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Haynes International, inc (NASDAQ:HAYN)
Q4 2021 Earnings Call
Nov 19, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen and welcome to the Haynes International, Inc. Fourth Quarter Fiscal 2021 Conference Call. At this time, all participants have been placed on a listen-only mode and the floor will be opened for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, David Van Bibber, Controller and Chief Accounting Officer. Sir, the floor is yours.

David Van Bibber -- Controller and Chief Accounting Officer

Thank you very much for joining us today. With me today are Mike Shor, 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 and 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 regarding 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 assurances 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 30th, 2021. 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 Mike.

Michael L. Shor -- President and Chief Executive Officer; Director

Thank you, Dave. Good morning, everyone. 3.5 years ago when our teams improvement journey began, we were frequently unprofitable. For those of you that follow us, you know the story. Our gross margins were just too low and not representative of the high-value differentiated alloys, products, and services we offer. Because of the low margins, Haynes in fiscal years '17, '18 and early '19 struggled to be profitable below the fairly robust shipment level of 5 million pounds a quarter.

As we complete our fourth quarter of fiscal year '21, I'm proud to say that our employees' relentless focus on what's important has resulted in top of the class gross margin percentage in the second half of our fiscal year '21 in our slice of the industry. This was achieved despite the continued low aerospace volumes that the industry is experiencing. We've done what we said we would do on gross margin improvement, on cash generation, and on lowering our breakeven point by about 25% with the current mix. This is not the Haynes of the past, but a company prepared to continue to do each of the following.

Prioritize safety and continue to improve our safety processes; be profitable at volumes well below past breakeven points; improve gross margins by leveraging both a lower cost structure and higher base pricing; thoughtfully and strategically allocate capital; work with our customers on an ongoing basis on our outstanding alloy and application development; and finally, be well positioned to capitalize on the upcoming anticipated volume improvement in our largest market, that being aerospace. I'm very proud of our entire team. Our fiscal year '21 Q4 performance shows the enormous strides our team has made.

Some of the highlights are as follows. Revenue was up 8.1% sequentially and 19.2% year-over-year. Net income was $2.6 million despite shifting slightly below 4 million pounds. Our gross margin percentage was 17.5%, up 200 basis points from Q3 and up 1,260 basis points from Q4 of fiscal '20. Next, we implemented our capital allocation strategy using cash for the dividend for a build in WIP to address our increasing backlog and for our previously announced stock buyback and for the significant reduction in our U.S. pension obligation.

Dan will provide additional details, but I'd like to note that after beginning fiscal '21 with a pension liability of $105 million, we begin fiscal year '22 with a liability now at $26.1 million. Our combined pension and healthcare expense is expected to be reduced by $6 million in fiscal '22 versus fiscal '21. Continuing with the highlights of the quarter, our backlog increased by $24.4 million or 16.2% over the past quarter. Our alloy and application development activities continue to generate the innovative solutions that have always been and continue to be the backbone of our company. And finally, our company had no OSHA recordable injuries in the last two months of the quarter. I'm proud of our team's focused leadership, safety process development and communication. Their efforts continue to make a real difference.

In addition, our work on ESG continues. In the quarter, we saw an improvement in our social ESG score. The labor, health and safety sub-category of the social score improved significantly as we continue to show leadership, improvement, and transparency in our safety initiatives. In addition, still related to ESG, we are now making a significant investment and have begun construction of our first solar installation, one that we expect will generate one megawatt of electricity at our Haynes Wire facility in Mountain Home, North Carolina. This installation will supply approximately half of our electricity needs at this location.

Now, transitioning to our markets. From a market perspective, the numbers show the impact of our IGT share gain initiatives, the impact of our continued efforts to grow our applications beyond our three core markets, and also the impact of the expected upcoming improvement in aerospace. In aerospace, we are seeing the initial signs of a recovery. Revenue was up 14.8% sequentially and 16% year-on-year. Book-to-bill was 1.3 and our backlog grew 13.6% over the last quarter. We believe these numbers represent the beginning of the return of our largest market. A key point to make is that we believe we are just at the beginning of the aerospace recovery. Consistent with that belief, fiscal year '21 aerospace revenues were just 50%, five-zero percent of our fiscal year '19 aero revenues.

