Q4 2023 ATI Inc Earnings Call

In please press star followed by one don't know telephone keypad.

I will now hand over to your host, Dave West and Vice President Investor Relations to begin Dave. Please go ahead.

Thank you.

And welcome to Adi's fourth quarter 2023 earnings call.

Today's discussion is being webcast online at ATI materials Dot com.

Participating in today's call to share key points from our fourth quarter results are Bob Wetherbee Board Chair, and CEO, and Don Newman Executive Vice President and CFO.

Before starting my 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 and they can also be found on our website at ATI materials Dot com.

It is important to note that all of our financial data both results and outlook as well as our sequential and year over year comparisons reflect the change in pension accounting policy, we announced on January 19th.

Hello, everyone and welcome to <unk> fourth quarter 2023, adding cool my name is not yet and I'll be coordinating the call today.

Speaker Change: If he would like to ask a question. Please press star followed by why don't know telephone keypad.

After our prepared remarks, we'll open the line for questions.

Speaker Change: I will now hand over to your highest they've Westin Vice President Investor Relations to begin Dave. Please go ahead.

As a reminder, all forward looking statements are subject to various assumptions and caveats.

These are noted in the earnings release and in the accompanying presentation.

Dave: Thank you good morning, and welcome to <unk> fourth quarter 2023 earnings call.

Now I'll turn the call over to Bob.

Thanks, Dave Good morning, everyone.

Dave: Today's discussion is being webcast online at ATI materials Dot com.

Q4 marked a strong end to another year of significant growth for ATI.

Dave: Participating in today's call to share key points from our fourth quarter results are Bob Wetherbee Board Chair, and CEO, and Don Newman Executive Vice President and CFO.

One thing I'll focus on three takeaways I believe best summarized the results we're announcing today.

Number one we're doing what we said we would do executing our strategy of aerospace and defense leadership.

Robert S. Wetherbee: Before starting my prepared remarks, I would like to draw your attention to the supplemental presentation that accompanies this call.

Delivering on our customer and shareholder commitments.

The benefits show in our bottom line.

Robert S. Wetherbee: Those slides provide additional color and details on our results and outlook and they can also be found on our website at ATI materials Dot com.

Number two we're sharpening our operational advantage shifting our culture around inventory management.

Donald P. Newman: It is important to note that all of our financial data, both the results and outlook as well as our sequential and year over year comparisons reflect the change in pension accounting policy, we announced on January 19th.

We're overcoming challenges uncovering new opportunities and positioning the business for long term cash generation success and sustainable growth.

Number three we are well positioned in strong markets with years of continued growth ahead.

Speaker Change: After our prepared remarks, we'll open the line for questions.

Speaker Change: As a reminder, all forward looking statements are subject to various assumptions and caveats.

Let's dive deeper into each of these starting with my first point.

Speaker Change: These are noted in the earnings release and in the accompanying presentation.

What does it take to do what we said we'd do it starts with execution across the enterprise meeting our commitments is important to our team and it shows in our results.

Speaker Change: Now I'll turn the call over to Bob.

Thanks, Dave Good morning, everyone.

Robert S. Wetherbee: Q4 marked a strong end to another year of significant growth for ATI.

In the fourth quarter, we delivered adjusted EBITDA of $161 million.

Robert S. Wetherbee: This morning, I'll focus on three takeaways I believe best summarized the results we're announcing today.

Which was 15% of sales.

Robert S. Wetherbee: Number one we're doing what we said we would do executing our strategy of aerospace and defense leadership.

That's driven by continued strength in aerospace and defense.

It was our highest revenue quarter of 2023, and our sixth quarter in a row exceeding $1 billion.

Robert S. Wetherbee: Delivering on our customer and shareholder commitments.

Robert S. Wetherbee: The benefits show in our bottom line.

Our quarterly adjusted earnings per share of <unk> 64 was above the midpoint of our November guidance.

Robert S. Wetherbee: Number two we're sharpening our operational advantage shifting our culture around inventory management.

For the full year 2023, Hei adjusted EBITDA was $635 million, including the benefits of our pension actions during the year.

Robert S. Wetherbee: We are overcoming challenges uncovering new opportunities and positioning the business for long term cash generation success and sustainable growth.

Full year free cash flow was $165 million, that's above the high end of our guidance range.

Robert S. Wetherbee: Number three we are well positioned in strong markets with years of continued growth ahead.

What drove this cash flow.

Speaker Change: Let's dive deeper into each of these starting with that first point.

<unk> and targeted inventory management initiatives and significant operational efficiency improvements.

We're building strong momentum at the operating level.

It gives us velocity speed.

Speed and our defined direction.

Let me share a few proof points of what May 2023, a great year.

Isothermal forging output is up 20% delivering record revenues as we support jet engine demand.

We increased process yield by 40% for our key jet engine powder alloy.

Process slow time for a major titanium product line is down 53%.

Production of high value niobium in half and yet those alloys critical to commercial space launches is up 37%.

In aerospace and defense revenue is up 32% overall.

All of these examples are compared to 2022 and they illustrate the strong foundation 'twenty 'twenty four is built upon.

This momentum that we're harnessing comes from our people.

We have a great team.

Drive my guys Crazy does that for a moment and go off script for just a second I mean this is a team effort our team has accomplished a lot.

Their efforts are incredibly meaningful and very comprehensive thanks.

Every member of the team.

And the leaders will encourage them.

The results speak to those efforts are much appreciated.

If I could take away today is that we're shifting the fundamentals of how we operate.

Inventory management is at the heart, we faced a lot of growth related challenges in 2023.

We ramped every operation from melting to shipping asking more from our people and our assets.

Uncertainty of incoming materials and upstream operational reliability made that exciting times.

Drive for operational efficiency means we're consciously reducing the inventory cushion.

That requires our team to operate and lead differently.

Sufficient titanium supply to meet ramping demand remains a critical issue across the A&D industry.

Youll recall that we restarted a significant amount of titanium melt capacity in 2023.

By the end of this year 2024 will have expanded 45% over 2022 levels.

Keep in mind to date only a portion of this additional titanium has been converted to revenue.

We're targeting the second half of 2024 to achieve full run rate of that 45% expanded capacity.

When the Richland, Washington expansion is at full production in late 2025, our total titanium mill capacity will be up by 80% over our 2022 baseline we're.

We're on track for Richland first melt in Q4 of this year.

Our philosophy is to be long at the start of a growth cycle.

Melting tends to be a long lead time investment and defines the potential for the rest of our operations.

Forward looking and decisive.

That's our competitive advantage, we and our customers are seeing the benefits of that now.

Clearly, we aren't going to melt if we can't flow through to finished parts, which is why our work to address bottlenecks so crucial.

Let me give you a great example of how we're addressing one of the biggest.

Our new billet forging press in North Carolina is coming online in Q1.

As we speak this added capacity is converting rounding it's to dimensionalize the pellets. This.

This opens up more downstream capacity to take advantage of the increased note.

Don will be disappointed in me if I didn't emphasize that this investment was within our previously announced capital spend.

The equipment reliability as another opportunity to improve our performance.

In an effort to support the ramp we pushed maintenance cycles longer. This led to both planned and unplanned outages late in Q4 that will affect shipments in Q1.

We don't expect year end outages to be an issue going forward as we reevaluate how to space them more evenly across the year.

This all stems from our significant growth in titanium and nickel.

We're focused on resolving each bottleneck, we encounter these and a few additional capital efficient projects already in the works gives us clear line of sight to a significant step up in our results in the second half of 2024.

We made significant progress in the fourth quarter toward our managed working capital target of 30% of sales or lower.

We ended 2023 at 31% of sales.

Hei, President and COO Kim fields is a champion in this space under.

Under her leadership the team is accelerating flow, removing idle inventory, while finding and driving operational efficiencies.

As our free cash flow performance indicates that work is yielding tangible results.

We're not yet where we want to be and Thats not lost on our team.

We've learned a lot we're taking action and we're committed to doing even better in 2024.

We don't expect year end outages to be an issue going forward as we reevaluate how to space them more evenly across the year.

Our extended growth trajectory means inventory management will remain a key priority for quite some time the.

This all stems from our significant growth in titanium and nickel.

The process improvements locked in the scar set the stage for what we can achieve.

We're focused on resolving each bottleneck, we encounter these and a few additional capital efficient projects already in the works gives us clear line of sight to a significant step up in our results in the second half of 2024.

Looking forward the first quarter brings unique challenges, we're working through weather related outages from January specific northwest Arctic storm.

<unk> headwinds in our industrial end markets and lower metal prices for key inputs.

We made significant progress in the fourth quarter toward our managed working capital target of 30% of sales or lower.

Don will add more clarity with our Q1 guidance.

We ended 2023 at 31% of sales.

You should keep top of mind is the fundamentals that influence the fourth quarter, mainly enduring demand and proven performance support our profitable growth in 2024.

Hei, President and COO Kim fields is a champion in this space under.

Under her leadership the team is accelerating flow, removing idle inventory, while finding and driving operational efficiencies.

This brings me to my third and final takeaway today.

As our free cash flow performance indicates that work is yielding tangible results.

<unk> is well positioned with a strong markets with years of continued growth ahead.

We're not yet where we want to be and that's not lost on our team.

Q4, ATI achieved 63% and sales from aerospace and defense.

We've learned a lot we're taking action and we're committed to doing even better in 2024.

Up from 61% in the third quarter and 10 points above last year. It speaks to the magnitude of growth recapturing.

Our extended growth trajectory means inventory management will remain a key priority for quite some time the.

We expect that to continue over the next several years. It also highlights how critical our melt capacity expansions are to <unk> ability to capture and meet that demand.

The process improvements locked in the scar set the stage for what we can achieve.

Looking forward the first quarter brings unique challenges, we're working through weather related outages from January specific northwest Arctic storm.

Fourth quarter jet engine shipments increased by 7% sequentially and 15% year over year.

<unk> headwinds in our industrial end markets and lower metal prices for key inputs.

We expect growth to continue in 'twenty to 'twenty, four and beyond driven by continued acceleration of OEM jet engine builds and ongoing elevated spares demand.

