Haynes International Inc (HAYN) 2015 Q2 法說會逐字稿

Greetings and welcome to the Haynes International, Inc. second quarter 2015 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) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. David Van Bibber, Controller and Chief Accounting Officer. Thank you, Sir. You may begin.

Thank you very much for joining us today. With me today are Mark Comerford, President and CEO of Haynes International, and Dan Maudlin, Vice President and Chief Financial Officer.

Before we get started, I'd like to read a brief cautionary note regarding forward-looking statements.

This conference call contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995, and Section 21 E of the Securities and Exchange Act of 1934.

The words believe, anticipate, plan, and similar expressions are intended to identify forward-looking statements. Although we believe our plans, intentions and expectations regarding or suggested by such forward-looking statements are reasonable, such statements are subject to a number of risks and uncertainties. We can provide no assurance that such plans, intentions or expectations will be achieved.

Many of these risks are discussed in detail in the Company's filings with the Securities and Exchange Commission, in particular, Form 10K for the fiscal year ended September 30, 2014. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

With that, let me turn the call over to Mark.

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

We had a number of positive factors impacting the second quarter. Over the past year or so we've talked to you about new applications and the constant work we do with the design engineering community to develop applications for our proprietary materials.

We had a strong quarter in shipments of those products and in niche applications in energy, consumer and chemical markets. We also shipped over $60 million of our aerospace-related products in the quarter and we had positive impacts from our tolling business, both with the inclusion of the LaPorte facility for the first time in our numbers, and good activity in our baseline tolling business.

Perhaps most importantly, even with these higher shipping levels, we managed to see our backlog expand in both value and quality, specifically, higher overall dollar volume and higher price levels in spite of falling commodity prices, indicative of the mix we booked during the quarter. By the way, I'm especially pleased to see the backlog gains in the quarter because our shipping levels in each of our four defined markets increased sequentially from the first quarter to the second quarter.

Overall, net revenue in the second quarter was $138.7 million, up 20.2% from last year's $115.4 million. Pounds shipped in the second quarter were up 5.9 million, up roughly 4.3% from last year's 5.7 million. Net income in the second quarter of fiscal 2015 was $11.7 million, up approximately $13 million from last year's reported net loss of $1.2 million.

Last quarter when we spoke with you we had expected the lower value, high-volume material side of our business, primarily in corrosion, to increase. However, that did not happen. The high volume side of the chemical process industry is still slow and very competitive. Similarly, the gas turbine market has not yet rebounded. At Haynes we were able to ship some project work that we didn't expect to be able to ship until the third quarter, and as I stated, we had a stronger-than-expected quarter in aerospace products. As a result, we performed well above where we had anticipated.

I'd like to say that we're seeing better strength in the high-volume CPI and land-based gas turbine markets but at this point they are still very slow. Also on the downside we're still disappointing customers on leadtimes and deliveries.

We're making some gains in the tubular products area with our new capacity coming on, and we're booking that facility at higher levels already, but we are behind on our core sheet and coil products. You'll notice in the queue, that we are finally pushing material through WIP into finished goods, this is to meet the demands we're seeing, as evidenced by our increased revenue levels and increased backlog.

Finally, as we stated last quarter, we're cognizant of the issues impacting the specialty metals industry, primarily the cutbacks in oil and gas industry. And we do suspect we may see some impacts in the downstream chemical industry applications we supply. However, we remain confident in our business, based on the strength we've seen so far this year and the strength and quality of our backlog as we look forward.

With that, let me move into the markets and give you some color on what we're seeing. Net revenue in the aerospace market for the second quarter of 2015 was $60.3 million, up 27.6% from the second quarter of 2014. Volume was 2.7 million pounds in the second quarter, up 20.7% from 2014's 2.2 million pounds. Aerospace comprised 43.5% of our net revenue in the quarter, in spite of the higher shipping level, our backlog in aerospace also increased 11.7%.

We don't expect any broad sustained downward corrections occurring in the supply chain; in fact, we expect the aerospace business to continue to increase as 2015 progresses. As we said last time, we expect the progression to be somewhat uneven, especially with the volatility we are experiencing in commodities and the inventory levels in the supply chain.

At the macro level, I'll repeat what we discussed last time, specifically, that Boeing and Airbus now have aggregate backlog of about 12,000 aircraft, and new platforms like the 737 MAX, A320neo, 777X and others continue to book well. Engine manufacturers and sub-tier fabricators associated with these platforms are experiencing better activity and, as a result, we expect stronger demand as we move through 2015 and into 2016.

