Q1 2021 Allegheny Technologies Inc Earnings Call
[music].
Yeah.
Good morning, everyone and welcome to the ATI and announces first quarter 2021 results conference call.
All participants will be in a listen only mode.
If you need assistance during todays conference you can see non operator by pressing star and zero.
After todays presentation, there will be and opportunity to ask questions.
To ask a question and you May Press Star and then one on your telephone keypad.
Draw. Your question you May press Star and two.
Please also note today's event is being recorded.
At this time I'd like to turn the conference call over to Scott Minder, Vice President Treasurer of Investor Relations. Please go ahead Sir.
Thank you good morning, and welcome to the Allegheny Technologies first quarter 2021 earnings call. Today's discussion is being broadcast on our website at ACI and metals Dot com.
Participating in today's call are Bob Wetherbee, President and Chief Executive Officer, and Don Newman, Senior Vice President and Chief Financial Officer.
Bob and Don will focus on our first quarter highlights and key messages slides are available on our website ATI and metals dot com and provide additional color and details on our results and outlook.
After our prepared remarks, we will open the line for questions.
As a reminder, all forward looking statements are subject to various assumptions and caveats as noted in the earnings release and in the slide presentation now I will turn the call over to Bob.
Thanks, Scott and welcome to all who joined us today.
Navigating through the pandemic has sharpened our focus and provided absolute clarity and how we need to operate.
We've consistently followed our guiding principles and keep our people safe.
To reduce cost quickly.
Strengthen and protect our balance sheet and remain recovery ready for our customers.
Focusing on these principles has been and critical to mitigating the impact of the pandemic and the resulting global economic decline on Ati's financial results.
And our key end markets began to show signs of coming recovery.
And is positioned for significantly improved margins.
These are amplified by our recent share gains and new business awards, especially in our high performance materials and components segment.
That said, we still reported a loss for the quarter of <unk> <unk> per share.
Our objective as we've all public companies is to generate a level of profitability greater than our cost of capital.
And we have a clear strategy defined actions and passionate team to do that.
The results achieved so far are result of the relentless efforts of our entire global team.
Each of our employees for their commitment and hard work.
Thanks to their dedication and the actions taken during the pandemic will help to improve our competitiveness and.
And generate significant bottom line impact and the coming recovery.
Yeah.
Before Don reviews, our first quarter financial performance and outlook in detail I want to address four important topics.
First my view of the current business environment and what it means for API.
Second update progress on and commitment to strategic transformation and share. Some good news on a few recent business awards.
Third address the ongoing strike by our USW represented employees at several facilities and the specialty rolled products business unit and finally share my views on our performance and outlook by end market.
Let's begin with the context of what we're seeing and the current business environment and what it means for ATI.
2021 began much like 2020 ended with optimism for a speedy vaccine rollout across the U S and Europe and slow, but steady progress moving to the next normal.
The vaccination statistics are encouraging predictors of what may be possible and the not too distant future.
We're seeing increased optimism and the jet engine supply chain as improved domestic leisure travel demand accelerates.
More airplanes and the Sky is a great thing.
Beyond the U S demand for products produced in China continues to be strong, while India grapples with the effects of a major COVID-19 infection Serge.
And in Europe, we're seeing mixed signals as vaccination rates vary across the region.
While conditions are improving we do acknowledge that the global demand levels within our key markets remain below those of 2019.
Since 2020, we've been laser focused on streamlining our cost structures to improve our competitiveness and maintaining healthy cash balances to weather a storm of unpredictable duration.
Looking forward, our cash balances will fund working capital to support long lead time customer orders as the economic recovery takes hold.
Self improvement actions continue and they will make us a stronger company.
On an earnings per share basis, as I mentioned earlier, we lost <unk> <unk> per share.
Versus our guidance range of a loss between 23% and 30.
Our dedication to more closely aligning capacity with near term demand was a key contributor to achieving first quarter results that exceeded expectations.
There were two additional drivers of our financial outperformance both related to the growing expectation for a global economic recovery.
First and foremost raw material prices rose significantly leading up to and within the quarter.
Nicole Ferrochrome, and cobalt increases led to higher surcharge pricing and favorable timing between the higher selling prices and lower inventory values, largely and our specialty rolled products business.
These year over year tailwind are outside of our control and are neither predictable nor sustainable.
This quarter favorable metal prices provided a benefit of over $20 million or.
We're about <unk> 19 per share and total and <unk> more than the metal price assumptions used for our Q1 guidance.
