David Van Bibber - Controller and Chief Accounting Officer Mark Comerford - President and Chief Executive Officer Dan Maudlin - Vice President and Chief Financial Officer.

Edward Marshall - Sidoti & Company Taylor King - KeyBanc Capital Markets Inc Christopher Olin - Rosenblatt Securities, Inc..

Greetings, and welcome to the Haynes International Third Quarter Fiscal 2016 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.

It is now my pleasure to introduce your host David Van Bibber, Controller and Chief Accounting Officer. Please go ahead, sir..

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 would 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 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 regarded or suggested by such forward-looking statements are reasonable, such statements are subject to a number of risks and uncertainties and 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 10-K for the fiscal year ended September 30, 2015. 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. Thanks for joining us today. Hopefully, you have all seen the press release and had a chance to review it. We will follow our standard agenda in today’s call. I’ll open with comments about the business and our end markets then Dan will give you greater detail on the financials.

As we mentioned in the press release in the third quarter we saw stability and units, an increases in the nickel along with pretty solid shipments specialty applications. Specialty application shipments combined good aerospace market and good tolling activity albeit both below last year’s level let did margins in the profitability.

Stability in the nickel market should help us close our mismatch in nickel in cost of goods sold compared to market nickel levels as we get deeper in the fourth quarter.

If you think about it, this would be, I believe to the first quarter and about a year and half and which We will see, We will be adjusting prices upwards based on the changes in the nickel market.

Again Dan give you more detail and color on nickel impact, I have also give you more color on the important of our specialty application wins and profitability. That being said industrial markets like our based chemical processing and land-based gas turbine markets are still very slow.

Welding especially debt related oil and gas heat treating, pollution control, similar devices are also still very weak. This resulted in much lower overall volume levels in a year ago. We don’t expect to rebound in these markets until we start to see a stronger global economic environment.

I think the price starts right now, the application wins we have seen especially in our chemical process area along with the base aerospace market. Interestingly in areas, where we haven’t yet seen the market rebound, we want a number of new applications especially in land-based gas turbine and in some renewable energy applications.

As a broader economy recovers, I think we will see the benefits of these swings. Just as we are seeing the benefits of the specialty application wins we started working on over the past five-years on the chemical area. Outside a few examples as we move in the bio-market overview.

As for the quarter, net revenue in the third quarter of fiscal 2016 was $101.3 million, down 16.5% from last year’s net revenue of $121.3 million. Net income in the quarter was $2.8 million, down 57.7% from last year 6.6 million. Shipments in the quarter totaled 4.4 million pounds down about 8.5% from last year’s 4.8 million pounds.

Average selling prices inclusive of our other revenue, which is primarily our tolling business, were down over 8.7% to $23.12 per pound from last year’s $24.34 per pound. Moving to our key markets. Net revenue in the aerospace market for the quarter was $47 million, down roughly 17% from last year’s $56.5 million.

The volumes shipped into aerospace was just over 2 million pounds in the quarter also down roughly 17% from last year's 2.4 million. Average selling price of 23.04 per pound was relatively flat with last year's $23.16 and per pound.

Backlog fell slightly in the quarter about 2% and this is due to the timing of orders and some customers adjusting their inventory levels of our supply reliability improves. As we discussed last time with our upgraded tubular products capabilities are now operational, some customers have adjusted their internal safety stock levels.

We have also adjusted haw far out into the future with booking some of these orders, allowing these key customers much greater flexibility in managing their demand.

Business remains strong in aerospace backlogs at Airbus and Boeing are in excess of seven years and deeper into the supply chain the new engine platforms are booking well and we are seeing the early stages of the ramp up.

Customer readiness audits are largely complete and by the way we have received excellent feedback on the upgrades we have on the flat roll and to new products areas and preparations for these new platform volumes.

In addition to the components, we already served Haynes participation we are into proprietary specified materials by Haynes 282 and Haynes 244 is expected to increase our content on the engine platforms.

Just reminding you we are giving the examples to anyone who is new on the call, Haynes 282 is used in areas requiring excellent fabrication characteristics and while the ability while having higher temperature capability in 718.

