Ladies and gentlemen, thank you for standing by and welcome to the Kaiser Aluminum Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your host Melinda Ellsworth. Ma'am you may begin.

Thank you. Good afternoon, everyone and welcome to Kaiser Aluminum’s second quarter and first half 2020 earnings conference call. If you have not seen a copy of our earnings release, please visit the Investor Relations page on our website at kaiseraluminum.com. We have also posted a PDF version of the slide presentation for this call. Joining me on the call today are Chief Executive Officer and Chairman, Jack Hockema; President and Chief Operating Officer, Keith Harvey; Senior Vice President and Chief Financial Officer, Neal West; and Vice President and Chief Accounting Officer, Jennifer Huey. Before we begin, I would like to refer you to the first three slides of our presentation and remind you that the statements made by management and the information contained in this presentation that constitute forward-looking statements are based on management’s current expectations. For a summary of specific risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to the company’s earnings release and reports filed with the Securities and Exchange Commission, including the company’s Annual Report on Form 10-K for the year ended December 31, 2019 and Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020. The company undertakes no duty to update any forward-looking statements to conform the statement to actual results or changes in the company's expectations. In addition, we have included non-GAAP financial information in our discussion. Reconciliations to the most comparable GAAP financial measures are included in the earnings release and in the appendix of the presentation. Any reference in our discussion today to EBITDA means adjusted EBITDA, which excludes non-run rate items for which we have provided reconciliations in the appendix. At the conclusion of the company’s presentation, we will open the call for questions. I'd now like to turn the call over to Jack Hockema. Jack?

Thanks Melinda. Welcome to everyone joining us on the call today. I want to begin today by acknowledging our recently announced executive succession plan following a multiyear planning process. I will step down as CEO on July 31 and Keith Harvey will assume the role of President and CEO of Kaiser Aluminum while I remain on the Board of Directors as Executive Chairman. Keith and I've worked together for the past 25 years developing and implementing the culture and the strategy that have positioned Kaiser as the highly respected industry leader it is today. Keith has had full responsibility for the operations of the company as President and COO since 2015 and during that time he's focused on building a strong and deep management team as we work through a planned transition for him to assume the additional duties of CEO. Keith is highly respected within the industry and the company and the announcement of a strong internal candidate as CEOs been met with enthusiasm by our customers and employees alike. I am confident in Keith's ability to lead the company to continued growth and I congratulate him on his new position. Turning to slide six, as we communicated during April earnings call and through extensive investor engagement since then, our business model is predicated on maximizing opportunities during the expanding economy as well as being well prepared for unexpected economic adversity. To that end, recognizing the cyclicality of our end markets and the inevitable economic downturns, our ongoing financial strategy focuses on management of liquidity and debt leverage. We manage our liquidity to provide funding for sustaining and strategic investments and dividends through the full business cycle. Following the additional capital raise we completed in late April, we have approximately $1 billion of liquidity, which provides a strong safety…

Thank you, Jack. Our second quarter results reflect the impact of COVID-19 on each of our end markets in varying degrees as we initially noted during our first quarter earnings call. Demand for our commercial aerospace applications declined as Boeing and Airbus temporarily halted production and curtailed deliveries, while demand for defense applications remained. While conditions for our service center customers were challenging, as many of their customers temporarily shut down during the quarter, our general engineering business remained strong. Demand for our high performance KaiserSelect products along with the solid support from our long-term customers helped create additional pull for our products in the second quarter. In addition with lower aerospace shipments, we shifted capacity to meet demand for general engineering plate, partially mitigating the impact of lower demand for other general engineering applications. Demand for our automotive applications significantly eroded during the second quarter as virtually all North American automotive assembly plants temporarily shut down due to the COVID-19 concerns. Although most automotive manufacturers resumed operations in June, restarts were slower and uneven throughout the supply chain as facilities continued to deal with restart issues. As we began experiencing lower demand during the quarter, we leveraged our business model by aggressively flexing cost and operating capacity at our facilities. Although there is often a lag between these flexing actions and the related savings, our highly variable cost structure allows us to react quickly and appropriately flex costs through all cycles. Despite the decline in end market demand, pricing has held as the industry response has generally been to reduce operating levels to match demand. As Jack noted, we manage liquidity to ensure we maintain a recession tested safety net in order to sustain capital spending and dividends through all business cycles including periods of unexpected economic adversity. With total liquidity of approximately $1 billion, we will continue to maintain our capital allocation priorities, including our regular quarterly dividend the most recent that was just announced at $0.67 a share, which will be paid in August. Before I turn the call over to Neal to provide more color around our second quarter results, I want to acknowledge our employees who have continued to work safely, following the protocols we've established for minimizing the spread of the virus, while continuing to perform at a very high level of customer satisfaction in terms of quality and delivery. I thank them for their dedication and commitment in this very challenging environment. I will now turn the call over to Neal to discuss second quarter results in more detail. Neal?