Early in Q2 metal prices retreated, but have recently stabilized as a result, we anticipate a modest headwind from raw materials and the second quarter.
Second our precision rolled specialty strip business, and China, known as stall exceeded expectations with the strongest quarterly earnings and its history.
And our local team following the Chinese government's recommendation to avoid travel over the lunar new year holiday instead worked diligently to fulfill our significant customer order backlog.
I am pleased to report that our third major incremented capacity, which came online in 2019 is performing well serving continued strong customer demand and the region.
As I mentioned earlier, we're seeing continued modest demand recovery for our jet engine forgings and the first signs of recovery for our other jet engine materials.
Those positive signs were largely accounted for and our original guidance range.
While and extended recovery and our markets will continue to dampen our results our focus on what's within our control is making a difference.
Don will provide additional details on our financial performance and a few minutes.
Now, let's shift to what's going on within ATI.
As we often discussed in 2020, our decremental margins benefited from our decisive and structural cost reduction actions.
And first quarter 2021 year over year decremental margins were 16% for ATI overall park.
Marking a significant improvement from prior quarters.
It's worth noting that we've maintained this key metric below 30% and each pandemic impacted quarter to date.
The actions required to make this trend possible were comprehensive and significant and the results are visible and impactful.
Most importantly, they are sustainable for the long term.
Prior to the pandemic, we began a significant growth capital projects within our <unk> segment.
This project expands our isothermal forging capacity and related heat treating machining and testing capabilities. It's.
It's required to support future jet engine demand, including a recent narrow body related share gains.
The new machining and testing capabilities are operational.
Don and I visited this new facility and Appleton, Wisconsin, and a few weeks ago and were impressed by its advanced machining capabilities and technologies.
We welcome the new API team members, who are executing the ramp bringing it up to its full potential.
Yeah.
Over the next two quarters additional portions of this multi year investment will be completed at.
And at the same time, we're seeing a solid uptick and demand for components made possible by these new investments well ahead of industry production growth rate.
These new assets are on track to provide growth for <unk> top line and improve its bottom line for years to come.
Moving to the E&S segment and December we announced plans to transform our specialty rolled products business exiting low margin standard stainless sheet products and eliminating associated cost and investment.
We remain on track to complete this footprint rationalization and the second half of the year.
The current strike by the United Steelworkers does not change our plans for our timeline.
Each of our business unit must earn more than its cost of capital on a standalone basis.
And this means having cost structures and capital investment aligned towards profit making capability.
We dispassionately apply this standard across our business portfolio over a complete industry cycle.
And especially rolled products business has struggled to consistently meet this profitability threshold for some time.
Without transformation it will not meet this objective and the foreseeable future.
So we're decisively taking the actions necessary to fix it.
This is critical not just to survive, but to thrive against global competitors, otherwise the business will continue to wither and die.
The performance over the last quarter confirms that our strategic transformation is the right course of action.
And we successfully transformed will have a streamlined more profitable and thriving specialty rolled products business.
Based on delivering high value and our key end markets.
Our Aaas transformation strategy also includes growth and high value materials and increased utilization rates at our HR P F.
I am pleased to report progress on both objectives in 2021.
As a result of our commercial and operational teams hard work, we earned two significant customer wins that will benefit ATI and <unk>.
And the E and S segment going forward.
We were awarded a contract for roughly $40 million of specialty nickel alloy sheet materials for use and a pipeline off the coast of South America.
We are and the process of finalizing product testing with the customer and expect to deliver the full value of the contract and the second half of 2021.
Bidding activity and this market space remains active and we expect continued success over the next several quarters.
Second we signed a multi year extension to our existing long term agreement with Boeing to supply titanium mill products for both of our operating segments.
This share based agreement provides the opportunity to gain share over the contract term through a merchant demand.
Our long term titanium raw material agreement, providing the inputs to our mill products supply chain remains in place throughout this extension.
This removes the variability associated with raw material prices over the term of the Boeing agreement.
While important for our long term market position, we expect subdued financial benefits from the airframe submarket until wide body aircraft production improves.
Now I'll address the ongoing strike by our USW represented employees at several facilities within our specialty rolled products business unit.
We are incredibly disappointed that the Union leadership chose this course of action.
No one wins and a strike not customers not communities not employees or their families.
At a time when we're losing money we have a generous four year contract proposal on the table.
We want our USW represented employees to come back to work.
We're offering annual raises as well as a premium free health care plan for the first three contract years.
