Q3 2023 Kaiser Aluminum Corp Earnings Call

Okay.

Greetings and welcome to the Kaiser Aluminum Corporation third quarter 2023 earnings Conference call.

At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Kim Orlando Investor Relations.

Please go ahead.

Thank you good morning, everyone and welcome to Kaiser Aluminum's third quarter 2023 earnings Conference call.

If you have not seen a copy of our earnings release. Please visit the Investor Relations page on our website at Kaiser aluminum Dot com.

We have also posted a PDF version of the slide presentation for this call.

Joining me on the call today are president and Chief Executive Officer, Keith Harvey and Executive Vice President and Chief Financial Officer Neal West.

Before we begin I'd like to refer you to the first four slides of our presentation and remind you that the statements made by management and the information contained in this presentation may constitute forward looking statements are based on management's current expectations.

For a summary of specific risk factors that could cause results to differ materially from the forward looking statements.

Please refer to the company's earnings release, and reports filed with the Securities and Exchange Commission, including the company's annual report on Form 10-K for the full year ended December 31st 2022.

The company undertakes no duty to update any forward looking statements to conform the statements to actual results or changes in the company's expectations.

In addition, we have included non-GAAP financial information in our discussion.

Conciliation to the most comparable GAAP financial measures are included in the earnings release and in the appendix of the presentation.

Reconciliations of certain forward looking non-GAAP financial measure to comparable GAAP financial measures are not provided because certain items required for such reconciliation are outside of our control.

Or cannot be reasonably predicted what provided without unreasonable effort.

And he referenced the EBITA.

Our discussion today it means adjusted EBITDA, which excludes non run rate items for which we have provided reconciliations in the appendix.

Further slide five is a new slide which contains definitions of terms and measures that will be commonly used throughout today's presentation.

At the conclusion of the company's presentation, we'll open the call for questions.

I would now like to turn the call over to Keith Harvey.

Yeah.

Thanks, Kim and thank you all for joining us for a review of our third quarter 2023 results.

Before we discuss our results I'd like to remind everyone that we recently released our 2022 sustainability report, which reflects the alignment of our strong corporate governance practices with new and continuing investments to support our key sustainability initiatives that we believe will.

Serve as the foundation of our long term success.

Importantly, aluminum is infinitely recyclable.

And our aluminum semi fabricated products uniquely positioned kaiser to contribute to efforts to mitigate climate change.

We are proud of our employees and the work they have done to advance our sustainability programs and drive our long term growth.

We look forward to sustainability continuing to play a pivotal role in our business strategy and making a positive impact on the environment and the communities, where we live and work.

Now turning to slide seven.

Operationally, we have continued to make tremendous strides on our strategic plan to reinvigorate longer term sustainable and profitable growth.

While certain short term factors, such as Destocking and persistent inflation have impacted our performance. We were pleased to report third quarter results largely within our expectations.

Our third quarter adjusted EBITDA decreased approximately 25% over the second quarter of 2023 to approximately $48 million slightly above our outlook to be similar to our first quarter 2023 results.

The decline was primarily due to continued destocking and inflationary costs, which offset the benefits of our efforts to lower costs across the platform and a rising in aerospace demand.

As a result, our EBITDA margin declined by approximately 350 basis points sequentially over the second quarter of 2023 to 13, 3%.

Turning to slide eight.

The demand environment for the third quarter remained mixed.

Aerospace demand was once again very strong and has been steadily recovering towards the peak levels, we experienced prior to the pandemic.

We delivered third quarter conversion rental revenue in line with our outlook as we continue to benefit from flexing our available capacity and our trip wood facility to capitalize on strengthening aerospace demand as general engineering demand remained soft.

This unique ability to flex our capacity, coupled with our strong customer relationships high quality product offering and multiyear pricing agreements positions us well to service the aerospace market for years to come.

In packaging destocking with our beverage customers persisted, but appeared to be slowly.

While signs emerged late in the quarter that destocking in our beverage offerings appeared to be stabilizing we saw coded food products, which make up a considerable amount of our shipments and had remained stable through the first half of 2023 enter into a destocking phase.

As a result, both our shipments and conversion revenue underperformed versus our expectations in the quarter.

Turning to slide nine.

In general engineering reduced demand for place along with increased availability from imports continued into the third quarter.

While our Kaiser select products command a premium in our preferred by many Oems in our markets. We expect pricing for these products will be under pressure until semiconductor demand returns.

Destocking for General Engineering long products appears to be ending as distributor inventories have began to normalize and align with current demand.

The result in the sequential declines in both shipments and conversion revenue came in slightly better than our expectations.

And finally automotive demand continued to be mixed as supply chain issues and now uncertainty due to the UAW strike continued to offset fairly good demand.

Both shipments and conversion revenue were down slightly more than anticipated versus the prior quarter.

Yeah.

Turning to slide 10.

I'd now like to turn to an update on our packaging business at the Warrick facility and our strategic plan to improve our performance as we continue to recover from the various challenges we faced.

We have previously shared this slide in the fourth quarter of 2022 and wanted to provide an update with where we were currently on our priorities for work.

While we've been successful in our efforts contractually with customers positioning us for higher margin potential.

Rising inflationary cost and challenging short term demand issues continue to impact our ability to improve efficiencies in our operations in a meaningful way.

We continue to work with our customers suppliers and team members at work to normalize our operations and drive consistent longer term profitable growth.

As part of our strategic plan, we remain committed to completing our role Coke capacity expansion project, which is expected to convert roughly 25% of our current output to higher margin coated products.

As we've stated previously coated products drive roughly three times the margin benefit versus traditional body stock products.

This investment remains on track to be operational and qualified by the end of 2024 with substantial new customer commitments already in place.

When we initially announced our acquisition of work the capital investment for our fourth role coat line called for an approximately $115 million of investment.

However, as we have previously alluded.

Impacts from increased inflationary pressures on labor material and other costs have led to higher spending required to complete the investment.

As a result, we now expect an additional $100 million of incremental cost will be required for the completion of this project for a total expected outlay of approximately $250 million.

To date, we have invested approximately $140 million with the remaining expected to complete the project to be spent over the next nine months.

While this exceeds our initial expectation from two years ago. The returns on the total investment are still expected to exceed our cost of capital.

This project remains an important component of our focused higher margin packaging strategy.

In addition, we are continuing to make progress with the physical separation of our warrant facility from the adjacent alcoa's smelter and power plant, which we anticipate finalizing sometime in early 2024.

This long planned separation provides us the opportunity to significantly improve the sustainability of our products at ward by increasing our use of recycled materials as a percentage of raw materials.