Don will add more clarity with our Q1 guidance.

You should keep top of mind is the fundamentals that influenced the fourth quarter, namely in during demand and proven performance support our profitable growth in 2024.

Demand for ATI airframe materials predominantly titanium remains at historic highs.

Airframe shipments surpassed $200 million for the second quarter in a row.

This brings me to my third and final takeaway today.

We saw significant airframe growth in the first and third quarters of 2023.

<unk> is well positioned with a strong markets with years of continued growth ahead.

This market doesn't grow in a linear fashion. It rises then stabilizes as build rates right now.

In Q4, ATI achieved 63% and sales from aerospace and defense.

Generally synced to airframe build rates over the medium to long term, but sometimes in the process of getting there. It's a little choppy you got to think about stair steps not necessarily a nice gentle hill.

Up from 61% in the third quarter and 10 points above last year.

Speak to the magnitude of growth recapturing.

We expect that to continue over the next several years. It also highlights how critical our melt capacity expansions are to <unk> ability to capture and meet that demand.

Before I leave the topic of commercial aerospace, let me address how we are thinking about narrow body disruptions that have been in recent headlines.

Uncertainty has been the norm of recent years, where a lot of reasons.

Fourth quarter jet engine shipments increased by 7% sequentially and 15% year over year.

The market reality, we deal with.

We expect growth to continue in 'twenty 'twenty, four and beyond driven by continued acceleration of OEM jet engine builds and ongoing elevated spares demand.

We don't expect it to impact our long term growth potential and our market position has broadened materially to help diminish any significant near term implications.

Demand for ATI airframe materials predominantly titanium remains at historic highs.

Three points to keep in mind, one our long term directional targets are based on monthly build rates, reaching 120 narrow bodies and 20 for wide bodies in 2027.

Airframe shipments surpassed $200 million for the second quarter in a row.

We saw significant airframe growth in the first and third quarters of 2023.

Even if the industry adjusts its expectations the actual build rate is likely still above our projections.

This market doesn't grow in a linear fashion. It rises then stabilizes as build rates ramp.

Second we saw a narrow body disruptions in 2023 and still achieved record titanium sales.

We're generally synced to airframe build rates over the medium to long term, but sometimes in the process of getting there it's a little choppy.

And third remember we're still in the early innings of the wide body ramp and several years away from overall peak airframe build rates.

About stair steps not necessarily a nice gentle hill.

Moving beyond commercial aerospace <unk> defense business continues to grow at a significant pace.

Before I leave the topic of commercial aerospace, let me address how we're thinking about narrow body disruptions that have been in recent headlines.

Sales expanded 21% sequentially and 16% year over year.

Uncertainty has been the norm of recent years, where a lot of reasons.

At ACI, we fly float and role in this segment.

This is a market reality, we deal with.

We don't expect it to impact our long term growth potential and our market position has broadened materially to help diminish any significant near term implications.

The increase was broadly driven by growth in shipments of military rotorcraft naval propulsion materials, certain U S and allied navies and titanium ground vehicle arm.

Overall, 2023, ATI aerospace and defense sales grew by 32%.

Three points to keep in mind, one R&D long term directional targets are based on monthly build rates, reaching 120 narrow bodies and 20 for wide bodies in 2027.

Versus the prior year.

So let's add it up here for a minute the.

The increasing build rates for frames and engines pretty positive trend the defense markets strong in almost every product we serve.

Speaker Change: Even if the industry adjust its expectations the actual build rates likely still above our projections.

Dave: Second we saw a narrow body disruptions in 2023 and still achieved record titanium sales.

And we're well positioned with the right customers for the long term.

The recipe for success is delivering results.

Dave: And third remember we're still in the early innings of the wide body ramp and several years away from overall peak airframe build rates.

A great demand isn't just limited to aerospace and defense you've heard me talk about our work in <unk> markets, where barriers to entry are high and so are the returns.

Dave: Moving beyond commercial aerospace <unk> defense business continues to grow at a significant pace.

Last month, our customer confluent announced their $50 million investment in Ati's, Nitro milk and materials conversion infrastructure.

Donald P. Newman: Sales expanded 21% sequentially and 16% year over year.

Robert S. Wetherbee: At ATI, we fly float and role in this segment the.

That expansion will more than triple our capacity with its lifesaving material used in <unk> and related devices.

Robert S. Wetherbee: The increase was broadly driven by growth in shipments of military rotorcraft naval propulsion materials, certain U S and allied navies and titanium ground vehicle arm.

Its really unique to have customers. So excited about the product that ATI makes investment support is.

Donald P. Newman: Overall, 2023, ATI aerospace and defense sales grew by 32%.

Great it's their money that they're investing and our confidence in what we can achieve together they are a great partner and we look forward to tremendous success together.

Donald P. Newman: Versus the prior year.

Donald P. Newman: So let's add it up here for a minute the.

Donald P. Newman: The increasing build rates for frames and engines pretty positive trend the defense markets strong in almost every product we serve.

In industrial markets demand remains soft the good news is that these conditions remain transitory.

Speaker Change: And we are well positioned with the right customers for the long term.

And they affect an even smaller portion of the ATI portfolio than in years past.

The recipe for success is delivering results.

As I said last quarter, we're taking actions operationally to align our near term cost structure with its lower demand.

Robert S. Wetherbee: A great demand isn't just limited to aerospace and defense you have heard me talk about our work in <unk> markets, where barriers to entry are high and so are the returns.

We remain focused on adjusting the portfolio as needed.

Using our 80 20 toolkit to optimize the product mix.

Robert S. Wetherbee: Late last month, our customer confluent announced their $50 million investment in Ati's, Nitro milk and materials conversion infrastructure.

Now I'll turn it over to Dan to share details of our financial performance.

Thanks, Bob.

Q4 capped off a great year for ATI, we delivered the highest quarterly revenue since Q2 2019.

Robert S. Wetherbee: That expansion will more than triple our capacity with this lifesaving material used in hearts dense and related devices.

Also ended the year with a consolidated adjusted EBITDA margin of over 15% and.

Speaker Change: Its really unique to have customers. So excited about the product that ATI makes investment support.

<unk> threshold as we progress toward our longer term targets of delivering adjusted EBITDA margins in the 20% range.

Robert S. Wetherbee: Great it's their money that they're investing and our confidence in what we can achieve together, they're a great partner and we look forward to tremendous success together.

We also deliver free cash flow above the high end of our guidance range.

The actions taken related to our pensions derisked the business strengthen the balance sheet.

Robert S. Wetherbee: In industrial markets demand remains soft the good news is that these conditions remained transitory.

And we will improve profitability for years to come.

With that established let's jump into our performance.

Speaker Change: It may affect an even smaller portion of the ATI portfolio in years past.

Our consolidated sales were 5% higher than Q4 2022.

Speaker Change: As I said last quarter, we are taking actions operationally to align our near term cost structure with this lower demand.

And up 9% for the full year.

Speaker Change: We remain focused on adjusting the portfolio as needed.

Those growth figures do not entirely reflect the underlying strength of customer demand.

Speaker Change: Using our 80 20 toolkit to optimize the product mix.

In recent years, we have increased risk sharing with our customers and lowered our volatility by adding pass through mechanisms to our contracts.

Speaker Change: Now I will turn it over to Don to share details of our financial performance.

Donald P. Newman: Thanks, Bob.

Donald P. Newman: Q4 capped off a great year for ATI, we delivered the highest quarterly revenue since Q2 2019.

As those pass throughs reduce risk it create fluctuation in revenues and margins from period to period.

Donald P. Newman: Also ended the year with a consolidated adjusted EBITDA margin of over 15% and.

As a result of the decline in metal prices in 2023, most notably nickel.

Donald P. Newman: An important threshold as we progress toward our longer term targets of delivering adjusted EBITDA margins in the 20% range.

Q4, and full year 2023 had lower pass through revenues in the same periods in 2022.

Donald P. Newman: We also delivered free cash flow above the high end of our guidance range.

Those year over year declines in pass through revenue, creating growth headwinds of 3% and 1% for Q4 and full year 2023, respectively.

Donald P. Newman: The actions taken related to our pensions derisked the business strengthen the balance sheet.

Donald P. Newman: And we will improve profitability for years to come.

Speaker Change: With that established let's jump into our performance.

Our H PMC segment continues its sustained performance.

Speaker Change: Our consolidated sales were 5% higher than Q4 2022.

Fourth quarter margins were 21, 5%.

Built on our expanding Andy Foundation.

Speaker Change: And up 9% for the full year.

The fourth quarter in 2023, and total affirm the consistency and strength in this segment.

Speaker Change: Those growth figures do not entirely reflect the underlying strength of customer demand.

Revenue and segment EBITDA increased sequentially and year over year.

Speaker Change: In recent years, we have increased risk sharing with our customers and lowered our volatility by adding pass through mechanisms to our contracts.

Driven by the segment's focus on aerospace and defense end markets, representing 86% of <unk> Q4 sales.

Speaker Change: As those pass throughs reduced risk they create fluctuation in revenues and margins from period to period.

In the fourth quarter <unk> delivered a segment margin of nearly 12%.

Speaker Change: As a result of the decline in metal prices in 2023, most notably nickel Q.

For two quarters in a row A&D sales in this segment were 35%, reflecting the transformation that's underway now.

Speaker Change: Q4, and full year 2023 had lower pass through revenues in the same periods in 2022.

That's up from 30% in Q4 2022.

Speaker Change: Those year over year declines in pass through revenue created growth headwinds of 3% and 1% for Q4 and full year 2023, respectively.

We worked through the challenges of slower near term industrial demand with sales stabilizing in Q4 after declines in Q2 and Q3.

Speaker Change: Our HPLC segment continues its sustained performance.

What do we expect from this segment in 2024.

Speaker Change: Fourth quarter margins were 21, 5%.

Richer sales mix recovering industrial demand and improving operating performance.

Speaker Change: Built on our expanding Andy Foundation.

This will lead to margin expansion.

Speaker Change: Our fourth quarter, and 2023 and total affirm the consistency and strength in this segment.

