Q3 2023 ATI Inc Earnings Call
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I'll hand, it over to your host Dave Westin Vice President of Investor Relations. Please go ahead.
Thank you good morning, and welcome to <unk> third quarter 2023 earnings call.
Today's discussion is being broadcast on our website.
Participating in today's call to share key points from our third quarter results are Bob Wetherbee Board Chair and CEO.
And Don Newman Executive Vice President and CFO.
Before starting our prepared remarks, I would like to draw your attention to the supplemental presentation that accompanies this call.
Those slides provide additional color and details on our results and outlook can be found on our website at ATI materials Dot com.
After our prepared remarks, we'll open the line for questions.
As a reminder, all forward looking statements are subject to various assumptions and caveats.
These are noted in the earnings release and the slide presentation now.
Now I'll turn the call over to Bob.
Thanks, Dave.
Good morning, everyone.
Q3 marked another solid quarter of A&P growth and continued margin expansion for ATI.
This morning, I'll highlight three major points.
First aerospace and defense market demand for ATI products is strong and we expect continued growth for years to come.
Second our transformational actions are driving meaningfully improved results better still we are in the early stages of the journey with many benefits yet to come.
Third our strong execution is delivering for our customers and shareholders.
And now some insights into each of these.
First up the continued strong aerospace and defense market demand for Ati's products.
Lead times for some specialty product lines are out as far as the first quarter of 2025.
And we're still years away from peak airframe build rates.
As recent world events reinforce safety security and sustained performance.
More important than ever.
ATI is well positioned to deliver on this expectation.
We have the right products, the right capabilities and the right team.
A&D sales had 61% in the third quarter up from 58% in Q2.
This is an all time record for ATI, and we are well on our way to our 65% target.
What drove this expansion.
Another significant step up in airframe demand, notably in titanium.
Shipments of airframe materials surpassed $200 million in the third quarter.
That's up more than 50% from the third quarter last year.
It is a new record for us surpassing our prior Q2 2019 high watermark.
How do we achieve this.
Ramping build rates realization of Wella and share gains and a lot of hard work industry analysts, commonly referred to as operational execution.
Our increased titanium mill capacity in Oregon has been a critical enabler to our topline growth.
Modest investment to restart these three furnaces, coupled with additional steps that optimize overall melt throughput helped expand our titanium melt capacity by 35% over the 2020 to baseline.
In Q2.
This is an all time record for ATI, and we are well on our way to our 65% target.
It is now producing at full run rate.
What drove this expansion.
Customer commitments for ACI titanium are so strong that we are currently bringing online our fourth and most likely the last furnace at that same Oregon milk facility.
Another significant step up in airframe demand, notably in titanium.
Shipments of airframe materials surpassed $200 million in the third quarter.
This additional furnace will produce high value specialty titanium alloys that are fierce demand by our customers with critical applications.
That's up more than 50% from the third quarter last year.
It is a new record for us surpassing our prior Q2 2019 high watermark.
It feels on other gap left by the much discussed geopolitical disruption to the supply chain.
How do we achieve this.
Ramping build rates realization of well earn share gains and a lot of hard work industry analysts, commonly referred to as operational execution.
This latest incremental step coupled with highly efficient execution by our operating team will enable.
An additional $50 million in titanium revenue per year.
Our increased titanium melt capacity in Oregon has been a critical enabler to our topline growth.
We're on track to ramp capacity in the first half of 2020 for reach.
<unk> investment to restart these three furnaces, coupled with additional steps that optimize overall melt throughput helped expand our titanium milk capacity by 35% over the 2020 to baseline.
Breaching that higher full run rate in the second half.
This investment falls within our existing Capex guidance.
All in we've increased titanium capacity by 45% through restarts and optimizations up from the 35% we previously forecast.
It is now producing at full run rate.
Customer commitments for ACI titanium are so strong that we are currently bringing online our fourth and most likely the last furnace at that same Oregon milk facility.
Now, we still have our Richland, Washington melt expansion coming online in 2025.
Our strongest titanium demand today.
This additional furnace will produce high value specialty titanium alloys that are in first demand by our customers with critical applications.
In just 12 months total ATI titanium sales are up approximately 75%.
It's an incredible ramp strong demand customer commitments send these timely and efficient capacity additions.
It feels on other gap left by the much discussed geopolitical disruption to the supply chain.
Some cases were the only game in town.
This latest incremental step coupled with highly efficient execution by our operating team.
And the stronger bottom line results are clearly at head for us pretty exciting time to be part of ATI.
We will enable an additional $50 million in titanium revenue per year.
Let's move to my second point.
We're on track to ramp capacity in the first half of 2024.
Our transformational actions are making a difference there delivering increased profitability with more room to expand.
Reaching that higher full run rate in the second half.
This investment falls within our existing Capex guidance.
Ati's transformation, which began in the depths of Covid is driving meaningful results in the business today.
All in we've increased titanium capacity by 45% through restarts and optimizations up from the 35% we'd previously forecast.
This was another quarter of sequential EBITDA growth and margin improvement.
<unk> EBITDA margins at 21, 5% in Q3.
And we still have our Richland, Washington melt expansion coming online in 2025.
We're making great and steady progress.
Our strongest titanium demand today.
2025, we target delivering H PMC margins consistently in the low to mid 20% range.
In just 12 months total ATI titanium sales are up approximately 75%.
It's an incredible ramp strong demand customer commitments send these timely and efficient capacity additions.
We're working everyday to accelerate shipments debottleneck and streamline operations and optimized flow times throughout the system.
Some cases were the only game in town.
This high value material works its way through Ati's, finishing facilities downstream operations are being tested.
And the stronger bottom line results are clearly ahead for us pretty exciting time to be part of ATI.
And are delivering more than ever before.
Let's move to my second point.
We're not immune to challenges.
Our transformational actions are making a difference they are delivering increased profitability with more room to expand.
<unk> bottlenecks emerge and sometimes legacy electrical Transformers failed.
That was the case that are locked toward New York Meld operation in Q3.
Ati's transformation, which began in the depths of Covid is driving meaningful results in the business today.
While the operating team got the power back on relatively quickly the outage created a potential divot in our Q4 shipments.
This was another quarter of sequential EBITDA growth and margin improvement.
The team has responded aggressively taking steps to significantly offset what otherwise would be Q4 bottom line impact.
H Pmc's EBITDA margins at 21, 5% in Q3.
We're making great and steady progress.
Strong demand means we've been running hard so we are increasing our focus on preventative maintenance to ensure consistent operations.
By 2025, we target delivering HPLC margins consistently in the low to mid 20% range.
There are advanced alloys, and solutions segment Aerospace and defense mix continues to improve there.
We're working everyday to accelerate shipments debottleneck and streamline operations and optimized flow times throughout the system.
It reached 35% in Q3, that's eight points higher than a year ago.
Is this high value material works its way through Ati's, finishing facilities downstream operations are being tested and are delivering more than ever before.
That's good news when you think about long term growth opportunities for these markets.
Industrial demand softened.
We're not immune to challenges.
No thats caused by transitory conditions.