Beginning in year, four we're asking them to contribute modestly to their health care cost.
It's possible or.
Our other USW represented and non represented employees already do so.
What are their USW represented counterparts, and our close competitors.
We must find and equitable mechanism to mitigate the impact of health care cost inflation.
We can't continue to shoulder this burden alone.
We're committed to reaching an agreement that both rewards our hardworking employees and contribute to the long term viability of our specialty rolled products business.
We will persevere to create and appropriate and predictable cost structure for this business.
And the meantime, we are successfully deploying our business continuity plan to operate the affected facilities.
While this plan will take time to fully implement the operations are gaining momentum and we expect to reach our run rate goals in June.
We're absolutely delivering on orders at the required quality levels, we're quoting and winning new business.
We've partnered with our customers to understand their needs against our projected capacity.
<unk> our production for what's most critical to them.
This includes the high value nickel alloys for the pipeline project I mentioned earlier.
I wanted to take a moment to say thank you to the very dedicated group of employees salaried temporary and from other ATI businesses running these facilities as I speak.
They're protecting our business investing their time and energy and <unk> future.
And our customers think of them and their families for their hard work and commitment and their dedication provides the opportunity for the USW represented employees, who have chosen to strike tab.
We have jobs to return to our.
Our competitors are hoping we set out.
Im confident we want.
Let me emphasize one more point.
It will be rather be operating with our longtime USW represented employees and place.
Absolutely.
That's why we have improved our offer repeatedly throughout negotiations and worked hard to address the issues between us and.
We welcome continued discussion whenever the USW is ready and look forward to reaching resolution.
And with that let me conclude my opening comments with a perspective on our performance and outlook by end market.
Let's start with our most significant market commercial aerospace specifically for our jet engine forgings and materials.
The fourth quarter 2000, Twenty's modest improvement trend continued with sales of our advanced isothermal and hot die forgings, improving faster than our specialty materials.
Although jet engine sales declined significantly versus a robust prior year quarter. They grew nearly 30% sequentially.
As a reminder, our forgings are more finished components with shorter lead times compared to our other engine materials.
Forgings demand growth is directly linked to higher jet engine builds and additionally, in our case to share gain.
All of this is driven by increasing narrow body production rates are.
Our specialty materials tend to have longer lead times and are delivered to intermediate forgers, both internally and externally.
Inventory levels differ between materials and customers, which leads to todays multi speed demand recovery.
With increasing OEM production rates, and we expect jet engine customer destocking to be largely complete and the second half of the year.
At that point, we anticipate our forgings and materials growth rates will more closely align with our customers' requirement.
We expect our jet engine products sales and related earnings to continue improving across 2021 and.
And driven mainly by narrow body production increases share gains and our previously implemented margin improvement actions.
Moving to airframe and we saw continued lower year over year sales as expected due to lackluster international travel demand impacting wide body production rates.
These plans consume a large percentage of our total airframe titanium sales.
We expect our primary OEM customer to continue to destock across 2021 with new business from another large global OEM, partially offsetting the decline and the second half of the year.
We agree with industry analyst projections that wide body production and will remain at low levels for an extended time.
We've adjusted our cost structure accordingly.
Turning to defense and we continue to see sales growth, adding to our double digit year over year gains in 2020.
First quarter sales growth was very robust for military aerospace products, including jet engines airframes and rotorcraft.
As expected this was partially offset by a steep decline and ground vehicle armor plate as our primary customer completed the initial phase of a large product program.
Looking ahead, we expect continued military aerospace growth.
And ongoing solid demand levels for naval nuclear products.
We will see lower armor sales and the second quarter and advance of a new customer program kicking off later in 2021.
And total we anticipate overall defense market growth and 2021 and beyond as we expand into new applications materials and customers.
Shifting to our broader energy markets sales declined year over year, but at a slower pace than in previous quarters.
Sales to our specialty energy markets expanded including robust double digit growth for nuclear energy and pollution control and material.
Sales to our traditional oil and gas markets declined versus prior year, but at a slower rate and in the most recent quarters.
Improving demand for fuel and needed to support travel and commerce is driving an increase and upstream production activity.
Additionally, the market for cloud type applications continues to gain momentum.
Noted earlier, we recently won a contract worth roughly $40 million for nickel alloy clad pipe materials.
To be produced and shipped and the second half of 2021.
Looking ahead, we expect oil and gas market conditions to continue to improve with the coming economic recovery.