A trend that we expect to continue beyond 2024.

In Q4, we took decisive action to put our pension obligations behind us.

Speaker Change: Revenue and segment EBITDA increased sequentially and year over year.

Speaker Change: Driven by the segment's focus on aerospace and defense end markets, representing 86% of <unk> Q4 sales.

We have new ties roughly 85% of our qualified defined benefit obligations transferring one $4 billion in gross pension liabilities to a third party.

Speaker Change: In the fourth quarter <unk> delivered a segment margin of nearly 12%.

We fully funded the remaining qualified defined benefit pension obligations.

Speaker Change: For two quarters in a row A&D sales in this segment were 35%, reflecting the transformation thats underway now.

And we changed our pension accounting policy to better match current financial performance.

What are the benefits of those actions.

Speaker Change: Thats up from 30% in Q4 2022.

Higher earnings a stronger balance sheet reduce volatility and increased future cash flow.

Speaker Change: We worked through the challenges of slower near term industrial demand with sales stabilizing in Q4 after declines in Q2 and Q3.

We accomplished this while ensuring our retired employees received the benefits to which they are entitled.

Speaker Change: What do we expect from this segment in 2024.

Our pension glide path is substantially complete.

Speaker Change: Richard sales mix recovering industrial demand and improving operating performance.

Let me boil down the financial impacts of the pension changes.

Speaker Change: This will lead to margin expansion.

First our.

Our annual pension expense decreased roughly $50 million from 2023 annual run rates prior to these actions.

Speaker Change: A trend that we expect to continue beyond 2024.

Speaker Change: In Q4, we took decisive action to put our pension obligations behind us.

No meaningful cash contributions to the qualified pension plans will be required in the future.

Speaker Change: We have new ties roughly 85% of our qualified defined benefit obligations transferring one $4 billion in gross pension liabilities to a third party.

The pension actions are another element of our transformation in 2019 before the majority of our transformational efforts, we posted adjusted EBITDA margins of just above 10% on roughly $4 $2 billion in revenue now.

Speaker Change: We fully funded the remaining qualified defined benefit pension obligations.

And we changed our pension accounting policy to better match current financial performance.

Now we are back to that revenue level.

Speaker Change: What are the benefits of those actions.

And our mid teen margins far exceed that 2019 performance.

Speaker Change: Higher earnings a stronger balance sheet reduce volatility and increased future cash flow.

Best of all we are still in the early stages of a ramping performance.

Speaker Change: We accomplished this while ensuring our retired employees receive the benefits to which they are entitled.

Strong demand in our core markets, increasing capacity expanding capabilities.

Speaker Change: Our pension glide path is substantially complete.

And focus on operational excellence will continue to drive growth and margin expansion.

Speaker Change: Let me boil down the financial impacts of the pension changes.

We closed out 2023 with strong cash generation.

Speaker Change: First.

Speaker Change: Our annual pension expense decreased roughly $50 million from 2023 annual run rates prior to these actions.

The result was roughly $165 million in free cash flow for the full year.

We made significant progress in the fourth quarter, and reducing managed working capital ending the year at just above 31% of sales.

Speaker Change: Second no meaningful cash contributions to the qualified pension plans will be required in the future.

Speaker Change: The pension actions are another element of our transformation in 2019 before the majority of our transformational efforts, we posted adjusted EBITDA margins of just above 10% on roughly $4 $2 billion in revenue.

As promised capital expenditures were approximately $200 million for the full year 2023.

We repurchased $30 million in shares in the fourth quarter completes.

Completing our 2023 authorization of $75 million.

Speaker Change: Now we.

Speaker Change: We are back to that revenue level.

At our November Investor update, we announced authorization for another $150 million of share buybacks.

Speaker Change: Our mid teen margins far exceed that 2019 performance.

Speaker Change: Best of all we are still in the early stages of a ramping performance.

We ended 2023 with $744 million in cash and $1 $3 billion in total liquidity.

Strong demand in our core markets, increasing capacity expanding capabilities and focus on operational excellence will continue to drive growth and margin expansion.

Our net debt to adjusted EBITDA ratio improved to two three times.

With that let's talk about our 2020 for outlook.

Speaker Change: We closed out 2023 with strong cash generation.

Speaker Change: The result was roughly $165 million in free cash flow for the full year we.

At our Investor update in November I shared color regarding the 2020 for outlook.

Speaker Change: We made significant progress in the fourth quarter, and reducing managed working capital ending the year at just above 31% of sales.

What I'm sharing today is consistent with those thoughts.

We see a very strong second half of 2024 for me.

Speaker Change: As promised capital expenditures were approximately $200 million for the full year 2023.

Aerospace and defense and Aero like demand remains robust.

Added capacity from restarted titanium melts assets will reach earnings run rate in the second half.

Speaker Change: We repurchased $30 million in shares in the fourth quarter completing.

Speaker Change: Completing our 2023 authorization of $75 million.

We will also benefit from Debottlenecking efforts in both nickel and titanium.

Speaker Change: At our November Investor update, we announced authorization for another $150 million of share buybacks.

As we've shared today industrial demand stabilized in Q4, and we expect recovery in the second half of 2024.

Speaker Change: We ended 2023 with $744 million in cash and $1 $3 billion in total liquidity.

Cash generation is expected to take another step upward in 2024 as our capital discipline builds the momentum.

Speaker Change: Our net debt to adjusted EBITDA ratio improved to two three times.

Let's discuss these drivers and what to expect for earnings and cash flows in 2024.

Speaker Change: With that let's talk about our 2020 for outlook.

We expect earnings per share in the first quarter to be in the range of 36 to <unk> 44.

Speaker Change: At our Investor update in November I shared color regarding the 2020 for outlook.

I wanted to bridge you from the 64 cents of EPS in Q4 2023 to the midpoint of this outlook.

Speaker Change: What I'm sharing today is consistent with those thoughts.

Speaker Change: We see a very strong second half of 2020 for forming.

First nine tenths of the sequential change in EPS is attributed to income tax expense.

Speaker Change: Aerospace and defense and Aero like demand remains robust.

As a result of our improved performance, we released our tax asset valuation reserves at the end of 2023.

Speaker Change: Added capacity from restarted titanium melt assets will reach earnings run rate in the second half.

Speaker Change: We will also benefit from Debottlenecking efforts in both nickel and titanium.

That means we will provision taxes at a more normalized rates starting in 2024.

Speaker Change: As we've shared today industrial demand stabilized in Q4, and we expect recovery in the second half of 2024.

As a result, we expect a provision of income taxes at an effective rate of between 22, 5% 23, 5% in 2024.

Speaker Change: Cash generation is expected to take another step upward in 2024 as our capital discipline builds the momentum let.

By contrast, we provision income tax expense at a rate of approximately 5% in 2023.

Speaker Change: Let's discuss these drivers and what to expect for earnings and cash flows in 2024.

Second January's extreme winter weather in the Pacific Northwest had a temporary impact on our Millers bird, Oregon facility.

Speaker Change: We expect earnings per share in the first quarter to be in the range of 36 to <unk> 44.

We're back in full operation now and expect the outage will negatively impact Q1, EPS by <unk> <unk>.

Speaker Change: I wanted to bridge you from the 64 cents of EPS in Q4 2023 to the midpoint of this outlook.

We expect a similar financial impact in Q2.

Speaker Change: First <unk> of the sequential change in EPS is attributed to income tax expense.

Third.

<unk> experienced melt and processing outages late in the fourth quarter.

Those outages are behind us by mid January.

Speaker Change: As a result of our improved performance, we released our tax asset valuation reserves at the end of 2023.

The impact on materials for sale in Q1 will result in negative eight.

Speaker Change: That means we will provision taxes at a more normalized rates starting in 2024.

<unk> Q1 earnings.

And fourth the balance of the sequential decrease in Etfs is largely tied to seasonality at our Asia precision rolled strip business and negative metal impacts on the broader business.

Speaker Change: As a result, we expect a provision of income taxes at an effective rate of between 22, five and 23, 5% in 2024.

Full year outlook is brighter given meaningful improvement in our key operations and financial measures.

Speaker Change: By contrast, we provision income tax expense at a rate of approximately 5% in 2023.

Demand in our core end markets remains very strong.

Speaker Change: Second January's extreme winter weather in the Pacific Northwest had a temporary impact on our Millers bird, Oregon facility.

We closed out 2023 backlog and customer agreements continue to build.

Thats puts us in a great position to grow in aerospace and defense as we continue to deliver through long term agreements and market opportunities.

Speaker Change: We're back in full operation now and expect the outage will negatively impact Q1, EPS by <unk> <unk>.

Speaker Change: We expect a similar financial impact in Q2.

As our capacity increases in our capabilities expand we are confident this growth will translate into profitable earnings and sustained cash generation in 2024.

Speaker Change: Third.

Speaker Change: <unk> experienced melt and processing outages late in the fourth quarter.

Speaker Change: Those outages are behind us by mid January.

Our current range for full year earnings per share is $2 12.

Speaker Change: The impact on materials for sale in Q1 will result in negative eight.

To $2 52 per share.

Speaker Change: Q1 earnings.

There are a few items of note related to our 2020 for guidance.

Speaker Change: And fourth the balance of the sequential decrease in Etfs is largely tied to seasonality at our Asia precision rolled strip business and negative metal impacts on the broader business.

We expect incremental revenue and earnings to increase, especially in the second half of 2024.

As restarted titanium melt assets at full earnings run rate.

Speaker Change: Full year outlook is brighter given meaningful improvement in our key operations and financial measures.

As Bob noted our focus on removing bottlenecks such such as adding the new billet press are expected to contribute production volumes and efficiencies as 2024 progresses.

Speaker Change: Demand in our core end markets remains very strong.

Speaker Change: As we closed out 2023 backlog and customer agreements continue to build.

Impacts from Q1's Arctic conditions at our Oregon operations will be behind us for the second half of the year.

Speaker Change: That puts us in a great position to grow in aerospace and defense as we continue to deliver through long term agreements and market opportunities.

We don't typically provide revenue guidance. However, we do expect continued strong growth in 2024.