New bottlenecks emerge.
Sometimes legacy electrical transformer spec.
Operationally, we've taken actions to align our near term cost structure with this lower demand.
That was the case that are locked toward New York Meld operation in Q3.
Commercially we are focused on optimizing our product mix.
While the operating team got the power back on relatively quickly the outage created a potential divot in our Q4 shipments.
This is another reminder, why being an aerospace and defense leader is at the core of our strategy.
<unk> has responded aggressively taking steps to significantly offset what otherwise would be Q4 bottom line impact.
We're at our best in markets with long term growth potential where ati's differentiated capabilities are critical to our customers' success.
Strong demand means we've been running hard so we are increasing our focus on preventive maintenance to ensure consistent operations.
And where the returns generated reflect the essential value of those maturities.
What else are we doing to transform.
There are advanced alloys, and solutions segment Aerospace and defense mix continues to improve.
In October we announced that we've reduced our qualified pension obligations by 85% through our new activation and made additional contributions, which we expect will fully fund the remaining 15%.
It reached 35% in Q3, that's eight points higher than a year ago.
That's good news when you think about long term growth opportunities for these markets.
Let me take a second to be really clear here. This is a huge milestone for us and for the team at ATI.
Industrial demand softened.
We worked on this a long time, we've talked about it in almost every earnings call for 567, maybe a decade in years.
We know thats caused by transitory conditions opt.
Operationally, we've taken actions to align our near term cost structure with this lower demand.
But we've been very.
And getting here meeting our commitments to our retirees.
Commercially we are focused on optimizing our product mix.
And to our shareholders I'm pleased that we're at this point and appreciate the team's hard work and diligent preparation for something like an underutilization for what.
As another reminder of why being an aerospace and defense leader is at the core of our strategy.
We're at our best in markets with long term growth potential where ati's differentiated capabilities are critical to our customers' success.
What we accomplish that screen.
This transaction significantly de risks ati's balance sheet and enhances our ability to generate substantial cash flow going forward.
And where the returns generated reflect the essential value of those maturities.
As we shared this pension annuity position of greatest benefit to the E&S segment, where we should see meaningfully lower pension expense starting this quarter.
What else are we doing to transform.
In October we announced that we've reduced our qualified pension obligations by 85% through our new activation and made additional contributions, which we expect will fully fund the remaining 15%.
My third point today.
<unk> continues to deliver.
Our adjusted earnings per share were <unk> 55.
Let me take a second to be really clear here. This is a huge milestone for us and for the team at ATI.
This is above the midpoint of our August guidance.
We see this momentum continuing into 2025 and beyond.
We worked on this a long time, we've talked about it in almost every earnings call for.
Now Dan will take us through the financials and talk a bit about Q4 and what's ahead.
For 567, maybe a decade years.
But we've been very deliberate in getting year meeting our commitments to our retirees.
I'll be back to close out and take us into the Q&A Dan.
And to our shareholders pleased that we're at this point I appreciate the team's hard work and diligent preparation for something like an underutilization for what we've accomplished at screen.
Thank you Bob.
Our third quarter reinforces our strong foundation rooted in growing A&D content.
It's serving us well.
Our adjusted EPS of <unk> 55 per share outperformed the midpoint of our guidance.
This transaction significantly de risks ati's balance sheet and enhances our ability to generate substantial cash flow going forward.
Keep in mind. The prior guidance did not include <unk> <unk> of interest expense related to debt supporting the pension annuity <unk> funding.
As we shared this pension annuity duration of greatest benefit to the E&S segment, where we should see meaningfully lower pension expense starting this quarter.
The strength of our A&D business allowed us to increase total adjusted EBITDA margin, while delivering our fifth consecutive quarter of revenue above $1 billion.
My third point today.
ATI continues to deliver.
As we look ahead to the fourth quarter and beyond the resiliency of our performance and growth continues to carrier business and support value creation.
Our adjusted earnings per share were <unk> 55.
This was above the midpoint of our August guidance.
We see this momentum continuing into 2025 and beyond.
And H BMC.
Our A&D content increased 200 basis points to 85% supporting an increase of EBITDA margin to 21, 5%.
Now that will take us through the financials and talk a bit about Q4 and what's ahead.
Back to close out and take us into the Q&A Dan.
The mix pricing and performance of this segment all aligned with current market conditions and the optimization of hei around this building demand.
Thank you Bob.
Third quarter reinforces our strong foundation rooted in growing A&D content.
It's serving us well.
EBITDA margins in our E&S segment at 10, 4% reflect the previously communicated seasonal Q3 outages, which impacted the quarter's margins by approximately 200 basis points.
Our adjusted EPS of <unk> 55 per share outperformed the midpoint of our guidance.
Keep in mind. The prior guidance did not include <unk> <unk> of interest expense related to debt supporting the pension annuity <unk> funding.
Aam's margins should increase in the fourth quarter, driven by our production cycle and continued growth in our A&D and A&D like markets.
The strength of our A&D business allowed us to increase total adjusted EBITDA margin, while delivering our fifth consecutive quarter of revenue above $1 billion.
We will also see initial benefits from the recent pension actions.
As we look ahead to the fourth quarter and beyond the resiliency of our performance and growth continues to carrier business and support value creation.
I would also note that we are ahead of our SRP transformation timeline.
And we remain confident in our ability in.
And H BMC.
In delivering Aam's 2025, EBITDA margins in the mid to upper teen percentage range.
Our A&D content increased 200 basis points to 85% supporting an increase of EBITDA margin to 21, 5%.
Turning to the balance sheet.
We have a lot in motion as we continue to reshape this business for a strong future cash generation.
The mix pricing and performance of this segment all in line with current market conditions and the optimization of hei around this building demand.
Managed working capital remains a focal point.
Despite the level remaining near 40% of sales through Q3, we project meaningful improvement to manage working capital levels in Q4.
EBITDA margins in our E&S segment at 10, 4% reflect the previously communicated seasonal Q3 outages, which impacted the quarter's margins by approximately 200 basis points.
This will be driven by inventory reductions as well as receivable and payable performance.
Those initiatives are in process as we speak.
Aam's margins should increase in the fourth quarter, driven by our production cycle and continued growth in our A&D and A&D like markets.
Inventory is a key target area for improvement as.
As demand in our front end melt capacity increase our team is optimizing that growth as it flows through to finished product and testing.
We will also see initial benefits from the recent pension actions.
I would also note that we are ahead of our SRP transformation timeline.
We anticipate year end managed working capital will be between 31% to 32% of sales. This is slightly higher than our previous expectations. While we expect to largely offset that impact through capex management and performance in other areas.
And we remain confident in our ability in.
And delivering Aam's 2025, EBITDA margins in the mid to upper teen percentage range.
Turning to the balance sheet.
Therefore, we are narrowing our full year free cash flow guidance range to $130 million to $160 million.
We have a lot in motion as we continue to reshape this business for strong future cash generation.
Managed working capital remains a focal point.
Q4 cash flow should be very strong.
Despite the level remaining near 40% of sales through Q3, we project meaningful improvement to manage working capital levels in Q4.