In IGT, revenue was up 3.9% sequentially and 49% year-on-year. Our innovative alloys and our excellent customer service resulted in the market share gains that we've talked about over the past 18 months. In CPI, our revenue was down both sequentially and year-on-year, but our book-to-bill was 1.6 and our backlog grew 40% over the past quarter. The reduction experienced in our Q4 was related to the timing of orders shipped and we expect special projects and our base CPI business to improve year-on-year.

Our other markets category includes products that are used in wear FGD or flue gas desulphurization, electronic ceramics, automotive, renewable energy, oil and gas, and waste incineration applications. Our unique alloys along with our excellent technical, marketing, and application development provide solutions for difficult to solve problems in these industries. This overall segment grew 17.1% sequentially in our Q4 led by increases in shipments to the FGD, oil and gas, marine and navy nuclear and wear markets.

As far as FGD, where the largest growth occurred, as our business conditions continue to improve in the aerospace, IGT and CPI markets, we will most likely see a reduction in our FGD shipments as we utilize our manufacturing capacity on higher value products. Wrapping up my market comments, I'd like to briefly highlight another of our differentiators, the growing use of the proprietary alloy HAYNES 282 in the industrial gas turbine market.

As I've discussed each quarter, innovation, inventing alloys, and developing new applications to help customers meet their demanding needs has been and continues to be a core strength for our company. HAYNES 282 alloy has already been specified by certain major OEMs into some of their most advanced gas turbines. This alloy was selected due to its unique combination of high temperature strength and fabricability to increase the efficiency and power generation capabilities of these engines. Other major OEMs are also in the advanced stages of either conducting field trials or specifying our alloy. In addition, beyond HAYNES 282, HAYNES 244 alloy due to its low coefficient of thermal expansion and high temperature strength is now being tested in certain major industrial gas turbines. Finally, our newest high temp alloy HAYNES 233 with its outstanding combination of high temperature strength and oxidation resistance is now being tested by OEMs.

Wrapping up my comments, the efforts of the Haynes team have changed the future of our company, our focus on providing high-value differentiated products, on getting paid for the product and service value provided, on relentlessly pursuing opportunities to increase our yields and lower our variable cost of manufacturing, and on finding even more opportunities to be innovative have all resulted in cash generation, higher margins, and a significantly lower breakeven point. We've truly moved from words to actions to bottom line results and I'll turn the call over to Dan for more details on our financial results.

Daniel W. Maudlin -- Vice President-Finance; Chief Financial Officer; Treasurer

Thank you, Mike. Let me start with a detailed update of our value creating capital allocation strategy including our favorable year-end actuarial valuation. As you recall last quarter, we were excited to announce a multifaceted capital allocation strategy that first included a share repurchase plan as we feel this is a unique opportunity to repurchase shares well below the intrinsic value of the company. This is based upon the outlook in our markets, particularly the anticipated accelerating recovery in commercial aerospace combined with our gross margin expansion strategies.

In the fourth quarter, we repurchased approximately 113,000 shares for $4.2 million. This part of the strategy is executing as expected. The second part of our capital allocation strategy included the recent adoption of a glide path for our U.S. pension plan along with a $15 million lump-sum contribution in Q4 as we work to reduce what was the largest liability on our balance sheet. The result of these actions combined with a favorable overall valuation has impressively exceeded our expectations.

The U.S. pension funded percentage and net liability started the fiscal year at 68% funded and a net liability of $105.2 million, but ended the year at 91% funded and a net liability of $26.1 million representing a liability drop of over $79.1 million combining this with a favorable valuation on our retiree medical plan, reducing the liability $10.4 million and improvement in our U.K. pension of $3 million. All combined, this is an improvement of $92.5 million, an impactful value creating balance sheet transformation.

And further, our expense for FY '22 for pension and retiree healthcare is expected to decreased $6 million compared to FY '21. Our pension asset allocation at year-end was 30% equity and 70% fixed income, but additional glide path triggers were hit in October and November as we are now at a funded percentage of 93% putting the current allocation today at 19% equity and 81% fixed income with the fixed income portion in hundreds of individual bonds designed to match the duration of cash flows of the pension plan essentially creating an interest rate hedge.