Speaker Change: As our capacity increases in our capabilities expand we are confident this growth will translate into profitable earnings and sustained cash generation in 2024.

Excluding metal impacts, we anticipate sales will grow in the upper single digit percentage range year over year.

Speaker Change: Our current range for full year earnings per share is $2 12.

Let me point out a few other items that will allow you to bridge adjusted EPS to adjusted EBITDA in 2024.

Speaker Change: To $2 52 per share.

Speaker Change: There are a few items of note related to our 2020 for guidance.

Depreciation expense is expected to be in the range of $146 million.

Speaker Change: We expect incremental revenue and earnings to increase, especially in the second half of 2024.

And its book interest expense in the range of $113 million for full year 2024.

As restarted titanium melt assets at full earnings run rate.

Average shares outstanding are assumed to be $149 4 million in Q1, and $146 9 million for the full year.

Speaker Change: As Bob noted.

Speaker Change: Our focus on removing bottlenecks, such such as adding the new billet press are expected to contribute production volumes and efficiencies as 2024 progresses.

The drop in shares reflects anticipated buybacks under our current $150 million program.

Impacts from Q1's Arctic conditions at our Oregon operations will be behind us for the second half of the year.

Annual free cash flow is expected to be in the range of $245 million to $325 million.

Speaker Change: We don't typically provide revenue guidance. However, we do expect continued strong growth in 2024.

At the mid point of guidance.

That's a year over year increase of 73%.

Speaker Change: Excluding metal impacts, we anticipate sales will grow in the upper single digit percentage range year over year.

This puts us on a strong foundation to deliver a cash conversion of targets of greater than 90% in 2025.

Speaker Change: Let me point out a few other items that will allow you to bridge adjusted EPS to adjusted EBITDA in 2024.

Our free cash flow range assumes capex of between 190 and $230 million.

Speaker Change: Depreciation expense is expected to be in the range of $146 million.

I would also note that we don't expect significant cash taxes to be paid in 2024 due to our net operating loss carryforward shields.

Speaker Change: In his book interest expense in the range of $113 million for full year 2024.

Looking beyond 2024.

Average shares outstanding are assumed to be $149 4 million in Q1, and $146 9 million for the full year.

We are very confident in our ability to deliver the 2025 and 2027 financial targets, we provided at our Investor update in November.

Drop insurers reflects anticipated buybacks under our current $150 million program.

We project more than $1 billion in top line organic growth and a 60% increase in adjusted earnings from 2023 to 2027.

Speaker Change: Annual free cash flow is expected to be in the range of $245 million to $325 million.

We target revenues exceeding $5 billion with adjusted EBITDA of more than $1 billion.

Speaker Change: At the mid point of guidance.

Speaker Change: That's a year over year increase of 73%.

By 2027.

With that.

Now I'll turn the call back over to Bob.

Speaker Change: This puts us on a strong foundation to deliver a cash conversion targets of greater than 90% in 2025.

Thanks, John.

Today marks a strong end to yet another great year.

I'll never get tired of saying that.

Speaker Change: Our free cash flow range assumes capex of between 190 and $230 million.

This performance doesn't just happen.

Our hard working people across the enterprise are driving these results every day.

Speaker Change: I would also note that we don't expect significant cash taxes to be paid in 2024 due to our net operating loss carryforward shields.

Q2, the entire ATI team.

Aerospace and defense is a complex industry and we're living in complicated times.

Speaker Change: Looking beyond 2024.

There's incredible demand signals aren't always clear, but at the end of the day two things give me tremendous confidence.

Speaker Change: We are very confident in our ability to deliver the 2025 and 2027 financial targets, we provided at our Investor update in November.

So first the fundamentals of the aerospace and defense markets, our customers are turning their projections and growing demand into orders and commitments.

Speaker Change: We project more than $1 billion in top line organic growth and a 60% increase in adjusted earnings from 2023 to 2027.

Honored to be their partner supporting their extraordinary performance, earning their first call.

Speaker Change: We target revenues exceeding $5 billion.

Q1 has some challenges, but we have our arms around it.

Speaker Change: With adjusted EBITDA of more than $1 billion by 2027.

2023 was a great year, and 2024 is shaping up to be even better.

Speaker Change: With that.

Speaker Change: I will turn the call back over to Bob.

The second thing that gives me confidence our ability to deliver our capabilities in materials science and our advanced process technologies are the best in the business.

Robert S. Wetherbee: Thanks, John.

Robert S. Wetherbee: Today marks a strong end to yet another great year.

Robert S. Wetherbee: I'll ever get tired of saying that.

We're sharpening our operational advantage executing with disciplined efficiency and resolving bottlenecks to accelerate our results.

Robert S. Wetherbee: This performance doesn't just happen.

Robert S. Wetherbee: Our hard working people across the enterprise are driving these results every day.

Our team is committed competitive.

Robert S. Wetherbee: Q2, the entire ATI team.

Here to win.

This puts us on a strong trajectory to achieve our 2025 and 2027 goals.

Robert S. Wetherbee: Aerospace and defense is a complex industry and we're living in complicated times.

Robert S. Wetherbee: There's incredible demand signals aren't always clear, but at the end of the day two things gives me tremendous confidence.

We're focused on exceeding $5 billion in sales and $1 billion of EBITDA within the next four years.

We are proven to perform.

Robert S. Wetherbee: First the fundamentals of the aerospace and defense markets, our customers are turning their projections and growing demand into orders and commitments.

With that let's open the line for questions operator, we're ready for the first question.

Thank you if you'd like to ask a question. Please press star followed by one on your telephone keypad. If you would like to attract your question. Please press star followed by Kate.

Speaker Change: Honored to be their partner supporting their extraordinary performance, earning their first call.

Speaker Change: Q1 has some challenges, but we have our arms around it.

To answer your question <unk>.

Speaker Change: 2023 was a great year, and 2024 is shaping up to be even better.

Lately.

And our first question Seth.

Seth <unk> of Jpmorgan. Please go ahead your line is open.

Speaker Change: The second thing that gives me confidence our ability to deliver our capabilities in materials science and our advanced process technologies are the best in the business.

Hey, thanks, very much and good morning, everyone.

Hey, just wanted to pay.

Speaker Change: We're sharpening our operational advantage executing with disciplined efficiency and resolving bottlenecks to accelerate our results.

Wanted to make sure I understood some of the dynamics around.

Some of the bottlenecks that are there now.

Speaker Change: Our team is committed competitive.

The way things might improve going forward. It looked to me like the the airframe sales in <unk> were down.

Speaker Change: Here to win.

Speaker Change: This puts us on a strong trajectory to achieve our 2025 and 2027 goals.

Speaker Change: We're focused on exceeding $5 billion in sales and $1 billion of EBITDA within the next four years.

A decent amount sequentially in Q4, I guess is that is that correct.

And is this some of the Debottlenecking, that's going to happen through the year and how do you see that kind of recovery playing out getting back to the levels. We saw in the first.

Speaker Change: We are proven to perform.

Speaker Change: With that let's open the line for questions operator, we're ready for the first question.

Speaker Change: Thank you if you'd like to ask a question. Please press star followed by one on your telephone keypad. If you would like to attract your question. Please press star followed by Kate.

The first three quarters of the year.

Sure Seth I think the question Youre asking about aerospace I think you also have to throw in the defense bucket.

Speaker Change: Let me ask a question. Please enter your phone I think lately.

Speaker Change: And our first question Seth.

Probably what you saw in Q4 is incredibly strong defense sales.

Seth: Seth <unk> of Jpmorgan.

Seth: Please go ahead your line is open.

Picking up so they're all running through that same flow paths predominantly plate is where.

Seth: Hey, thanks, very much and good morning, everyone.

Seth: Hey, just wanted to pay.

We're seeing some of the debottlenecking being required whether that's process control equipment tour.

Seth: Wanted to make sure I understood some of the dynamics around.

Seth: Some of the bottlenecks that are there now.

Twist to make sure that we're covering a titanium titanium and nickel and some of them.

Seth: The way things might improve going forward. It looked to me like the the airframe sales in <unk> were down.

Great is we make requires a slightly different process times. So we're working through that but I think.

When you look forward.

Seth: A decent amount sequentially in Q4, I guess is that is that correct.

The orders are <unk>.

Strong for per aerospace airframes are back I mean, we're going to see continued growth.

Seth: And is this some of the Debottlenecking, that's going to happen through the year and how do you see that kind of recovery playing out getting back to the levels. We saw in the first.

Through the year I think.

Overall, I think Q1 is just kind of mixed up with the defense activity that was pretty heavy in Q4.

Seth: The first three quarters of the year.

Okay. So we should think about that as more of a.

Speaker Change: Sure Seth.

A shift.

Seth: The question Youre asking about aerospace I think you also have to throw in the defense bucket.

Rather than sort of a decline in the airframe a shift in where you're directing the capacity.

Seth: Probably what you saw in Q4 is incredibly strong defense sales.

In the fourth quarter.

Drew I think Youll see youll see a return to <unk>.

Seth: I'm picking up so they're all running through the same flow paths predominantly plate ware.

Strength, yes.

These airframe guys. They kind of go up we talked about the stairstep.

Seth: We're seeing some of the debottlenecking being required.

The lead times you remember when we were booking in Q4 of 2023.

That process control equipment tour.

12 months before so obviously the defense demand, there's somewhat of merchant and they've got some big programs that are trying to deal with so it's just a matter of how the orders fell into the quarter, but long term, we don't see anything disrupting that strength of the airframe side of the business in fact.

Seth: Twist to make sure that we're covering a titanium titanium and nickel and some of them.

Seth: Great is we make requires a slightly different process times. So we're working through that but I think.

When you look forward.

Seth: The orders.

Seth: Very strong for per aerospace airframes are back I mean, we're going to see continued growth.

That's why we spend a lot of time debottlenecking at the moment.

Right, Okay, Okay, great. Thanks.

Seth: Through the year I think.

Seth: Overall, I think Q1 is just kind of mixed up with the defense activity that was pretty heavy in Q4.

And then.

I guess just in terms of.