While talking about the balance sheet I want to further highlight the impact of our recent pension actions, including the annuity position.
This will be driven by inventory reductions as well as receivable and payable performance.
You'll recall, we've taken many steps to reduce exposure over the past several years.
Those initiatives are in process as we speak.
Even so our pension assets and liabilities still represented an element of forward risk for our shareholders driven by market forces beyond our direct control.
Inventory is a key target area for improvement as.
As demand in our front end melt capacity increase our team is optimizing that growth as it flows through to finished product and testing.
With the pension annuity station approximately 85% of that risk has been successfully transferred out of ATI to a trusted fully qualified third party.
We anticipate year end managed working capital will be between 31 and 32% of sales. This is slightly higher than our previous expectations, but we expect to largely offset that impact through capex management and performance in other areas.
As a result of additional planned contributions we expect our remaining obligations to be fully funded.
As such we no longer expect to make any material cash contributions to the qualified pension plans.
Therefore, we are narrowing our full year free cash flow guidance range to $130 million to $160 million.
I also want to emphasize that <unk> and other pension actions taken in 2023 are expected to deliver substantial earnings benefits.
Q4 cash flow should be very strong.
While talking about the balance sheet I want to further highlight the impact of our recent pension actions, including the annuity position.
Specifically, we expect to see annual pension expense dropped more than $45 million from pre <unk> run rates.
Youll recall, we've taken many steps to reduce exposure over the past several years.
These glidepath steps have delivered the outcome that we were striving for this large it gets us out of the pension business.
Even so our pension assets and liabilities still represented an element of forward risk for our shareholders driven by market forces beyond our direct control.
Our cash balance exceeds $400 million following this activity.
With a strong fourth quarter for cash flow our outlook for net debt will only improve going forward.
With the pension annuity <unk> approximately 85% of that risk has been successfully transferred out of ATI to a trusted fully qualified third party.
We intend to continue to deliver a balanced capital deployment strategy funding growth, while also delevering and returning capital to shareholders.
As a result of additional planned contributions we expect our remaining obligations to be fully funded.
To that end.
We purchased approximately $45 million in outstanding shares in the third quarter.
As such we no longer expect to make any material cash contributions to the qualified pension plans.
I would expect to complete our remaining authorization of $30 million in the fourth quarter.
I also want to emphasize that <unk> and other pension actions taken in 2023 are expected to deliver substantial earnings benefits.
We expect this cycle will continue and strengthen in the future with growth performance and reduced volatility on our balance sheet moving forward.
Specifically, we expect to see annual pension expense dropped more than $45 million from pre <unk> run rates.
Let's take a closer look at our guidance for the remainder of 2023.
As we estimated previously and reinforced with these results.
These glide path steps have delivered the outcome that we were striving for this large it gets us out of the pension business.
We're tracking towards a strong fourth quarter and should carry momentum into 2024.
Our cash balance exceeds $400 million following this activity.
As we approached the end of the year, we're tightening our guidance range for full year EPS to $2 20 to $2 30 per share holding the previous midpoint of $2 25 per share.
With a strong fourth quarter for cash flow our outlook for net debt will only improve going forward.
We intend to continue to deliver a balanced capital deployment strategy funding growth, while also delevering and returning capital to shareholders.
At this midpoint for Q4 EPS with center at 62.
Representing the highest quarterly result for 2023.
To that end, we purchased approximately $45 million in outstanding shares in the third quarter.
Robust A&D demand and increasing capacity along with optimized cycles and performance point to this high watermark in EPS as we look ahead.
And expect to complete our remaining authorization of $30 million in the fourth quarter.
We expect this cycle will continue and strengthen in the future with growth performance and reduced volatility on our balance sheet moving forward.
As I noted our free cash flow estimate remains consistent with prior expectations.
We're balancing the working capital pressure driven by our increasing sales with continued prudence and tight discipline over our capital investment.
Let's take a closer look at our guidance for the remainder of 2023.
As we estimated previously and reinforced with these results.
All significant expansions in projects, including our newly announced classified facility for additive manufacturing remain on schedule.
We're tracking towards a strong fourth quarter and should carry momentum into 2024.
With that we are still able to lower our current year capital expenditures to a range of $190 million to $210 million.
As we approach the end of the year, we're tightening our guidance range for full year EPS to $2 20 to $2 30 per share holding the previous midpoint of $2 25 per share.
While we're not yet providing formal guidance for 2024 I will tell you that we see continued growth and expanding performance for next year Directionally in line with the targets. We've previously outlined for 2025.
At this midpoint for Q4 EPS with center at 62.
Representing the highest quarterly result for 2023.
At our upcoming Investor update on November 29, we intend to offer more clarity and visibility into this growth.
Robust A&D demand and increasing capacity along with optimized cycles and performance point to this high watermark in EPS as we look ahead.
I will also provide new perspective and details on the continued upward trend for ATI through 2025, and beyond including insights into our 2027 financial targets.
As I noted our free cash flow estimate remains consistent with prior expectations.
We're balancing the working capital pressure driven by our increasing sales with continued prudence and tight discipline over our capital investment.
We hope you'll join us in person at the New York stock exchange for that event and by the way and registration is available on our website.
All significant expansions in projects, including our newly announced classified facility for additive manufacturing remain on schedule.
With that I'll hand, the call back over to Bob to conclude our opening remarks.
Thanks, Don.
With that we are still able to lower our current year capital expenditures to a range of $190 million to $210 million.
They are truly exciting times for ATI and I am confident in our sustained momentum and trajectory.
First of all even 2025 won't be the peak of growth for ATI.
We're not yet providing formal guidance for 2024 I will tell you that we see continued growth and expanding performance for next year Directionally aligned with the targets. We've previously outlined for 2025.
We have many more years of growth ahead.
With clear visibility and long term agreements extending into the back half of the decade.
At our upcoming Investor update on November 29.
We continue to shape, our business to capitalize on increased demand, while also insulating our business against future risk.
We intend to offer more clarity and visibility into this growth.
We will also provide new perspective and details on the continued upward trend for ATI through 2025, and beyond including insights into our 2027 financial targets.
I hope you'll join US later this month for our Investor update in New York as Don said, we'll talk a lot more about what that growth looks like and what it means for ATI and for our shareholders.
With that let's open the line for questions.
We hope you'll join us in person at the New York stock exchange for that event and by the way registration is available on our website.
Operator, we're ready for the first question.
With that I'll hand, the call back over to Bob to conclude our opening remarks.
Thank you our first question for today comes from David Strauss of Barclays.
Thanks, Don.
Your line is now open. Please go ahead.
These are truly exciting times for ATI and I am confident in our sustained momentum and trajectory.
Thanks, Good morning, everyone.
Good morning.
First of all even 2025 won't be the peak of growth for ATI.
Wanted to.
I'll clarify.
Look for and that's in the fourth quarter Don.
We have many more years of growth ahead.
Alright.
With clear visibility and long term agreements extending into the back half of the decade.
You talked about in the release about assuming stable performance in the fourth quarter, but then in your remarks, just now you talked about margin improvement on the back of the pension lower pumps as well as non holiday outages. So if you could just kind of square the two what exactly you are assuming maybe.