On the structural side, our tubular products facility had one of its best six-month periods since 2012 in both output and order intake. Again, overall, we expect the aerospace market to remain strong as we progress through 2015. By the way, sequentially, we did about $43 million in aerospace in the first quarter of 2015, so the $60 million this quarter is a substantial increase, almost 40%. To see the backlog increase during the quarter on top of that revenue increase lends credence, I think, to our confidence in this market.

I also think it's a good time to note that as we're moving more of our inventory from WIP into the service centers, as I mentioned earlier, we can take advantage of these spikes in demand. Last quarter we mentioned during the call that we felt that the destocking in aerospace had ended, but obviously we didn't expect a 40% spike in the next quarter.

In fact, if you recall, we expected better transactional activity to occur in the CPI market. Anyway, obviously, the transactional increase occurred in the aerospace market. By having the material available we were able to take advantage of that increase in the aero demand in this past quarter.

Moving to the chemical processing market, net revenue for the second quarter 2015 was $35.6 million, up 16.9% from the second quarter of 2014's $30.4 million. Volume in this market was down 11.6% in the second quarter of 2015 to just under 1.4 million pounds from last year's just over 1.5 million pounds. The higher revenue and the lower pounds shift is indicative of the lower levels of the high-volume projects we had mentioned earlier, combined with our strong results in developing new high-value applications.

CPI accounted for 25.6% of our net revenues during the quarter. Backlog fell 22.6% during the quarter, principally due to the high value of the shipments. As we have discussed previously, several of the new applications we have been working on over the past three-plus years became orders in 2014 and 2015, and we've been shipping these projects throughout fiscal 2015.

We still have several projects in the pipeline for 2015. As I mentioned last time, it's sometimes very difficult to dedicate the resources to developing these projects in lower demand, lower profitability periods, and I think it's very important that we acknowledge the work of our technical people, our production people, our field people, when these projects hit the order book and turn into top-line revenue and bottom-line profitability, as we have seen over the past few quarters.

Looking ahead, we continue to work on new projects in this area. In fact, we just booked a nice project late in March that should ship late in our fourth quarter and early in our first quarter of fiscal 2016. We're confident we'll continue to convert some of these new applications, just as we have done over the past few quarters. However, we do feel that the cutbacks many of our peers are experiencing in the oil and gas industry, along with lower oil and natural gas prices, may cause this market to experience some reductions in new technology on the energy-related side of the project business.

Moving to the land-based gas turbine market. We had $19.9 million in net revenue in the second quarter, down 8.7% from the second quarter of 2014's $20.8 million. The volume was 1.2 million pounds, down 19.6% from a year earlier. This market accounted for 14.3% of our total revenue in the quarter, and the backlog increased 5.2%.

As we discussed last time, this market remains depressed as the OEM side of the business remains slow since roughly the end of 2013. We do not foresee a pickup on the OEM side until we start to see energy demand from the industrial economy rebounding globally.

The maintenance and repair side of the business is holding up and, as you know, demand on the MRO side is very difficult to predict. We've been successful in developing new applications for our high temperature capability in materials but, again, until new platform sales kick in on the OEM side, we don't expect those applications to result in significant short-term sales. Overall, we expect this market to remain soft and exhibit very low visibility through 2015.

In our other markets, we had net revenues of $16.6 million in the second quarter of 2015, up 45 % from the second quarter of last year. This market accounted for 11.9% of our revenue in the quarter and, even in spite of this higher shipping level, our backlog increased about 3.8% during the quarter.

We've been successful in developing new applications in this area, as well as winning some customers with nonproprietary materials via better service. We are continuing those efforts to develop new applications primarily targeting corrosion, industrial heat treating, welding and brazing markets.

I also wanted to quickly update you on CapEx projects we have going on in our plants. On the tubular products expansion, we've essentially completed the work. We're doing things like calibration and modifying tooling and working out production rates and standard operating procedures, but essentially that equipment is in production right now. We're already starting to see the benefits in capacity and scheduling, allowing more consistent output and increased booking levels.