Although destocking has created short term headwinds as we seek to stabilize and grow our packaging operations, we maintain a very positive longer term view on the business.

Our already strong position in the higher margin coated products for food and beverage markets will only improve once the additional coated capacity comes online.

The secular shift to aluminum as a substrate of choice in the North American beverage and food industry continues to flourish.

And as market forces shift Kaiser remains very well positioned to be a significant beneficiary.

In summary, I'd like to thank our strong team at Kaiser for their commitment to serving our customers and for their execution of our strategic plan as we continue to navigate a challenging market.

Despite current headwinds we remain optimistic our long standing reputation strong customer relationships and competitive position in the markets. We serve will provide strong near and long term tailwind.

In particular, we are uniquely positioned to service the growing aero and high strength market with the recovery significantly surpassing our initial expectations.

That coupled with our ongoing cost reduction efforts and efficiency improvements will help ensure we are well positioned for future growth.

I'd now like to turn the call over to Neil for more detailed analysis on the quarter Neil.

Thank you Kate and good morning, everyone I'll begin on slide 12, with an overview of conversion revenue.

Conversion revenue for the third quarter, 2023 was $357 million, an increase of $35 million or 11% compared to the prior year period.

Looking at each of our end markets in detail.

Aero high strength conversion revenue totaled $134 million in the third quarter of 2023, reflecting a 72% improvement on a 69% increase in shipments over the prior year quarter.

Parents for the second quarter of 2023, we delivered a 3% improvement in conversion revenue as expected.

Modest increase in shipments as demand continued to strengthen towards peak levels.

Packaging conversion revenue was $118 million in the third quarter down 9% year over year, while shipments reflect a 5% improvement over last year's period, which as a reminder was impacted by our magnesium related declaration of force mature.

Destocking in the market primarily for coated fruit products in the third quarter negatively affected our results.

Sequential basis third quarter River conversion revenue was down 12% on a 5% decline in shipments over the second quarter of 2023 as the mix was more heavily weighted towards lower body stock versus coated products.

General Engineering conversion revenue for the third quarter was $75 million down 16% year over year due to a 24% reduction in shipments as destocking, primarily for plate products persistent.

Sequentially conversion revenue was down 8% on a 6% reduction in shipments compared to our second quarter results, which as noted by Keith was slightly better than our expectations.

Automotive conversion revenue was $28 million.

Up 16% over the third quarter of 2022, and a 6% increase in shipments due primarily to higher pricing.

Compared to the second quarter 2023 conversion revenue and shipments both declined by 8% due to the impact of industry supply chain issues and uncertainty around the UAW strike.

Additional detail on conversion revenue on shipments by end market application can be found in the appendix of this presentation.

Now moving to slide 13.

Reported operating income for the third quarter of 2023 was $19 million.

After adjusting for corporate restructuring costs and other non run rate items of approximately $1 million.

Adjusted operating income was $20 million up $17 million year over year and down $17 million sequentially.

Our effective tax rate for the third quarter of 2023 was 2% compared to 33% in the prior year period due to discrete items taken during the quarter.

For the full year 2023 and over the long term, we continue to expect our effective tax rate before discrete items to be in a low to mid 20% range under current tax regulations.

We anticipate that our 2023 cash taxes for foreign and state taxes will be in the $2 million to $3 million range with no U S. Federal cash taxes until we consume our federal Nols, which as of year end 2022 were $161 million.

Reported net income for the third quarter, 2023 was $5 million or <unk> 34 per diluted share compared to net income of approximately $3 million or 16 cents per diluted share in the prior year quarter.

After adjusting for a total of $3 million of pre tax non run rate items.

Adjusted net income for the third quarter of 2023 was $7 million or <unk> 46 per adjusted diluted share compared to an adjusted net loss of $3 million or a loss of 21 cents per adjusted diluted share in the prior year quarter.

As a reminder, in the third quarter of 2022, we recorded a $13 million of pre tax other income primarily related to a sale of a non strategic legacy land asset.

Now turning to slide 14.

Adjusted EBITDA for the third quarter, 2023 was $48 million up approximately $19 million from the prior year quarter and down $16 million sequentially, which was slightly ahead of our expectations adjusted EBITDA as a percentage of conversion revenue was 13, 3% in the third quarter of 'twenty three.

An improvement of approximately 440 basis points from the third quarter of 2022.

On a year over year basis, the improvement in adjusted EBITDA was primarily the result of stabilizing operations. Following the significant supply chain issues, we experienced at our work Rolling Mill last year. In addition to improved pricing to capture the higher cost of alloys and other inflationary costs with a higher mix of aerospace product shipments.

On a sequential basis as Keith discussed adjusted EBITDA was pressured primarily by Destocking and inflationary costs minimizing our cost reduction efforts across our platform.

Now turning to a discussion of our balance sheet and cash flow.

As of the end of September 2023, total cash of approximately $45 million and approximately $529 million of borrowing availability on our revolving credit facility provided total liquidity of $574 million.

There were no outstanding borrowings under our revolving credit facility as of September 29th and it remains Undrawn and we continue to believe that our total liquidity position remains strong.

As a reminder, our senior notes interest costs are fixed or $48 million annually and we have no debt maturing until 2028.

As of September 2023, our net debt leverage ratio improved to five four times from seven times at the end of 2022.

We continue to target a leverage ratio of two to two and a half times by way of improvements to our profitability over time.

Further we are working through our previously discussed higher cost metal inventory overhang, resulting from the 2022 supply chain issues that our work operation.

While we continue to expect our efforts will serve as a positive source of cash the destocking, we have been experiencing in the packaging market throughout 2023 will prolong this endeavor until 2024.

As such we currently expect to sell the remaining balance of higher cost metal units by the end of Q1 2024.

In regards to our capital allocation strategy. Our approach is duly focused on supporting our growth while concurrently returning value to our stockholders. We now expect our full year 2023 capital expenditures to be at the lower end of the range of $170 million to $180 million, while the timing of certain.

Capital expenditures, primarily associated with our road colt expansion project at our work with facility.

Have shifted into 2020 for the project remains on track for startup in the second half of 2024.

Additionally, on October 12, we announced that our board of directors declared a quarterly dividend of <unk> 77 per common share, which demonstrates our confidence our board and management team have in our long term strategy for profitable growth and increasing stockholder value.

And now I'll turn the call back over to Keith to discuss our outlook Keith.

Thanks, Neal now I'll turn to our outlook for the fourth quarter of 2023.

Beginning with aerospace on slide 16.

The strong momentum we've been experiencing in Aero and high strength shipments is expected to continue into the fourth quarter.

