Howmet Aerospace Inc. · NYSE:HWM
Howmet Aerospace — Q4 2023 Earnings Presentation
33 slides from Howmet Aerospace's earnings presentation, Feb 13, 2024
Slide 1: Fourth Quarter and Full Year 2023 Earnings Call
Fourth Quarter and Full Year 2023 Earnings Call John Plant: Executive Chairman and Chief Executive Officer Ken Giacobbe: EVP and Chief Financial Officer February 13, 2024
Slide 2: Important Information
Important Information Forward–Looking Statements This presentation contains statements that relate to future events and expectations and as such constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those
Slide 3: Important Information (continued)
Important Information (continued) Non-GAAP Financial Measures Some of the information included in this presentation is derived from Howmet Aerospace’s consolidated financial information but is not presented in Howmet Aerospace’s financial statements prepared in accordance with accounting principles
Slide 4: 2023 Highlights
2023 Highlights Revenue and Profitability Excluding Special Items1,2 Q4 2022 Q3 2023 Q4 2023 FY 2022 FY 2023 Revenue $1.513B $1.658B $1.731B $5.663B $6.640B Adj EBITDA1 $336M $382M $398M $1,276M $1,508M Adj EBITDA Margin1 22.2% 23.0% 23.0% 22.5% 22.7% Adj Operating Income Margin1 17.8% 18.9% 19.1% 1
Slide 5: Q4 2023 Revenue Up 14% YoY, Commercial Aerospace Up 22% YoY
Q4 2023 Revenue Up 14% YoY, Commercial Aerospace Up 22% YoY Q4 2023 Revenue by Market Revenue by Market Q4 FY 2023 (% of total) (% change) YoY YoY Aerospace - Commercial 22% 24% Industrial & Other 1 14% ~60% in 2019 Aerospace - Defense Flat 10% Commercial Transportation Aerospace - Subtotal - Aerosp
Slide 6: Ten Consecutive Quarters of Revenue, Adj EBITDA, and Adj EPS Growth
Ten Consecutive Quarters of Revenue, Adj EBITDA1, and Adj EPS2 Growth ▪ Revenue of $6.64B, up 17% YoY, driven by Commercial Aero up 24% Enhanced ▪ Adj EBITDA1 of $1.5B, up 18% YoY; Net Headcount up ~1,850 Profitability ▪ Adj EBITDA Margin1 of 22.7% with a Q4 exit rate of 23.0% FY 2023 ▪ Adj Earnings
Slide 7: Engine Products: Revenue +16% Q4 YoY; Adj EBITDA Margin 27.3%
Engine Products: Revenue +16% Q4 YoY; Adj EBITDA Margin 27.3% Q4 Revenue by Market +16% (% of total) $795M $821M $798M $852M Aerospace - Commercial $631M $652M $683M $732M Industrial Aerospace - Defense 3rd Party & Other 24% Industrial & Other Revenue Aerospace - Aerospace Commercial 56% - Defense 2
Slide 8: Fastening Systems: Revenue +26% Q4 YoY; Adj EBITDA Margin 22.2%
Fastening Systems: Revenue +26% Q4 YoY; Adj EBITDA Margin 22.2% Q4 Revenue by Market +26% (% of total) $348M $360M Industrial Aerospace - Commercial $291M $285M $312M $329M & Other Aerospace - Defense $264M $277M 7% Commercial Transportation Commercial 3rd Party Transportation Industrial & Other Rev
Slide 9: Engineered Structures: Revenue +6% Q4 YoY; Adj EBITDA Margin 13.5%
Engineered Structures: Revenue +6% Q4 YoY; Adj EBITDA Margin 13.5% Q4 Revenue by Market +6% (% of total) Aerospace - Commercial $230M $227M $244M Industrial $207M $200M $182M $185M $193M & Other Aerospace - Defense 8% 3rd Party Aerospace - Defense Industrial & Other Revenue 17% Aerospace - Commercia
Slide 10: Forged Wheels: Volume Up 8% Q4 YoY; Adj EBITDA Margin 26.2%
Forged Wheels: Volume Up 8% Q4 YoY; Adj EBITDA Margin 26.2% Q4 Revenue by Region +3% (% of total) $279M $266M $266M $289M $298M $285M $275M North America $247M Other 16% Europe 3rd Party North Other Revenue Europe America 55% 29% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2022 2022 2022 2022 2023 2023 2023 2023 Q4 202
Slide 11: Paid down ~$875M of 2024 Bonds; ~$400M Refinanced, Maturing 2026