The cash flow do we think about sort of a typical profile with a pretty significant outflow.

Speaker Change: Okay. So we should think about that as more of.

Speaker Change: A shift.

Speaker Change: Rather than.

Speaker Change: Sort of a decline in the airframe a shift in where you're directing the capacity.

In the first quarter of the year and it.

Does that impact the way you think about.

Speaker Change: In the fourth quarter.

Returning cash.

Speaker Change: Drew I think Youll see youll see a return to <unk>.

Year.

Hey, Stephen I'll take that one generally the pattern is going to be similar but the magnitudes from quarter to quarter, I think youre going to see an improvement so what do I mean by that our seasonality typically has a heavy use of cash at the beginning of the year as we're positioning for inventory builds in the ramp.

Speaker Change: Strength, yes.

Speaker Change: These airframe guys. They kind of go up we talked about the stair step.

Speaker Change: The lead times you remember when we were booking in Q4 of 2023 and I was like 12 months before so.

Speaker Change: Obviously, the defense demand, there's somewhat of merchants and they've got some big programs that are trying to deal with.

We expect throughout the year.

We've spent a significant amount of energy improving how we are managing inventory. So some of the effects of that with our 31% ending.

Speaker Change: It's just a matter of how the orders fell into the quarter, but long term, we don't see anything disrupting that strength of the airframe side of the business in fact.

Speaker Change: That's why we spend a lot of time debottlenecking at the moment.

Inventory or managed working capital capital level.

When you think about our our cash generation by quarter for 2024, Youre still going to see a use in 2000 in Q1, rather but.

Speaker Change: Right, Okay, Okay, great. Thanks.

Speaker Change: And then.

Speaker Change: I guess just in terms of.

Speaker Change: The cash flow do we think about sort of a typical profile with a pretty significant outflow.

But it's not going to be is heavier usage you saw last year.

I would expect.

Speaker Change: In the first quarter of the year and it.

Last year was a use of something in the range of $300 million I could see definitely less than $200 million.

Speaker Change: Does that impact the way you think about.

Speaker Change: Returning cash.

Then as you as you progress through the year, you're going to see in Q2 marginal improvement from what we saw last year.

Speaker Change: Year.

Speaker Change: Hey, Seth I'll take that one generally the pattern is going to be similar but the magnitudes from quarter to quarter, I think youre going to see an improvement so what do I mean by that our seasonality typically has a heavy use of cash at the beginning of the year as we're positioning for inventory builds in the ramp.

In the range of probably $50 million five zero of cash generation youre going to see that increased in Q3.

Where it's.

Probably.

Two to three times that Q2 level and then when you get out to Q4, it will still be a heavy cash generation quarter for us, but it's not going to be as strong as we saw for example in 2023, because we love our lives that cash generation, a little bit better and in the <unk>.

Speaker Change: We expect throughout the year.

Speaker Change: We've spent a significant amount of energy.

Business and then as you look past that because I know you do your long term models.

I think what you should expect is we're going to continue to get better and better at level is the use of cash in the business.

Right. Okay. Okay, and then last last one here just just a follow up on the deployment piece of that.

I guess there were about 750 on the balance sheet at the end of the year end.

Looking to generate about 285, if you use the $1 50 buyback you still have about eight.

<unk> hundred 75 on the balance sheet at the end of the year is that.

It isn't necessary for to have the cash balance increase over the course of this year or.

Might there be some other opportunities for deployment.

Yes, so let's talk about that.

Our goal is not to become a bank. Okay. We don't we don't see the amount of value and building cash balances and holding them on the balance sheet, we want that that cash to go to work. We've been really really clear on are three destinations for capital. We shared with you guys today, we intend to spend about $200 million.

Annick growth through Capex.

Again in 2024.

In terms of Delevering, we took a huge step forward in de levering when we executed the pension annuity <unk> transferred $1 $4 billion over to third parties. We don't have any debt maturities that are scheduled really before 2025 doesn't mean, we might not take some actions to two two.

Reduce our gross debt.

But I think the way to think about it is I would not assume significant cash use for de levering in 2024.

As you're modeling it well to your point that leaves a chunk of money at the end of the year.

Even after we execute our $150 million share repurchase program now there are some other uses of cash that youll see it in our cash from operating our cash statement down in the financing section. They are about $50 million just to re refine your number pay some operating leases and things like.

That.

But the core of your question is really about Don are you guys going to do some more share repurchase that's right now what you are kind of wondering.

After we're done with the $150 million current program, what I would say Seth is listen.

Returning capital to our shareholders is a high priority for our board, it's a high priority for the management team clearly, it's a high priority for our shareholders. When we're done with the current program. We will talk to our board, we're going to be in a healthy liquidity position. We would have never anticipated that the current $150 million program will be the last.

Program.

So you can interpret that as you think appropriate.

Great. Thank you very much.

Thank you and the next question.

In the corner of TD, Kevin Kim. Please go ahead your line is open.

Hi, good morning, guys.

Okay got it.

Was.

I was wondering if you could put a finer point on the Q1 guidance with respect to segment EBITDA.

At MH PMC.

Yeah.

Sure sequentially, but wanted to know why don't I take magnitude of each of them.

Yes, so certainly the bridge that I shared with you in my in my prepared remarks gives you a sense of how to think about that relative to the Q4 levels of performance. So you think about that bridge was 64.

Two.

The <unk> 40 range.

We're seeing some.

Some impacts in both of the segments that are causing that decrease in EPS. So let's get to the specifics when you look at the.

The impact of the severe Arctic weather pattern.

In our E&S business and that hit in that Oregon facility, we're seeing about three cents of impact in Q1, another roughly <unk> of impact in Q2. So again, that's on the E&S side and the translation back to EBITDA.

Means you should expect about $2 million.

For every $2 million of EBITDA for every penny of earnings. So that'll allow you to do the math on that.

And then as far as the other drivers.

We do note that stall as one of the elements of that bridge, it's not a huge element to be honest, there's lunar new year that happens literally every year and so thats a penny sequentially. So you can bake that into how you think about stone that'll just refine your numbers then on the <unk> side of the house.

That's where those melt outages really come into play so I noted that there's about an eight cent debit that's created.

The H BMC side of the house, because with those outages. It meant that we don't have material that we would otherwise be selling in Q1 that that eight equates to about $16 million, roughly plus or minus of of EBITDA.

So does that help you the item is that kind of gives you an idea of how to think about that.

Just wanted to make sure at AAN.

But.

The 6 million or what have you.

Of EBITDA being sequentially plus the stall impact is the only impact are you actually seeing markets weakened sequentially.

Beyond.

The Arctic weather and the stall issue I mean are you seeing just.

Prices rolling over because nickel prices and surcharges have come in.

Et cetera is there anything beyond what you specifically highlighted.

Understood.

Yes, I think from a color standpoint, we were pleased to see where are the industrial demand had stabilized for for the E&S part of the business.

There's a couple of benefits one.

The indicator is good guy in terms of volumes at a minimum is kind of flattish and potentially up from Q4 to Q1. Another thing that would benefit us potentially is when when you see that demand increase in orders coming in with that would typically mean is.

A firming up of prices we.

We did see some negative impact of price from Q3 to Q4, due that industrial softening, but not dramatic.

So I don't see that as a headline kind of number going into Q1. There is some other odds and sides I don't want Drake drag you through metal prices for example have softened globally.

And.

And we do see that certainly in our pass through revenues.

Can a drag that answer into your question, but there would be probably a marginal effect truly marginal.

U S related to those those metal price movements in Q1, but theyre not headline kind of figures.

Okay and just if.

If I could have Liberty Baskin, two quick ones beyond that first.

Curious.

The 2027 targets did not change correct.

I think there was some language around $1 billion, but the range is still $1 billion at 1.2 on EBITDA is that correct.

True story.

Neither the 25, nor the 27 targets have changed period.

Okay. Good and then on the HPLC melt outages unplanned.

Just if you could elaborate on what specifically happened was this planned maintenance outages are these unplanned.

And if they were planned why weren't they conveyed.

Around the Investor day.

Yeah, I think yeah fair question I think.

50, 50 is how I would put it 50% unplanned.

And that was pretty much on the melt side what are you just get a.

A failure or do you get some kind of electrical problem or a different different pieces, but it was equipment related.

<unk>.

We're still going through some operator training issues in crewing issues. So those about 50% was milk and that was pretty much.

Operator: The Bulletproof Executive 2013 If you would like to ask a question, please press star followed by 1 on your telephone keypad. I will now hand over to your host, Dave Weston, Vice President, Investor Relations, to begin. Dave, please go ahead.

Planned and happened pretty quick.

1.2 on EBITDA is that correct.

But any milk is important melt today.

Curious story yeah.

The other issue that we certainly dealt with was.

Neither the twenty-five nor the 27 targets have changed period.

Our planned outage for a particular press.

Usually we do those in about a week I think this one took about two five weeks to kind of get where we want it to be and.

Okay. Good and then on the HPLC melt outages, where these unplanned.

Dave Weston: Thank you. Good morning, and welcome to ATI's fourth quarter 2023 earnings call. Today's discussion is being webcast online at www.atimaterials.com. Participating in today's call to share key points from our fourth 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, and they can also be found on our website at atimaterials.com. It is important to note that all of our financial data, both results and outlook, as well as our sequential and year-over-year comparisons, reflect the change in pension accounting policy we announced on January 19th. After our prepared remarks, we'll open the line for questions.

Just if you could elaborate on what specifically happened was this planned maintenance outages or these unplanned.

Challenge specifically was the outage occurred at the bottleneck right and so you can have outages a lot of different places, but this one.

And if they were planned why weren't they conveyed.

We've pushed it as far as we could we recognize we need to do it.

Around the Investor day.

Yeah, Yeah Fair question I think.

We recognize we need to do it quickly. So we did it and yes why wasn't it conveyed.

50, 50 is how I would put it 50% unplanned.

Fair question.

And that was pretty much on the melt side, where you just get a.

We probably thought it was going to be less of an impact at the end of the year, but that's the reality of where we are but again, we did it to ensure that we had what we needed for 2024 and beyond some of these maintenance cycles. They can be two to three or four years and.