Haynes 244 is used in high pressure, high temperature applications with excellent thermal expansion characteristics optimizing between the static and road saving components. So it's a great product and designs our requiring on the efficient operation.

Finally, as you are aware we are also increasing our value added capabilities by expanding our large participation by making products near to customer in that shape requirements we are distribution system.

The addition of report custom metal processing is a key components in this strategy allowing us greater internal process control not only in managing cost yields and quality but also going to allowing us greater control in our speed to market to serve our key accounts.

We are heavily focused on innovation and value into acquiring this industry as we enter this new generation of more efficient engines. We feel very positive about status of the aerospace market and we feel it positions Haynes well with our new materials, new production capabilities and increased value added distribution services.

In our chemical processing market, net revenue for the quarter was $20.5 million down about 15% from last year's $24.2 million. Volume in the quarter was 745,000 pound down about 12.5% from last year's 852,000 pounds. Average selling price in the quarter was $27.48 per pound down about 3% from $28.36 per pound last year.

Backlog in this area was also down 11% as we shipped out some specialty applications that we booked about six to nine months ago. The base business in this area primarily chemical processing plans remains very slow and competitive. Our specialty application wins have been a big part of backlog growth in this business this year.

And just reminding you between September 30, 2015 and the beginning of the third quarter we more than doubled our backlog in this area primarily on the strength of specialty application wins and projects we have been working on for as much as the last five-years and by the way some has recent it is just within the last year.

I think most of you know when the core platform business return to repeat business. When that comes back, we will be position to get our share of that market. For now, the work we have done over the past five-years and developing new applications is paying off with the new strategic project wins.

To give you some flavor, some of our recent application wins in this area been in renewable energy, chemical purification, natural gas and wage disposal. These wins are all over the world not limited to the U.S.

In recent history, over the past few years, we have also have these application and project wins serving the solar industry specifically supporting concentrated solar power, some areas even in refining of chemicals for a better affordable test and also in areas allowing better chemical salt maybe that’s the way to put it.

We have also headwinds in heat exchanges for the oil and gas projects and in production systems relative deep wells and wins in merit of applications requiring high strength and high pressure in highly corrosive environment. Some of these projects showing our other markets, but most are in this chemical processing classification.

I think our expertise is view as a resource to design community and our development of new materials and fabrication solution enables us to get into these new applications. The market is slow right now, but we are still winning applications and we are committed to serving this market as we move forward.

Moving to land-based gas turbine, our sales into land-based gas turbine market totaled $16.1 million in the quarter, down about 8.5% from last year $17.6 million. Volume shift into this market with 1.2 million pounds up roughly 19% from last year’s 1 million pound.

Average selling price in the quarter was $13.14 per pound down about 23% from last year, $17.14 per pound.

The higher volume and lower average selling prices reflected the impact of low material prices on the bulk of our higher volume long-term agreement contract, as well as an increase proportionally of ingot sales volume as large frame businesses trended up.

I think we spoke last time about code activity picking up in large and medium frame applications. Well, some of those course became orders and we manage return them around fairly quickly. Still very a slow market right now overall. Although GE and Siemens appear to be indicating better activity, possibly indicating a bottom.

Our backlog in this area pulled back a bit in the quarter by 11.6% is customers are conserving cash and several reported that they will be utilizing the slow summer months for maintenance shutdown in their operations. Small frame acquisitions are still experiencing the hardest hit in this market, likely related to cut back in oil and gas spending.

By the mix shift they alluded to above to the largest frame applications. Some of those ingot shipments we saw in the quarter or the first activity we have seen in about a year from some customers.

Also just to give you some flavor and application engineering activity, we recently Haynes 282 specify into a large frame acquisition, I think I have mentioned in that last time.

It’s all that needs in this application for excellent fabrication characteristics and durability at high temperatures and it’s for a major producer of high efficiency power turbine and just to give you some flavor about 5% of our sales in the quarter for this new application.

So that platform ramps up, we should see the benefits, but right now business still well below historical volume levels and coincidently that Haynes 282, it is also being considered for some other new and replacement applications in other engine.