As a result, we believe the recovery in commercial aerospace should meet or exceed the record level levels, we experienced in the pre pandemic 2019 timeframe by the end of this year.

It is important to note that we intend to achieve this milestone one year ahead of our initial expectations, which is a testament to kaisers long standing strong position in the Aero and high strength markets that we've built over the last 75 years.

Our outlook remains strong and is further supported by the build rate increases we've seen this year for both single aisle and wide body jets, both of which are beneficial to Kaiser along with increasing airline passenger miles and low rates.

As such we expect that our fourth quarter shipments will continue to improve by an additional 3% to 5% versus the third quarter of 2023 with conversion revenue expected to decline by approximately 1% to 2% over the same period due to an expected mix shift and products shipped during the <unk>.

Quarter.

As we look out into next year initial declarations by the air Framers support stronger 2024 shipments than previously anticipated.

In addition, we expect demand for business Jets defense and space to remain strong.

As I highlighted earlier, our unique ability to flex available capacity out of our <unk> rolling mill to accommodate increasing market demand enables us to take on additional capacity without the need for incremental investments in the near term.

Turning to packaging now on slide 17.

Looking ahead into the fourth quarter, we expect shipments to decline by approximately 5% to 6% compared to the third quarter as Destocking has shifted to food products and we faced typical fourth quarter seasonality.

Our resulting conversion revenue is expected to be flat to slightly higher than the third quarter as we work with customers to meet their contractual obligations.

As I've stated previously we do not anticipate these lower levels of demand carrying into 2024, but we will continue to assess the situation.

Longer term, we believe our refined strategy, coupled with our strong customer relationships and multi year contracts and targeted growth investment in the new role coastline will support margin improvement and future growth prospects.

Now turning to general engineering on Slide 18.

We expect shipments for general engineering products in the fourth quarter to decline modestly from the third quarter on relatively flat conversion revenue given continued plate destocking activity as well as the associated seasonal decline typical of the fourth quarter.

Shipments are expected to decline approximately 1% to 2% and conversion revenue is expected to decline approximately 2% to 4% versus the third quarter results as distributors continue to rightsize, our inventories and import played availability continues to increase.

As I indicated it's important to realize that the available capacity at our <unk> operation, where our general engineering plate products are manufactured has opened up additional capacity to service the resurgence in aerospace activity.

Partially offsetting this pressure our sales of Rod and bar products, which has started to reverse the downward trajectory. We've seen for the last several quarters with shipping rates that have begun to stabilize in the third quarter.

Short term hurdles aside our longer term outlook for the general engineering business remains solid given the re shoring of certain manufacturing industries back to North America.

We believe we hold a key position in the market given our long standing customer relationships broad product offering and highly differentiated Kaiser select products that effectively reduce processing time and cost for our customers.

Next I'll turn to automotive on slide 19.

Higher build rates for trucks and light vehicles in North America had driven a steady recovery in the automotive market throughout 2023.

That being said, we expect our fourth quarter shipments conversion revenue to remain relatively flat with the third quarter due to typical seasonal trends and some anticipated impacts from the ongoing UAW strike.

Currently we don't expect a more meaningful recovery in automotive until at least 2024, which is in alignment with the cautious optimism we have communicated as part of our outlook throughout the year.

Now turning to slide 20.

In summary.

We're very proud of the progress we made in the first nine months of 2023, so position Kaiser for more sustainable long term growth.

Our strong market position as a key supplier in diverse end markets.

Three year contracts with key strategic partners strong liquidity position and flexible nature of our cost structure enables us to execute our strategy throughout changing operating environment.

Additionally, we remain highly focused on managing elements within our control, including pursuing cost reductions improving manufacturing efficiencies as our operation stabilized and continuing commercial actions to improve our margins.

That said, we anticipate higher major maintenance and other costs to continue in the fourth quarter, along with continued destocking trends in general engineering and packaging.

Operator: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

As a result, we are anticipating further downward pressure on our adjusted EBITDA in the fourth quarter and expect our fourth quarter EBITDA to be in line to slightly higher as compared to the fourth quarter of last year.

Operator: As a reminder, this conference is being recorded.

Kimberly Orlando: It is now my pleasure to introduce your host, Kim Orlando, Addo, as Esther Relations, please go ahead. Thank you. Good morning, everyone, and welcome to Kaiser Aluminum 3rd quarter 2023 Arning's Conference School. If you have not seen a copy of our Arning's release, please visit the investor relations page on our website at KaiserAluminums.com. We have also posted a PDF version of the slide presentation for this call.

While market conditions continued to reset our operations are in a much stronger position to execute at higher levels of efficiencies moving into 2024, where we project market conditions to improve destocking in packaging in general engineering markets to end.

Kimberly Orlando: Joining me on the call today are President and Chief Executive Officer Keith Harvey, and Executive Vice-President and Chief Financial Officer Neil West. Before we begin, I'd like to refer you to the first four slides of our presentation and remind you that the statements made by management when the information contained in this presentation that constitute forward-looking statements are based on management's current expectations. For a summary of specific risk factors that could cause results to differ materially from the forward-looking statement, please refer to the company's earnings release and report style with the Securities and Exchange Commission, including the company's annual report on form 10K for the full year ended December 31, 2022.

And additional cost reductions we are implementing come into effect.

Now turning to slide 22, and a summary of today's remarks.

Longer term, we continue to believe that our business can achieve conversion revenue of approximately $2 billion and an EBITDA margin on conversion revenue in the mid to high 20% range.

The building blocks to get there will require focused execution against our strategic plan to drive increasingly profitable growth and maximizing key investments in capacity and capabilities and the secular cyclical growth markets, we serve to improve our margin profile and competitive position.

Kimberly Orlando: The company undertakes no duty to update any forward-looking statements to conform the statement to actual results or changes in the company's expectations. In addition, we have included non-dap financial information and our discussion. Reconciliation to the most comparable gap financial measures are included in the earnings release and in the appendix of the presentation. Reconciliation of certain forward-looking non-gap financial measures to comparable gap financial measures are not provided because certain items required for such reconciliation are outside of our control and or cannot be reasonably predicted or provided without unreasonable efforts.

With that I'll now open the call to any questions you may have operator.

Thank you we will now be conducting a question and answer session.

If you would like to ask a question. Please press star one on your telephone keypad.

A confirmation tone will indicate your line is that the question queue.

You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

Your first question comes from Tanners with Wolfe Research. Please go ahead.

Yeah, Hey, good morning, everyone. Good morning morning Timna.

Kimberly Orlando: Any reference to EBITAS in our discussion today means adjusted EBITAS, which excludes non-run rate items for which we have provided reconciliation in the appendix. Further, slide five is a new slide, which contains definitions of terms and measures that will be commonly used throughout today's presentation.