We anticipate ongoing growth and specialty energy markets likely at a slower pace as compared to the first quarter.
And our smaller electronics and medical markets Q1 produced mixed results.
And the positive side, we saw ongoing strong electronics customer demand for both precision rolled specialty stripped and Asia.
And for our growing specialty alloy powders globally.
So that our materials are used and a wide variety of next generation consumer products, including <unk> networks autonomous vehicles and advanced computing.
We expect continued year over year electronics market growth and 2021, but at a slower pace than the first quarter.
And our medical markets and the first quarter, both MRI and implant materials sales continued to be negatively impacted by COVID-19 challenges that included restricted access to hospitals and lower elective surgery volume.
As we enter Q2, we're seeing increased forward order commitments, we expect our sales and the medical market to improve and the second half of this year.
Finally, and other potentially significant development as a likely national infrastructure improvement plan.
Currently unfolding and the U S.
Hei and indirectly benefit in two ways first these programs will create jobs and leading to increased discretionary spending for travel and consumer goods.
The delivery of people products and materials require airplanes trucks and cars, they consume and fuel.
This will benefit ATI has two largest markets aerospace and energy.
Second and Opportunistically ACI will indirectly benefit from increased building material consumption.
While ACI does not produce these basic materials were a key link and our cost effective supply chain for those who do.
<unk> is uniquely positioned to generate increased cash flow from role and carbon steel slabs for domestic producers.
With that I'll turn the call over to Don to cover our first quarter financial results in detail and to provide our outlook for the second quarter and full year.
After he concludes I will offer a few final thoughts and look forward to opening the line for your questions.
Don.
Thanks, Bob during the next few minutes I'll provide my thoughts and several key areas.
First our Q1 financial performance second an update on our liquidity levels and third and updated view on our 2021 outlook.
And the whole hei and lost six cents per share and Q1, well ahead of our expected loss range heading into the quarter.
And many ways, our financial performance reflected benefits from our 2020 cost actions.
Our cost reductions have positioned us to take advantage of the coming global economic recovery, particularly within commercial aerospace our largest end market and.
As Bob noted increased domestic travel rates are giving Boeing and Airbus the confidence to increase narrow body production range.
And turn.
We're seeing early demand signals for our specialty forgings and materials produced by the <unk> segment.
Let me add some color to the Q1 results.
H PMC sales decreased year over year compared to a robust prior year pre pandemic quarter.
But as an encouraging sign that we have seen the bottom H PMC sales increased nearly 10% sequentially.
This growth was led by nearly 30% gain and commercial jet engine sales and a 17% pickup and defense sales.
What day and jet engines, we saw a significant sequential uptick and engine forgings demand.
And we are pleased to note that we have moved from a minority to a majority share on several leap engine isothermal forge components.
We are encouraged by these trends and expect them to continue expanding across 2021 and domestic travel rates increase.
And the defense market, our growth was largely attributable to forging and materials for military jet engine.
As expected airframe sales continued to lag due to ongoing customer destocking.
Sequentially H BMC earnings margins improved significantly due to revenue growth and favorable product mix.
And within our jet engine sales highly profitable next generation forgings and materials comprised over 40% of the Q1 total.
Up from 35% and 19% and the prior two quarters respectively.
In addition to product mix margin enhancements included and a renewed <unk> provided a tailwind.
And transitory benefit from rapidly rising cobalt prices during Q1.
Overall, we're encouraged by the improving aerospace trends and both H PMC business units and.
And expect to continue to gain momentum and Airbus and Boeing increased narrow body production volume.
Turning to ians.
Segment revenue decreased 16% year over year, largely due to a 25% decrease and specialty rolled products, our SRP business unit sales.
The decline and SRP sales was across all major markets, except automotive.
Sales of our <unk> JV increased by over 50% year over year.
Fueled by demand for consumer electronics, and elevated automotive production and China.
Looking at the sequential revenue change and net sales improved 4% largely due to srp's, 15% increase and standard value stainless products, which generate minimal profit.
And net segment EBITDA improved year over year and sequentially led by record stall earnings our specialty alloys and components or <unk> business unit, along with style continued to generate double digit percentage margins.
Those business units are also well positioned to take advantage of coming demand and their respective markets.
SRP posted a positive EBITDA this quarter.
And it's important to note debt nearly 75% of the SRP Q1 EBITDA.
And was due to rising nickel and to a lesser degree ferrochrome prices and the quarter.
If this unpredictable benefit is removed.