A failure or do you get some kind of electrical problem or.

Different pieces, but it was equipment related <unk>.

<unk>.

We're still going through some operator training issues and crewing issues. So that was about 50% was melted and it was pretty much unplanned and happened pretty quick and.

And we see that in the industry, where you take something down for a week and other people are down for six weeks right. So I think that's part of the.

The planned maintenance that we need to make sure we're on top of.

Any milk is important melt today.

The other issue that we certainly dealt with was.

Dave Weston: As a reminder, all forward-looking statements are subject to various assumptions and caveats. These are noted in the earnings release and in the accompanying presentation. Now, I'll turn the call over to Bob. Thanks, Dave. Good morning, everyone.

Thank you.

Our planned outage for a particular press.

Usually we do those in about a week I think this one took about two and a half weeks to kind of get where we want it to be and the challenge specifically was the outage occurred at the bottleneck right and so you can have outages a lot of different places, but this one.

Thank you. The next question goes to you.

Richard Safran of Seaport Research partners.

Please go ahead your line is open.

Bob David Good morning.

Robert S. Wetherbee: Q4 marked a strong end to another year of significant growth for ATI. This morning, I'll focus on three takeaways I believe best summarize the results we're announcing today. Number one, we're doing what we said we would do, executing our strategy of aerospace and defense leadership, delivering on our customer and shareholder commitments, and the benefits show in our bottom line. Number two, we're sharpening our operational advantage. Shifting our culture around inventory management.

Question on titanium.

And I Wonder if you could expand a little bit on your opening remarks about the titanium capacity increases here I'm trying to get a sense of how accretive to.

We've pushed it as far as we could we recognized we needed to do it.

I think we need to do it quickly. So we did it and yeah why wasn't it conveyed.

To obtain a miss to margins and.

And.

Fair question.

Also I'm, assuming some part of this is relatively new contracts due to the V. S. NPL market share pick up is that correct and I'm also assuming that.

I thought it was going to be less of an impact at the end of the year, but that's the reality of where we are but again, we did it to ensure that we had what we needed for 2024 and beyond some of these maintenance cycles. They can be two to three or four years.

Most of the margin contribution comes in 'twenty, five and not 2024 is that the way to look at it.

Robert S. Wetherbee: We're overcoming challenges, uncovering new opportunities, and positioning the business for long-term cash generation success and sustainable growth. Number three, we are well positioned in strong markets with years of continued growth ahead. Let's dive deeper into each of these, starting with my first point.

And we see that in the industry, where you take something down for a week and other people are down for six weeks right. So I think thats part of the planned maintenance.

Let's see there's like eight questions in there.

The key one math for you. So I think if you go back to June of 2023, we announced a $1 $2 billion in long term contracts that would carry us from 24% to 29 or the balance of the decade.

Maintenance that we need to make sure we're on top of.

Thank you.

That is true and Thats what were seeing right. We're seeing the customers respond to go back to June of 2023. However, our lead times are already out into the middle part of 2024. So that's why we're seeing this very strong second half as these orders are kick him in our capacity from what we're doing in Oregon.

Thank you. The next question goes to Richard Safran of Seaport Research Partners. Richard. Please go ahead. Your line is open.

Robert S. Wetherbee: What does it take to do what we said we'd do? It starts with execution across the enterprise. Meeting our commitments is important to our team, and it shows in our results. In the fourth quarter, we delivered ATI-adjusted EBITDA of $161 million, which is 15% of sales.

Bob Dan David Good morning.

I've a question on titanium.

And I'm wondering if you could expand a little bit on your opening remarks about the titanium capacity increases here I'm trying to get a sense of how accretive.

This is flowing through to those orders, we don't cast or melt anything that doesn't have a specific order. So we see that material flowing everything's working so I think.

Robert S. Wetherbee: Best Driven by Continued Strength in Aerospace and Defense, It was our highest revenue quarter of 2023 and our sixth quarter in a row exceeding $1 billion. Our quarterly adjusted earnings per share of 64 cents was above the midpoint of our November guidance. For the full year 2023, ATI's adjusted EBITDA was $635 million, including the benefits of our pension actions during the year. Full year free cash flow was $165 million, which is above the high end of our guidance range. What did Ms. Caswell write?

Hany, Mr margins and.

And.

Also I'm, assuming some part of this is relatively new contracts due to the V. S. N P O market share pick up is that correct and I'm also assuming that.

One of your question was are we seeing the benefit of everyone else will be leaving the Russian supply source.

Most of the margin contribution comes in 'twenty, five and not 2024 is that the way to look at it.

We're seeing it in some cases, we feel we're getting more than our fair share of that so that's part of the answer to your question.

Let's see there's like eight questions in there.

I think.

The key one math for you. So I think if you go back to June of 2023, we announced a $1 $2 billion in long term contracts that would carry us from 24 to 29 or the balance of the decade.

You know our Debottlenecking everywhere, we can you know we've historically been.

Heavy Nicole less titanium airframe, I think we're going to be much more balanced in the future. So some of our processes require some debottlenecking the processes are slightly different.

That is true and that's what we're seeing right. We're seeing the customers respond to go back to June of 2023. However, our lead times are already out into the middle part of 2024. So that's why we're seeing this very strong second half as these orders are kicking in our capacity from what we're doing in Oregon.

Robert S. Wetherbee: Purposeful and targeted inventory management initiatives and significant operational efficiency improvement. We're building strong momentum at the operating level, giving us the last. Speed and Power Defined Direction

And we have to address that.

Thank you.

In terms of demand I would say.

Bellwether for us is clearly.

My body demand.

Same kind of came into the point, where we were doing 12 wide bodies a month.

Robert S. Wetherbee: Let me share a few proof points of what made 2023 a great year. Isothermal forging output is up 20%, delivering record revenues as we support jet engine manufacturers. We increased process yield by 40% for a key jet engine powder up, and process flow time for a major titanium product line is down 53%. Production of high-value niobium and hafnium, those alloys critical to commercial space launches, is up 37 percent, and Aerospace and Defense revenue is up 32% overall. All of these examples are compared to 2022, and they illustrate the strong foundation 2024 has built. This momentum that we're harnessing comes from our people. We have a great team. Drive my guys crazy for a moment and go off script for just a second.

This is flowing through to those orders.

It's 15, right you're going to go to 19, probably going to go to 24 over the next couple of years. So there's a real strength of the market for titanium is yet to come we're seeing a lot of defense activity and that's that's kind.

We don't cast or melt anything that doesn't have a specific order. So we see that material flowing everything's working so I think you're one of your question was are we seeing the benefit of everyone else will be leaving the Russian supply source.

Kind of coming through at the same time, so I would just say when you think about titanium and you think of ATI.

Speaker Change: We're seeing it in some cases, we feel we're getting more than our fair share of that so that's part of the answer to your question.

About half of it is probably the big be related.

Dave: I think you know are we're debottlenecking everywhere. We can you know we've historically been kind of heavy Nicole less titanium airframe I think we're going to be much more balanced in the future. So some of our processes require some debottlenecking the processes are slightly different.

20%, 30% probably.

The big <unk>.

And the rest is defense. So all of that growth is hitting home kind of as we hit the mid part of the year into the <unk>.

Next couple of years so.

Yes, Dan did you want you there were some questions I think Richard Ed that you can help them sure why don't I.

Dave: We have to address that I think.

Just a couple of things one I think you ask rich is titanium accretive but the short answer is yes. It is an accretive.

Donald P. Newman: You know in terms of demand I would say you know a bellwether for us is clearly a wide body demand.

Robert S. Wetherbee: I mean, this is a team effort. Our team has accomplished a lot. Their efforts are incredibly meaningful and very comprehensive. Thanks to every member of the team, and the leaders who encouraged them.

Product space for US. The second question I think that you also asked was in regard to the capacity and maybe I can add to what Bob shared around capacity. So we have talked repeatedly about we're adding 45% of our titanium melt capacity on existing assets and so to.

Robert S. Wetherbee: Or is it kind of came into the point, where we were doing 12 wide bodies a month.

Robert S. Wetherbee: 15, right you're going to go to 19, probably going to go to 24 over the next couple of years. So there's a real strength of the market for titanium is yet to come we're seeing a lot of defense activity and that's that's.

Robert S. Wetherbee: The results speak to those efforts and are much appreciated. My second takeaway today is this: we're shifting the fundamentals of how we operate. Inventory management is at the heart. We faced a lot of growth-related challenges in 2023. We ramped up every operation from melting to shipping, asking more from our people and our assets. Uncertainty of incoming materials and upstream operational reliability made that exciting.

To give you an idea of kind of how we're seeing that staged in 2024. So you guys have a sense of.

Donald P. Newman: Kind of coming through at the same time, so I would just say when you think about titanium and you think of ATI.

What that build looks like relative to a run rate. The way you want to think about it is to go back to the original targets that we gave and what we said is related to this 45% increase in our melt capacity, we expected that capacity to add an excess of $150 million of.

Speaker Change: About half of it is probably the big be related.

Speaker Change: 20%, 30% spray the big <unk>.

Speaker Change: And the rest is defense. So all of that growth is hitting home kind of as we hit the mid part of the year into the.

Robert S. Wetherbee: A drive for operational efficiency means we're consciously reducing the inventory cushion, which requires our team to operate and lead differently. Sufficient titanium supply to meet ramping demand remains a critical issue across the AMD and. You'll recall that we restarted a significant amount of titanium milk capacity in 2020. By the end of this year, 2024, we'll have expanded 45% over 2022 levels. Keep in mind that to date, only a portion of this additional titanium has been converted to revenue.

Robert S. Wetherbee: Next couple of years.

Dave: Yes, Dan did you want you there were some questions I think Richard had that you could help him I'm sure wanted to add just a couple of things. One I think you ask rich is titanium accretive the short answer is yes. It is an accretive.

Revenue.

I'm not even sure something closer to $160 million of revenue run rate and assume a 30% margin. So those numbers still hold I think that there may be some upside to them, but we will share that at the right time, but then the question is when do we hit the run rate when does that look like we've talked about the second half of <unk>.