So even in the low volume environment we are seeing good specification activity, which we expect will pay-offs when this market returns to grow, we have this day in front of customers. Now when I talk to the people in this building, we talk about now is the timing when you win these applications to lay foundations for the future.

Finally, our other markets and other revenue accounted for 17.6 million in net revenue, down 23% from last year’s 23 million. As you know, we had a record year in tolling revenue last year and we also had very robust sales into some new oil and gas applications as well into some new consumer device applications.

These applications will cool off this year but they are expected to be ongoing business and our tolling business while still good is operating below last year's record volume level. Other markets comprising this area are also struggling as the industrial economy is struggling to find its foot.

Those areas are, welding as I mentioned earlier, some tolling applications, heat treating, brazing, pollution control equipment, all of these markets are operating well below what We have seen historically. On the operating side, the equipment we installed in our tubing operation is performing well.

I think last time when I updated you we talked about some growing pains we were having with the start up of the equipment, those issues have been resolved.

In fact as I have mentioned earlier several of our key accounts have a made point of informing us that our reliability of supply as well [indiscernible] cut their safety stock levels and run their operations leaner. And it's not great for our short term backlog numbers but I think it's definitely a great long term proposition in that supply chain.

We have also installed our Dynamics AX system in our Kokomo operations and similar to what we saw in our tubing operations the system is up and running with no major issues. Lot of effort goes into putting in a new IT platform and I think even more effort goes into doing it without a major business interruption.

A lot of our people work long days to get this up and running. We have most of the major areas installed and running. Our wire operations will be next on the list. And over the next few months we will be doing some more programming and cleaning up the details.

We are also progressing well in our upgrades to our equipment and our sheet strip cold rolling area. We expect the upgraded the rolling to come online in the fourth quarter and be up and running as we hit the first quarter of next year. Our heat treating upgrades will be completed shortly after that, probably being commissioned in the second quarter.

These additions should give us the safety capacity and search capacity we will need as the aerospace market ramps us and business in industrial areas like chemical processing and land based gas turbines start to rebound. With that let me turn it over to Dan for more details on the financials..

Thank you, Mark. This quarter highlights the favorable impacts of higher levels of specialty application projects utilizing our proprietary alloys can have on our financial results. Throughout last year fiscal 2015, we had high levels of specialty application projects each quarter.

As we moved into the first and second quarters of fiscal 2016 specialty application shipments were much lower just due to the timing and customer schedules of the projects. Third quarter specialty application shipments improved in sequential average selling prices and margins improved.

The chemical processing market highlights this impact with the average selling price per pound increased sequentially from $20.20 per pound in the second quarter of fiscal 2016 to $27.48 per pound in the third quarter. Our overall gross profit margin improved from 8.7% in the second quarter of fiscal 2016 to 13.1% in the third quarter of fiscal 2016.

Shipments of these specialty application projects are expected to continue in the fourth quarter as well. These high value shipments provide an offset to lower volumes in our commodity base business in certain of our markets due to the global macroeconomic headwinds in the industrial sector.

We have experienced increased competition in certain markets as producers are reacting to low mill utilization rate and reduced demand.

We expect base commodity volumes and prices to continue to be challenged in the fourth quarter due to reduced demand, the continued strong dollar and uncertainties in the global macroeconomic and political environment.

The market price of nickel slightly increased over the third quarter of fiscal 2016 from $3.95 to $4.04 per pound after being relatively stable over the second quarter of fiscal 2016.

However, the significant decline in market prices over fiscal 2015 in the first quarter of fiscal 2016 continues to have an unfavorable impacts on our financial results. The nickel mix match were at selling price gross paths within the cost of nickel in our cost of goods sold for this compression on gross margins in a declining nickel environment.

Compression was significant in the third quarter of fiscal 2016 estimated at approximately 4 million pretax similar to Q2 were a compression is nearly four margin points. We are expecting to sell through the remaining high cost nickel in the fourth quarter with the margin compression of about 2 million in the quarter.

We expect to be nickel neutral by the end of the quarter going forward and the compression eliminated as we move into fiscal 2017, which will be favorable to not have the compression that impacted our gross margins by an estimated total of $13 million over fiscal 2016.