I guess I have to try to understand and piece apart the guidance a little bit more on if I recall the commentary in the release was really guiding I thought more to some of the weakness you're starting to see outside of the traditional bev can but in food can business and I know you've said it's material but.

Kimberly Orlando: At the conclusion of the company's presentation, you will open the call for questions.

Would love any more detail on how material and is this the beginning of our extended destocking like we've seen in and Bev cans or is this something that could be a quick fix.

Keith Harvey: I would now like to turn the call over to Keith Harvey. Thanks, Kim, and thank you all for joining us for a review of our third quarter 2023 results.

Yeah, Hey, good morning Timna.

So with regard to what we're seeing and we started to see this in the third quarter.

Keith Harvey: Before we discuss our results, I'd like to remind everyone that we recently released our 2022 Sustainability Report, which reflects the alignment of our strong corporate governance practices with new and continuing investments to support our key sustainability initiatives that we believe will serve as the foundation of our long-term success. Importantly, aluminum is infinitely recyclable, and our Aluminum semi-step fabricated products uniquely positioned Kaiser to contribute to efforts to mitigate climate change. We are proud of our employees and the work they have done to advance our sustainability programs and drive our long-term growth.

We did see beverage can destocking, so we delineate between the two.

At Kaiser we have a very large mix of our total capacity that goes into the food can market.

And that's that's animal food, that's that's human food and other applications. So we had seen that being fairly steady all of last year all through the first half and in the third quarter, we started to see.

Some of the pull out for the second half and that particular product mix. So as that started to change.

We started two to investigate a little bit with our customers and I think if you were to see some of the customer responses that have been out on the earnings call today. They reinforced the fact that the third quarter caught them by surprise a little bit.

Keith Harvey: We look forward to sustainability continuing to play a pivotal role in our business strategy and making a positive impact on the environment and the communities where we live and work. Now turning to slide seven. Operationally, we have continued to make tremendous strides on our strategic plan to reinvigorate longer-term sustainable and profitable growth. While short-term factors such as destocking and persistent inflation have impacted our performance, we were pleased to report third quarter results largely within our expectations.

They saw some of their customers, even though demand was fairly good destocking continue.

At the OEM level. So we actually think that that's going to be a shorter term than what's transpired with beverage.

Some of the dialogue in color. They provided says that its more of a end of the year balance sheet issue as compared to just total demand requirement. So with that we're still assessing what that means but we're looking at really.

Second half of 'twenty, three with demand propping back up in 2024, but we're going to continue to assess that and see.

Keith Harvey: Our third quarter adjusted EBITDA decreased approximately 25 percent over the second quarter of 2023 to approximately $48 million. Slightly above our outlook to be similar to our first quarter 2023 results. The decline was primarily due to continued destocking and inflationary costs, which offset the benefits of our efforts to lower costs across the platform and rising in aerospace demand. As a result, our EBITDA margin declined by approximately 350 basis points sequentially over the second quarter of 2023 to 13.3 percent.

So as a result, we're getting.

Even with contractual obligations were seeing a less mix than we would've anticipated so more bear products versus coated.

And so that's that's an impact to the third quarter and expected for the fourth quarter for our results.

Gotcha, Okay. So we will see because if it's as long as the Bev can side it could last for a while that that's why I was trying to get some color. So thank you for that and that is interesting also because you've guided more conversion revenue downside actually in the other segments outside of packaging. So just trying to understand you know obviously as this broad based weakness.

Keith Harvey: Starting to slide eight, the demand environment for the third quarter remained mixed. Aerospace demand was once again very strong and has been steadily recovering towards the peak levels we experienced prior to the pandemic. We delivered third quarter conversion revenue in line with our outlook as we continue to benefit from flexing our available capacity and our Trentwood facility to capitalize on strengthening aerospace demand as general engineering demand remains soft. This unique ability to flux our capacity coupled with our strong customer relationships, high quality product offering, and multi-year pricing agreements positions us well to service the aerospace market for years to come.

It's kind of like you said, maybe I'm a correction more for seasonality.

We typically get very lumpy results, especially in the fourth quarter Timna.

A lot of our general engineering products go through service centers. So our distributors really look at getting their inventories in place generally on a calendar year basis. So the end of the year is always if he is as opposed to what they've done now in some areas on Rod and bar for instance, we don't believe that there will be a lot of <unk>.

Correction in the fourth quarter, but we will continue to see some of that with plate. We've also built in a little bit of price erosion, we are seeing a little bit more import available out there.

And so we are.

Keith Harvey: In packaging, destocking with our beverage customers persisted but appeared to be slowing. While signs emerge late in the quarter that destocking in our beverage offerings appeared to destabilizing, we saw coded food products which make up a considerable amount of our shipments and had remained stable through the first half of 2023 enter into a destocking phase. As a result, both our shipments and conversion revenue underperformed versus our expectations in the quarter. Starting to slide nine, in general engineering reduced demand for plate along with increased availability from imports continued into the third quarter.

Making sure that we're being somewhat conservative with our outlook for the fourth quarter and the other part that also impacts us on the mix side is that we'll be getting more bare versus the higher margin coated product from our customers as they really focus on trying to meet their minimum contractual obligations to us.

So that by itself is going to be roughly I would say half of what we're looking at the downside.

As we expect Neil talked about those higher metal cost, which are going to continue to be extended.

Okay and then so what we have those two together will be about a $10 million to $12 million of that bridge to what we did in the third quarter and then finally, the higher major major maintenance spending.

Keith Harvey: While our Kaiser select products command a premium and are preferred by many OEMs in our markets, we expect pricing for these products will be under pressure until semiconductor demand returns. Destocking for general engineering long products appears to be ending as distributor inventories have began to normalize and align with current demand. The resultant sequential declines in both shipments and conversion revenue came in slightly better than our expectations. And finally, automotive demand continued to be mixed as supply chain issues and now uncertainty due to the UAW strike continued to offset fairly good demand. Both shipments and conversion revenue were down slightly more than anticipated versus the prior quarter. Turning to slide 10.

This year.

Due to the just the timing of some of the spending of the year as compared to the third quarter. We will have about a $6 million increase in major maintenance spending in the fourth quarter. So when you bring that all together that's about a $16 million to $18 million difference, which really leads us to the to the to the outlook. We're looking for the fourth quarter as.

<unk> the third quarter.

Okay helpful. I'll, just ask one more on hand, it over but on the <unk> hundred million dollars increase in Capex, obviously pretty pretty big amount. It seemed like there just can you clarify them I think.