This reduced interest rate risk combined with the reduced equity risk is expected to reduce volatility creating more stability at this lower expense level. Overall, this strategy is executing well and we can see the path to achieve our goal of zero net liability for the U.S. pension plan potentially sooner than we expected. This is an all-around favorable outcome from this value creating strategy.

Moving on to the financial results for the quarter, we expanded our revenue and profitability this quarter with revenue at $95.3 million and net income at $2.6 million. This profitability level was accomplished at just under 4 million pounds shipped, proving once again our lower breakeven point with the current mix. Our gross margin percentage expanded by another 200 basis points to 17.5% in the fourth quarter of fiscal '21, which exceeds the gross margin percentage in the quarters leading up to the pandemic.

Our margin improvement strategies have been successful and are expected to continue to gain momentum going forward. We expect volumes to increase and the anticipated accelerated growth in the aerospace recovery which should further improve our fixed cost absorption and more fully realize the benefits of our cost reduction efforts. These cost reductions have been related to improved yields, productivity and process improvements, which are expected to be further realized with higher mill production volumes.

In addition, shipped volumes increasing as expected, we anticipate that our previously announced price increases will continue to help margins. Market price increases for nickel and cobalt provided a moderate tailwind to margins this quarter of roughly $1.8 million. The direct charge was only $800,000 this quarter with better absorption of overhead costs compared to $2 million in the third quarter of fiscal '21 and $4 million in the fourth quarter last year. We have not been immune to the industrywide challenges in the labor market or supply chain issues as well as inflationary cost pressures.

These have been significant issues to manage through and at this point, we have been rather successful with no material impact on our financial results. We expect it will continue to be a challenge that will require ongoing management team focus. Mike already covered a discussion of each market, but here's a bit more detail on the numbers. This quarter, sales to the aerospace market accounted for 41% of our revenue at $39 million. This is an increase of 14.8% sequentially from Q3 and an increase of 16% from the same period last year. This appears to represent the beginning of the recovery. However, much more is expected.

Aerospace volumes in FY '21 were 31% below volumes of fiscal year '20 and nearly 52% below volumes of fiscal 2019. Published build rates of single-aisle aircraft show significant growth expected in fiscal year '22 and generally a return to 2019 levels in fiscal 2023. Backlog dollars in aerospace increased sequentially from Q3 to Q4 by 13.6% and were relatively flat year-over-year. Sales to the chemical processing market accounted for 17% of our revenue at $15.8 million. This is down 7% sequentially from Q3 and down 14% from the same period last year.

Special project revenue, most of which is reflected in chemical processing was $3.2 million, which is $1.6 million lower than the third quarter and $2.6 million lower than the same period last year. As Mike mentioned, this reduction relates to timing issues of products being shipped in the quarter. Backlog dollars in CPI increased by 40% Q4 versus Q3 and is up 68% year-over-year. Sales to the industrial gas turbine market accounted for 20% of our revenue at $18.5 million. This is an increase of 3.9% sequentially from Q3 and up 49% from the same period last year.

Shipments from market share gains continue to be more consistent quarter-to-quarter in this market. Backlog dollars in industrial gas turbines increased sequentially from Q3 to Q4 by 13.4% and 35.1% year-over-year. Sales to other markets accounted for 17% of our revenue at $16.1 million. This is an increase of 17% sequentially from Q3 and an increase of 73% from the same period last year. Backlog dollars were up 4.9% sequentially and up 22% year-over-year.

Other revenue accounted for 6% of our revenue at $5.9 million. This is an increase of 4.8% sequentially from Q3, but a decrease of 4.2% from the same period last year. SG&A including research and technical expense was $11.9 million or 12.5% of net sales in the fourth quarter, which was lower than fthe third quarter's $12.3 million, but higher than last year's fourth quarter of $9.1 million. The year-over-year increase was mainly due to last year's fourth quarter reversal of incentive compensation accruals, creating a credit for the fourth quarter of last year.