SRP earned and EBITDA margin of about 2% and generated a loss after appropriately considering depreciation and interest charges.
The European business has the potential to be a solid and consistent contributor to ati's profitable growth story.
<unk> first quarter results from a reminder of why and transformation as needed within this business.
The cost structure does not allow for acceptable returns and we make far too many products that generate little or no margin.
The good news is that we know exactly what needs to be done and to transform SRP into and outstanding business.
Asset standard stainless sheet products.
Consolidate the footprint to streamline product flow.
And maximize production capabilities.
The cost structures and the SRP unit needs to be fixed and the product mix improved.
We are on it we.
We are hitting the milestones laid out and our transformational plan.
And <unk> performance will look dramatically different and 2022.
No longer dependent on good luck from metal prices to generate meaningful profit.
We're optimistic about these changes and we will keep you and the load as the transformation unfolds.
Before jumping in and our balance sheet and wanted to highlight that we have limited year over year decremental margins to 16% this quarter.
Soon the conversation should shift from decremental margins to outsized incremental margins driven by increasing aerospace volumes.
And ongoing cost structure reductions.
Looking beyond the income statement 2000, twenty's groundwork to strengthen our balance sheet and generate and preserve cash continues to benefit us we reshaped our debt maturity profile shifting our next significant maturity to mid 2023, and we lowered our annual interest cost.
Beyond traditional bank debt, we made progress on reducing the financial burden from our U S defined benefit pension plan and 2020.
The combination of strong and pension asset returns and 2020 calendar year contributions overcame the decline and discount rates. The result, and improved funding status and reduction and required 2021 pension contributions and expense.
During the market chaos, we've maintained a strong total liquidity ending the first quarter with roughly $540 million and cash and about $360 million of ABL availability.
This is below year end 2020 levels due to our anticipated seasonal cash usage in Q1.
We will continue to actively manage our debt maturity profile and the coming quarters.
We will leverage available cash and liquidity to further improve our long term leverage profile and our profitability.
Before I turn the call back over to Bob for closing remarks.
Wanted to provide our second quarter outlook and update for full year 2021 expectation.
As we've said several times today, the fundamentals underpinning our jet engine business are improving.
For both forgings and materials.
We anticipate HPLC sequential revenue and earnings growth and Q2, driven by an improving commercial aerospace energy and defense demand.
As a result of the improved outlook.
We've eliminated all planned Q2 facility outages and are preparing for and expected production ramp and the second half of 2021.
The ramp is needed to fulfill increased customer demand levels, including elevated isothermal forgings due to our share gains.
Exciting developments as we respond to the coming growth.
Within AA and as we have line of sight into the install and ethane and seed for Q2.
But the ongoing USW strike clouds, and the visibility and degrades and near term expectations for the <unk> business.
Sticking with what we can accurately predict we expect continued solid performance was solid and Asia as customer demand remains strong.
We anticipate higher revenues and earnings from ethane and C driven mainly by defense and market sales.
Lastly, and our SRP business, we've seen improvement and some end markets, but we will be unable to capitalize on this strength and the USW strike continues.
As a result, SRP and will produce and ship fewer materials and Q2, and we did in Q1 and.
Additionally, we expect a modest raw material headwind and some price of nickel has declined quarter to date.
And in aggregate.
We expect sequential Q2 financial improvements and our H PMC segment, along with continued solid results from RSA and <unk> business and stall JV.
However, we are not able to provide Q2 earnings guidance due to the uncertainty caused by the USW strike.
We will return to providing quarterly earnings guidance and our normal cadence as soon as we can do so with confidence.
Despite not being able to provide Q2 earnings guidance, we remain confident and our full year 2021 free cash flow guidance range of $20 million to $60 million excluding pension contributions.
The longer time horizon, and actionable cash flow levers make achieving this metric more predictable.
From a cadence perspective, we anticipate a working capital release from the second quarter that will likely be offset within the calendar year. When inventories are rebuilt after a new labor agreement is reached.
Now, let's discuss the pension.
Last quarter, we announced that we anticipated contributing $87 million to the pension plans and calendar 2021.
During the first quarter.
And our government passed new pension plan and legislation effectively reducing our 2021 minimum contribution requirements.
Other new rules, we would not be required to make any further pension contributions in 2021.
While we appreciate the flexibility of the new rules provide I want to be clear, we are committed to our pension glide path.
We intend to manage our net pension obligation to a fully funded status within a handful of years, given the anticipated recovery and our key end markets.