In the past and kind of assuming flattish capex from 2024, and 2023 seems to be just add like 100 million of more to that number or how should we think about the cadence of that spending.

No no it won't be.

And we will come out with those numbers in February but there'll be additional spending that goes on in the fourth quarter Timna. So that 100 won't just parlay over and we've only spent we spent 140% year to date so.

Keith Harvey: I'd now like to turn to an update on our packaging business at the Warwick facility and our strategic plan to improve our performance as we continue to recover from the various challenges we faced. We have previously shared this slide in the fourth quarter of 2022 and wanted to provide an update with where we were currently on our priorities for Warwick. While we've been successful in our efforts contractually with customers, positioning us for higher margin potential, rising inflationary costs and challenging short-term demand issues continue to impact our ability to improve efficiencies in our operations in a meaningful way.

Actually over two years total over two years, we spent over 140 on it so that spending will come as Neil said over the next nine months.

No.

We will give you more outlook for that but there will be additional spending in the fourth quarter for that line now let me talk a little bit about the spending on that Timna, because I agree with you I mean, I don't like cost overruns.

But I think with every major player Thats, making major investments, especially during these last couple of years of high inflation.

Keith Harvey: We continue to work with our customers, suppliers and team members at Warwick to normalize our operations and drive consistent longer-term profitable growth. As part of our strategic plan, we remain committed to completing our roll code capacity expansion project, which is expected to convert roughly 25% of our current output to higher margin coded products. As we've stated previously, coded products provide roughly three times the margin benefit versus traditional body stock products. This investment remains on track to be operational and qualified by the end of 2024 with substantial new customer commitments already in place.

It's really been a challenge to bring these projects in.

If you take a look at that $100 million bucket.

A significant part of it is material costs, which have gone up and then a labor constitutes another percentage of that so higher labor costs all associated with inflation.

And then finally, just getting the scope and engineering changes to match exactly what we need and our customers need really led to that overall $100 million, but the majority of that is material and labor.

Okay. So you're not prepared to give us guidance fair, what capex might be at in 2024.

No we will do that in February.

Got it I'll handoff. Thank you again, thank you timna.

Once again, if you would like to ask a question. Please press star one on your telephone Keypad. Your next question comes from Bill Peterson with Jpmorgan. Please go ahead.

Keith Harvey: When we initially announced our acquisition of Warwick, the capital investment for our fourth roll code line called for an approximately $150 million of investment. However, as we have previously alluded, impacts from increased inflationary pressures on labor, material and other costs have led to higher spending required to complete the investment. As a result, we now expect an additional $100 million of incremental costs will be required for the completion of this project for a total expected outlay of approximately $250 million.

Yeah, Hi, good morning, and thanks for taking the questions.

Good morning, I wanted to follow up yeah. Good morning, So wanted to follow up on the on the.

Packaging side. So I guess can you give us a rough split or ballpark on what the exposure between Bev can uncoated food would be.

Maybe on the Bev can side I guess, how confident are you that.

That that portion of the business has bottomed.

Well, we don't give out specific brakes on what we provide but it's a fairly large percentage.

What we do bill so it's I'd say, it's greater than 40% of what we do out there and.

Keith Harvey: Today, we have invested approximately $140 million with the remaining expected to complete the project to be spent over the next nine months. House. While this exceeds our initial expectation from two years ago, the returns on the total investment are still expected to exceed our cost of capital. This project remains an important component of our focused, higher margin, packaging strategy. In addition, we are continuing to make progress with the physical separation of our work facility from the adjacent alcoa smelter and power plant, which we anticipate finalizing sometime in the early 2024.

With respect to.

So the beverage side of it we started to see business stabilize and actually bounced back as we got in towards the end of the third quarter and so as we talk with our customers. We looked at what's acting happening with us. It gives us some comfort that beverage is continuing to grow if you look.

Some of our end customers that can makers that have been out already theyre talking about continued growth moving into 2024, so that gives us.

A good feeling that the Destocking has occurred and that we will get back to more normalized growth.

Keith Harvey: This long plan separation provides us the opportunity to significantly improve the sustainability of our products at work by increasing our use of recycled materials as a percentage of raw materials. Although destocking has created short-term headwinds, as we seek to stabilize and grow our packaging operations, we maintain a very positive longer-term view on the business. Our already strong position in the higher margin coated products for food and beverage markets will only improve once the additional coated capacity comes online. The secular shift to aluminum as the substrate of choice in North American beverage and food industry continues to flourish. And as market forces shift, Kaiser remains very well positioned to be a significant beneficiary.

<unk> and 'twenty four.

Also.

Reflect on the longevity and Timna brought this up the longevity on the on the coated products, especially on the food again. The information that we have is that this will not be as prolonged as what took place with the beverage can overall.

That one was more associated with demand and higher cost pass through this seems to be more around the end users and yearend balance sheet issues. So I have a feeling here that.

That this will be much shorter perhaps through the end of this year and but we'll give you more update when we talk in February.

Okay. Yeah. Thanks for that color and then Mark I would like to get a more context on the separation from alcohol in terms like what does that mean in terms of physically separated I guess should that result in more greater recycled scrap usage and less materials from Alcoa.

Keith Harvey: In summary, I'd like to thank our strong team at Kaiser for their commitment to serving our customers and for their execution of our strategic plan as we continue to navigate a challenging market. Despite current headwinds, we remain optimistic, our long-standing reputation, strong customer relationships, and competitive position in the markets we serve will provide strong, near, and long-term tailwinds. In particular, we are uniquely positioned to service the growing arrow and high strength market with the recovery significantly surpassing our initial expectations. That coupled with our ongoing cost reduction efforts and efficiency improvements will help ensure we are well positioned for future growth.

What's the mix between the two how is that going to evolve and I guess, most importantly, how does that impact the financials.

Yeah. So again, we expect that separation in the first part of next year part of the obligation that we had in our.

Our agreement with Alcoa was that we had a a three year commitment to purchase a portion of our metal needs from their smelter the primary smell.

Smelter there and that ends at the end of this year and we are intent on moving toward more secondary slash recycled material content.

And we have that in place moving into 2024.

Neal West: I'd now like to turn the call over to Neil for more detail analysis on the corner. Neil? Thank you, Keith.

Most definitely will improve the financial wherewithal and will improve the sustainability of that business and so we're very excited about moving that amount of material over to recycled content. It's also going to satisfy a lot of requirements from our customers who are looking for higher.