Non-operating retirement benefit expense in the P&L of $0.4 million was lower by $1.3 million this quarter as compared to the same period last year due to our favorable actuarial valuation last year. This line in FY '22 is expected to be an income of $1.1 million per quarter versus the current $0.4 million expense or a reduction of $1.5 million per quarter or a significant $6 million annual improvement for FY '22.

Our effective tax rate was high at 37.7% in the fourth quarter of fiscal '21 primarily related to a change in the U.K. tax rate, which required a revaluation of their deferred tax liability creating $400,000 charge to earnings this quarter. We achieved these results despite shipping volumes 20% below our previous breakeven point. All of the above contributed to a net income for the quarter of $2.6 million compared to a net income of $0.4 million in the third quarter and a net loss of $5.7 million in last year's Q4.

It certainly feels good to see the anticipated beginning of our recovery with profitability expanding and a more robust positive outlook for the commercial aerospace industry. Order entry and backlog, we are not yet back to pre-pandemic order entry levels. However, order entry rates continue to increase each quarter in fiscal '21. Backlog was $175.3 million at September 30th, '21, an increase of $24.4 million or 16.2% from June 30, '21 levels. After year-end, our backlog continued to increase ending October 31st, '21 at $186.4 million.

As far as our outlook for next quarter, the first quarter is historically our lowest revenue quarter impacted by holidays, planned maintenance outages, and customers managing their calendar year-end balance sheets. We believe this first quarter seasonal impact will be offset by our business improvements and the strengthening demand that we are experiencing. Therefore, the company expects both revenue and earnings in the first quarter of fiscal '22 to be similar to the fourth quarter of fiscal '21.

Based on our increasing backlog and accelerating commercial build rate schedules, we expect to see significant year-on-year aerospace growth that will positively benefit the company over the balance of the fiscal year. Capital spending was $5.9 million in fiscal '21 and we are increasing our expected capital spending in FY '22 to $17.7 million, a sizable increase and approaching our depreciation levels. Liquidity, cash on the balance sheet was $47.7 million at September 30th, '21 after outlaying a $15 million lump-sum pension contribution and $4.2 million in share repurchases in accordance with our value creating capital allocation strategy. We have strong total liquidity of $147.7 million of which $100 million is available on our undrawn credit facility.

In conclusion, it is encouraging to see expanding profitability with the recovery of our gross margin percentage now exceeding pre-pandemic levels while still ahead of us, we also have expectations of significant growth in volume and revenue from the anticipated aerospace recovery combined with the expected additional margin percentage expansion as our process improvements are more fully realized. This transformation of the business combined with the significant value creation achieved from the execution of our capital allocation strategy results in a truly different company. We are a company with impressive earnings power potential and a strong transformed balance sheet as the foundation for growth and continued value creation for our shareholders. Mike, with that, I will now turn the discussion back over to you.

Michael L. Shor -- President and Chief Executive Officer; Director

Thank you, Dan. Our team is encouraged by both the progress and the future potential for our business. I want to thank all of you for your continued interest in Haynes. With that, Holly, let's open the call up to questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question for today is coming from Marisa Hernandez. Please announce your affiliation, then pose your question.

Marisa Hernandez -- Sidoti and Company -- Analyst

Hi, good morning, Marisa Hernandez from Sidoti and Company.

Michael L. Shor -- President and Chief Executive Officer; Director

Good morning, Marisa.

Daniel W. Maudlin -- Vice President-Finance; Chief Financial Officer; Treasurer

Hi, Marisa.

Marisa Hernandez -- Sidoti and Company -- Analyst

Hi, so, congratulations on the results. A couple of questions here. So I think that you call out the contribution of higher nickel prices in the quarter. Can you provide that on a quarter-over-quarter basis. I think you provided it on an annual year-over-year basis?

Daniel W. Maudlin -- Vice President-Finance; Chief Financial Officer; Treasurer

Yeah, actually the number that I had in my script was $1.8 million was the tailwind for nickel and cobalt because cobalt is going up quite dramatically as well and that is just for the quarter. Now last quarter, we also had a bit of a tailwind for raw materials of about $1 million. So the delta between Q3 and Q4 is about $800,000. Does that help?

Michael L. Shor -- President and Chief Executive Officer; Director

Marisa --

Marisa Hernandez -- Sidoti and Company -- Analyst

Okay.