On the flat rolled side, the equipment is up and running and, as we have said previously, we'll need some market cooperation to fill that area up, but we are seeing the benefits and quality, safety, turnaround time and in not having to send as much product to outside processors. Again, like I said in the CPI section in my remarks, we need to see some demand pickup for the high-volume, ideally, heavier sections specialty alloys projects, for this area to really pick up in performance.

Finally, on the IT project, we're making inroads into getting things up and running the way we want. Having the strong invoice level we've had and the high booking level we've had, the system hasn't held our people back. Frankly, we've had a lot of people working a lot of hours to get this project up and running and it has not been pain-free, but it's necessary to the growth of the business and the management of the business.

We're looking at the schedule for the manufacturing implementation and, as I mentioned earlier, we're just now starting to get caught up with customer demand with our leadtimes and our scheduling. Where we stand with regards to the order book will have a say on our implementation schedule on the manufacturing side. We'll keep you updated on that.

With that, let me turn it over to Dan so he can give you some more details on the financials.

Our financial results in the second quarter represented continued margin improvement driven by four important factors. First, solid niche project work, both in our chemical processing market and in our other markets category. While these projects were not big volumes they were sales of high value proprietary and specialty-type alloys that drives a strong margin. These type of projects showcase one of the foundational strengths of Haynes, which is our technical applications development. When we win orders due to the strength of our technical applications team and the orders for proprietary or specialty alloys, we can drive solid margin profitability.

Second, aerospace volumes are now picking up with product flowing through the supply chain. We have a high exposure to aerospace at 43.5% of sales and, as Mark mentioned, aerospace sales were up 27.6% this quarter over last year's second quarter, and over 39% higher than the sequential quarter Q1 of this year.

Third, price increases that we implemented in the second half of fiscal 2015 have increased the value of our backlog and, as we ship these orders, drives more profit to the bottom line. Finally, the return on investment beginning to materialize related to the CapEx projects recently completed, especially in the tubular product forum. We're just beginning to see increases in volume and capturing the benefits we expect from these projects.

Our gross margin percentage this quarter of 20.1% provided $27.8 million of gross margin, which was an increase of $7.6 million compared to Q1 of this year, and up $18.8 million compared to Q2 of last year. These results continue a solid progression of margin recovery.

As we continue to drive stronger margins, certain headwinds and uncertainties persist, such as declining commodities, especially the price of nickel. The 30-day average LME price of nickel at the end of the quarter was $6.23 and continued to drop in April to below $6.00, but just recently came back up to the low to mid-sixes.

However, just two quarters ago the price of nickel was nearly $2.00 higher. It has dropped nearly 25% in two quarters. This declining environment is a headwind to margins as it may push down our average selling prices as we sell off the higher cost inventory in our stock.

Also a headwind is the continued strong US dollar and the impact on our competitiveness in foreign markets and the translated value of sales made in foreign currencies. Partially offsetting this headwind, we have a slight natural hedge with US dollar monetary net assets we have at our international locations, and the fact that the aerospace market is predominantly US dollar based, and most competitors in the aerospace market are also manufacturing in the United States.

The corrosion side of the business, on the other hand, is where we see the largest impact of the strong dollar. We expect the margin percentage and margin dollars in the third quarter to be below the second quarter due to these headwinds, along with the shift in product mix, which will likely have less high-valued specialty projects than we saw in the second quarter.

SG&A costs, combined with research and technical costs, were $10.5 million for the quarter, which includes higher incentive compensation accruals compared to last year, primarily offset by favorable foreign currency translation of the monetary net assets and US dollars at the foreign subsidiaries that I previously mentioned.

SG&A as a percentage of net revenues was 7.6% in the second quarter compared to last year's 9%, and the full year 2014 of 9.3%. Operating income was $17.3 million compared sequentially to Q1 of $9.6 million, and last year's second quarter of an operating loss of $1.3 million.

Outlook for next quarter. The Company expects revenues and operating margins in the third quarter of FY 2015 to be lower than the second quarter of FY 2015, but above last year's third quarter of FY 2014. This is attributable to our success in shipping certain high-value orders in the second quarter of FY 2015 that were originally expected to be shipped in the third quarter of FY 2015.

In addition, the Company expects a modest margin compression to arise in connection with the continued softness in raw material prices, principally nickel, which customarily results in lower average selling prices for the Company's products.

Backlog was $220.4 million at March 31, 2014, an increase of approximately $4.9 million, or 2.3%, from Q1. Solid tubular products order entry contributed to the increase, which was enabled by the capital expansion. Backlog at April 30 is approximately $210 million.