Another item that is going on our profitability is pension and retiring healthcare expense, which increase to 14.4 million in the first nine months of this year compared to 9.6 million in the same period last year or a 4.8 million increase 1.6 million for the quarter.

For the full-year 2016, this expense is expected to be 19.1 million as compared to fiscal 2015 of 12.8 million. This 6.3 million increase, which is reflected in both cost to sales and SG&A is primarily due to the September 30, 2015 valuation, which required a change in mortality table and was impacted by a market drop in pension assets at that time.

We are currently funding monthly at an annualized rate of $6 million.

If you recall, our pension plan is close to new participants and for non-bargain year end employees we accruals or frozen also we expect to complete the project in the upcoming fourth quarter of offering lump sum buyouts to certain vested participants that no longer work for the company that have not yet have retirement age.

This action is being taken to reduce our future PVGC premiums a small impact that anything helps.

SG&A cost combined with the research and technical cost were 10.1 million for the quarter compared to 13.3 million in the third quarter of last year with the primary difference being favorable changes in foreign currency fluctuations compared to last year and lost incentive compensation this year.

Tax expense benefitted from recognizing the research and development tax credit of over 800,000 this quarter. As a side note if you recall in the first quarter of this year we had an unfavorable discreet tax item related to a federal tax loss exchange to bonus depreciation, which impacted our manufactures deduction by 300,000.

So which on year-to-date basis, this is more than offset with the favorable R&D tax credit recognize this quarter. Net income for this third quarter of 2016 was 2,792,000 and net income year-to-date for the nine months was 1,858,000. Outlook in the next quarter.

We expect revenue and earnings in the fourth quarter to be slightly higher compare to those achieved in the third quarter of fiscal 2016.

This outlook is predicated on continued shipments of specialty application projects together with the assumption of the nickel and our cost to goods sold will become more aligned with the market price of nickel reducing the compression on margins.

We still expect to date volumes and prices to be difficult in the next quarter due to slower demand the continued strong dollar and uncertainties in the global macroeconomic and political environment additionally our volumes our dependents on levels of transactional business and our service centers and can be impacted by summer shut downs of our customers.

Backlog was 187.2 million of June 30, 2016 decreasing 3.3% over the quarter. The backlog found slightly increase by 0.5 percentage point, but the average selling price per pound decrease 3.8%. This decrease in average selling price per pound reflects the change in product mix in the backlog.

So to give you an updated number, the backlog on July 31, 2016, was 178.5 million a reduction of $8.7 million. Cash flow and liquidity, net cash provided by operating activates was 26.3 million for the nine months, up 2016 and with 22.1 million of capital expenditures, we generated positive free cash flow of over $4.2 million.

Our full-year capital expenditures are still expected to be approximately 30 million, which includes 16.7 million and the project to increased our sheet manufacturing capacity in the Kokomo operations where we currently constraint in order to keep pace with the current demand and anticipated growth in the aerospace market.

Our cash balance remains strong at 53.6 million including restricted cash at June 30, 2016. And our revolver balance remains at zero borrowings. We amended our credit agreement on July 7, 2016 with our banking partners Wells Fargo Capital of Finance and JP Morgan sheet.

The amendment extended the agreement for five more years reduce the end used line fees and lower certain administrative costs. This solidifies our strong balance sheet positioning us well for future value creation. In conclusion, given the current market environment, we are staying focused on driving out costs, managing spending levels.

Adjusting production hours worked to match the backlog and order entry rates and reducing our inventory levels. For at the same time, we are continuing to leverage what we are good at, which is securing specialty applications for our proprietary alloys.

This technical expertise is our competitive advantage to grow the value of this business for our shareholders. Mark I will now turn the discussion back over to you..

Thanks Dan. I think, it’s fair to say, we are very excited about the aerospace market and advantage I just mentioned. We have got a lot going on in the application engineering side of the business across all of our markets. And historically, we have seen the benefit of those things when they come through in the upcoming years.

Not entirely short, we are seeing a floor in some of the other markets. Land-based gas turbine and chemical process and even some of the smaller markets we serve in urban market area. I don’t know until we get through this summer month and we start to see what our customers order book look like going into calendar 2017.