Michael L. Shor -- President and Chief Executive Officer; Director

If you don't mind I'll add to that, because certainly we had the tailwind related to the $1.8 [Phonetic] million in nickel and cobalt, but I think it's really important to emphasize there's so much more that's driving our margins. As you and I -- as all of us have talked about before, the 18% we hit in January and February of 2020, we looked at as a starting point as we continue to get our volume back. Over the last three years, as Dan said in the call, we've reduced our breakeven significantly. Our best estimate is down 25% percent of current mix and I think we've been able to do that because of the incremental work on both cost reduction --sustained cost reduction, yield improvement, and pricing. So we're very encouraged about what the future holds.

Marisa Hernandez -- Sidoti and Company -- Analyst

Excellent. So let's see, so if we were to adjust your gross margin in the September quarter to compare it apples-to-apples to the June quarter, could that be approximately 16.7%?

Michael L. Shor -- President and Chief Executive Officer; Director

I think what we have not done is give specific estimates related to gross margin. What I can say though is our volume is coming back, our aerospace business is coming back. We saw on special projects, the lowest quarter in revenue than we've seen in a long time. The direct charge is obviously behind us as we move forward and start to exceed this 4 million pound level that we were at and so we feel good about where everything is related to our products and we feel great about what we're doing both on the pricing side and on the cost side. So again, as far as we're concerned and we're not giving estimates as far as when, but we do look at our 18% we hit in the two months before the pandemic struck as a starting point. So we expect to exceed that as we move forward.

Marisa Hernandez -- Sidoti and Company -- Analyst

Yeah, I was not asking about an estimate, I was asking for the quarter adjusted, but that's OK.

Michael L. Shor -- President and Chief Executive Officer; Director

Oh, sorry.

Marisa Hernandez -- Sidoti and Company -- Analyst

Yeah, no worries, we can take that offline, but yeah, so I wanted to ask on the aerospace demand that you're seeing, I believe you were expecting an order pickup to start materializing later in 2021, so around right now I guess. It appears that it's happening a bit earlier. Is that accurate? How would you characterize it versus your prior expectations?

Michael L. Shor -- President and Chief Executive Officer; Director

Yeah, I think what we are hearing from the engine manufacturers and the airframe manufacturers are a concern for ability to supply metal in the supply chain. So we are having a large amount of contact and we, as you can see by our numbers with the aerospace sequentially up and certainly year-on-year up, we're beginning to see that. To me, it's really at this point as simple as looking at the LEAP engine. We know single-aisle jets are 75%, 80% of what's going to be built and when you look at what's happened with the LEAP engine account, down to [Indecipherable] now in '21 and somewhere in the 1,500 plus range in '22 and if that's what has to happen, there is about a year between us making metal and when the engines are being built to be put on a plane. So it's good timing and timing is about right for us to begin to see this pop that we are.

The other thing that I think is really worth noting, even though our business has improved, the numbers are striking. So we talk about this 14.8% increase in aerospace up to $39 million and how much it's greater than 2020, but when you compare that to '19, our sales in Q4 '19, obviously pre-pandemic, were $68 million in aerospace. So there is a lot of room to move obviously and I believe because of everyone's belief and what's happening with the A320 and the MAX and certainly seeing it the LEAP numbers that it's got to start to happen now and it is.

Marisa Hernandez -- Sidoti and Company -- Analyst

Okay, so I wanted to ask about a couple of your other markets. You've had a lot of market share gains on the turbine market. How is that looking from a sustainability perspective and how would you characterize the outlook for that market?

Michael L. Shor -- President and Chief Executive Officer; Director

I think the outlook is good. Just a small amount of history. Everyone went through five plus years of no growth in large frame power generation and a lot of inventory in the supply chain and now we're beginning to see growth and we're beginning to see much less metal in the supply chain. So when there's demand, we're feeling the pull for it. Our share gain is sustainable. These are contracts that we have signed, we feel great about it.

We've not only seen some share gain that we've talked about for the last 18 months, but we're also seeing -- obviously, we've seen some work stoppages out there by others and we've been able to see certainly not to the extent of our major share gain, but some additional business coming into us. And then on top of that, what I talked about with our innovation with HAYNES 282. This is an alloy that is being substituted into both existing large frame engines and also in some being specked in. So this is definitely sustainable.