Neal West: Good morning, everyone. I'll begin on slide 12 with an overview of conversion revenue. Conversion revenue for the third quarter of 2023 was $357 million, an increase of $35 million or 11% compared to the prior year period. Looking at each of our end markets in detail, arrow, high-straight conversion revenue totaled $134 million in a third quarter of 2023, reflecting a 72% improvement on a 69% increase in over to prior year quarter. Compared to the second quarter of 2023, we delivered a 3% improvement in conversion revenue as expected on a modest increase in shipments as the man continue to strengthen towards peak levels.

Sustainable.

Material input material the other parts of the separation, though and as you can might imagine Bill. This has been a distraction for our teams up there for the last couple of years, we're separating power from the coal fired plant there will be moving on to the grid.

That's pretty much getting close to completion and there are other things around steam water and how we separate those two facilities.

Overall, it's been a quite a distraction quite an endeavor by that team up there they are.

As they get managed around all of the other challenges we've had with supply chain issues. So in regards it's going to be better for us from a financial perspective, better for us from a sustainable perspective, and definitely less distractions. So the folks can get back to focus just on managing the growth of the.

Neal West: Packaging conversion revenue was $118 million in a third quarter, down 9% year-over, of the year. Well, shipments reflect a 5% improvement over last year's period, which as a reminder was impacted by our magnesium-related declaration of forced measure, ongoing de-spacking in the market, primarily for coded proof products in the third quarter, negatively affected our results. On its sequential basis, third quarter revert, conversion revenue was bound 12%, on a 5% decline in shipments over the second quarter of 2023, as the mix was more heavily weighted towards lower body stock versus coded products.

And there.

Okay. Thanks, Keith for the color and look forward to following the progress in the year end and next year.

Alright, Thanks, Bill Thanks Bill.

Thank you I would now like to turn the call over to Keith Harvey for closing remarks.

Okay, well, thanks for being with US today, and I look forward to updating you on our fourth quarter and full year 2003 results in February have a good day.

Neal West: General engineering conversion revenue for the third quarter was $75 million. Down 16% year over year, due to a 24% reduction in shipments as de-spacking, primarily for plate products, persisted. Sequentially, conversion revenue was bound 8%, on a 6% reduction in shipments compared to our second quarter results, which as noted by Keith was slightly better than our expectations. Automotive conversion revenue was $28 million. Up 16% over the third quarter of 2022, on a 6% increase in shipments, due primarily to higher pricing.

There are no further questions you may disconnect your lines at this time and thank you for your participation.

Okay.

Yeah.

Okay.

[music].

Neal West: Compared to the second quarter of 2023, conversion revenue and shipments both declined by 8% due to the impact of industry supply chain issues and uncertainty around a UAW strike. Additional details on conversion revenue and shipments by end market application can be found in the appendix of this presentation.

Neal West: Now moving to slide 13, reported operating income for the third quarter of 2023 was $19 million. After adjusting for corporate restructuring costs and other non-run rate items of approximately $1 million, adjusted operating income was $20 million. Up 17 million years over year and down $17 million sequentially. Our effective tax rate for a third quarter of 2023 was 2%, compared to 33% in a prior year period due to discrete items taken during a quarter.

Neal West: For the full year of 2023 and over the long term, we continue to expect our effective tax rate before discrete items to be in a low to mid 20% range under current tax regulations. We anticipate that our 2023 cash taxes for foreign and state taxes will be in a $2 to $3 million range with no U.S, federal cash taxes until we consume our federal NOLs, which as of year end 2022, we're $161 million.

Neal West: We reported net income for the third quarter of 2023 was $5 million or $34 cents per diluted share, compared to a net income of approximately $3 million or $16 cents per diluted share in a prior year quarter. After adjusting for total of $3 million of pre-tax non-run rate items, adjusted net income for a third quarter of 2023 was $7 million or $46 cents per adjusted diluted share, compared to an adjusted net loss of $3 million or a loss of $21 cents per adjusted diluted share in a prior year quarter. As a reminder, in the third quarter of 2022, we recorded a $13 million of pre-tax other income, primarily related to sale of non-strategic legacy land assets. Asset.

Neal West: Now, turning to slide 14. Adjusted EBITDA for the third quarter of 2023 was $48 million off the approximately $19 million from the prior year quarter and down $16 million sequentially, which was slightly ahead of our expectations. Adjusted EBITDA as a percentage of conversion revenue was 13.3% and a third quarter of 23, an improvement of approximately 440 basis points from the third quarter of 2022. On a year-over-year basis, the improvement in adjusted EBITDA was primarily the results of stabilizing operations, following the significant supply chain issues we experienced at our work growing middle last year.

Neal West: In addition to improving pricing to capture the higher cost of alloys and other inflationary costs, with a higher mix of aerospace product statements. On a sequential basis, as Keith discussed, adjusted EBITDA was pressured primarily by de-spacking and inflationary costs, minimizing our cost reduction efforts across our platform.

Neal West: Now, turning to the discussion of our balance sheet and cash flow. As of the end of September 2023, total cash of approximately $45 million and approximately $529 million dollars of borrowing availability in our revolving credit facility provided total liquidity of $574 million. There were no outstanding borrowings on our revolving credit facility as of September 29th, and it remains undrum. We continue to believe that our total equity position remains strong. As a reminder, our senior notes interest costs have fixed their $48 million annually, and we have no debt maturing until 2028.

Neal West: As of September 2023, our net debt leverage ratio improved to 5.4 times from seven times at the end of 2022. We continue to target a leverage ratio to the two-and-a-half times by way of improvements to our profitability over time. Further, we are working through our previously discussed higher cost metal inventory overhang resulting from the 2022 supply chain issues that are work operation. While we continue to expect our efforts to serve as a positive source of cash, the de-stocking we have been experiencing in the packaging market throughout 2023 will prolong this endeavor until 2024. As such, we currently expect to sell the remaining balance of higher cost metal units by the end of Q1 2024.

Neal West: In regards to our capital allocation strategy, our approach is really focused on supporting our growth while concurrently returning value to our stockholders. We now expect our full year 23 capital expenditures to be at the lower end of the range of $170 million to $180 million. While the timing of certain capital expenditures, primarily associated with our road coat expansion project that our work facility have shifted into 2024, the project remains on track for start-up in the second half of 2024.

Neal West: Additionally, on October 12th, we announced that our board of directors declared a quarterly dividend of 77 cents per common share, which demonstrates our conference or board and management team having our long-term strategy for profitable growth, and increasing stockholder value, and now I'll turn and call back over to Keith to discuss their outlook. Keith? Thanks, Neal.