Paid down ~$875M of 2024 Bonds; ~$400M Refinanced, Maturing 2026 FY 2023 Debt Reduction / Refinance: • Reduced 2024 Debt Tower ~$875M ~$475M paid with cash ~$400M refinanced at ~3.9% Fixed Rate ~$29M lower annualized interest expense • All debt at fixed rates and unsecured $1,000M $800M Jan 3.0% Feb
Slide 12: 2024 Guidance
2024 Guidance Q1 2024 Guidance FY 2024 Guidance What we expect in 2024 Low Baseline High Low Baseline High ▪ FY 2024 Revenue up ~7% vs. FY 2023 Revenue $1.73B $1.74B $1.75B $7.00B $7.10B $7.20B ▪ FY 2024 Adj EBITDA1 up ~8% vs. FY 2023 Adj EBITDA1 $395M $400M $405M $1.600B $1.635B $1.670B Adj EBITDA
Slide 13: Summary
Summary ▪ Revenue of ~$6.64B, up 17% YoY, driven by Commercial Aero up 24% Revenue / ▪ Adj EBITDA1 of $1.5B, up 18% YoY Profit FY 2023 ▪ Adj EBITDA Margin1 of 22.7% with Q4 exit rate of 23.0% ▪ Adj Earnings Per Share2 of $1.84, up 31% YoY ▪ Record Free Cash Flow3 of $682M ▪ Capital Deployment of ~$8
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Slide 15: Appendix
Appendix FP HOWMET UILJ AEROSPACE
Slide 16: 2024 Assumptions
2024 Assumptions Full Year 2024 2024 Comments Corporate Overhead ~$80M • Included in Adj EBITDA1 Depreciation and Amortization ~$270M Interest Expense ~$200M • Excludes any potential debt issuance, breakage, and tender fees Operational Tax Rate 21.0% – 22.0% • Cash Tax Rate ~15% • ~$5M Service Costs
Slide 17: Reconciliation of Net Income and Diluted EPS Excluding Special Items
Reconciliation of Net Income and Diluted EPS Excluding Special Items ($ in millions, except per-share amounts) Q4 2022 Q3 2023 Q4 2023 FY 2022 FY 2023 Net income $111 $188 $236 $469 $765 Diluted EPS $0.26 $0.45 $0.57 $1.11 $1.83 Special items: Restructuring and other charges: Pension and other post-
Slide 18: Reconciliation of 2023 and 2022 Operational Tax Rate
Reconciliation of 2023 and 2022 Operational Tax Rate ($ in millions) Quarter ended December 31, 2023 Year ended December 31, 2022 Year ended December 31, 2023 Effective tax Operational Effective tax Operational Effective tax Operational rate, as Special tax rate, as rate, as Special tax rate, as rat
Slide 19: Calculation of Segment Information
Calculation of Segment Information ($ in millions) Q1 2022 Q2 2022 Q3 2022 Q4 2022 FY 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 FY 2023 Engine Products Third-party sales $ 631 $ 652 $ 683 $ 732 $ 2,698 $ 795 $ 821 $ 798 $ 852 $ 3,266 Inter-segment sales $ 1 $ 1 $ 1 $ 1 $ 4 $ 2 $ 5 $ 5 $ 1 $ 13 Provision
Slide 20: Calculation of Segment Information (continued)
Calculation of Segment Information (continued) ($ in millions) Q1 2022 Q2 2022 Q3 2022 Q4 2022 FY 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 FY 2023 Engineered Structures Third-party sales $ 182 $ 185 $ 193 $ 230 $ 790 $ 207 $ 200 $ 227 $ 244 $ 878 Inter-segment sales $ 1 $ 1 $ 3 $ 1 $ 6 $ — $ 1 $ — $ 2 $
Slide 21: Calculation of Total Segment Adjusted EBITDA and Adjusted EBITDA Margin
Calculation of Total Segment Adjusted EBITDA and Adjusted EBITDA Margin ($ in millions) Q1 2022 Q2 2022 Q3 2022 Q4 2022 FY 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 FY 2023 Third-party sales – Engine Products $631 $652 $683 $732 $2,698 $795 $821 $798 $852 $3,266 Third-party sales – Fastening Systems $264
Slide 22: Reconciliation of Total Segment Adjusted EBITDA to Consolidated Income Before Income Taxes
Reconciliation of Total Segment Adjusted EBITDA to Consolidated Income Before Income Taxes ($ in millions) Q1 2022 Q2 2022 Q3 2022 Q4 2022 FY 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 FY 2023 Income before income taxes $171 $183 $104 $148 $606 $220 $243 $242 $270 $975 Loss on debt redemption — 2 — — 2 1
Slide 23: Reconciliation of Adjusted Corporate Expense Excluding Depreciation and Special Items