We have slightly reduced the forecast for capital investments in 2015 to approximately $33.4 million including the acquisition of a LevelTek-LaPorte assets, which $14.6 million was paid in January 2015. The integration of the LaPorte acquisition has gone well and has already contributed to earnings. Completing this acquisition was important to our long-term strategic growth plan and important to our enterprise risk management initiatives. As a management team, we are excited to make it as part of the Haynes organization.

Net cash provided by operating activities was $15.5 million in the first six months of fiscal 2015, driven by strong net income. Controllable working capital was $286.1 million at March 31, relatively even with the first quarter of this year. Our revolver balance remains at zero borrowings, and our cash balance at March 31, 2015 was $32.2 million, a decrease of $6.2 million over the quarter, even with the cash acquisition of the LaPorte assets for $14.6 million.

Our cash is expected to increase over the next quarter due to the projected solid Accounts Receivable collections, as well as an expected inventory reduction. Our projected free cash flow for fiscal 2015 is expected to be positive.

In summary, we continue to see concerning macroeconomic trends and uncertainties related to the impact of the lower commodity prices. These will be our headwinds, but we will focus forward to drive the execution of our strategic growth plan. Key to that plan continues to include, one, differentiation to technical applications development for new profitable orders. Two, mixed managements higher value alloys in product forms. And, three, capturing the ROI on the capital investments we have made. The execution of this plan is expected to drive growth and shareholder value.

Mark, I will now turn the discussion back over to you.

It was a pretty good quarter. We shipped some high-value project work, we sold and booked some high-value products on the aerospace side, and we got the LaPorte operations up, running and contributing. On the downside, we still haven't seen a bounce in the higher value CPI business or in land-based gas turbine business, although specification activities have been excellent in both of those areas.

I am very pleased with the quality of the backlog we have. We're continuing to drive waste out of our operations, and I know I've touched on this in the past, Lean Six Sigma Black Belt operations, we really just started that process at Haynes about five years ago. I look back at places where I used to work, Materion, Brush Wellman, we started that 15 years ago. So there's still gold to be mined in our mill.

I'm very excited about that. I'm very excited about the gains our people are making as far as process engineering and driving out waste, increasing our big capabilities. A lot of these special projects that we manufacture are not easy alloys to manufacture. Our engineering teams and manufacturing teams always step up and make these things happen for us.

Again, both externally and internally, there's a lot of opportunities for Haynes. I just gave you a rough idea of the internal opportunities. We just had our R&D review, too, at the end of April. That was exciting.

Some of the things that are going on in that area, I talk to you frequently about the new specification work and I think most of you know that our R&D and our marketing people report in under the same person, so when we have an R&D meeting, they are very functionable, they are very action-oriented types of meetings with the marketing people. And the application engineering work that is going on is still, it is very exciting to a guy like me.

You think about all the new plants that are going to be built on the chemical side of the business, and just so everybody knows too, these new chemical plants, it's not like they're still using 1995 technology in these chemical plants. The new processes that are being used that operate at higher temperatures, more corrosive environments, these are all good things for all of us in the nickel-based and cobalt-based industry. Again, at Haynes, we like to think that we're on the forefront of working with people on these applications and developing the prototypes and moving things into production.

Anyway, I like the path we are on. I like the path that all the specialty metals industry is on, as we look forward into 2016 with the new platforms that are coming out. There's definitely some short-term headwinds that as an industry we have to deal with. Dan mentioned things like currency exchange rates and the compression we'll see with the commodities, but, again, we also need some of the global economies to pull out a little bit, out of their current malaise. All and all at Haynes, we're very pleased with where we are, where we're positioned right now, and with the quality of the applications and end markets that we're serving.

With that, let's open up the call to your questions.

At this time, we will conduct a question and answer session. (Operator Instructions) One moment while we poll for questions. Phil Gibbs; KeyBanc.

Congratulations. Good results. As far as what may have surprised you in the quarter, is it fair to characterize that as the pull-through of the aerospace business on the service center side? Is that really what surprised you in the quarter? Because I know that, at least from a margin perspective, you were looking for something weaker relative to prior quarter, and clearly that didn't transpire. I'm just trying to get a little bit more flavor for what could have really surprised you at the magnitude that it did.