Thanks Keith. Value added revenue of $175 million in the second quarter 2020 declined partially $35 million or 17% compared to the prior year quarter 24% lower shipment reflecting lower demand for Australian markets due to the impact of COVID-19. Aerospace value added revenues decreased 15% from the prior year second quarter a 25% year-over-year decrease in shipment, which predominantly reflects the production suspension of partial aerospace at Boeing and Airbus as noted by Keith, while past value added revenue per pound reflects a slight increase due to customer mix. Automotive value added revenues decreased approximately 58% compared to the second quarter of last year, a 58% reduction in shipments. As noted earlier our automotive shipments were significantly impacted during the quarter as virtually every North America automotive manufacturer temporarily shut down operations. General engineering value added revenue was up 1% year-over-year a 7% reduction in shipments reflecting solid pricing and mix. The decline in shipments is primarily related to disruption caused by COVID-19 while that value added revenue per pound is up due to customer product mix. For the first six months of 2020, total value added revenue decreased approximately 9% and 14% lower shipments, reflecting lower demand for our aerospace and automotive applications in the second quarter. Turning to slide 12, EBITDA for the second quarter 2020 of $34 million declined from $48 million in the prior year quarter, primarily reflecting approximately $21 million sales impact due to lower demand, partially offset by $5 million lower maintenance cost in addition to reductions in overheads and other costs. During the second quarter, we incurred approximately $1 million of cleaning and prevention cost associated with COVID-19 and we anticipate ongoing quarterly cost of approximately $250,000 related to buyers prevention. EBITDA margins for the second quarter was approximately 20% compared to…

Thank you, Neal. Turning to slide 15, moving on to each of our business segments, as we noted on our first quarter earnings call, we anticipate full year 2020 value-added revenue for our large commercial aerospace and defense applications will be down approximately 15% to 20% from our record full year 2019 results. Combined, these two businesses represent approximately 50% of our total value-added revenue. As we previously noted, value-added revenue for our large commercial aerospace business is expected to be down 20% to 25% from the prior year with sales volume heavily weighted to the first half of 2020. Demand in the commercial aerospace market has been significantly impacted by COVID-19 as air travel has slowed dramatically and by continued delays in recertification of Boeing 737 Max. As we look beyond 2020, we expect that passenger traffic will recover and subsequent growth in aircraft builds will continue. However, as both Boeing and Airbus have noted, it could be two to four years before demand returns to the record levels similar to 2019. We will begin discussions with Boeing and Airbus in the third quarter as to their expected needs in 2021 and while we are optimistic that improvements in shipments will occur next year, it is too early to provide specific outlook at this time. Our defense business remained solid and on track to continue to improve during 2020. We are well positioned on all aircraft models including, but not limited to the F35 Joint Strike Fighter, legacy program such as the F-18, the F-16 and F-15 fighter jets as well as various rotary aircraft program such as the V-22 Osprey and the Chinook CH-47 helicopter. Turning to slide 16,, as I briefly mentioned in my earlier remarks, virtually all our automotive customers resumed operations in June and expect…

[Operator instructions] Our first question comes from the line of Josh Sullivan of the Benchmark Company. Your line is open.

Just on the transition of the aerospace capacity over the generally engineering side, how much more room is there to go? Can the general and engineering market there, additional aerospace transition just as we look at the back half of the year with aero volumes potentially are weaker.

Well we actually are seeing some pretty good demand there Josh at a couple markets in particular. As the automotive business comes back of course opportunities for tooling plate and other applications provide us an opportunity as well as semiconductor, which has held up very well and shows continuing strength in the second half of the year. You may recall in '19 we actually were able to ship capacity from GE to more aerospace. That flexibility at Trentwood has really served us well in these two particular markets in the fact that we're able to ship back capacity fairly quickly and meet demand if one market weighs [ph] versus another. So we think that those opportunities will continue in the second half and the of course the outlook in 2021, we'll get to that later, but we think we're positioned to take care of any of those and I mentioned in my covered remarks earlier, we are seeing some reassuring beginning to happen in the North American opportunities and as those happen and what the products and the service center relationships we have, we're really well positioned to take advantage of those.

In what verticals are those reassuring efforts? Is it semiconductor, is it any other ones to call out?

Well semiconductor is part of that, but we're seeing that in the automotive supply line and really through the service center customers and that's really where a big indicator came to us really in the middle of the second quarter. A lot of supply lines had been disrupted just because of what was brought on by COVID-19, some of the issues that have taking place with tariffs and other things and we believe that's continuing to drive a resurgence of that reassuring. So as automotive progresses and others, we believe more and more that is going to focus on domestic supply.

And then just on, you’ve obviously done a good job on production cost here, but what inning do you think they're in? How much more do you think you can go on that cost quest?

Well, if you look at the second quarter, it was interesting for us. First, we flexed aggressively on the automotive side and as we know, the automotive assembly plant shut down early in the quarter and so we flexed a large percentage of our operations early on and then as we know a couple of months later, all those came back on. So we flexed again to respond to that demand. So we not only brought back a majority of the workforce that participate in those markets, we actually have with some of these new opportunities I mentioned, we're bringing back more employees than we had prior to the outages due to COVID-19. So we're probably unless we have a second wave, we may be in the third quarter there and automotive. If you move over and reflect on the aerospace side, we had some fairly decent demand in the second quarter and so while we did flex some of our operations there, we still had a fairly good demand that we had to meet. With our outlook in the second half, we have room to flex operations there and will do so as demand warrants.