We continue to shape, our business to capitalize on increased demand, while also insulating our business against future risk.
Hope you will join US later this month for our Investor update in New York as Don said, we will talk a lot more about what that growth looks like and what it means for ATI and for our shareholders.
Top line and on margins for.
Q4.
Yeah, Great question. So for clarification, when we talk about stabilization that was really a reference toward both what you're seeing in terms of sales trends.
With that let's open the line for questions.
Operator, we're ready for the first question.
Thank you our first question for today comes from David Strauss of Barclays.
<unk> seen some headwinds around the industrial but we saw also seen some tailwind and good mix change in E&S related to their A&D exposure, but when we look at that overall business Q3 to Q4, we're really looking at a stabilization from a topline standpoint, but you are right. When you look at the bottom line you would expect hey, if you've posted a 10 point.
Your line is now open. Please go ahead.
Thanks, Good morning, everyone.
Good morning.
Wanted to.
I'll clarify.
Look for us in the fourth quarter, Don So I couldn't.
4% margins in Q3 or are you, saying youre going to expect similar margins in Q4. The short answer is no. We would expect that the EBITDA as well as the margins should improve.
You talked about in the release about assuming stable performance in the fourth quarter, but then in your remarks, just now you talked about margin improvement on the back of the pension lower punch on as well as non holiday outages. So if you could just kind of square the two what exactly but assuming maybe.
In Q4, a couple of reasons to point to one Q3, we had some major outage costs I think in terms of $8 million to $10 million of those outage costs those won't repeat in Q4 second good Guy that we would expect in Q4 is tied to the pension and we've talked about the pension 45.
Top line and on margins for.
Q4.
Yeah, Great question.
Question. So for clarification, when we talk about stabilization that was really a reference toward what we see in terms of sales trends we've.
Good Guy on a run rate basis, we will see some of that benefit hit us in Q4, and when you think about the effect to <unk> do you want to break it down like this that $45 million annualized breaks down to about 11 11 million plus per quarter, and we're not going to get a full.
We've seen some headwinds around the industrial but we saw also seen some tailwind and good mix change in E&S related to their A&D exposure, but when we look at that overall business Q3 to Q4, we're really looking at a stabilization from a topline standpoint, but you are right. When you look at the bottom line you would expect hey, if you've posted a 10.
Quarters worth of that benefit.
Of that $11 million at the corporation were going to get somewhere between southern half of $9 5 million just because it's a partial period I think we're going to get the higher end of that of that element. When you break it down to say, okay. How much of that is <unk> think in terms of probably about 75%.
4% margins in Q3 or are you, saying youre going to expect similar margins in Q4. The short answer is no. We would expect that the EBITDA as well as the margins should improve in <unk> in Q4, a couple of reasons to point to one Q3, we had some major outage costs I think in terms of 8%.
Sure and then the rest would be split between corporate and HP AMC. So.
$10 million of those outage costs those won't repeat in Q4 second good Guy that we would expect in Q4 is tied to the pension.
So does that help you a bit.
Okay.
Yeah, that's that's more than I was hoping for it so thank you.
And we've talked about the pension $45 million good guy on a run rate basis, we will see some of that benefit hit us in Q4, and when you think about the effect to <unk> do you want to break it down like this that $45 million annualized breaks down to about 11 $11 million plus per.
Quick quick.
Quick quick follow up for Bob.
So one of the large engine manufacturers, obviously, it's gonna look could be replacing a lot of desks here over the next couple of years is is there any incremental opportunities for you guys in terms of your reports this business to.
Per quarter, and we're not going to get a full quarters worth of that benefit.
Of that $11 million at the corporation were going to get somewhere between seven five and $9 $5 million just because it's a partial period I think we're going to get the higher end of that of that element.
To help out there and pick up some share thanks.
Yes, good question.
David and good morning.
The simple answer we'll stick with simple answers and try to over exceed your expectations today, David I would say, yes, yes near term, we're working very collaboratively with that engine producer to make sure that their current flow paths continue to accelerate and flow well.
When you break it down to say, okay. How much of that is E&S think in terms of probably about 75% is <unk>.
Sure and then the rest would be split between corporate and HP AMC.
Does that help you a bit.
Obviously with this big increase in shop visits we are seeing extra spares.
Okay.
Yeah, that's that's more than I was hoping for so thank you.
Other things come our way I think in cases like this a lot of times you see second sourcing our backup sourcing opportunities for both raw materials and forgings.
Quick quick.
Quick quick follow up for Bob.
So one of the large engine manufacturers, obviously is going to look to be replacing a lot of desks here over the next couple of years is is there any incremental opportunities for you guys in terms of your forged this business to tell.
We have a great relationship there that I think will build off so I think in the near term. It's doing everything we can help them on the close side longer term, yes, there's opportunities probably on the raw materials on the forgings.
Within our Capex guidance that we've given you.
Help out there and pick up some share thanks.
We actually just finished an upgrade of one of our older Isothermal forge presses with some new upgraded and controls systems.
Yes, good question.
David and good morning.
But simple answer we will stick with simple answers and try to over exceed your expectations today, David I would say, yes, yes near term, we're working very collaboratively with that engine producer to make sure that their current flow paths continue to accelerate and flow well.
So we feel pretty good about the upside our isothermal forging going into the engine.
And those guys.
That relationship there can be a big part of that so we're pretty excited about the upside probably we won't see it until 'twenty five 'twenty six 'twenty seven but.
On the right track.
Obviously with this big increase in shop visits we're seeing extra spares.
Yeah.
Great. Thanks, a lot.
Other things come our way.
Thanks, David.
In cases like this a lot of times, you see second sourcing or backup sourcing opportunities for both raw materials and forgings.
Thank you.
Question comes from Richard Safran of Seaport research.
Your line is now open. Please go ahead.
We have a great relationship there that I think will build off so I think in the near term. It's doing everything we can help them on the close side longer term, yes, there's opportunities probably on the raw materials on the forgings.
Bob Dan Dave Good morning.
Well very rich.
So.
To the best you can could you try to make an apples to apples comparison.
Within our Capex guidance that we've given you.
Between 2022, EPS than what Youre guiding to 'twenty three.
We actually just finished an upgrade of one of our older Isothermal forge presses with some new upgrade and controls systems. So we feel pretty good about the upside our isothermal forging gone into the engine.
You strip out last year's favorable aviation credits. This year, you had pension increase.
Is it correct to say that EPS is close to a 50% increase.
And those guys.
That relationship there can be a big part of that so we're pretty excited about the upside probably we won't see it until 'twenty five 'twenty six 'twenty seven but that.
Increased now that those are my words, but I thought maybe you would.
<unk> 2022, with what Youre, saying for 2023 kind of.
Trying to apples to apples.
On the right track.
Well rich you did all my math for me so.
Yeah.
Great. Thanks, a lot.
Youre, absolutely right, but for the benefit of of the other folks on the call let me.
Thanks, David.
Thank you.
I'm aligned with what you just said.
