first quarter of this year, an improvement of $11 million. A higher gross margin quarter to quarter is a result of an increase in volume between quarters of 1.3 million pounds or 26.1% and the favorable effect of an improved average second-quarter gross margin per pound of $5.33 versus the first-quarter average gross margin per pound of $4.58, which is an improvement of $0.75 per pound between quarters. Volume improvement to gross margin within quarters equals $5.3 million, and the net pricing and cost changes between quarters contributed $5.7 million to additional gross margin. The result was that gross margin, as a percent of net revenues, was 21.7% in the current quarter compared to 18.2% in the first quarter of this fiscal year.

Backlog dollars or $264.2 million at the end of March, down by $9.2 million or 3.5% of ending of the year, due to sales for the six-month period running slightly ahead of the order entry of the same period. First quarter order entry activity was down to due the traditional seasonality of the holiday season and year-end inventory reduction by our customers. In addition, order entry activity in the first quarter was negatively impacted by the global economic uncertainty and influenced by the European sovereign debt crisis. Order entry in the second quarter, however, improved and slightly exceeding sales, which contributed to the recovery of the backlog in the second quarter as compared to the December 31, 2011 balance. Overall, the current backlog and order entry rate is expected to support the forecast to perform for the balance of the year.

The April backlog declined slightly from the backlog at the end of March with the balance of the backlog at April 30, 2012 equaling $260.8 million. It decreased to $3.4 million from March 31, 2012. The backlog pounds at April 30, 2012, were approximately 8.8 million pounds with an average selling price of $29.59. The order entry for April was down from the average monthly order entry run rate from the previous quarter and continues to reflect a broad product mix, including billet product, which contributed to the reduction in backlog average selling price of $0.26 per pound from March to April.

The Company continues to focus on improving working capital management with an emphasis on inventory through initiation of [pull or] lean manufacturing techniques and capital improvements. Inventory increased by approximately $24.1 million during the first half of the year, primarily due to material in process that relates to project business as expected to ship in the third and fourth quarters of this year. It is anticipated that through the third and fourth quarters, inventory will decline in turns will improve at approximately a turn rate equal to the rate at the end of last fiscal year.

Capital spending. In the first half of FY2012, the Company spent $12.7 million on capital projects, which include the continuation of work on the four-high Steckel rolling mill, start of the installation process for an additional electroslag remelt furnace, upgrade to the vacuum melt furnace processing systems and instrumentation, upgrades to the research and technology laboratory equipment and the upgrade of the information technology system. These projects are expected to improve quality, enhance working capital, and reduce costs and increase capacity. In addition, the Company is currently evaluating further increases to spending beyond levels previously disclosed in the Company's last recent Form 10-K. This additional spending for new equipment is being contemplated to enable the Company to take advantage of the continued strong growth in the markets it serves. Such spending would be expected to increase capacity, improve product quality and enhance manufacturing efficiency.

We'll comment on the liquidity. In addition to the cash available, $51.4 million at March 31, 2012, the Company has a working capital facility of $120 million, which can be increased to $170 million at the Company's option. This provides total liquidity of $220.1 million, which is expected to enable the Company to continue taking advantage of the improving economic environment and any other growth opportunities that become available.

The outlook for the balance of the year. Net income for each of the third and fourth quarters of FY2012, is currently expected to approximately equal the net income of the second quarter FY2012, without the inclusion of the $1.1 million net income carryover from the first quarter to the second quarter. Through providing guidance indicating that net income of third and fourth quarters in FY2012 will be approximately equal; however, the project [bids] which is currently planned to ship equally between the third and fourth quarters, may not ship as planned, which could shift net income between the third and fourth quarters.

In summary, even though the economic environment continues to be uncertain, the Company's performance continues to improve. The Company's balance sheet is solid with no debt, and liquidity is expected to be sufficient to fund our obligations and support the growth of the business on a prospective basis. We have a business plan and continue to perform to that plan. Lastly, the current backlog represents is a strong starting point for the second half of FY2012. With that, let me now turn it back to Mark.