I think that will be the real proving ground to see we are heading with the economy. Overall, our industry looks like it’s pointing to a stronger economic environment as 2017 still some cloud lingering over the broader economy.

I think most of you know my concerns and I hope you don’t mind if I repeat them, I’m concerned about our base chemical process industry business, I would like to see that come backup, I don’t like when it’s below a million pounds in the quarter. Activity still very slow especially in China.

Nickel prices and commodity prices, they seem to be showing some signs of life in the last quarter. For me with nickel, I think nickel needs to prove that again for sustainable and I need to prove that they are been driven by demand and not just speculation to lower LME inventory levels license fee.

But I think where in the worst thing that happen do is oil bumped up over 50 and then drop back to 40 and I think some customers feel nickel might do the same and then I don’t want to get that, like I said, this is for a lot of us in this industry.

This is the first time and I don’t know year and half maybe two years that we aren't reducing prices based on nickel levels, so, with nickel stabilizing in the last quarter. Strong U.S. dollar is going to make the foreign competition very intense, especially in areas where competitors beyond our core U.S. base competitors come into play.

At Haynes, this is mainly the chemical processing industry. A transactional business, it's still very inconsistent month-on-month, the bias lately has been to the core side. So we are not seeing a lot of people coming in for emergency buys, maybe the best way to put it. So I need to see that tick up a little bit.

That will be a good indicator that people are busy and they are very, very low on inventory. Same thing, haven't seen a real lengthening of lead times in the marketplace and that's very understandable. Right now we have industrial markets, in our case chemical and land based gas turbine operating at such low levels and it's impacting everybody.

You are not seeing order books selling up and lead times lengthening. So it gets back to our backlog. I don't know that we are going to see tremendous growth in the backlog when we have such-such short lead times out there right now especially for industrial applications.

In my experience, I think like they are the key factors for a solidly strengthening marketplace. I'd love seeing lead times extend. It gives everybody a lot more confidence. But don't get me wrong though. I feel a lot better than I did six or nine months ago. But, I'm still in that phase of cautious optimism. It's still a very competitive marketplace.

As a result, I think you know strategy, we are going to stay in front of our customers, we will keep trying to push new applications across the finish line and help our customers with their designs. And figure out a way to get more of these application [invents], we are good at that.

And we will continue to keep driving waste out of our processes and keep pounding to ensure that Haynes is better positioned it could be. With that, let's go ahead and open the call to your questions..

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Edward Marshall with Sidoti & Company. Please proceed..

So, I wanted to kind of talk about aerospace for a second, we have heard a lot of the metal fabricators, there is been shift in kind of production in the near term due to the legacy projects kind of rolling off, like some of the wide value projects. And maybe a delay before the new product ramps up.

Is that kind of what you are inferring and you are talking about and maybe as a second portion to that, can you talk about the length of your book, because I know at some points we were talking out into fiscal 2017, so I just wanted to get kind of some clarity there?.

Right now Ed, for most of the products that we supply in aerospace, lot of the sheet and coil products we are quoting right now already into 2017. And that's like I said that's mainly our strip sheet coil type of business, we are still pretty heavily backlogged there. Now, we are bringing on some of the new capabilities.

I think you have heard me talk in the past, a caveat left this space with a really good barnyard yard, which means there is a lot of equipment out there, so we don't have to go out and buy new equipment, we just have to upgrades in existing equipment. And that's what we are doing.

So we will have the new rolling up coming out shortly, followed then by some of the heat treating capabilities, which will like I said it helps start with search capacity more importantly with the growth we expect in the aerospace side and it will also help us clear out the late list.

Even in slow times right now and this is how odd this kind of economy were in right now we are very, very busy in some areas and very lighten some others so reflecting hours in some areas while doing overtime in others.

So will cycle through and work through those situations but again we should have better search capacity better safety stock levels and as we start to move into calendar 2017.

With respect to the aerospace market I think two things happened one anchor sheet and coil or the welded products or formed products side of the business so a pretty good spike last year and I think some of that might have been related if you remember you saw a spike in nickel.