Question comes from Richard Safran of Seaport research.
So when you think about our 2022 performance, we posted a one night of $1 99.
Your line is now open. Please go ahead.
Aps, but there were nonrecurring items that existed in there like cobalt credits and then we knew the pension expense was going to pop in 2023, if you pro forma for that that gets you to about 2022 EPS for full year at a $1 50, something in that range and you compare that to the midpoint.
Bob Dan Dave Good morning.
I'm a very rich.
So.
So the best you can could you try to make an apples to apples comparison.
Between 2022, EPS than what you're guiding to for 'twenty three.
You strip out last year's favorable aviation credits. This year, you had pension increase.
The guidance and this is the point that that you are making I believe Phil.
Is it correct to say that EPS is close to a 50%.
Point to the midpoint at $2 $22 25.
It implies about a 50% year over year increase in our earnings per share and the good news. There is several one it's a great indicator of the underlying growth that exists in this business really being driven.
Now those are my words, but I thought maybe you would.
Rich 2022, with what Youre seeing for 2023 kind of trying to apples to apples.
Well rich you did all my math for me. So I know you are.
Absolutely right, but for the benefit of the other folks on the call let me.
In large part by aerospace and defense strategy and the other good news is we're not expecting it to stop we expect further growth and we will talk about more about that when we're all together on November 29, but you know this the increase you saw in two.
I'm aligned with what you just said so when you think about our 2022 performance we posted a one night of $1 99, EPS, but there were nonrecurring items that existed in there like Colgate credits and then we knew the pension expense was going to pop in 2023, if you pro forma for that that gets you to about.
2020, threes Etfs, we think is a harbinger of good performance in the future as well.
2022, EPS for full year at a bought $1.50 something in that range and you compare that to the midpoint of the guidance and this is the point that you're making I believe Phil you point to the midpoint at $2 $22 25.
Okay, and then lastly is this.
I think you've talked previously about the transactional piece of the business.
We're being more selective with it.
High demand I wanted to know if you could give a comment or two on that on the transactional part of the business, how that's trending and if the work youre getting is margin accretive.
Implies about a 15% year over year increase in our earnings per share.
Yes, good morning rich.
And the good news there is several one it's a great indicator of the underlying growth that exists in this business really being driven.
I can go first Don can add if he wants to at the end here, but it's definitely accretive start there we've never been known in the industry as the low price Guy.
A large part by aerospace and defense strategy and the other good news is we're not expecting it to stop we expect further growth and we will talk about more about that when we're all together on November 29, but.
So we tend to see the value in the products and we tend to be migrating to more of the challenging more differentiated titanium and nickel alloys and that transactional business.
The increase you saw in <unk>.
Lead times are such that.
If youre a distributor or some of the smaller Oems.
2020, threes Etfs, we think is a harbinger of good performance in the future as well.
We said earlier probably in May if you know anybody who is looking for titanium nickel they should get their orders on the books.
Okay, and then lastly is this.
I think you've talked previously about the transactional piece of the business.
Definitely happened.
So it's accretive.
We tend to migrate more to Oems because of the lead times and less to the distribution channel, but I would say.
We're being more selective with it.
High demand I want to know if you could give a comment or two on that on the transactional part of the business, how that's trending and if the work youre getting is margin accretive.
Still strong and still some opportunity our strategy is not to be 100% contractual or our strategy is to be in the 80% contractual and 40% transactional and we're holding that mix pretty well, but we are being selective about what kind of alloys on what kind of systems, we play and that actually factored into our.
Yes, good morning rich.
I can go first Don can add if he wants to at the end here, but it's definitely accretive we'll start there we've never been known in the industry as the low price Guy.
<unk> to start the fourth furnace in Oregon.
So we tend to see the value in the products and we tend to be migrating to more of the challenging more differentiated titanium and nickel alloys and that transactional business.
Which tends to be some of the more challenging alloys, but higher value stuff data alloys terminal five three those kind of alloys.
As we move into the more sophisticated critical applications.
Lead times are such that.
If youre a distributor or some of the smaller Oems. We took we said earlier probably EMEA. If you know anybody who is looking for titanium nickel they should get their orders on the books.
Hopefully that helps but definitely accretive.
Thanks very much.
Thank you our.
Definitely happened.
The next question comes from Phil Gibbs of Keybanc capital markets.
So it is accretive.
We tend to migrate more to Oems because of the lead times and less to the distribution channel, but I would say.
Your line is now open. Please go ahead good morning.
Good morning, Phil.
A question is just on big picture on pricing and mix improvement.
Still strong and still some opportunity our strategy is not to be 100% contractual or our strategy is to be in the 80% contractual 20% transactional and we're holding that mix pretty well, but we are being selective about what kind of alloys on what kind of systems, we play and that actually factored into our <unk>.
That expected to be a big driver in 'twenty four 'twenty five it's obviously hard for us to see that and parse it out of the results, but I know intuitively its a big.
Enabler to margin.
Improvement for instance, a company like <unk> is saying, we're going to see about an $80 million increase next year all of which.
<unk> to start the fourth furnace in Oregon.
Which tends to be some of the more challenging alloys, but higher value stuff beta alloys triple five three those kind of alloys.
The bottom line all else equal so.
Trying to just kind of see see through in terms of how you all are thinking about that given the fact that you've got thousands of contracts.
As we move into the more sophisticated critical applications.
Hopefully that helps but definitely accretive.
Right. Yeah Fair question. So the short answer is when you hear about some of our peers.
Thanks very much.
Thank you our.
Recent defense, we're pretty confident we're not lagging at all in that regard we are picking up our share and as Bob said, we're typically not seen as a low cost.
Our next question comes from Phil Gibbs of Keybanc capital markets.
Your line is now open. Please go ahead good morning.
Good morning, Phil.
Option, but a critical option and the industry in terms of how to think about it going forward Phil.
A question is just on big picture on pricing and mix improvement is that expected to be a big driver in 'twenty four 'twenty five it's obviously hard for us to see that and parse it out of the results, but I know intuitively its a big.
It's pretty clear to us we've seen our A&D share percentage increasingly hit 61%.
We see continued growth in 2020 for 2025 and beyond 2025, when it comes to that strong aerospace growth and then we've got some other end markets that we serve that have similar growth trajectories. So yeah. The short answer is we expect that.
Enabler to margin.
Improvement for instance, a company like comment is we're saying we're going to see about an $80 million increase next year all of which.
The bottom line all else equal so.
Trying to kind of see see through in terms of how you all are thinking about that given the fact that you've got thousands of contracts.
<unk>.
2024, and beyond we don't expect to continue to see.
Proving mix, which should be a tailwind to our margins and our bottom line profits.
Right. Yeah Fair question. So the short answer is when you hear about some of our peers.
Is it just it's just the mix mix shift or is there real real underlying pricing improvement as well.
Recent defense, we're pretty confident we're not lagging at all in that regard we are picking up our share and as Bob said, we're typically not seen as a low cost.
There is to be clear there is real underlying pricing as well and we saw that we see that each period, especially when you look at HP, EMC and and the A&D exposure that <unk> has when it comes to that space.