Daniel W. Maudlin -- Vice President-Finance; Chief Financial Officer; Treasurer

And one thing I noted Marisa related to IGT is the market share gain that we have is a little more consistent as well. At first, it was a little spotty quarter-to-quarter, but now we are seeing more consistency quarter-to-quarter in what we're shipping related to that share gain.

Marisa Hernandez -- Sidoti and Company -- Analyst

Got it. And I think I heard you say that the decline sequentially here of chemical processing business is due to the timing of sales, is that correct?

Michael L. Shor -- President and Chief Executive Officer; Director

Yeah, when you look at what's happened with our backlog being up in CPI 40%, our book-to-bill which I like to look at being at 1.6 and the fact that we've hit in special projects a multi-level multi-year low, yeah, we feel good about the future both in our base CPI business and in special projects.

Marisa Hernandez -- Sidoti and Company -- Analyst

Thank you so much. I will go back in queue.

Michael L. Shor -- President and Chief Executive Officer; Director

Thank you.

Daniel W. Maudlin -- Vice President-Finance; Chief Financial Officer; Treasurer

Thanks, Marisa.

Operator

The next question is coming from Michael Leshock. Please announce your affiliation, then pose your question.

Michael Leshock -- KeyBanc Capital Markets -- Analyst

Hey you guys Mike Leshock with KeyBanc Capital Markets, good morning.

Michael L. Shor -- President and Chief Executive Officer; Director

Hi, Mike, good morning.

Michael Leshock -- KeyBanc Capital Markets -- Analyst

First, I just -- I wanted to ask on your outlook commentary how should we think about the term substantial for aerospace growth in fiscal '22 just per the verbiage in your guidance. Do you think of that as a percentage change year-over-year on an absolute basis relative to historical levels. Could we get back to pre-pandemic levels in aerospace this year. I'm just trying to get a better sense in how to frame that wording there?

Michael L. Shor -- President and Chief Executive Officer; Director

Sure and what I'll do is, is use what we've heard and what everyone has heard related to build rates on single-aisle jets. Again, 80% of the market, what we've heard is by the end what we've actually heard mid to late, but I'll say by the end of 2022, build rates pretty much equivalent to what was steady state in 2019. And again, we're talking build rates of engines and planes and so from a metal standpoint, it's got to start coming sooner. Obviously, what's not in there is the wide-body, that 20% plus or minus component, which is going to be a couple of years out from now. So we feel great that we believe build rates certainly on the LEAP engines and therefore on pretty much the single-aisle aircraft are going to be at 2019 levels on a engine build rate level by the end of 2022 is what we continue to hear.

Michael Leshock -- KeyBanc Capital Markets -- Analyst

And then as I shift to CPI. I know those -- you had mentioned that you've seen an improvement year-over-year off these lower '20 -- fiscal '21 levels, but I know those projects are typically higher margin as well as the spot business, which is pretty hot right now versus historical levels. So do you expect those special projects within CPI to drive a stronger mix in '22. Is that fair to think about it that way?

Daniel W. Maudlin -- Vice President-Finance; Chief Financial Officer; Treasurer

I think when you look at our revenues in special projects in '21 -- the full year fiscal '21, they were a little over $19 million in revenue versus the prior three years, all ranging between $24 million and $26 million and there is great reason why we were down at $19 million -- why we were down at $3.2 million in the fourth quarter. These projects take long time once from idea to finish and we're still in the timeframe that the ideas would have been right in the middle of pandemic. So, yes, to answer your question, this is higher margin product. We expect special project work to expand and as you said, we also are seeing on the transactional side in our base CPI business significant improvements in average selling price.

Michael L. Shor -- President and Chief Executive Officer; Director

And some very strong improvements in the backlog that we mentioned. So orders are starting to come in.

Michael Leshock -- KeyBanc Capital Markets -- Analyst

Got it. And then just lastly for me on the pension payment that you made in the quarter. Would you expect to make any more lump-sum payments like that in the coming year. And then, if not, what's your strategy behind any excess cash going forward?