I'm going to say stock two years ago and we saw the order book pick-up lot of people we are getting their orders in and then I think they had to run off some of that that safety stock so that's one side. I think those are the lot of ordering thinking that nickel might be heading north of nine or even north of 10 two years ago.

I think it's nickel at deep 50. I'm going to say about two years ago. And that really trigger the lot of ordering so we are seeing some ware off on the order book there people just working through their safety stock but you are also seeing as you are saying.

We have seen some of the transition from legacy platforms to the new platforms because not a lot of park number changes not a lot we picked up a few couple of new applications and there are some moderate changes and things like the gage will supply into some components or maybe the cut part geometry a little bit but for the most part a lot of the hours we have just trying to saying and a lot of the applications are staying very much distinct.

But with that being said if you do take a look at the engine backlogs out there I think it's pretty clear that the transition is occurring when you look at I really the volume is really on the single oil side so I look at single legacy engines.

And I want to say that number is much as the backlog is by 3,500 or 4,000 engines and then you look at the backlogs for the new engine platforms coming out for single wire and I want to say the number is up close to the 13,000. I could be wrong on those numbers.

I'm trying to do it from memory but it shows me that we are seeing that transition occurring, and obviously we are going to have some changes in suppliers and changes in parts we have got a couple of new parts that are going into the engines and we are little pleased with that because that give you what you are looking for..

Yes just as an add on to that I know the aerospace engine OEMs and the supply chain legacy good out so they are in front of the production cycle so have you began to see that kind of and I think it's probably meaning just a little premature but have you seen it yet? you have..

The best example and I talked about this probably I usually do it at the yearend so when we did the K the big thing for me is tracking the 282, 282 is really since the military application but there is some larger applications on the new platforms.

That are coming out and that's what we have seen 282 pretty much double then sales each of the last three years might be a good way to put it. so you can see that continuing ramp up in demand, which is and really that is primarily the [Indiscernible] application that's driving that..

And if you look at the average selling price for aerospace it is sequentially in the third quarter it was $23.04 at June 30th, in March it was $22.62. So I think you are seeing small strengthening in the average selling price due to the little better mix in the aerospace which is some of the 282 that's most referring to..

Yes, and even if you look at a year-on-year as the things surprise me as the aerospace pricing was relatively flat year-over-year and nickel was anything but flat..

So when I listen to the increase in fabrication and so forth I understand kind of your thought process as far as the integrating into the business and your customers businesses and really making at a sticky customer for you. I'm curious as to the customer reception from that.

Have you seen the necessity from customer level to want to come back and continue to do kind of more fabrication at Haynes from your net parts et cetera?.

Yes. Absolute, I mean we have talked about it before. If we were in the long product side of the business, all those guys tend to be integrated in the forging and I think it’s a good move our new part, because it’s the next step and getting our customer a little bit closer to the parts they need.

You see a lot more in powder as well, as people trying to get new in that shapes and both plan based serving in aerospace. If You are on the component side, like we are fabricated part side, which is more related to sheet forming and welding.

Getting them to a cut part and set of a full coil, again they don’t have to deal with the first step in the process, they don’t have to deal with the scrap. They don’t have to, it really can get yourself in those situation where help them managed their working capital.

And perhaps more importantly help them manage the supply line into their first step in their process, which is what they are looking for. We have real that reception on it and again that’s the big reason, I think I have said in the past.

When I started here I think cut parts was less than 20% of what we were supplying in aerospace, the cut parts is now more than 50% of what we supply in aerospace..

It’s good to see that You are using a lot of those capital to move, to vertically integrate in the long product side.

The tariffs, does that effect you in any way, I know it doesn’t directly affect you, but maybe kind of the second derivative impacts?.

That thing in the world would be to see some of the big get field with the product, they need for volume. I think, I always talk about that. Can you have the rising time listing all about, it is a big notes can still up a little bit some of the products they need to further costs and run their seals more efficiently.

Yes, I think it makes more competitive, but what it’s good for the entire North American industry of those guys can still up and that ends up being good for us. So like you said, it’s very indirect, we don’t make the low-end, we don’t make same seals or carbon seals or anything like that.