Option, but a critical option and the industry in terms of how to think about it going forward Phil.
It's pretty clear to us we've seen our A&D share percentage increasingly hit 61%.
We have there's high demand rate and that demand is not at all and so we've been pretty we've been pretty purposeful when it comes to ensuring that we're getting price for the opportunities aren't there. So it's not just mix.
We see continued growth in 2020 for 2025 and beyond 2025, when it comes to that strong aerospace growth and then we've got some other end markets that we serve that have similar growth trajectories.
It is we are seeing prices well and will continue to.
Yeah. The short answer is we expect that.
And then secondly.
2024, and beyond we all expect to continue to see.
You do have some near term headwinds within energy.
Proving mix, which should be a tailwind to our margins and our bottom line profits.
That was really strong for the last couple of years it seems to be sliding down a little bit are there any signs that that's the love lined out and then also regarding the.
Is it just it's just the mix mix shift or is there real real underlying pricing improvement as well.
The stall stall business and it's sort of been stuck and stuck in neutral here for a while any thoughts on.
There is to be clear, there's real underlying pricing as well and we saw that we see that each period, especially when you look at <unk> and in the A&D exposure that <unk> has when it comes to that space.
If and when that turns a corner as well thats. It for me. Thanks.
Alright. Thanks.
Thanks, Bill I'd say two questions in there I would say on the oil and gas.
Our day to day presence there is in the subsea umbilical flow lines kind of space and feedback we get from our customers is that we.
We have there is high demand rate and that demand is not at all and so we've been pretty weak.
We're seeing the bottom of that here in Q3 Q4.
Been pretty purposeful when it comes to ensuring that we're getting price for the opportunities aren't there. So it's not just mix.
I would say Q1 will be kind of an uptick, but not where we want it to be yet, but by Q2 of next year, we should be back to.
It is we are seeing prices well and will continue to.
Pretty good strength in that.
And then secondly.
The core part of our oil and gas there's always projects the big cloud pipelines, there's some kind of in the queue. There that could also hit about the same time. So I think we believe we're at the bottom with our customers as they destock that's really the issue there destocking here in Q3 to Q4 and that now start to ramp back up after the first of the year.
You do have some near term headwinds within energy.
That was really strong for the last couple of years it seems to be sliding down a little bit are there any signs that that's leveling out.
And then also regarding the.
The stall stall business and it's sort of been stuck and stuck in neutral here for a while any thoughts on.
When it comes to stall I would say, we have definitely hit the bottom and we're starting to actually see a few signs.
If and when that turns a corner as well that's it for me. Thanks.
Don and I have talked a lot about not projecting great uptick until we actually deliver a quarter of uptick but I think.
Alright. Thanks.
Thanks, Bill I'd say.
Questions in there I would say on oil and gas.
Yes, we've got to get through the Chinese new year, but the signs are starting to be positive, it's not going to be a huge fast ramp back, but I think the signs are there that there are some positive economic signs in our markets electronics in particular.
Our day to day presence there is in the subsea umbilical slow lines kind of space and feedback we get from our customers is that we're.
We're seeing the bottom of that here in Q3 Q4.
I would say Q1 will be kind of an uptick, but not where we want it to be yet, but by Q2 of next year, we should be back.
And those kinds of things in Asia, So more to come but I would say by Q2 next year, we should see some meaningful improvement in <unk>.
Pretty good strength in.
The core part of our oil and gas there's always projects the big cloud pipelines Theres some kind of in the queue. There that could also hit about the same time. So I think we believe we're at the bottom with our customers.
China in particular in our precision rolled strip business.
Thank you.
Thanks, Phil.
Okay.
Thank you. Our next question comes from Seth <unk> of JP Morgan.
Your line is now open. Please go ahead.
Hey, thanks, very much and good morning, everyone.
Thanks, I wanted to ask a little bit about the morning, I wanted to ask a little bit about.
The engine end market saw that.
It looks like the sales were down a touch sequentially.
I don't think anybody questions the direction of where this is going over the next few years, but as we think about the next few quarters.
I think GE lowered the leap delivery guide for this year.
Pratt obviously is to make some decisions about allocating resources between new engine builds and.
And in the shops.
Do you get signals from the Oems regarding the trajectory of that ramp.
And how steep it is and has that changed at all over the past several months.
Good question it seems like three or four in there Seth I'll try to get to that let's see so I agree with you. The strength in engines is very positive. If you look year to date 23 versus year to date 22 were up 30% remember a lot of these orders got put on 10 12 14 months ago. So.
They didn't all get place nice evenly those kinds of things I would say the indications we're getting are twofold number one is that the.
The spares demand historically has been a kind of a 25% adder to our OEM demand.
It's going to be 40%, 50% higher or 40% to 50% of our business for two or three years to come based on.
The availability of new planes, and certainly the wear and tear and the hours from those I think the second issue, which Don alluded to a little bit earlier was when we talked about mix one thing Thats got to help us as the shift to wide body.
<unk>.
The engine manufacturers in Europe are definitely moving in the right direction. There on the wide body side and that's going to be a very positive for us. These are all nickel based alloys, and we obviously had a little Nicole falloff here the price of nickel in the surcharges went down a little bit in Q3 and that will definitely come back but to your point.
Long term trends.
Thank are very positive.
We've done our part to increase our titanium capacity.
And I think nickel alloys.
It will be tight.
Going into 2020 for 2025, but.
That's based on that forward demand signals. So we feel pretty good about where we are.
And well positioned across the industry.
Great great. Thanks, and maybe as a follow up is you touched on the wide body question and Amgen.
So think about it on the airframe side.
Or are you starting to see that ramp up kind of in earnest here.
Boeing talked about another 737% rate increase to roughly five a month.
Getting to the point, where triple <unk> production is going to.
Start to pick up in anticipation of entry into service.
What are you seeing on the airframe side for for wide bodies.
Yes, I think.
From an airframe perspective, it's very strong.
I would say.
On the mill product side.
Through the Covid period, we actually expanded our presence on both sides of the Atlantic So we're well positioned for both.
Bodies wherever their made in the world and we are seeing desktop strength I would say.
787 issue.
We probably are seeing the raw material by equal to what they are talking about in terms of the uptick it's pretty strong it's not just double digits. It's.
30%, 40%, 50%, depending on the product type. So I would say you know we're 12 months ahead of when they're going to use it in many cases.
We're seeing that and we only produce to orders we don't produce to the build forecast as you know you've heard us say that many times, but.
And we're not seeing a lot of cancellations reschedule or is that kind of stuff a lot of our merchant demand.
I hope, we need it right away kind of stuff so positive and.
Yeah, well connected with obviously, the Oems, but very positive trend.
Great great. Thank you very much.
Thank you our.
Our next question comes from Timna Tanners of Wolfe Research. Your line is now open. Please go ahead.
Yeah, Hey, good morning, everyone.
Hey, good morning, Tim.
I wanted to.
Point out you're the only company in our coverage.