We will evaluate throughout the year, what if any additional contributions will be made in 2021.
We will share those plans with you in future quarters.
For the time being assumed no further pension contributions this year as we ensure efficient capital allocation and the business.
Let me wrap this up by saying that the team's aggressive 2020 cost reduction efforts, coupled with improving market conditions have put hei squarely on the path to recovery.
Four out of our five business units are moving and the right direction.
And the need to transform our SRP business was confirmed by our Q1 financial results.
Our North Star remains the same and we are excited about the future.
For SRP, specifically the current production disruption is temporary.
And it does not change our commitment our timeline to reshape the SRP business into a more profitable.
<unk> and growing enterprise.
One net out earns its cost of capital and competes for investment within our business portfolio.
We will be successful and this effort.
With that I will turn the call back over to Bob.
Thanks, Tom and I agree with you regarding our excitement for the future while the great work being done by really from hardworking people across the globe per ATI.
Our first quarter financial results showed solid sequential improvement and reinforced our belief that commercial aerospace recovery is on the horizon.
Demand for new fuel efficient planes is growing and we can feel momentum building and API, particularly within our <unk> segment.
Improving aerospace market conditions will create an outsized benefit for ATI as we've streamlined our cost structures and have.
Higher shares of our critical customer programs.
I am confident that when these volumes returned to pre pandemic levels will be and even stronger more profitable company.
Transformations on track and our specialty rolled products business.
Without significant and structural changes to rationalize our product portfolio and align our footprint and cost structure. The business will not survive against continuously intensifying global competition.
Focused on building a leaner more profitable SRP business that our earns its cost of capital has substantial profitable growth opportunities and compete successfully for investment within the company.
I'll close by saying that ATI has a growth focused company.
Set to benefit from the coming commercial aerospace and broad economic recovery.
With a clear strategy and innovative team, we're taking action to accelerate our future.
With that I'll turn it back over to Scott Scott.
Thanks, Bob quickly there are a few parameters for today's Q&A session first please limit yourself to two questions to ensure time for all analyst question.
Second since we are in the midst of a strike and ongoing labor negotiation. Please avoid questions seeking to quantify the USW strikes financial impact from the cost of our labor contract proposals on this call.
Thanks for your understanding and advance.
Operator, we're ready for the first question.
Yes.
Ladies and gentlemen at this time, we'll begin the question and answer session.
And once again to ask a question you May press Star and then one using a touchtone telephone.
You are using a speaker phone and we go out and can you. Please pick up your handset before pressing the keys to ensure the best sound quality.
So it's all your questions you May press star and <unk>.
At this time, we will pause momentarily to assemble the roster.
Okay.
And our first question today comes from Richard Safran from Seaport Global. Please go ahead with your question.
Bob John Scott Good morning, how are you.
Good morning, John and rich.
So first.
And non aerospace question from and aerospace analysts look.
And if the strike is a concern for everyone and and I wanted to know if you could maybe expand a bit on some of your opening remarks here could you tell us why you think holding firm on your offer.
And the Union is worth it and now I understand Scott Youre clear instructions here, youre, not giving out numbers and impact but.
I wanted to know if you could tell us what the company gains here because you must have crunched the numbers you know and <unk>.
A long term look here and then decided to take a stand. So maybe you could just help us a little bit more with your thinking with what the thinking is behind your actions.
And rich this is Bob I'll take your question and just to be really clear and strike was and our choice. It was a union leadership's choice to do that and.
We're actually very close to having an agreement and it comes down largely to one fundamental issue, which is managing healthcare cost inflation.
And a 7% to 10% annual installation on products that can have labor content and the value add space of 25% to 30%.
It's significant for the long term and and most of our customers as we shift our mix are going to be Oems and long term relationships, we have to make sure that we're controlling our cost and.
And that's what we're asking for and this.
Contract is really to make sure that our employees contribute and help to manage and control. Our overall spend and we think the proposal on the table as fair and part of the reason we think it's fair is that our other USW represented employees.
And those USW members employed by our close competitors. They are already there and sharing and their health care cost so not really asking for something that the industry and a union hasnt already given so not to get lost in the moment, though this is just one other many issues we're addressing to transform this business and I want to stress for long term success and other.
Investments, we're making to transform it will carry a long way into the future with the competitive competitiveness, we need to go global.
And I think the contracts there it's actually the workers under this contract the average worker will still be in the top 15% of U S. Wage earners. So it's a pretty good contract pretty good jobs actually great jobs, great benefits, but so we're in it for the long term and we think it's the right approach again, we didn't choose this course of action.