Yes, Phil, I think it's the best of both worlds, type of situation. We had the upside surprise on the aerospace transactional activity that came through, along with the volume downside surprise of -- we just didn't see the CPI, which is typically lower value products, we just didn't see the CPI come through. What I mean by that, is the high-volume project work, we didn't see a lot of that come through.

That also then gave us the opportunity -- we have a lot of orders out there, would be the best way to put it, that are on or before types of delivery dates. That gave us the opportunity to pull forward some of these other specialty projects and get those shipped out.

It was a very -- I said it I think a number of times, I always prefer the receivable to the inventory. I know it makes it real tough for analysts to plan on what our numbers are going to be quarter on quarter, but anytime we see a gap in the schedule and we can get something pulled up and get it invoiced and get it out to the customer and they want it, we do it.

Yes, I mean, Mark, I only think I got your quarterly earnings right once in eight years. Why start now? (Laughs)

As far as the projects that were pulled through, were they largely in the chemical processing and maybe some of the oil and gas applications in the quarters?

Yes, exactly. There's a couple of key projects. One's an ongoing project that's a consumer-related application that's doing really, really well for us. But most of the others are, we classify them as chemical process industry, but they are loosely related to the energy industry.

That is one of the interesting things that's happening. A lot of us are talking about the CapEx changes and concerns about drilling and completions, but there's also the other side of this thing, that there's going to be a lot of opportunity downstream as you move -- again, essentially natural gas being the base material for everything, it's going to create tremendous opportunities further down in the chemical supply chain. We see a lot of opportunity there.

And I think everybody sees a lot of opportunity. A lot of opportunity in North America, as well as other parts of the world, for these new processes and new procedures for refining and developing more advanced chemicals. And at Haynes, I think we're going to play pretty good role in that.

One note on the special projects, as Mark mentioned, we still have more in the pipeline. The mill is performing well and we were able to ship some of these a little more than we expected in Q2 than Q3, but we will still have some of these special project-type items in Q3.

Yes, like one of the projects that did ship in Q2 that made a big difference, there's still material on the dock. So there's more of that specific project to go in Q3, and I think we're maybe only a little bit more than halfway through that project? Maybe two-thirds of the way through that project. So there's still a lot of that -- that one project is a nice sized project that is still going to ship in Q3. And as I mentioned, we booked another really nice project, it's actually a repeat project, late in March that looks like it's going to ship late in Q4, early in Q1. Still a lot of good things --

Was that CPI or oil and gas?

That one is more of an energy-related cogeneration application, might be the best way to put it.

Okay. Okay. Still clearly a lot going on in energy under the surface here despite the fact that oil is down, things are moving forward.

Yes, I think you're going to hear more about the downstream applications still continuing to be good. Alleghany is shipping that big pipeline thing. That's a real good project out there, but a lot of the chemical side of the business, there's a lot of things still on the drawing board --

Are these international projects, Mark, or are they largely North America or are they split?

Split would be the best way to put it. The world has gotten so small now, Phil, a lot of time a fabricator is international and the end vessel or heat exchanger might be coming back here to the US. Or vice versa. It might be being fabricated in Columbus and being moved over to Japan or China.

Okay. I appreciate it.

(Operator Instructions) One moment while we poll for more questions. (Operator Instructions)

Edward Marshall; Sidoti & Company.

There was a strike, I guess, a USW strike and some downstream energy producers that affected maybe the first quarter of 2015. I'm wondering if there's any disruptions, demand or shift in the capacity from competition? I know there was a lot of maintenance schedules that got delayed or thrown off kilter. Did you see any of that at all through your chemical processing business?

The one side of the CPI that's held up fairly well has been the maintenance and repair. In fact, that is going fairly well. I don't know, Ed. I'd say that maybe, maybe some of the OEM types of projects or new projects might've been pushed out a little bit, but I think the vision on these things, it's almost like the jet engine business, the vision is a lot longer-term than that.

So the contract, the manufacturers, the contractors for these things, tend to keep guys like us working on that material. I don't think the strike at the Royal Dutch Shell thing, and all that, I don't think that impacted things, really at all.

Yes, but I mean that would be on maintenance more than the OE side, right? I mean, more than the new contract builds it would be on the maintenance side?

Yes. You might say that some of the maintenance got put out or pushed off, I can't really say that I've had anybody come in like the way we used to see it on the utility side. We might have someone in flue-gas desulfurization say they're going to put off the spring rebuild until the fall or something like that. I can't say we saw anything like that on the chemical side of the business.