Daniel W. Maudlin -- Vice President-Finance; Chief Financial Officer; Treasurer

I'll start with that one. We have the capital allocation strategy and one of the main goals of that strategy is to get the U.S. pension plan to a net liability of zero as quickly as possible and we kind of were thinking when we started this, that would be two to three years and obviously, we're a bit ahead of schedule going from $105 million down to $26 all in one year. So we'll be watching this. Will we make another lump-sum payment this year? Possibly. I think what we're going to do is look at our cash positions, look at other capital allocation opportunities that are out there and we'll make a determination what is the best capital allocation for the cash that we have. So it is a possibility, but I'll tell you with such great strides we made this year, it may not be to that magnitude or it may be pushed to later as we look forward and see where our capital allocation strategy will go from here.

Michael L. Shor -- President and Chief Executive Officer; Director

And just add to that, you know the story in the capital allocation for us, we've used our cash for the dividend. Now we're using it especially in our Q4 to fund our inventory growth. We've got the current stock buyback going on. We've got what Dan has talked about with the pension and so obviously, that's using our cash right now, but we do believe as we look at the aerospace cycle that it will continue to grow and we continue to look at what else is out there once we get beyond these specific items to invest in to improve shareholder value.

Michael Leshock -- KeyBanc Capital Markets -- Analyst

Got it. Appreciate the color, guys.

Michael L. Shor -- President and Chief Executive Officer; Director

Thank you.

Daniel W. Maudlin -- Vice President-Finance; Chief Financial Officer; Treasurer

Thanks, Mike.

Michael Leshock -- KeyBanc Capital Markets -- Analyst

Thank you.

Operator

[Operator Instructions] Your next question is coming from Chris Olin. Please announce your affiliation, then pose your question.

Chris Olin -- Tier4 Research -- Analyst

I am with Tier4 Research.

Michael L. Shor -- President and Chief Executive Officer; Director

Hey, Chris.

Chris Olin -- Tier4 Research -- Analyst

Good morning, everyone. How are we doing? So, it looks like the strategy is starting to come together, Mike. So, congratulations there.

Michael L. Shor -- President and Chief Executive Officer; Director

Thanks, Chris. Our team has spent a great deal of time focusing on making sure we're supplying these high-value differentiated products, making sure we get paid for them and that's been a journey since 2019 and then these relentless sustained cost reductions and I'm thrilled with where we're headed.

Chris Olin -- Tier4 Research -- Analyst

Great to hear. I don't believe in your opening remarks, you mentioned it or maybe I missed it, but the 787 situation, is that not much of a factor in terms of your guidance or your business or an indirect, direct. Is there anything going on?

Michael L. Shor -- President and Chief Executive Officer; Director

We don't believe at this point going forward that it will have a negative effect on us. Let's face it, the build rate was already down at what two a month and so if we see any increase, call it, up to four, up to five by the time we get to 2023, then it will be a good thing for us, but right now, it's not in the base because it's so low. So really don't see any issues with it. And then the other side of that is the 777. We've talked about this quite a few times but GE9X has our two proprietary alloys and they are actually talking about building 38 engines in 2023. So that's certainly going to help.

Chris Olin -- Tier4 Research -- Analyst

The titanium tubing business, did that contribute to the sales growth quarter-to-quarter? Any insights there in terms of like the inventory situation with your customers?

Michael L. Shor -- President and Chief Executive Officer; Director

Dan, you're going to have to help me if it contributed to the sales growth this year, but I will tell you that we have seen in the titanium tube area until this current quarter an oversupply of titanium tube and we're beginning to see that coming on in and beginning to see things pick up again for us, specifically related to Boeing in the airframe business.

Chris Olin -- Tier4 Research -- Analyst

Okay, the other question I had is related to the issues that seem to be going on with some of your competitors today whether it's labor-related or tech-related and I guess I'm wondering if that helped you in terms of picking up business or changing market share, any positive benefits from that?

Michael L. Shor -- President and Chief Executive Officer; Director

Yeah, we've seen some benefits related to some smaller contracts in particular in the power generation segment that it has helped us. Also obviously, as people are out on strike, there is less supply and therefore there is the opportunity to continue to focus on making sure that we at least offset our inflationary pressures with price increases and even more if possible. So yeah, we're seeing that, there is no doubt about it.