Robert S. Wetherbee: Product space for US. The second question I think that you also asked was in regard to the capacity and maybe I can add to what Bob shared around capacity.

24 being really strong.

Robert S. Wetherbee: We have talked repeatedly about we're adding 45% of our titanium melt capacity on existing assets and so to give to give you an idea of kind of how we're seeing that staged in 'twenty 'twenty four or so you guys have a sense of.

Second half relative to first half. This is part of the reason and so what you want to think about is.

For these assets, we expect that they're going to be at the run rate capacity from an income statement standpoint and.

Robert S. Wetherbee: We're targeting the second half of 2024 to achieve full run rate of that 45% expanded capacity. When the Richland-Washington expansion is at full production in late 2025, our total titanium milk capacity will be up by 80% over our 2022 baseline. We're on track for Richland's first melt in Q4 of this year.

We see them as kind of building from maybe.

Robert S. Wetherbee: What that build.

It would be it would be split 40, 60, if you will 40% of that contribution we are seeing in the first half and 60% in the second half I know mixing math here, but it gives you an idea of the step change that we're expecting from half to half. So hopefully that's helpful.

Robert S. Wetherbee: Looks like relative to a run rate the way you want to think about it is go back to the original targets that we gave and what we said is related to this 45% increase in our melt capacity, we expected that capacity to add an excess of $150 million of revenue.

Robert S. Wetherbee: Our philosophy is to be melt-long at the start of a grub. Melting tends to be a long lead time investment and defines the potential for the rest of our operation. That's what our competitor is. We and our customers are seeing the benefits of that now. Clearly, we aren't going to melt if we can't flow it through to finished parts, which is why our work to address bottlenecks is so crucial. Let me give you a great example of how we're addressing one of the biggest. A new Billet Forging Press in North Carolina is coming online in Q1.

Yes, I appreciate it now just real quickly.

Speaker Change: And may even shared something closer to $160 million of revenue run rate and assume a 30% margin. So those numbers still hold I think that there may be some upside to them, but we will share that at the right time, but then the question is when do we hit that run rate what does that look like we've talked about the second half.

Get the impression from your slides that the supply chain issues are pretty much over for you.

I think you said manageable I just wanted to set expectations from your standpoint.

Our sales and margins no longer going to be impacted by these supply chain constraints we've seen.

And ATI.

Donald P. Newman: For 2020 for being a really strong <unk>.

No.

Correct.

Donald P. Newman: Half relative to first half. This is part of the reason and so what you want to think about is you know.

Yes, we think that are behind us the bottleneck issue was around the first step in the process from Ingrid casting to using the Bill that's why the billet press was important. It was originally designed to be a nickel press when you shift over to titanium you have to add a couple of pieces to the puzzle to make sure youre, making a quality type.

Donald P. Newman: For these assets, we expect that they're going to be at the run rate capacity from an income statement standpoint.

Robert S. Wetherbee: As we speak, this added capacity is converting rounding bits to dimensionalized ability. This opens up more downstream capacity to take advantage of the increased. Don would be disappointed in me if I didn't emphasize that this investment was within our previously announced capital.

Donald P. Newman: We see them as kind of building from maybe it.

Donald P. Newman: It would be split 40, 60, if you will 40% of that contribution we are seeing in the first half and 60% in the second half I know mixing math here, but it gives you an idea of the step change that we're expecting from half to half. So hopefully that's helpful.

Painting in part different temperature different issues, so that's behind us.

I think.

We eat.

Breathe the issues around all kinds of melting that's why we talked about being not long.

Robert S. Wetherbee: Equipment reliability is another opportunity to improve our performance. In an effort to support the ramp, we pushed maintenance cycles longer. This led to both planned and unplanned outages late in Q4 that will affect shipments in Q1.

Speaker Change: Yeah. Appreciate it now just real quickly I guess.

We're not investing huge amounts of money in melting other than what we've talked about with titanium, which within our guidance I do think there are two issues that are out there in the marketplace that we are working one is what I'd call a contracted services with significant training or certification requirements, which makes it hard for.

Speaker Change: The impression from your slides, there's a supply chain issues are pretty much over for you.

Robert S. Wetherbee: We don't expect year-end outages to be an issue going forward as we re-evaluate how to space them more evenly across the year. This all stems from our significant growth in titanium and nickel. We're focused on resolving each bottleneck we encounter. These and a few additional capital-efficient projects already in the works give us a clear line of sight to a significant step up in results in the second half of 2020. We've made significant progress in the fourth quarter toward our managed working capital target of 30% sales or lower. We ended 2023 at 31 percent. ATI president and COO Kim Fields is a champion in this space.

Speaker Change: I think you said manageable I just wanted to set expectations from your standpoint.

Speaker Change: Our sales and margins no longer is going to be impacted by the supply chain constraints we've seen.

Contracted services to ramp quickly some people see that as like ultrasonic inspection and some of that in aerospace is kind of under duress with some of the other activities that are going on in the market.

Speaker Change: And ATI.

Speaker Change: Correct.

ATI: Yes, we think that are behind us the bottleneck issue was around the first step in the process from Ingrid casting to using the Bill that's why the billet press was important. It was originally designed to be a nickel press when you shift over to titanium you have to add a couple of pieces to the puzzle to make sure you're making a quality type.

Other issue as you know there are some single points of failure out there we get we're part of directed by contracts with our major Oems, where they ship bill it to us and there are a couple of.

Other parts of the supply chain, where they've had a failure.

Speaker Change: Painting in part different temperature different issues, so that's behind us.

Think extrusion facility in Texas, So I had a problem there.

Speaker Change: I think.

Some of the supply chain, but those that are within our control and those things that we can manage.

Robert S. Wetherbee: Under her leadership, the team is accelerating flow, removing idle inventory, while finding and driving operations. As our freecast flow performance indicates, that work is yielding tangible results. We're not yet where we want to be, and that's not lost on us.

Speaker Change: We eat.

Speaker Change: Breathe the issues around all kinds of melting that's why we talked about being not long.

We feel very confident that we have what we need to execute in 2024.

Speaker Change: Investing huge amounts of money and nothing other than what we've talked about with titanium, which within our guidance I do think there are two issues that are out there in the marketplace that we are working one is what I would call. It contracted services with significant training or certification requirements, which makes it hard for it.

Thanks very much.

Yes.

Thank you. The next question Tim that Thomas Wolfe.

Robert S. Wetherbee: We learned a lot, we're taking action, and we're committed to doing even better in 2020. Our extended growth trajectory means inventory management will remain a key priority for quite some time. The process improvements left in the SCAR set the stage for what will happen next. Looking forward, the first quarter brings unique challenges. We're working through weather-related outages from January's Pacific Northwest Arctic storm.

Research Tim that please go ahead your line is open.

Hey, good morning, everyone two questions for Matt Good morning.

Speaker Change: Contracted services to ramp quickly some people see that as like ultrasonic inspection and some of that in aerospace is kind of under duress with some of the other activities that are going to another market. The other issue is there are some single points of failure out there we get we're part of directed by contracts with our major Oems, where they ship bill.

Farhan I understand.

Good morning.

So just wanted to see if you could elaborate on the comment about taking actions operationally to align with lower demand does that.

Short term long term if you could just explain that.

Robert S. Wetherbee: Continuing headwinds in our industrial end markets and lower metal prices were key. Don will add more clarity with our Q1 guide. Well, you should keep these top of mind. The fundamentals that influenced the fourth quarter, mainly enduring demand and proven performance, support our profitable growth in 2020. This brings me to my third and final takeaway.

Yes, I think that was me that made that comment and it was really about our activities in the Ams segment related to.

Speaker Change: That to us.

Speaker Change: There are a couple of.

Speaker Change: Other parts of the supply chain, where they've had a failure.

The industrial markets.

Speaker Change: I think our extrusion facility in Texas, So I had a problem that affects some of the supply chain, but those that are within our control and those things that we can manage.

One of the industrial markets and there is some of the I caught the nickel clad.

Pipe projects for oil and gas basically in Brazil, those kind of places.

Speaker Change: We feel very confident that we have what we need to execute in 2024.

We want to make sure we got the right amount of capacity. There. We're also seeing like everybody a little bit of softness in the residential.

Robert S. Wetherbee: ATI is well positioned within strong markets with years of continued growth ahead. Earlier, ATI achieved 63% in sales from aerospace and defense, up from 61% in the third quarter and 10 points above last year. This speaks to the magnitude of growth we're capturing. We expect that to continue over the next several years. It also highlights how critical our melt capacity expansions are to ATI's ability to capture and meet that demand. Fourth quarter jet engine shipments increased by 7% sequentially and 15% year over year. We expect growth to continue in 2024 and beyond, driven by continued acceleration of OEM jet engine builds and ongoing elevated spares demand. Demand for ATI airframe materials, predominantly titanium, remains at historic highs. Airframe shipments surpassed $200 million for the second quarter in a row.

Speaker Change: Thanks very much.

Construction space. So we have some engineered products that go into that space.

Speaker Change: Yes.

Speaker Change: Thank you. The next question Timna Tanners of Wolfe Research Tim that piece go ahead. Your line is open.

And then we obviously watch the.

Distribution channel, although the vast majority of what we sell today is OEM direct.

Timna Beth Tanners: Yeah, Hey, good morning, everyone.

Timna Beth Tanners: From Matthew.

We still see some inventory destocking going on in those places, but it's mostly in the E&S segment.

Timna Beth Tanners: Clarify and understand.

Timna Beth Tanners: The outlet good morning.

Speaker Change: So just wanted to see if you could elaborate on the comment about taking actions operationally to align with lower demand does that.

And it's stabilized I think is the key.

Winds are still there, but they're they're not getting any worse.

Speaker Change: Short term long term if you could just explain that.

We are seeing some signs of life and green shoots for Q2, but.

Speaker Change: Yes, I think that was me that made that comment and it was really about our activities in the Ams segment related to.

Hopefully that helps is that what you were looking for it timna.

Yeah, I'm, just trying to think about how material they could be some tweaks or if we're talking about big.

Speaker Change: The industrial markets.