We are pretty much 57% nickel or higher, it might be the best way to look at it for the most part..

Do you think there is share impact on nickel, I mean do you have any insight into maybe what nickel might do is maybe the domestic stay a little bit, I mean, I guess well demand is not changing but I’m curious this year thought?.

I know nickel is doing delivery in New York..

Obviously, I think demand in China for seamless steel a big impact there. I’m sure you read about the Philippines and there frame down a little bit on the environmental side of things that could restrict supply, it could lift nickel up. Because we have also read article that people think nickels going to go down..

Yes. What Bob, in nickel we have seen, I mean we have seen some of the junior minors go out finally. I don’t know that I have seen any of the large minors take significant capacity offline. I do like to see in economy inventory stocks are going down. As I believe to see that, but I’m worry that we have seen a speculative bump in nickel.

And to me, it’s more important that to be sustainable. If you ask me, some customers got upfront. Two years ago, when they kind of came in heavy with the orders, when I thought nickel is going to nine and my opinion is, I don’t, I think that’s part of the way people haven’t really come in heavy with the order book yet.

So I think people are wait and see, I mean we are that pretty good jump in nickel, I want to say it was up to the 480 something like that the other day? So I mean that’s they were going to get to that point.

Now where people are going to start seeing if they can get add a bit, if nickel is sustainable at these levels are hopefully keep driving but right now despite some people even Haynes take a look at our raw materials and our whip right now. We are kind of watching our nickel buyers very closely when it's over 450/475 a pound as well.

So, we too want to see if this is sustainable. I'm hopeful of those, but we want to see it..

Is this Philippine some more realistic then say what happened with Indonesia a couple of years ago? And remind me how large I think they are third largest so far?.

To me that is always we are going to keep a ban in place when there is no demand. Let's see what happens when nickel demand - if nickel demand starts to pick up like it was five-years ago or some let's see if the ban stands with that. Right now, I think we are going to keep a ban in place when demand is very low..

Got it. thanks guys..

Thank you. Our next question comes from Taylor King. Please proceed..

God morning Mark and Dan. Appreciate the great overview as always, so, my questions here are somewhat limited.

But just with respect to the customer inventory realignment that you mentioned Mark on the aerospace side, I would assume that that's related to the Titanium tubing or operations, are you expecting some of those headwinds to abate as we move in to the fourth quarter? And then Dan I know you mentioned that backlog, July end versus June, if I recall I think was down $8 million to $9 million.

So, if there is any way that you could provide us just with some of the moving pieces there from a pricing and mix perspective and just how that shakes up between the end markets?.

I'll said what, looking on year-on-year if you take a look at our [five] (Ph) customer, and I'm little bit of in control freak, so I actually go customer-by-customer into the key markets and see which customers are up and which customers are down and you can imagine that I drive the people in sales and marketing crazy.

But if you take a look at it most of what we have seen as far as change in demand, I'll say let's take aerospace for instance, has been reductions to in sales to people who are reselling, so, it's an inventory correction in the supply chain.

We don't do a lot of business into the resell market, but we have some partners that have better access into resale and a lot of the change we have seen in, again, I'll use aerospace as an example, has been the demand change pattern to people who might rework the material.

Revolvers, re-drawers or resellers of the material have been the biggest changes in demand year-on-year, who says to me okay we had a nice build up in the supply chain a year ago and okay now we are seeing some people bleed it off. I cannot, look it's tough to make money in this business when You are running it £4.4 million or so in the quarter.

But I kind of like it when I see that the drain in the change in demand is that the resell, redraw, reworking area as opposed to finish use customers, it tells me that okay, we have got a little bit of a change in the our supply mechanics and that will come back..

And your comments on backlog, I mentioned over the quarter that the backlog pounds actually stays pretty consistent with the price going down.

I mean I think that's pretty reflective that some structural projects being shipped, these are high value special projects, so that kind of shifts the mix of average selling price when you are looking at the backlog and I think that occurred as well and in Q1 as we continue to ship some specialty application projects that's going to pull those numbers down a bit.

Did that help?.

