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HAYNES INTERNATIONAL INC (HAYN)·Q4 2023 Earnings Summary

Executive Summary

  • Q4 FY2023 delivered record quarterly revenue of $160.6M (+11.7% YoY) and diluted EPS of $1.02, with gross margin at 18.5% and non‑GAAP adjusted gross margin at 20.9% as nickel/cobalt headwinds (-$3.7M pretax) compressed GAAP profitability .
  • Aerospace and IGT led the mix: Aerospace revenue rose 20.9% YoY to $81.8M; IGT set a quarterly record at $34.2M (+20.0% YoY), while CPI rebounded sequentially to $23.0M (+30% QoQ) on mix management .
  • Backlog ended at $460.4M (+23.2% YoY); management expects FY2024 positive operating cash flow and revolver reduction, though Q1 FY2024 revenue/earnings are guided below Q4 due to seasonality, planned A&K line downtime, and larger nickel headwinds than Q4’s $3.7M .
  • Non‑GAAP margin durability remains a centerpiece: adjusted gross margin has approximated ~21% for six straight quarters and FY2023 “normalized” EBITDA (adjusted for cyber and raw materials) was “just under” $100M, reinforcing pricing and cost discipline narrative .
  • Stock catalysts: sustained aero/IGT demand and FY2024 cash generation pivot vs. near‑term nickel headwinds, Q1 sequential step‑down, and higher capex ($25–$35M) .

What Went Well and What Went Wrong

  • What Went Well

    • Sustained core margin quality: Q4 gross margin 18.5%; adjusted gross margin 20.9%, marking ~21% raw‑material‑neutral margins for six straight quarters. “Our calculated raw material neutral gross margin was approximately 21% or better” .
    • Aero and IGT outperformance: Q4 aerospace revenue +20.9% YoY to $81.8M; IGT achieved record quarterly revenue at $34.2M (+20.0% YoY), with proprietary alloys (e.g., HAYNES 282) aiding share gains .
    • Backlog and cash inflection setup: Backlog $460.4M (+23.2% YoY); management expects positive operating cash flow in FY2024 and plans to “significantly pay down” the revolver over FY2024 .

  • What Went Wrong

    • Raw material headwinds: Q4 incurred a -$3.7M pretax raw material headwind; management projects Q1 FY2024 headwinds “well above” Q4 due to nickel declines and 6‑month lag dynamics .
    • Equipment disruptions: An unplanned outage in cold‑finished flat processing in September pressured efficiency and mix; management also plans a three‑week A&K line upgrade in Q1 FY2024, temporarily impacting throughput .
    • Financing costs and mix: Interest expense rose to $2.1M (vs. $0.9M YoY) on higher revolver usage/rates; CPI remains bifurcated with lower‑margin commodity exposure being actively deprioritized .

Financial Results

MetricQ4 2022Q3 2023Q4 2023
Revenue ($M)$143.810 $143.901 $160.596
Diluted EPS ($)$1.30 $0.68 $1.02
Gross Margin %22.2% 18.1% 18.5%
Adjusted Gross Margin % (non‑GAAP)21.5% 19.2% 20.9%
Operating Income ($M)$18.807 $13.222 $16.142
Net Income ($M)$16.336 $8.759 $13.128
Adjusted EBITDA ($M)$24.168 $18.671 $21.570

Segment revenue by market

Market Revenue ($M)Q4 2022Q3 2023Q4 2023
Aerospace$67.647 $77.456 $81.805
Chemical Processing (CPI)$27.185 $17.696 $23.003
Industrial Gas Turbines (IGT)$28.501 $28.073 $34.213
Other Markets$14.946 $13.416 $14.599
Other Revenue$5.531 $7.260 $6.976
Total Net Revenues$143.810 $143.901 $160.596

Operational KPIs

KPIQ4 2022Q3 2023Q4 2023
Total Shipments (MM lbs)4.883 4.427 4.867
Avg Selling Price/lb (incl. other rev)$29.45 $32.51 $33.00
Backlog ($M, period‑end)—$468.1 $460.4
Revolver Balance ($M, period‑end)—$98.7 $114.8

Notes:

  • Q4 GAAP gross margin compressed by raw materials (estimated -$3.7M pretax); adjusted gross margin excludes estimated nickel/cobalt impacts (see non‑GAAP schedules) .
  • Interest expense rose to $2.1M vs. $0.9M YoY on higher borrowings and rates .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue & Earnings cadenceQ1 FY2024—Higher than Q1 FY2023, lower than Q4 FY2023 New
Gross margin trajectoryFY2024—“Incremental improvements” in gross margin New
Operating cash flowFY2024—Positive operating cash flow; revolver to decline through FY2024 New
CapexFY2024FY2023 plan $16–$18M (reduced on supply chain delays) $25–$35M Raised
Effective tax rateGo‑forward—21–22% (Q4 tax rate 11.5% benefitted by foreign source income) New
Raw material headwindsQ1 FY2024Q4 FY2023 headwinds from nickel/cobalt to unfavorably impact earnings Q1 headwind “well above” Q4’s $3.7M pretax (nickel decline, lag) Worsened
DividendOngoing$0.22/share declared in Q3 $0.22/share declared again in Q4 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2023, Q3 2023)Current Period (Q4 2023)Trend
Raw materials (nickel/cobalt)Q2: headwind $1.7M; nickel neutral, cobalt falling . Q3: headwind $1.5M; more headwinds expected in Q4 .Q4: -$3.7M pretax headwind; Q1 FY2024 headwind projected well above Q4; ~6‑month lag on nickel Worsening near‑term
CybersecurityQ3 incident reduced shipments by $18–$20M; EPS hit $0.40–$0.45 .Operations normalized; Q4 best volume; making up lost revenue over coming quarters Recovering
Capacity/debottleneckingQ2: VIM outside conversion; staffing ramp . Q3: continue conversion; backlog growth .A&K line 3‑week upgrade in Q1 FY2024 to improve reliability/flow Proactive upgrades
Aerospace demandQ2: strong order entry; record backlog . Q3: +27% YoY aero; Paris Air Show confirms multi‑year demand .Q4: aero $81.8M (+20.9% YoY); book‑to‑bill ~1.0; single‑aisle/wide‑body outlook robust Sustained strength
IGT momentumQ2: share gains, 282 substitution . Q3: +17% YoY; book‑to‑bill 1.5 .Q4: record $34.2M (+20% YoY); book‑to‑bill 1.1 Strengthening
CPI mix managementQ2: de‑emphasize commoditized CPI . Q3: CPI down on mix/cyber .Q4: CPI up 30% QoQ; ASP +19.3% YoY via higher‑value focus Improving mix
Cash/revolverQ2: expected H2 cash generation, revolver moderate decline . Q3: revolver to rise in Q4 due to receivable timing .FY2024 positive cash flow, revolver to decline Inflecting positive FY2024
Innovation/new alloysQ2/Q3: pipeline strong (233, 244, HYBRID‑BC1, HR‑235, 282) .Continued uptake; new testing by OEMs; 282 driving IGT substitution Ongoing adoption

Management Commentary

  • “Our formula for success remains the same… offset inflation through… variable cost reductions… provide high‑value differentiated alloys, products and services… leading to incremental gains in… top‑tier gross margins” .
  • “Our fourth quarter EBITDA when adjusting for raw material headwinds was over $25 million… normalized fiscal ’23 EBITDA… just under $100 million” .
  • “We expect positive cash flow from operations in fiscal year ’24… we expect to significantly pay down our revolver in fiscal year ’24” .
  • “The Q4 revenues of $34.2 million are the highest quarterly sales on record into the IGT market” .
  • “One concern… for at least the first quarter of fiscal ’24, is the continuing drop in nickel prices… [headwinds] well above the $3.7 million pretax that we saw in Q4” .

Q&A Highlights

  • Capex increase rationale: FY2024 capex up to $25–$35M due to supply chain catch‑up and targeted capacity expansions (e.g., constraints relief) .
  • Debottlenecking focus: A&K line rebuild in Q1 FY2024 to improve reliability/flow between hot rolling and finishing; supports higher cold‑finished flats output .
  • Margin durability ex‑raw materials: Management expects incremental improvement beyond ~21% raw‑material‑neutral margin on price and cost initiatives; CPI viewed as two businesses with emphasis on specialty/proprietary alloys .
  • Working capital and revolver path: Expect revolver to decline over FY2024 as cash generation improves and inventory is monetized; Q4 revolver elevated due to collection timing .
  • Nickel headwind mechanics: Six‑month lag through manufacturing/scrap cycle amplifies the effect of falling nickel; expect Q1 FY2024 headwinds larger than Q4 .

Estimates Context

  • We attempted to retrieve S&P Global (Capital IQ) consensus for Q4 FY2023 revenue and EPS but the SPGI mapping for HAYN was unavailable in our data feed at this time; therefore, estimate comparisons are not presented. We searched for “Q4 2023 revenue and EPS consensus” for HAYN via S&P Global GetEstimates, which returned a mapping error and no data.

Key Takeaways for Investors

  • Core margin quality intact: ~21% adjusted gross margin maintained despite raw material headwinds, underscoring pricing power and cost execution .
  • End‑market strength persists: Aero and IGT continue to accelerate; Q4 aerospace +20.9% YoY and record IGT revenue signal durable demand into FY2024 .
  • FY2024 cash inflection: Management guides to positive operating cash flow and revolver reduction in FY2024, a potential valuation re‑rating catalyst if delivered .
  • Near‑term caution: Q1 FY2024 sequential step‑down vs. Q4 and larger nickel headwinds could pressure reported margins/earnings; watch nickel trajectory and lag effects .
  • Strategic capex is rising: $25–$35M plan targets reliability and capacity (A&K line, bottlenecks), enabling higher throughput and mix quality over the medium term .
  • Backlog supports visibility: $460.4M backlog (+23.2% YoY) with aero/IGT book‑to‑bill ≥1.0 suggests sustained top‑line momentum as execution ramps .
  • Non‑GAAP transparency: Adjusted metrics reconcile raw‑material volatility; investors should track both GAAP and adjusted trends given nickel/cobalt sensitivity .