Thank you, Marcel. We have got a number of projects going on in the mill, 5S projects. I like the discipline that they are giving our people, and more importantly, the discipline it's giving us in our processing and the way we manage our work. There are some great lean projects going on that are helping us with our velocity, especially on high-volume materials. The same thing with -- we have got a number of people in Green Belt and Black Belt training, right now, and I really like the results we are seeing, but I also like the questions that we are asking. So, a lot of good things going on there from the manufacturing side of the business, as far as getting more efficiency. We're grinding out more capacity all the time from our existing operations and significantly better quality, good cost structure as we move forward.

I also like what we are seeing on the commercial side of the business. I think you are seeing some of the pricing management that we are getting right now. Dropping nickel is a concern, but I'm still very pleased with the way our people are managing the mix. We expanded gross margin percentage north of 20% for the first time since the 2008 timeframe. As Marcel mentioned, our balance sheet remains very strong. No debt. That allows us the flexibility to commit to the needs of our customers and meet some market opportunities that we are finding out there. We also continue to use these process improvements in capital expansion projects to meet current and the future needs of our target markets. With that, let's go ahead and open up to your questions.

Thank you. Ladies and gentlemen we will now be conducting a question-and-answer session. ( Operator Instructions) Edward Marshall, Sidoti and Company.

Good morning. First question is on gross margin. You talked a lot about it. You gave a lot of color. You are seeing lower pricing, probably, you did last cycle in some of the market, and you are not getting the same FIFO spread. I understand that most likely some of the costs were allocated to 1Q, and that is why are seeing a hefty margin in this quarter. But, the trends are going in the right direction. It seems like the equipment upgrades are paying off, for you. How much do you attribute to that? How much do you attribute to volume, and then, of course, maybe just the overall market trend? What is going on in the market, in general.

I think, overall, one of the things we keep focusing on, we would remind people, is that we are going through a process of trying to improve our product mix. I think back you see that reflected -- Mark spoke to a specific project in our last year that did not repeat this year. That was a project, for example, that was at the lower end of our alloy value and at the lower end of our conversion -- our added value curve. That project got replaced with a number of additional projects of higher-value alloys and a more complex value-added process.

So, what you see happening is that even though -- and you with this in our cost structure over the course of the year, last year to this year. Our raw material cost did increase over the course of the of the year because of the mix change. More pertinent to your point, Ed, our conversion costs remained equal or actually declined over the course of the year with a higher-value product mix. Again, it's difficult to quantify it except to say that the cost -- conversion cost, excluding the material, was either neutral or declined by probably 5% to 7% through the course of the year. That decline was precipitated by volume, obviously, but also, more importantly, by the contribution of more equipment processing. Does that help at all?

It does.

Ed, let me add to it too just to take almost specific examples. When Haynes redid the furnaces, if you remember we had a cold finishing project back in 2008, the objective was to increase the capacity of the cold finish area on the order of 30%, at the time. Right now, we sold all that capacity, and we're finding more capacity available they're than I think we expected was available. Part of your question was what is the new equipment doing for us, I would say that the $25 million or $30 million spent upgrading the cold finishing area there has returned upwards of $100 million worth of revenue.

You know what our margin levels are, so that's a great project that's going on. Also, just as an aside to that, and this is a little bit more difficult to measure, so it's a broad measurement we look at. We look at the number of therms, so the energy inputs we use for output feet or pounds. That number is holding fairly steady over this period. It is not a cost of the energy or things like that, but it's the number of therms, which gives you an indication of the old furnaces or just how much heat you were losing or how inefficient those old furnaces were. The CapEx moves that were made in the past, we are definitely benefiting from those right now.

I am assuming you put the most critical applications first, and that you may not get the same -- you hope to, but you may not get the same return that you saw earlier on in some of the earlier projects.

Well, actually, we were -- you appreciate where you were for a number of years, and we continue to find that the CapEx projects that we invest in have a substantial return probably in excess of 35% or greater. Everything we find that we can do for relatively nominal investment amounts has a significant impact on the organization. Mark picked out a perfect one. We like to think that we continue to evaluate opportunities of equal value.

Yes, and, Ed, just that specific item, the furnaces. I have been here -- before I came here to work, I have been here and walked through the mill a few times, and I am certain that the return we could get from replacing those furnaces was definitely the number one reason for doing it. Very close to it, the number two reason was, probably, those furnaces were pretty close to almost falling in on themselves. It was a necessary capital move regardless of what the return was going to be.