But we're certainly respond to it with the long term and view.
Okay.
Thanks for that and.
And.
You didn't mention in the slides this time, but last quarter.
You noted that you were on hypersonic spoke and so I think this is a little important because.
This could be a meaningful growth driver here so.
And so could you tell me to the best you can which programs you are on what you're supplying.
You know it's an obvious question here about you know because you know if your remarks about opening remarks about defense.
And I'll be as question here about what this does to your long term and box outlook for defense growth.
Yes, Great question, Richard I'll take that one and so we're excited about the future of what hypersonic and mean to ATI and you think about the core of the company and being material science advanced process technologies and.
The innovative people that we get involved with every day hypersonic is actually going to stretch us and Thats, a good thing and stretching us into applications that have incredible strength and extreme temperatures and.
And what Youll see us, bringing to the party or the advanced alloy powder metal technologies, you'll see us with.
And the thermal mechanical processes that are core to what we do and and I think we've invested and designed for manufacturing and performance and I think those three things and what we bring but how we're engaged you asked about specific programs where.
And engaged with a wide array of OEM customers and government agencies and <unk>.
Our view is we want to be part of defining the technology spec ing the materials and that puts us in a great position and long term. So if there's a program and hypersonic and we're probably involved with it somewhere and we feel that hypersonic is a great platform to show Ati's strengths and.
We've been in this space programs for a long time and it leverages that legacy and.
Positions us well for the future. So I think bottom line material Sciences, our core hypersonic is going to require advanced material science to be successful.
And we.
And we think we're well positioned but I think we're everywhere so to speak.
Okay, Thanks for that and I appreciate it.
Okay.
Our next question comes from Phil Gibbs from Keybanc Capital markets. Please go ahead with your question.
Good morning.
Good morning.
And we look at ER and that segment did about $50 million and EBITDA, obviously very strong can you.
And.
Can you give us an idea how much store contributed to that number and then and then secondly.
Can you also tell us what the transitory benefit was from other.
And the raw material inflation and diamond.
Sure two parts first in terms of the transitory benefit from from metal and that was largely and the SPR SRP rather segment and the benefit there is couple of ways to look at it Bob highlighted in his script the benefit relative to our guidance.
Monitor to about eight for the overall business and then as you as you translate that to EBITDA per SMT was actually about $8 million. So the majority of the and that will benefit was any SRP business and the majority of that related to nickel price movements.
In terms of store contribution.
We mentioned that it hit an all time high in terms of its revenue.
So from an EBITDA standpoint and extremely good.
Dream that good performance.
EBITDA margins and I will share with you, even though we don't specifically share.
The EBITDA generated by the SP use I would say that the.
Margins have are very very strong install and they've been and double the double digit range and and and we expect that we're going to continue to see strong performance.
And largely because the end markets that it serves continue to be very very strong and China with regard to and <unk>.
<unk> electronic demand and consumer electronics as well as automotive.
Thank you and I think that there was some comments and.
And the script about.
Moving from minorities and majority positions on certain forgings.
Presumably that's that's engine business, but curie.
Curious if you could give any any color on that is that related does that related to your new GE contract effectively just just kicking in here on a on a lag as we all expected it would.
Anything anything there would be helpful. Thanks, So much yes, it's what I would say is yes, youre not far off in terms of what the the source of that growth was it is.
I would say ISO thermal.
Related forgings, primarily and it is another another good sign in terms of not just waiting for the end markets to recover.
We're aggressively going after building on our relationships with our key customers and continuing to increase the shares that we have with them. So we're pretty excited it's another good guy and our trend towards share levels.
Thank you.
Okay.
Our next question comes from Gautam Khanna from Cowen. Please go ahead with your question.
Okay.
Yeah I was wondering if you could talk a little bit about the renewed Boeing titanium agreement.
And what specifically changed lizard.
Added duration any change day minimum contractual volumes.
Anything you can comment there.
And I think Gautam good morning, and this is Bob.
And.
I think on the Boeing situation and we're pleased to see it as a multiyear extension for the first.
And that you are asking about.
I think it's following kind of some of the industry norms and kind of.
Aligns with the backup contract for the titanium sponge supply so we feel pretty good about it.
That you know.
And it is for.
A share of their business.
And I think we're well positioned to capture emergent demand as we grow through time so.
Beyond that.
And we wouldn't disclose necessarily the finite details based on our customers' desires, but I.