Okay. Can you quantify maybe the pull forward on demand that you saw, and maybe from both a revenue and an EPS or an EBIT perspective, whatever is easiest for you?

I would say if you look at these special projects and how much it improved our gross margin, I would say if you were to carve that out our gross margin may be around 2 percentage points less, say, 18%. So it helped us by 2 percentage points, I would say, all the special projects together. From a revenue point of view, how much did we pull from 3% into 2%? It would probably be in the $5 million range, maybe $5 million to $10 million range.

Okay. Historically, when I see pull forwards in your business, I mean, that is a bullish sign sent from your customers. Is this the case, I mean, because you were able to ship earlier than necessary, or is this just that you guys had the available capacity, it was done, it was sitting on your docks and the customer said, okay, we'll take it. Or is this more of a bigger positive sign starting to brew?

On the projects side, I would say that this is, these are the things that have been in the plans for two or three years, we have been working on them and the vision is a lot longer than that. The bullish sign for me -- I think you guys know I'm pretty conservative when we get on these calls, the bullish sign for me was what happened in aerospace.

In fact, it was funny, the lawyer is sitting across the table from me and giving me a funny look, because we talked about aerospace destocking earlier this week. My point being that the destocking is over. If aerospace drops now, there's a whole new thing going on. We're definitely seeing a restocking of the supply chain and building up for new platforms, etc.

To me, that's a much more bullish sign. Now, I wouldn't be me, Ed, if I didn't give you something negative. Frankly, staff meeting, everybody walks in and we had a pretty good quarter, and the first thing I asked about is, what's going on with the CPI, the big projects, and what is going on with land-based gas turbine? Why haven't those bounced back yet?

That, to me, we're getting into that two-year timeframe where maybe those things will start to bounce in 2016. They should. Again, from a bullish sign, I'm very pleased with what I saw in aerospace.

Thank you for those caveats.

Cash is going to be up this year, reduced CapEx. What are the plans? Is there potentially a dividend hike in the futures, acquisitions, are you considering a buyback? What are you going to do with the cash?

We have pretty rigorous capital allocation discussions at the Board level. We've just come off a pretty good period of investment in the Company. I think we've said to you before, we want to prove that out a little bit, get that equipment filled up and start to generate some cash again. We are having discussions at the Board level about capital allocation.

Great.

As I mentioned, our production on free cash flow, just a note, that includes the acquisition of the LaPorte assets. So we're projecting a positive free cash flow with that included in the free cash flow number.

Great. Then finally, what was the benefit from LaPorte in the quarter, maybe top line and EBITDA if you'd like?

It is helping. I mean, it was one quarter and it was a smaller acquisition so you'd probably quantify it of about $.02 to $.03 on the earnings-per-share. Remember, we acquired it in January and that's with some acquisition-type expenses layered in there as well and start-up expenses, you might say. It is performing, when we annualize what we're expecting here, it is performing better than we expected in the deal metrics.

You made a good point there. There's some short-term accounting for the integration of this business, I guess, in the quarter. Was there any inventory write-ups or anything like that that normally is considered maybe shorter-term and non-repeating?

No. Keep in mind this is a tolling business, it has no inventory.

All right. That's correct. Okay.

Yes.

Phil Gibbs; KeyBanc.

Just curious as far as the new projects and how the tubular backlog is unfolding at this point.

Tubular backlog is very strong right now. As I mentioned in the prepared remarks, in 2012 we had a huge oil and gas project, but if you pull that out, the tubular products facility probably had its best six months in history. That's on the delivery side, so shipment side of the business. Just to give you a rough idea, everything we shipped in the first six months we pretty much replenished six months' worth of shipments with orders in the last quarter.

The order volume, the order intake, in the last quarter on the tubular side was very good. Now, you guys know the story behind that. We got some recent contracts completed and we started to fill out the order book on those contracts. So a lot of good things happening there. The tubular side of the business, it's performing well, it's getting caught up, and we're continuing to book it very heavily for the new capacity.

Okay.

At this time, there are no further questions in queue. I would like to turn the call back over to management for closing comments.

Thank you, LaTonya. Thanks, everyone. Thanks for joining us today and thank you for your interest and support of Haynes. We'll look forward to updating you again next quarter.

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