Actually use the R word so just thought we'd probe that a little bit with recessionary rest. It seems like your point was really to say that thats outside of your focal area. So just to also picked up a little bit of commentary about ability to kind of maybe pivot away from some of these lower margin operations and just wanted a little bit more color on.
How that could proceed going forward and how that might contribute to your margin expansion you talked about in E&S.
Well I'll, let Dan talk a little bit about the margin expansion piece, but we use two words that start with are you heard the recessionary part, but that's really only about 15% of.
Segment. So it's a small part we're spending a lot more time on our part that's the ramp ramp ramp in aerospace right. So I think that's fair, but Don how would you answer this question around.
The margin so first we've been pretty purposeful at changing the mix in the E&S segment, and we've talked about the fact that we want to continue to shift away from the industrial exposures and really shift toward.
And our A&D, rather and so in that regard just this last quarter you would have seen that our A&D share within <unk> increased about 800 basis points and now the share within that within that segment is 35% so more than a third of that.
That portfolio, so doing things like that is a key part of us improving our margins. We've also been really purposeful and our transformation changing our footprint, making sure that we're improving our flow paths and and really right sizing cost structures in order to support this value add strategy.
You were running which should be beneficial or already seeing the benefits of that transformation and theres more to come.
So that's what I would share tender.
Okay. Thanks, that's what it seems like I just wanted to clarify that it seems like you wanted to keep some optionality in some of these end markets like energy that should be on them.
On the on the come but.
Kind of deemphasize, maybe some of the other areas that's it that's for sure.
Just this last quarter, you would have seen that our.
A&D share within <unk> increased about 800 basis points and now the share within that within that segment is 35% so more than a third of that.
Absolutely Greg you are absolutely correct and even within energy by the way, they're specialty energy and there's oil and gas oil and gas review is more of that industrial demand commodity driven for our specialty is where we want to play so we're being pretty refined and focused in terms of where we want to point this business.
<unk> portfolio, so doing things like that is a key part of us improving our margins. We've also been really purposeful and our transformation changing our footprint, making sure that we're improving our flow paths and and really right sizing cost structures in order to support this value add strategy.
Okay. Thanks, and then a follow up on more of a modeling question just on.
We don't see a big decrease in the share count from the buybacks and just in general with the great progress on reducing your pension liability. There should we expect to see kind of acceleration of buybacks going forward and see that share count come down.
We're running which should be beneficial we are already seeing the benefits.
That transformation and Theres more to come.
So that's what I would share to them.
Yes, it's a fair assumption so far in the last two years, we've had $225 million buyback programs.
Okay. Thanks, that's what it seems like I just wanted to clarify that it sounds like you wanted to keep some optionality in some of these end markets like energy that should be on them on that.
We're going to finish the current program is $30 million left on it timna.
On the on the come but.
Deemphasize, maybe some of the other areas that.
That's not the last program. Our focus is set this business up that generate Max cash flow and then we have a really clear balanced strategy to grow the business with that capital to Delever and then we very much enjoy returning capital to shareholders. So imagine that that is going to be a key.
You are absolutely right you are absolutely correct and even within energy by the way, they're specialty energy and there's oil and gas oil and gas review is more of that industrial demand commodity driven for our specialty is where we want to play so we're being pretty refined and focused in terms of where we want to point this business.
Key to our deployment going forward.
Okay. Thanks, and then a follow up more of a modeling question just.
Okay. Thank you.
We didn't see a big decrease in the share count from the buybacks and just in general with the.
You bet.
Thank you. Our next question comes from Bill some color from TD Cohen.
Progress on reducing your pension liability there. So should we expect to see kind of acceleration of buybacks going forward and see that share count come down.
Your line is now open. Please go ahead.
Hi, good morning, guys.
Good morning Gautam.
Yes, it's a fair assumption so far in the last two years, we've had $225 million buyback programs.
I wanted to make sure I heard something right what are there any operational challenges in the third quarter at <unk>.
We're going to finish the current program is $30 million left on it timna.
I would say there was one that we noted above actually noted in his prepared remarks and that was we did have an outage in one of our facilities to Lockport facility, where we had a transformer outage and.
The last program. Our focus is set this business up to generate Max cash flow and then we have a really clear balanced strategy to grow the business with that capital to Delever and then we very much enjoy returning capital to shareholders. So imagine that that is going to be a key.
That was actually.
A really good outcome and I think a positive indicator, we when Bob mentioned it. He said Hey, this was an event that happened, but we're covering it when it comes to our our earnings guidance for Q4. So here are some key takeaways that I would mention one is that was a transformer failure. It could have been an extended outage for our team did an amazing job.
Key to our deployment going forward.
Okay. Thank you.
You bet.
Thank you. Our next question comes from gold some color from TD Cowen.
Really getting it back online so the outage is fully behind us and it was in Q3. So a fair question Gautam as well. So why did you why did you guys shared if youre going to cover that.
Your line is now open. Please go ahead.
Hi, good morning, guys.
Good morning Gautam.
I wanted to make sure I heard something right, where there any operational challenges in the third quarter at HFC.
The consequences of that outage and number one.
I think youre, probably picking up that transparency is very important to this management team. So we want to share with investors when events like that happen I think it's also a pretty good indicator by the way.
I would say there was one that we noted above actually noted in his prepared remarks and that was we did have an outage in one of our facilities to Lockport facility, where we had a transformer outage and.
The financial and operational strength that we have in this business to be able to deal with something like that quickly and then manage the financial consequences of it. So one way to think about that that outage is because.
That was actually.
So really good outcome and I think a positive indicator, we when Bob mentioned it you said you would hey, this was an event that happened, but we're covering it when it comes to our our earnings guidance for Q4. So here are some key takeaways that I would mention one is that was a transformer failure. It could've been in an extended outage for our team did an amazing job.
Because of the facility was down for about 21 days that meant that we weren't getting the production cycles that we otherwise would have and the products that are coming off of that that facility or a pretty strong demand and we're selling out of out of our backlog. So you do the math on what would the sales consequence to that being <unk> be in the range of about.
Really getting it back online so the outage is fully behind us and it was in Q3.
So a fair question Gautam as well so why did you why did you guys shared if youre going to cover that.
$35 million that would hit us in Q4, however, as Bob said our team is really.
The consequences of that outage and number one.
I think youre, probably picking up that transparency is very important to this management team. So we want to share with investors when events like that happen I think it's also a pretty good indicator by the way.
Covering that.
David is the way we described it and so when it comes to our Q4 guidance. We held our Q4 guidance, we're going to cover the consequences of that $35 million by by re prioritizing other finishing activities that we've got going on and can answer so cost actions. So I guess, that's one off.
The financial and operational strength that we have in this business to be able to deal with something like that quickly and then manage the financial consequences of it. So one way to think about that that outage is.
Operational challenge I would mentioned, but I think it is important in that context, I think to add a little color to that to the one ACI strategy that <unk>, probably heard us talk about for many years is really taking hold in the melt side and so when we have an issue whether it's titanium nickel. It has a modest effect on both segments because we <unk>.
Because of the facility was down for about 21 days that meant that we weren't getting the production cycles that we otherwise would have and the products that are coming off of that of that facility or a pretty strong demand and we're selling out of out of our backlog. So you do the math on what would the sales consequence to that be you'll be in the range of above.