So, segue to the next question then that you mentioned a few things about mix and the gross margin. How close are you to, say, a fourth leg of the stool? I am assuming you will be somewhat conservative of how your approach to those new markets that you entered into. We have had good commentary, good color in previous quarters. Where does that all stand? I note your comments about some of the other alloys earlier in the call.

The energy market has been doing great for us. That's the best way to put it. When I say energy, I am speaking very broadly and speaking also separately from land-based gas turbine. Be it downhole applications either on the exploration side -- we don't have great traction yet on the exploration side, but we have got a lot of interest, especially in some of the newer alloys. On the production or delivery side, we've had some pretty good hits in the last two years. That is a marketplace that Haynes really hasn't participated in for, I'll say, 10 or 15 years. That has been very, very, kind to us.

Also the alternative energies, or the renewables, we have had some success, especially, I will say, in the solar area. Again, both in transport and storage systems, that has been good. Not as good as the downhole oil and gas drilling, at least from a volume point of view. But still very nice application wins in, especially, the transport and storage areas for solar. Also, we have had some success further down the line in the solar processing, which would be the chemical refinement of some solar materials.

I am being very broad in this discussion, but we've got a lot of nondisclosure agreements that I cannot violate by discussing these. That gives you an idea. If you are talking about a fourth leg of the stool, the energy market itself has been very good to us in the last two years.

I assume the energy market, saying the oil and gas exploration, production, will probably be a little bit closer than some of the alternative energy stuff that has a longer build cycle, et cetera?

That is probably the best way to put it. The oil and gas area is a lot like aerospace industry. When they need something, they've got a problem, they need it today. We have been very fortunate. We have got some alloys that are meeting the needs of these hotter, more sour environments.

Are you selling any more than introductory -- say, the market is tasting what your product is? Or are you seeing decent-size orders coming through, or is it still just testing the waters?

Decent size orders coming through.

Excellent. Finally, I'll save all the sappy stuff for the year-end. We like having Marcel, but I saw the announcement earlier. How is the CFO search going? Is there anything we can talk about surrounding that, at all?

It's going well. We are outlining the plans. We met with the Board and formed a committee. We are doing an internal and external search. Honestly, much like the CEO search that was conducted when I came in 3.5, 4 years ago.

Thanks. I appreciate it.

(Operator Instructions) Dan Whalen, Auriga USA.

Hi, guys. Thanks for all the color on the quarter. I was just wondering if we could walk through how the quarter progress? We have heard from other companies that the quarter started out Jan., Feb., pretty strong and then April took a little bit of a pause, possibly the first part of the month was a restocking following a calendar 4Q destocking. Than, we saw a little bit of a pause in April. Is that similar to what you guys saw? Or a bit different?

I'll tell you what, Dan, if you don't mind, I will bore you with little bit of macro on this end, as well as the Haynes specific. If you think of last year, 2011, our year started off absolutely gang busters. If you remember, we saw the backlog really go up by $100 million-plus early in the year. That was everyone placing the blanket orders and reserving their spot in the queue. So, as we move through the balance of the year, order entry remained good. Then, as we got into the first quarter of this year, I wouldn't say it backed off, it held pretty much even, if you look at our backlog that we give you. Book-to-bill pretty much settled in right at 1 all the way through.

On a macro side -- that is the Haynes-specific side. On the macro side, I'd watch that nickel market. Nickel market below $8 a pound tells me that this marketplace, the mills, especially stainless, right now just aren't drawing the nickel out of the system that the miners are producing. I could be wrong on that, but does it tell me if there's a soft patch coming? I really can't say. In our specific markets, you talk about the Aerospace, the Land-based Gas Turbine and CPI, if you look out in '13 and '14, these build rates are there.

Boeing shipped 137 commercial aircraft in the first quarter, that puts them at -- and I think they shipped another 51 in April. They are hitting the ramp-ups that they said they would hit. Airbus, I haven't seen -- they don't announce until May 16th for the first quarter, but I think their number through February was something like 91. Again, these guys are shipping what they said they would ship. That is a great indication, especially out into the '14, '15 timeframe.

There's a lot of headline noise out there right now. So, I think at least what we are seeing, and when I talk with customers and meet with customers, they are saying -- we've got some orders that we're going to place, but right now, we are holding off. That's what I mean when we are saying right now the environment is very transactional. It's that 1 to 1 book-to-bill, that's a lot of what we've been seeing. Anything else Marcel?