It does. Thank you very much. And then just one other from me.

Following what we have seen over in Europe with Brexit some of the geopolitical instability there have you seen any impacts or any changes in customer behavior associated with that?.

None in fact if you asked me right now our UK facility is extremely busy.

And again if you think about who we are, we are not really a geographic supplier so much as a market supplier our UK facility is very heavily land base gap serving in aerospace driven very, very high performance materials and also finding all of your part of that facility so it has been very, very busy.

In fact when I talk about areas where high field were behind on shipments out of our manufacturing facility I think one of the areas we have starved quite a bit and they have done a real good job kicking our position with key customers we have been starving our UK facility..

Thank you so much..

Thanks..

Thank you..

[Operator Instructions] There are no further questions. I would like to turn the floor. We have one from Chris Olin from Rosenblatt Securities. Please proceed..

Hey good morning. Thanks for taking my call. Just a question on the new jet engine models some of that companies that are also in the special materials you have been talking about revenue content program or like a dollar amount the next generation aircrafts I think give a field for how that new programs are going to help your business.

Have you looked at their internal's of what your revenue dollars for the net jet engine models?.

I think from the point of view of for instance some of the new application win I do have the marketing guys give me how many inputs counts that's going to be per engine and I know the selling price per pound of those item. So I do kind of keep an eye on that things to get a projection for instance of what I think will do in 282 or 244.

but there is so much in a jet engine where we are competing head-to-head for instance in let's say fuels type applications. We are competing head-to-head with special metals and how we are gaining and there distribution systems and both types of products and there [Indiscernible] all day long on those.

So we kind of have rough averages of what we think for platform but we don’t talk about it publicly..

Okay, are you seeing anything different going on in terms of aerospace active market demand has that been to be improve yet?.

Again lot of our products go into lot of what we supply is both OEM and MRO will supply through a guy who is supplying in the both of those. The asset market has been very slow it's seem to pick up little bit a year ago.

but again I think to start and see some bleeding of the supply chain before we start to rebuild the supply chain and as we get into the new ramp ups for the new platforms and that's just that is just qualitative discussions I have had with customers. That type I'm afraid..

Okay, the last question I had I was just on these special projects that you realize in the third quarter and you go in the next quarter.

Does the upward movements in commodity nickel prices pull forward those projects where as there would be a less in the backlog to choose through 2017 if there is any elusion today, in terms of influence I mean the surcharges etcetera?.

Yes I don’t think the price in nickel impacts that at all I mean we are very successful this quarter from the manufacturing point of view and the getting the customer to inspect and approve the material of the shift.

So we were able to ship quite a bit of specialty application this quarter that was at the beginning of the quarter , we would classify that it is pretty challenging, but we did well on that from an execution point of view.

And we expect that, We will have some of those same challenges in the fourth quarter, but it looks very good that We will have a good mix of especially application projects in Q4 and it’s very unrelated to the price of nickel..

The best way to think about it Chris honestly, when you think this special applications project related. I think if you think about inherently at the end of the supply chain. A lot of driven by big science. So research institute university government that are funding these things.

The wild card I’m getting these things shift on time is frequently it’s funding, where is the funding wins are coming through, do they have their funding left in this quarter. Do we have to make wait next quarter to shift et cetera? So that’s kind of unique of quarter a big science types of projects and we might be doing.

The other side of it is maintenance, we just want an application on the other side of the world for a chemical application for, I think it’s for attraction and that’s for company, it’s maintenance schedule.

Everything is driven by its maintenance schedule, he doesn’t care about nickel, he have got a big piece of equipment coming down in six months and our mental better to the fabricator in three months. So the fabricator can work on it and have it in the six months.

And that’s kind of how these schedules get driven either by big signs of largely funding application wins that are industrial application wins or driven by the build structure be the maintenance schedule or the equipment build for a new plan..

Okay, great. That’s all I had. Nice quarter..

Thanks Chris..

There are no further questions. I would like to turn the floor back over to Mark Comerford for closing comments..

Thank you, Stacy. Thank you for your time today everybody. I really appreciate it and thank you very much for your interest and support. And we look forward to updating you again next quarter..