Leverage that capacity to feed both segments, but.
In this particular case, that's probably where it got picked up the <unk> a little bit.
The $35 million that would hit us in Q4, However, as Bob said our team is really.
But we're going to work through it and certainly have worked through it.
And it's part of realigning the production the Debottlenecking all that kind of stuff that allows us to cover the divot.
Covering that.
David is the way we described it and so when it comes to our Q4 guidance. We held our Q4 guidance, we're going to cover the consequences of that $35 million by by re prioritizing other finishing activities that we've got going on and and and answer some cost actions. So I guess.
In Q4.
Gotcha.
The financial impact.
Yes, but very much also was there a financial impact in Q3.
But you said there was now whether it be lost absorption.
That's one operational challenge I would mention but I think it's important in that context, I think to add a little color to that to the one ACI strategy that <unk>, probably heard us talk about for many years is really taking hold in the milk side.
Okay.
Yes, there was not.
We had a particular little small bucket of incremental costs that we adjusted for but when you look at the adjusted EBITDA.
The answer is no there's no consequence there.
And so when we have an issue whether it's titanium nickel. It has a modest effect on both segments, because we leverage that capacity to feed both segments, but.
Thank you.
Just a quick follow up.
Just what are your preliminary views on.
In this particular case, that's probably where it got picked up the HPLC little bit.
The.
Airframe business next year in terms of rate of growth relative to the jet engine business.
But we're going to work through it and certainly have worked through it.
Okay.
And it's part of realigning the production the Debottlenecking all that kind of stuff that allows us to cover the dividend.
Yeah. Good question.
Certainly.
Where lead times are today, we're <unk>.
In Q4.
King.
Got you.
Into Q.
The financial impact.
Q2, Q3 for some applications and we even stretch out into Q1 two.
Yes, but very much also was there a financial impact in Q3.
2025, and some others so from the order activity and the conversation we're having.
But there was now whether it be lost absorption.
Okay.
Yes, there was not we did we had a particular a little small bucket of incremental costs that we adjusted for but when you look at the adjusted EBITDA.
Would see airframe growth.
It's going to be double digits for sure I would say this year, we saw airframe growth year over year year to date year to date up 60%.
The answer is no there's no consequence there.
It will take let's say, 60%, but with pricing something <unk>.
Thank you.
Just a quick follow up.
Half of that or a third.
Just what are your preliminary views on.
To that based on the order load, we still have some share gains that have yet to be fully realized on the airframe side that will come into play in 2024. So I think we will see growth a little bit ahead of the rest of the market on the airframe side, especially on the titanium side as we bring on this fourth furnace, so I would say.
The airframe.
Airframe business next year in terms of rate of growth relative to the jet engine business.
Okay.
Yeah. Good question.
Certainly.
Where lead times are today, we're booking.
Hi.
Still strong growth going into 2024.
Into.
Q2, Q3 for some applications and we even stretch out into Q1.
Fair down yes.
Yeah.
2025, and some others so from the order activity and the conversation we're having.
Thank you.
Thank you. Our next question comes from Josh Sullivan of the benchmark company.
Would see airframe growth.
It's going to be double digits for sure I would say this year, we saw airframe growth year over year year to date year to date up 60%.
Your line is now open. Please go ahead.
Hey, good morning.
Good morning, Josh did you did you say what.
Did you say what product or end market was impacted by the la Porte outage that $35 million is that concentrated in one product or another.
Don't think we'll see 60%, but we'll probably see something.
Half of that.
Third of that based on the order load, we still have some share gains that have yet to be fully realized on the airframe side that will come into play in 2024.
It is what I would say is it would be.
Cross multiple products. So we haven't articulated any specifics around the products impacted.
So I think we will see.
A little bit ahead of the rest of the market on the airframe side, especially on the titanium side.
Okay got it.
We bring on this fourth furnace so.
And then just given the powder issue with the GTS was was an internal customer process.
I would say steel.
Still strong growth going into 2024.
<unk> got a very extensive history of metallurgy.
Fair done yes.
Yeah.
Then any increased effort on engaging hei's expertise to mitigate technology risk from Oems either on this product are generally just looking at the outcome there.
Thank you.
Thank you. Our next question comes from Josh Sullivan of the benchmark company.
It's a pretty broad question, so I'll answer it with a broad answer which is yes.
Your line is now open. Please go ahead.
Hey, good morning.
We have daily weekly quarterly technology exchanges with all the major Oems, especially on the engine side.
Good morning, Josh did you did you say what.
Did you say what product or end market was impacted by the blackboard outage that $35 million is that concentrated in one product or another.
Theres always and this industry Chris.
Critical commitment too.
It is what I would say is it would be.
Quality looking for impurities those kinds of things how do we continue to improve so those dialogues do go on.
Cross multiple products. So we haven't articulated any specifics around the products impacted.
Obviously qualifications or something the industry takes very seriously and we're involved in almost all the qualifications to give them.
Okay got it.
And then just given the powder issue with the DTF.
The Oems.
It was an internal customer process.
Second source on almost everything that Theyre looking for so there are opportunities and it's a constant continue a positive continual conversation with them I think theres upside for sure.
<unk> got a very extensive history of metallurgy.
There been any increased effort on engaging hei's expertise to mitigate technology risks from Oems either on this product are generally just looking at the outcome there.
And then just one last one the re shoring gains in the medical side that you mentioned in the deck <unk> related or something else.
It's a pretty broad question, so I'll answer it with a broad answer which is yes. I mean, we have daily weekly quarterly technology exchanges with all the major Oems, especially on the engine side.
Yes, I would say pretty much <unk> related things.
Good good way to look at it.
Thank God, there's always in this industry.
Thank you for the time.
Critical commitment too.
Yes. Thank you.
Quality looking for impurities those kinds of things how do we continue to improve so those dialogues do go on I think obviously qualifications or something the industry takes very seriously and you know we're involved in almost all qualifications to give them that.
Thank you and at this time, we currently have no further questions.
Now back to Dave for Western for any further remarks.
Thanks, Alex and thanks again to everyone for joining US today. This concludes ATI third quarter earnings call. A replay will be available on our website along with registration info for upcoming Investor update on the 29th of November Thanks, and have a great day.
OEM.
Second source on almost everything that Theyre looking for so there are opportunities and it's a constant.
Thank you for joining today's call you may now disconnect your lines.
Positive continual conversation with them I think there's upside for sure.
Yeah.
And then just one last one the re shoring gains in the medical side that you mentioned in the deck <unk> related or something else.
Yes, I would say pretty much <unk> related things.
Good good way to look at it.
Thank you for the time.
Yes. Thank you.
Thank you.
We currently have no further questions. So I'll hand back to Dave for Western for any further remarks.
Thanks, Alex and thanks again to everyone for joining US today. This concludes ATI third quarter earnings call. A replay will be available on our website along with registration info for upcoming investor update on the 29th of November.
Have a great day.
Thank you for joining today's call you may now disconnect your lines.
[music].
Sure.