I think that's right on point.

Does that help you at all, Dan.

That's very helpful. I appreciate that. Mark, you were talking about the Haynes 282, and then after that you mentioned either an application or a potential project -- major, that could be shipped in late 3Q or 4Q. Is that baked into your current second-half guidance, or would that be incremental?

The third and fourth quarter item I mentioned another the CPI market, if you remember, that's a brig project that will shipping in the third and fourth quarter, and that is in our numbers.

In your numbers, okay. Lastly, just about the incremental CapEx that you are considering. Any color you can provide in terms of how much incremental capacity that could provide?

Right now, that is something we are considering with the Board. We are looking at specific areas where the markets are expected to grow, and how can we support them? If you take a look at our product range, I think it's fair to say that the Aerospace market is going to be a driving force. Again, based on what it is that about Airbus and Boeing, think about those engines. Right now, we are running at 2,500 engine a year type of run rate. These guys have made no secret that, that is going to 3,500 engines. So far, they've been doing what they say.

Same thing with Boeing and Airbus. If you take a number of commercial aircraft deliveries in places like airline monitor, what those expectations are, and what we do is walk right through every piece of equipment and our alloys. We put capacity numbers on them, and where we are today, and what we can get from better techniques and where we think we are going to have to do some investments. That is really what our approach is, to this.

Okay. If I could ask just one more. Just to help me -- I may have missed this in the release, but just to help me, the first-quarter shipped about 5.1 million pounds, second quarter your shipped about 6.5 million pounds. Can you help me just normalize, excluding the non-recurring shipments from the extended outages, what would the true fiscal second-quarter volume numbers would've looked like, excluding the nonrecurring issue?

We are talking about 400,000 pounds of product, approximately, about $10 million.

Okay. So we're looking at a true number of about 6.1 million pounds. Then, any color -- just so I can back into what capacity is. What your utilization rates were for the quarter?

Right now, this past quarter, we are running around, depending on the form, between 80% to 85%. Again, from the perspective of capacity that we could gain some additional volume on, would be the sheet area where we have capacity available there yet, that we could bring on -- or we could produce to. Probably in the plate, also. Less so on the tubular side. We are running pretty full. We are at the top end of the capacity on the tubular side.

As far as billet, slab goes, we have probably several million pounds of additional -- on an annualized basis -- capacity available there. On [our] side, we have got substantial amount of capacity available.

Okay. I am backing into some numbers. If you analyze your 6.1 million pounds that gets you to roughly 25 million pounds. You are operating at 80% to 85% utilization rate. That means you have capacity about, call it, 29 million pounds to 31 million pounds?

I guess I would look at it based on what we did in the fourth quarter from a producer sales perspective. We are probably -- when you look at our primary products, we are probably a bit lower than that. Not a lot lower, but maybe closer to 27 million pound or 28 million pound range. Okay. So, in the next 12 months, you are not really going to be capacity constrained, and you're planning ahead for this [desecular] and cyclical patterns that we are so excited about.

Dan, that is a lot about what the bookings look like right now. Frankly, that is code for when we say managing the mix.

Yes. Great. Fantastic quarter.

(Operator Instructions) Edward Marshall, Sidoti & Company.

I just had a quick follow-up, if I could. You talked about improving mix in the overall business and putting some of the lower product mix stuff to the side. I think there commentary was in billet in the backlog and that brought down some of the lower pricing. What was the decision to take that project -- was that, obviously, knowing billet's a little lower grade, was it a specific customer? Was a part of a bigger order? Help me understand the mix equation that we are working to and taking the lower quality business well.

Yes. It's a little bit of everything, Ed. By lower quality, we mean lower selling price, not necessarily lower margin. There's just fewer operations have to put on to the project to get it shipped. The nice thing about something like a billet, that's an area where there is a lot of capacity available.

I see. Perfect. Thanks guys.

I am showing there are no further questions at this time. I would now like to turn the floor back over to Management for closing remarks.

Think you, Claudia. Thank you, everyone. Thanks for your time today, and thank you for your interest and support of Haynes. We'll look forward to updating you again in the next quarter. Goodbye.

Ladies and gentlemen this does conclude today's teleconference. You may disconnect your lines at this time, and we thank you for your participation.