And I think what we can say is that positions us for a good growth as they burn off.
And the supply chain destock spread as the and we expect that.
Last on.
On the wide body side for awhile and.
And go from there so.
Okay that helps.
Oh, Yes, I guess, what I was maybe more specifically I was wondering if you could do you guys have better visibility on 2020 to titanium and Boeing.
Okay.
ROE and 'twenty two or what.
Yeah, That's fair question and.
What we see is really about narrow body versus wide body demand trends right. So so.
Whether it's 50 50 or not and you guys can be the judge, but I think the narrow body, we're starting to see it flatten out the destocking in 'twenty, one and some upticks and 22, not getting back to where we want to be.
And two.
Probably 2000 and 'twenty three 'twenty 'twenty four.
And I think on the wide body side anything is fair game in terms of when that's going to come back we listen to what our customers say, so that's gonna be extended I think.
And we've adjusted our cost structure to do that now the other thing that's been going on.
There's two guys, who build major airframes, and I think we announced probably.
And the late last year that we had gained share position with the other guy and we.
<unk> that to mitigate to some degree.
The lower wide body production here in the United States. So I think it's going to take a while for the titanium supply chain to destock I would say probably by 2023 2024, we will start to be back to 2018 2019 levels hopefully that helps.
It does I guess, but you do expect that and 'twenty, two and it will be above the 21 levels.
And then gradually get back.
That's right yes.
And destocking to come in and we will see improvement in 2022, it's just not going to be back to the 2018 2019 levels.
That makes sense. Thank you very much I appreciate it.
And our next question comes from Paradise from its Rob.
But remember capital markets. Please go ahead with your question.
Thank you and good morning, Bob John and Scott.
A question on your high performance business is there any way to think about how much of the tailwind from higher metal prices and at jazz.
And cobalt and nickel.
Yeah. This is Don I'll give you a sense generally what I would say is.
They were the tailwind related to metal and <unk> side of the business not nearly the same as what you saw on the SRP side of the business. So it would debt would have been kind of low single digit millions of tailwind. So a good guy for us, but certainly not a highlight on that part of the business from a performance.
And standpoint.
And that stands to reason right theres not the not nearly the metal volatility exposure on the <unk> side that we have on the E and S side or SRP, specifically because the.
The contract structures are very different on the HPLC side.
Got it so I guess more generally and the segment did you pass it.
Our customers are our hedges and how does the current.
And it's a variety of contract structures. So the bottom line is that because of the agreements that we have and I wouldn't want to get into a great deal and detail, but what I would say is we've constructed in a way that that we've been able to minimize the metal risks and really highlight the value creation that we bring to the table.
Which is and and our our melt and other and reporting capabilities for example, so.
And we're happy with that construct the other thing I would point out which is really important as you think about the transformation projects that we've got going on and the SRP business is because a significant portion of our metal volatility rest and that part of the business that transformation program and we're putting in place will reduce our debt.
Metal volatility exposure by two thirds and so that's going to dramatically affect our risk profile. We run this business on fundamentals and.
And so eliminating that debt uncontrollable volatility is as a priority to us.
Got it thanks for all debt.
Details.
And then Alex.
So on your titanium and titanium based alloy products.
It looked like that.
And that revenue stream sequentially decline.
<unk> <unk> from the widebody frame destocking.
But I just wanted to make sure if that's all it is because it looked like.
And it went up sequentially and the previous quarter, but it's down this time, so on and make sure. If it's largely driven by the wide body are there other things going on.
Good question and <unk>, there's obviously the the wide body issue and I would say general Destocking and the aerospace and airframe and the other thing thats going on and we talked about it briefly as the armor plate transition. So armor is going to be down a little bit only because of a transition and major programs. We expect.
It can be back of coming back stronger and the second half and.
Clearly you know as we look into the second half we start to see the signs of the jet engine recovery and a very positive. So we know it's coming we just cant exactly predict when but we think as we mentioned earlier that the supply chain Destocking will make great progress on titanium and 2021 and then the armor.
And come back from the back half of the year.
Combo.
That's very helpful. Thanks, guys.
Okay.
And ladies and gentlemen, with that we've reached the end of today's question and answer session I'd like to turn the conference call back over to Scott Minder for any closing remarks.
Thank you to all who joined US today and we appreciate your continued interest and ATI. This concludes our first quarter 2021 conference call.
And ladies and gentlemen, without our conference has concluded we do thank you for attending today's presentation. You may now disconnect your lines.