Chris Olin -- Tier4 Research -- Analyst

Sticking with that price increase topic there. There has been a number of them announced by Haynes over the past few weeks or months and I guess I'm wondering right now how big the spot business is in terms of that realization and how should we think about contract rollovers and when that starts to kind of flow through to the other customer groups?

Michael L. Shor -- President and Chief Executive Officer; Director

Our largest group of contract rollovers are in January and we have set ourselves up because of the transactional price increases that we put in place. The difference now, Chris, versus pre-pandemic is when we talked about transactional or price increases or even contract price increases in the past, I always talked about it being on the top-end of our mix. If you go back two to three years ago, I talked about our 50% of the product, which is truly high-value differentiated product.

The difference today in what we're doing are price increases across the board. We're getting price increases pretty much on every product that we manufacture. So it's a different world than it was and it's our opportunity to continue to sell the value that we provide, including our company-owned distribution facilities and make sure we were getting what we need as far as increases.

Chris Olin -- Tier4 Research -- Analyst

Is it a big number of contracts rolling over in January or do you think about it percentage wise?

Michael L. Shor -- President and Chief Executive Officer; Director

I don't have the percentage wise at this point. Dan, do you?

Daniel W. Maudlin -- Vice President-Finance; Chief Financial Officer; Treasurer

Not an exact percentage, but I would estimate our overall contracts are about 45% to 50% of our business and about probably 20% of that is annual type of contracts. So maybe a third or half of that would roll over this year would be my estimate.

Chris Olin -- Tier4 Research -- Analyst

Okay, that's all I have. Congratulations on that solar panel investment. I didn't realize the sun actually hit Indiana. So great to hear that and keep up the good work.

Michael L. Shor -- President and Chief Executive Officer; Director

By the way that -- thanks, Chris, we appreciate the little slap at Indiana, but the solar installations are in our facility in Mountain Home, North Carolina.

Chris Olin -- Tier4 Research -- Analyst

Okay.

Operator

There is a follow-up question coming from Marisa Hernandez. Marisa, your line is live.

Marisa Hernandez -- Sidoti and Company -- Analyst

Thank you for taking my follow-up. On the other market revenue, you have a very good growth this year and you call out the FGD market. Is that a significant portion of that other market revenue and can you talk about the outlook for that market?

Michael L. Shor -- President and Chief Executive Officer; Director

Yes, I would -- our flue gas desulphurization or FGD business is on the commodity side -- on the low-end of the commodity side of our mix. What we did when we were in the pandemic and when we were incurring significant direct charges because of our absorption issues we had with lack of volume, we pursued more FGD business and were successful and it was a great business decision for us because it helped keep our employees at work and helped steel moving through our assets.

What I said in my script comments though is that as our business improves in aero, in IGT, in the chemical processing market, we will be de-emphasize significant growth in FGD because it uses the same assets and quite frankly it's not nearly as profitable. So the outlook for that market is very strong, but it typically is very high volume business, which is not our wheelhouse of business and so I would say that we will begin to see over the next couple of quarters some decline in the FGD business for us and that would be an intentional move, a mix move.

Marisa Hernandez -- Sidoti and Company -- Analyst

Thank you.

Michael L. Shor -- President and Chief Executive Officer; Director

Thank you.

Operator

There are no more questions in queue. I would now like to turn the floor back over to Mike for any closing comments.

Michael L. Shor -- President and Chief Executive Officer; Director

Thank you, Holly. Thanks everyone for your time today and thank you for your interest and support of our company. We look forward to updating you again next quarter. Have a good weekend everyone.

Operator

[Operator Closing Remarks]

Duration: 46 minutes

Call participants:

David Van Bibber -- Controller and Chief Accounting Officer

Michael L. Shor -- President and Chief Executive Officer; Director

Daniel W. Maudlin -- Vice President-Finance; Chief Financial Officer; Treasurer

Marisa Hernandez -- Sidoti and Company -- Analyst

Michael Leshock -- KeyBanc Capital Markets -- Analyst

Chris Olin -- Tier4 Research -- Analyst

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