Keith Harvey: Now I'll turn to our outlook for the fourth quarter of 2023, beginning with aerospace on slide 16. The strong momentum we've been experiencing in arrow and high string shipments is expected to continue into the fourth quarter. As a result, we believe the recovery and commercial aerospace should meet or exceed the record levels we experienced in the pre-pandemic 2019 timeframe by the end of this year. It's important to note that we intend to achieve this milestone one year ahead of our initial expectations, which is a testament to Kaiser's longstanding strong position in the arrow and high strength markets that we've built over the last 75 years.

Keith Harvey: Our outlook remains strong and is further supported by the build rate increases we've seen this year for both single aisle and wide body jets, both of which are beneficial to Kaiser along with increasing airline passenger miles and load rates. As such, we expect that our fourth quarter shipments will continue to improve by an additional three to five percent versus the third quarter of 2023 with conversion revenue expected to decline by approximately one to two percent over the same period due to an expected mixed shift in products shift during the quarter.

Keith Harvey: As we look out into next year, initial declarations by the air framers support stronger 2024 shipments than previously anticipated. In addition, we expect demand for business jet defense and space to remain strong. As I highlighted earlier, our unique ability to flex available capacity out of our Trentwood rolling mill to accommodate increasing market demand enables us to take on additional capacity without the need for incremental investments in the near term.

Keith Harvey: Starting to packaging now on slide 17. Looking ahead into the fourth quarter, we expect shipments to decline by approximately five to six percent compared to the third quarter as destocking has shifted to food products and we face typical fourth quarter seasonality. Our resulting conversion revenue is expected to be flat to slightly higher than the third quarter as we work with customers to meet their contractual obligations. As I've stated previously, we do not anticipate these lower levels of demand carrying into 2024, but we will continue to assess the situation. Longer term, we believe our refined strategy coupled with our strong customer relationships and multi-year contracts and targeted growth investment in the new road coat line will support margin improvement and future growth prospects.

Keith Harvey: Now turning to general engineering on slide 18. We expect shipments for general engineering products in the fourth quarter to decline modestly from the third quarter unrelatively flat conversion revenue given continued plate destocking activity as well as the associated seasonal decline typical of the fourth quarter. Shipments are expected to decline approximately 1% to 2% and conversion revenue is expected to decline approximately 2% to 4% versus the third quarter of results as distributors continue to write size their inventory and import plate availability continues to increase.

Keith Harvey: As I indicated, it's important to realize that the available capacity at our Trent Wood Operation, where our general engineering plate products are manufactured, has opened up additional capacity to service the resurgence and aerospace activity. Partially offsetting this pressure, our sales of Rod and Bar products, which have started to reverse the downward trajectory we've seen for the last several quarters, with shipping rates that have begun to stabilize in the third quarter. Short-term hurdles aside, our longer-term outlook for the general engineering business remains solid, given the reshoring of certain manufacturing industries back to North America. We believe we hold a key position in the market, given our long-standing customer relationships, broad product offering, and highly differentiated Kaiser select products that effectively reduce processing time and cost for our customers.

Keith Harvey: Next, I'll turn to automotive on slide 19. Higher build rates for trucks and light vehicles in North America had driven a steady recovery in the automotive market throughout 2023. That being said, we expect our fourth quarter shipments, conversion revenue, to remain relatively flat with the third quarter, due to typical seasonal trends and some anticipated impacts from the ongoing UAW strike. Currently, we don't expect a more meaningful recovery in automotive until at least 2024, which is in alignment with the cautious optimism we have communicated as part of our outlook throughout the year.

Keith Harvey: Now, starting to slide 20. In summary, we're very proud of the progress we made in the first nine months of 2023 to position Kaiser for more sustainable long-term growth. Our strong market position as a key supplier in diverse end markets, multi-year contracts with key strategic partners, strong liquidity position, and flexible nature of our cost structure, enables us to execute our strategy throughout changing operating environments. Additionally, we remain highly focused on managing elements within our control, including pursuing cost reductions, improving manufacturing efficiencies as our operations stabilize, and continuing commercial actions to improve our margins.

Keith Harvey: That said, we anticipate higher major maintenance and other costs to continue in the fourth quarter, along with continued destocking trends in general engineering and packaging. As a result, we are anticipating further downward pressure on our adjusted EBITDA on the fourth quarter, and expect our fourth quarter EBITDA to be in line to slightly higher as compared to the fourth quarter of last year, while market conditions continue to reset, our operations are in a much stronger position to execute at higher levels of efficiencies moving into 2024, where we project market conditions to improve, destocking and packaging and general engineering markets to end, and additional cost reductions we are implementing come into effect.

Keith Harvey: Now starting to slide 22 in a summary of today's remarks, longer term we continue to believe that our business can achieve conversion revenue of approximately $2 billion and an EBITDA margin on conversion revenue in the mid to high 20% range. The building blocks to get there will require focused execution against our strategic plan to drive increasingly profitable growth and maximizing key investments in capacity and capabilities in the sector to grow growth markets we serve to improve our margin profile and competitive position.

Kimberly Orlando: With that, I'll now open the call to any questions you may have. Operator? Thank you.

Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation total will indicate your line into the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your hands up before pressing the star keys.

Timna Tanners: Your first question comes from Team The Tanners with Wolf Research. Please go ahead.

Keith Harvey: Good morning, everyone. Morning. I just wanted to try to understand and piece apart the guidance a little bit more. If I recall the commentary and the release was really guiding, I thought more to some of the weakness you're starting to see outside of the traditional Bevcan but in food can business. I know you said it's material, but would love any more detail on how material and is this the beginning of a extended destocking like we've seen in Bevcan?

Keith Harvey: Is this something that could be a quick fix? Yeah. Hey, good morning, Tenant. So with regard to what we're seeing and we started to see this in the third quarter, we did see beverage can destocking so we delineate between the two. At Kaiser, we have a very large mix of our total capacity that goes into the food can market. And that's animal food, that's human food and other applications. So we had seen that be fairly steady all of last year, all through the first half.

Keith Harvey: And in the third quarter, we started to see some of the pullouts for the second half in that particular product mix. So as that started to change, we started to investigate a little bit with our customers. And I think if you were to see some of the customer responses that have been out on the earnings call of the day, they reinforced the fact that the third quarter caught them by surprise a little bit.

Keith Harvey: They saw some of their customers even though demand was fairly good, destocking continue at the OEM level. So we actually think that that's going to be a shorter term than what's transpired with beverage. Some of the dialogue and color they provided says that it's more of a end of the year balance sheet issue as compared to just total demand requirements. So with that, we're still assessing what that means, but we're looking at really a second half of 23 with demand propping back up in 2024.

Keith Harvey: But we're going to continue to assess that and see. So as a result, we're getting, even with contractual obligations, we're seeing a less mix than we would have anticipated, so more bear products versus coated. And so that's an impact to the third quarter and expected for the fourth quarter for our results. Gotcha. Okay. So we'll see, because if it's as long as the bevcan side, it could last for a while. That's why I was trying to get some color.