Reconciliation of Adjusted Corporate Expense Excluding Depreciation and Special Items ($ in millions) Q1 2022 Q2 2022 Q3 2022 Q4 2022 FY 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 FY 2023 Corporate expense $22 $25 $46 $26 $119 $29 $34 $24 $12 $99 Provision for depreciation and amortization 1 3 1 2 7 5 1 1
Slide 24: Reconciliation of Adjusted EBITDA and Adjusted EBITDA Margin Excluding Special Items
Reconciliation of Adjusted EBITDA and Adjusted EBITDA Margin Excluding Special Items and Incremental Margin ($ in millions) Q1 2021 Q2 2021 Q3 2021 Q4 2021 FY 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 FY 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 FY 2023 Third-party sales $1,209 $1,195 $1,283 $1,285 $4,972 $1,
Slide 25: Reconciliation of Free Cash Flow
Reconciliation of Free Cash Flow ($ in millions) Q1 2023 Q2 2023 Q3 2023 Q4 2023 YTD 2023 Cash provided from operations $23 $229 $191 $458 $901 Capital expenditures (64) (41) (59) (55) (219) Free cash flow $(41) $188 $132 $403 $682 The Accounts Receivable Securitization program remains unchanged at
Slide 26: Reconciliation of Net Debt
Reconciliation of Net Debt ($ in millions) December 31, 2022 March 31, 2023 June 30, 2023 September 30, 2023 December 31, 2023 Long-term debt due within one year $— $— $— $— $206 Long-term debt, less amount due within one year 4,162 3,988 3,989 3,794 3,500 Total debt $4,162 $3,988 $3,989 $3,794 $3,7
Slide 27: Reconciliation of Net Debt to Adjusted EBITDA Excluding Special Items
Reconciliation of Net Debt to Adjusted EBITDA Excluding Special Items ($ in millions) Trailing-12 months ended September 30, 2023 December 31, 2023 Net income $ 640 $ 765 Add: Provision for income taxes $ 213 $ 210 Other expense, net 20 8 Loss on debt redemption 1 2 Interest expense, net 223 218 Res
Slide 28: Calculation of Segment Markets Revenue
Calculation of Segment Markets Revenue Engine Fastening Engineered Forged ($ in millions) Products Systems Structures Wheels Total Segment Fourth quarter ended December 31, 2022 Aerospace - Commercial $416 $157 $154 $— $727 Aerospace - Defense $142 $46 $63 $— $251 Commercial Transportation $— $56 $—
Slide 29: Reconciliation of Adjusted Operating Income and Adjusted Operating Income Margin
Reconciliation of Adjusted Operating Income and Adjusted Operating Income Margin ($ in millions) Q1 2022 Q2 2022 Q3 2022 Q4 2022 FY 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 FY 2023 Third-party sales $1,324 $1,393 $1,433 $1,513 $5,663 $1,603 $1,648 $1,658 $1,731 $6,640 Operating income $230 $241 $228 $22
Slide 30: Reconciliation of Adjusted Free Cash Flow and Net Income Excluding Special Items
Reconciliation of Adjusted Free Cash Flow and Net Income Excluding Special Items ($ in millions) FY 2021 FY 2022 FY 2023 Cash provided from operations $449 $733 $901 Cash receipts from sold receivables 267 — — Capital expenditures (199) (193) (219) Adjusted free cash flow (a) $517 $540 $682 Net inco
Slide 31: Diluted EPS excluding Special items
Diluted EPS excluding Special items (in millions, except per-share amounts) Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Net income(1) $36 $106 $80 $74 $27 $77 $131 $147 $80 $111 $148 $193 $188 $236 Diluted EPS $0.08 $0.24 $0.18 $0.1
Slide 32: Reconciliation of Adjusted Pre-Tax Return on Net Assets (Pre-Tax RONA)
Reconciliation of Adjusted Pre-Tax Return on Net Assets (Pre-Tax RONA) ($ in millions) FY 2022 FY 2023 Operating income $919 $1,203 Add: Restructuring and other charges $56 $23 Plant fire costs (reimbursements), net 36 (12) Collective bargaining agreement negotiations — 8 Legal and other advisory re
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