And then just to follow-up on the automotive side, can you comment on what it looked like in June? Is there any way to frame it in terms of lead times or just how aggressive was the automotive supply chain in picking up the demand?

Well, it was fairly quick and all that was quick and not only did we have to bring back the employees to begin that. So we had an extensive retraining to get used to that but we also had retraining to how to work safely in a COVID-19 environment. So that started fairly quickly and as I mentioned, a lot of the end-users there were fits and starts to their returning. So June was a chaotic month, but now we're sorted in a group through July. We have a better outlook of what the second half looks like and so we've ramped up and accordingly there. So June was a transition month for us, but it's happy to be back. We see good strong demand there and hopefully we'll see that continue as we go forward. The other promising news on that side, there is a resumption of planned launches that had been temporarily put on hiatus and so with those happening in the second half and continuing into 2021, we really see good growth there for us.

Thank you. Our next question comes from the line of Curt Woodworth of Credit Suisse. Your line is open.

First question is on aerospace, the fact that you still saw a decent demand in 2Q is somewhat surprising, just given the OEM showing production as well as continued delays in 737 Max. So I guess one of the question I have is what was the driver of still somewhat decent demand into 2Q? You had a competitor that reported yesterday and I think their volumes were off close to 40%. And then specifically for the Max, I think we the buy side has a hard time really understanding exactly how meaningful that platform is the Kaiser, we know it's a very material consumer of aluminum plain sheet. So the degree to which that eventually recovers, can you provide any insight in terms of thinking about how that could potentially benefit you going forward?

Certainly, well the demand in the second quarter, again a lot of discussion with the air framers have taken place throughout the year and of course we had a record year in the first -- record quarter in the first quarter the year. So there was continuing demand there, but as the COVID-19 began to impact and of course recertification did some delays there on the Max as you pointed out, we saw that continue to slow down. I put it in the fact that the really strong relationships we have with these end-users and we're in discussions with them almost daily under their needs and on to the short term and the longer term. I can tell you while a lot of our discussions have taken place on the shortages and the extension may be required and looking at shipments currently in 2020, we've also had dialogue about the resurgence and their concern about capacity being available when they do come back. So we're balancing that between us as partners and we're working with them because it's not a short-term play for us, it's the long-term. So that's why we'll see per working with them on shipments in 2020 and it's partially the reason for slowing demand in the second half. I think the air framers are also working to help manage the inventory in this supply chain. They've slowed production, they've also been working with us on shifting capacities perhaps out later to manage that inventory channel. So I think the industry is working very well in managing that in some pretty challenging conditions. With regard to your second point there Kurt on the Max, well the Max is very important to Boeing obviously. I think if you look at backlog that currently exist there that Max is at least 70% of their backlog. So and I know there's been a lot of discussion about some cancellations with regard to that aircraft, but their backlog still remains robust and I think the industry is still supporting that particular airframe very well and quite frankly with lower production levels and with the backlog that exist at both Airbus and Boeing, we still have over 12,000 planes which are roughly seven or eight years of production rate. So we think long-term all the conditions are still in place for a good solid sequential growth in this business once we get past these COVID-19 concerns.

Okay. That's super helpful and then a similar question to what Josh was asking in terms of displacing back in the more GE from the aero and there is a pretty major commonality ongoing with I think 17 countries and I know that you’ve a lot of commonality product, but clearly the outcome of that would be meaningful to all type products. So can you quantify at all from a volume basis how much you could fit it into GE? Would you also be willing to try to even go into the more commodity spectrum just to get to achieve a certain target utilization rate at Trentwood or is that not really feasible. Thank you?

Sure. Curt, that's not really a market that we would look at for the Trentwood facility. We're the largest domestic supplier of heat treated plate in North America and as our capacity becomes available perhaps due to lower aero shipments, we've seen our distributor customers be very pleased to come back and take more volume from us and actually that reassuring and that concern of supply chains disruptions has really been a catalyst I believe in keeping things very possible for us on the GE side.

Thank you. At this time, I'd like to turn the call back over to Keith Harvey for closing remarks. Sir?

Thank you. Before I end the call, I want to formally acknowledge and thank Jack for his leadership and commitment to Kaiser Aluminum, our employees and our stakeholders over the past two decades. Your impact on the company and each of us has been profound Jack and has prepared us well to move Kaiser into our next chapter. In 2021 as Kaiser Aluminum, we will celebrate our 75th anniversary and as you’ve said with the strength of the company we built we're just getting started. On a more personal note, your mentorship to me over the last 25 years has meant more to me than I can effectively express here. I'm honored and humbled to assume the role with Kaiser Aluminum's next CEO and I look forward to continuing to work with you in your new role as Executive Chair as we continue to execute our strategy and ensure Kaiser Aluminum remains best in class. In closing, on behalf of Kaiser Aluminum, our employees and our stakeholders, I would just like to say thank you Jack. You made a real difference to all of us. With that, thank you for joining us on the call today. We look forward to updating you on our third quarter 2020 conference call on October. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.