Keith Harvey: So thank you for that. It was interesting also, because you've guided more conversion revenue downside, actually in the other segments outside of packaging. So just trying to understand, obviously, is this broader-based weakness or is this kind of, as you said, maybe on a correction more for seasonality? Yeah. We typically get very lumpy results, especially in the fourth quarter, Timna. A lot of our general engineering products go through service centers. So our distributors really look at getting their inventories in place, generally, on a calendar year basis.

Keith Harvey: So the end of the year is always iffy as opposed to what they've done. Now, in some areas, on rod and bar, for instance, we don't believe that there will be a lot of correction in the fourth quarter, but we'll continue to see some of that with plate. We've also built in a little bit of price erosion. We are seeing a little bit more import available out there. And so we're making sure that we're being somewhat conservative with our outlook for the fourth quarter.

Keith Harvey: And the other part that also impacts us on the mix side is that we'll be getting more bear versus the higher margin-coded product from our customers, as they really focus on trying to meet their minimum contractual obligations to us. So that by itself is going to be roughly, I would say, half of what we're looking at the downside. The other part is we expect the Neil talked about those higher metal costs, which are going to continue to be extended, okay?

Keith Harvey: And then so what we have those two together will be about a 10 to 12 million of that bridge to what we did in the third quarter. And then finally, the higher major maintenance spending this year, due to just the timing of some of the spending of the year, as compared to the third quarter, we'll have about a $6 million increase in major maintenance spending in the fourth quarter. So when you bridge that all together, that's about a $16 to $18 million difference, which really leads us to the outlook we're looking for the fourth quarter, as compared to the third quarter.

Keith Harvey: Okay, helpful. I'll just ask one more and hand it over, but on the 100 million increase in CAPEX obviously pretty, pretty big amount, it seemed like to us. So just can you clarify, I think in the past would kind of assume flatish CAPEX from 2024 to 2023, should we just add like 100 million or more to that number or how should we think about the cadence of that spending? No, no, it won't be, and we'll come out with those numbers in February.

Keith Harvey: But we, there'll be additional spending that goes on in the fourth quarter, TEMNA. So that, that 100 won't just parlay over, and we've only spent, we spent 140 year today. So of the, over two years, total, over two years, we've spent over 140 on it. So that spending will come, as Neil said, over the next nine months. So we'll give you more outlook for that, but there will be additional spending in the fourth quarter for that line.

Keith Harvey: And let me talk a little bit about the, the spending on that, TEMNA, because I agree with you. I mean, I don't like cost overruns, but I think with every major player that's making major investments, especially during these last couple of years of high inflation, it's really been a challenge to bring these projects in. If you take a look at that $100 million bucket, a significant part of it is material cost, which have gone up, and then a labor constitutes another percentage of that.

Keith Harvey: So higher labor cost, all associated with inflation. And then finally, just getting the scope and engineering changes to match exactly what we need, and our customers need really led to that over all 100 million, but the majority of that is material and labor. Okay, so you're not prepared to give us guidance for what CAPEX might be at in 2024? No, we'll do that in February. Got it. I'll hand off. Thank you again. Thank you, Timna. Once again, if you would like to ask a question, please press star one on your telephone keypad.

William Peterson: Your next question comes from Bill Peterson with JP Morgan. Please go ahead. Hi, good morning, and thanks for taking the questions. Good morning. Yeah, good morning. So the one to follow up on the on the packaging side. So I guess can you give us a rough split or ballpark on what the exposure between devcan and coated food would be. And I guess maybe on the webcam side, I guess how confident are you that that portion of the business has bottomed?

William Peterson: Well, we don't give out specific breaks on what we provide, but it's it's a fairly large percentage of what we do bill. So it's I'd say it's it's greater than 40% of what we do out there. And with respect to the beverage side of it, we started to see business stabilized and actually bounce back as we got in toward the end of the third quarter. And so as we talk with our customers, we looked at what's acting happening with us.

William Peterson: It gives us some comfort that beverage is continuing to grow. If you look at some of our in customers, the can makers that have been out already, they're talking about continued growth moving into 2024. So that gives us a good feeling that the destocking has occurred and that we'll get back to more normalized growth levels in 24. I also reflect on the longevity and timber brought this up longevity on the on the coated products, especially on food.

William Peterson: Again, the information that we have is that this will not be as prolonged as what took place with the beverage can overall. That one was more associated with demand and higher cost pass through. This seems to be more around the end users and you're in balance sheet issues. So I have a feeling here that this will be much shorter perhaps through the end of this year.

William Peterson: And but we'll give you more update when we talk in February. Okay. Thanks for that color.

William Peterson: And then on more like to get a more context on the separation from Alcoa in terms like what does that mean in terms of physically separating? And I guess, you know, should that result in more greater recycled scrap usage and less materials from Alcoa? What's the mix between the two? How's that going to evolve? And I guess most importantly, how does that impact the financials? Yeah. So, again, we expect that separation in first part of next year.

William Peterson: Part of the obligation that we had in our agreement with Alcoa was that we had a three year commitment to purchase a portion of our. Metal needs from their smelter, the primary smelter there. And that ends at the end of this year. And we are intent on moving toward more secondary slash recycled material content. And we have that in place moving into 2024. Most definitely will improve the financial wherewithal. It will improve the sustainability of that business.

William Peterson: And so, we're very excited about moving that amount of material over to recycle content. It's also going to satisfy a lot of requirements from our customers who are looking for higher sustainable material, input material. The other parts of the separation, though, and as you can might imagine, Bill, this has been a distraction for our teams up there for the last couple of years. You know, we're separating power from the coal-fired plant there.

William Peterson: We'll be moving on to the grid. That's pretty much getting close to completion. And there are other things around steam, water, and how we separate those two facilities. So overall, it's been quite a distraction, quite an endeavor by that team up there. They've managed around all the other challenges we've had with supply chain issues. So in regards, it's going to be better for us from a financial perspective, better for us from a sustainable perspective, and definitely less distractions so the folks can get back to focus just on managing the growth of the operation there.

Keith Harvey: Okay, thanks Keith for the color and we'll look forward to following the progress in the year-round and next year. Alright, thanks Bill. Thank you.

Keith Harvey: I would like to turn the call over to Keith Harvey for closing remarks. Okay, well thanks for being with us today and I look forward to updating you on our fourth quarter and full year 23 results in February.

Operator: Have a good day.

Operator: There are no further questions. You may disconnect your life at this time and thank you for your participation. Thank you.