Speaker Change: One of the industrial markets and there is some of the I caught the nickel clad.

Yes, there are tweaks there in the <unk> category.

Speaker Change: Pipe projects for oil and gas basically in Brazil, those kind of places.

So whenever you're doing dealing with your cost structure, you wouldn't call them necessarily tweaks because it can involve people and crewing and shifts in that that kind of thing, but I would say, they're modest at best I think most of them have already been taken and it's just a matter for them to show up in the ER and the results which.

Robert S. Wetherbee: We saw significant airframe growth in the first and third quarters of 2023. This market doesn't grow in a linear fashion. It rises and then stabilizes as build rates rise. We're generally synced to airframe build rates over the medium to long term, but sometimes in the process of getting there, it's a little choppy. You have to think about stair steps, not necessarily a nice gentle hill.

Speaker Change: We want to make sure we've got the right amount of capacity. There. We're also seeing like everybody a little bit of softness in the residential.

Speaker Change: Construction space. So we have some engineered products that go into that space.

Speaker Change: And then we obviously watch the disc.

It should be by Q2.

Speaker Change: Distribution channel, although the vast majority of what we sell today is OEM direct.

Got it. Thank you. Okay. So my next question was just about the metal price impacts I just wanted to understand that better because if you look at nickel.

Speaker Change: We still see some inventory destocking going on in those places, but it's mostly in the E&S segment.

Robert S. Wetherbee: Before I leave the topic of commercial aerospace, let me address how we're thinking about the narrow body disruptions that have been in recent headlines. Uncertainty has been the norm in recent years for a lot of reasons. It's a market reality. We don't expect it to impact our long-term growth potential, and our market position has broadened materially to help diminish any significant near-term implications. Three points to keep in mind.

The big shift in prices I mean, it was a terrible year for nickel last year, but the bulk of that commodity price changes in the first half of the year. So just thinking about that for going forward should we think about just the annualized impact rather since you said it was more Q4 weighted or how should we think about the impact of metal price changes for the future.

Speaker Change: And it's stabilized I think is the key so the headwinds are still there but.

Speaker Change: They're not getting any worse.

Speaker Change: We are seeing some signs of life and green shoots for Q2, but.

Speaker Change: Hopefully that helps is that what you are looking for it timna.

So just to make sure that we're in.

Timna Beth Tanners: Yeah, I'm, just trying to think about how material that could be some tweaks or if we're talking about big.

In sync.

On back of my mind, I saw I'm, recalling that nickel prices in the latter half of 2023 really saw their slide and.

Robert S. Wetherbee: One, our long-term directional targets are based on monthly build rates, reaching 120 narrowbodies and 24 widebodies in 2020. Even if the industry adjusts its expectations, the actual build rate is likely still above our previous expectations. Second, we saw narrow-body disruptions in 2023 and still achieved record titanium.

Timna Beth Tanners: Yes, there are tweaks, there and the tweet category.

Timna Beth Tanners: So whenever you're doing dealing with your cost structure.

First half relatively stable not massive changes to to 2022 levels, but then when you get to Q4 2023, we really saw.

Timna Beth Tanners: I wouldn't call them necessarily tweaks, because it can involve people and crewing and shifts in that that kind of thing, but I would say, they're modest at best I think most of them have already been taken and it's just a matter for them to show up in the ER.

Continued meaningfully meaningful step down.

The $7 per pound range. So the way to think about that is in our business. There is a little bit of a lag in terms of the effect of metal and one one area, where I would really focus the listeners is around our pass through so our team has done a really good job adding.

Robert S. Wetherbee: And third, remember, we're still in the early innings of the wide-body ramp and several years away from overall peak airframe. Moving beyond commercial aerospace, ATI's defense business continues to grow at a significant rate. Sales expanded 21% sequentially and 16% year-over-year. At ATI, we fly, float, and roll.

Speaker Change: And the results, which should be by Q2.

Speaker Change: Got it. Thank you. Okay. So my next question was just about the metal price impacts I just wanted to understand that better because if you look at nickel.

Speaker Change: The big shift in prices I mean, it was a terrible year for nickel last year, but the bulk of that commodity price changes in the first half of the year. So just thinking about that for going forward should we think about just the annualized impact rather since you said it was more Q4 weighted or how should we think about the impact of metal price changes for the future.

Pass through mechanisms to our various contracts and so as a result, as the metal prices and those material prices move around.

Robert S. Wetherbee: The increase was broadly driven by growth in shipments of military rotorcraft, naval propulsion materials serving U.S. and allied navies, and titanium ground vehicle arms. Overall 2023 ATI Aerospace and Defense sales grew by 32% versus the previous year. So let's add it up here for a moment. Increasing Build Rates for Frames and Engines for Depositive, The Defense Market, and we're well positioned with the right customers for the long term. A recipe for success is delivering results. Now, great demand isn't just limited to aerospace and defense. You've heard me talk about our work in aero-like markets, where barriers to entry are high, and so are the competition. Late last month, our customer Confluence announced their $50 million investment in ATI's Nitinol Melt and Materials Conversion Infrastructure.

Then we can see our our pass through revenues increase or decrease case in point go back to 2022.

So just to make sure that we're in.

Speaker Change: In sync.

I shared at the end of last year's call that we saw our pass through revenues increase in 2022 in the range of $300 million because metal prices went up and that inflated our revenues. Okay. Now metal prices have kind of retraced to where they were before the <unk>.

Speaker Change: And back of my mind, I saw I'm, recalling that nickel prices in the latter half of 2023 really saw their slide and.

Speaker Change: First half relatively stable not massive changes to to 2022 levels, but then when you get to Q4 2023, we really saw.

I'm talking nickel in this case retrace to where they were before the Ukraine invasion and so a lot of that lift that we saw going into our pass through revenues has begun to go the other direction, we saw about <unk>.

Speaker Change: Continued meaningfully meaningful step down to like the $7 per pound range. So the way to think about that is in our business. There is a little bit of a lag in terms of the effect of metal and one one area, where I would really focus the listeners is around our pass through so.

$15 million.

<unk>.

Negative impact on our revenues in Q4.

Speaker Change: Our team has done a really good job, adding pass through mechanisms to our various contracts and so as a result, as the metal prices and those material prices move around.

And here's what we're thinking if the metal prices remain at about the same level. They are now.

Robert S. Wetherbee: That expansion will more than triple our capacity for this life-saving material used in heart stems and related diseases. It's really unique to have customers so excited about a product that ATI makes. Investment support. Great, their money, their investment, and the confidence in what we can achieve together. They're a great partner, and we look forward to tremendous success together. In industrial markets, demand remains soft.

Plus or minus then as you think about that reversal of our of our pass through revenues Timna.

Speaker Change: Then we can see our our pass through revenues increase or decrease casing point go back to 2022.

I would expect.

Our pass through revenues in 'twenty 'twenty, four will probably be I don't know $175 million to $200 million lower than we saw in 2023.

Speaker Change: It's shared at the end of last year's call that we saw our passenger revenues increase in 2022 in the range of $300 million.

Speaker Change: Because metal prices went up and that inflated our revenues. Okay now metal prices have kind of retraced to where they were before the and I'm talking nickel in this case retrace to where they were before the Ukraine invasion and so a lot of that lift that we saw going into our <unk>.

As you know, there's not a significant impact to our bottom line because of changes in pass through but as youre trying to get a feel for our underlying growth rates for revenue. It is an important time to make sure that you have built in does that answer your question and help you.

Donald P. Newman: The good news is that these conditions remain transitory, and they affect an even smaller portion of the ATI portfolio than years past. As I said last quarter, we're taking actions operationally to align our near-term cost structure with this lower-demand strategy. We remain focused on adjusting the portfolio as needed using our 80-20 toolkit to optimize the process. Now I'll turn it over to Don to share details about the financials. Thanks, Bob. Q4 capped off a great year for ATI.

Yes.

Speaker Change: That's through revenues has begun to go the other direction, we saw about 50.

We can definitely follow that but Thats helpful reminder, thank you.

Yeah.

Speaker Change: $15 million.

Speaker Change: <unk>.

Speaker Change: Negative impact on our revenues in Q4.

Thank you. The next question guys keep Michael <unk> of Keybanc capital market. Michael. Please go ahead. Your line is a pattern.

Speaker Change: And here's what we're thinking if the metal prices remain at about the same level. They are now.

Hey, good morning, I wanted to ask more broadly on the aftermarket side within commercial aerospace, obviously seeing some strong demand there right now, but could you talk to some of the pockets or platforms within MRO that are maybe elevated right now and then if theres any way.

Donald P. Newman: We delivered the highest quarterly revenue since Q2 2019. We also ended the year with a consolidated adjusted EBITDA margin of over 15%, an important threshold as we progress toward our longer-term targets of delivering adjusted EBITDA margins in the 20% range. We also deliver free cash flow above the high end of our guidance range. The actions taken related to our pensions de-risk the business, strengthen the balance sheet, and will improve profitability for years to come. With that established, let's jump into our performance. Our consolidated sales were 5% higher than Q4 2022 and up 9% for the full year. Those growth figures do not entirely reflect the underlying strength of customer demand. In recent years, we have increased risk sharing with our customers and lowered our volatility by adding pass-through mechanisms to our contracts. As those pass-throughs reduce risk, they create fluctuations in revenues and margins from period to period.

Speaker Change: Plus or minus and then as you think about that reversal of our of our pass through revenues Timna.

Speaker Change: I would expect.

Speaker Change: Our pass through revenues in 'twenty 'twenty, four will probably be I don't know $175 million to $200 million lower than we saw in 2023.

That you could frame the duration of that aftermarket strength that would be helpful.

Speaker Change: As you know, there's not a significant impact to our bottom line because of changes in pass through.

Alright ill give it a try and so.

So ours is our aftermarket is predominantly jet engine spares right.

Speaker Change: But as Youre trying to get a feel for our underlying growth rates for revenue. It's an important thing to them to make sure that you have built in.

And so we are seeing elevated spares demand historically, it's about 25% of our mix I think today, we've said, it's probably closer to 40.

Speaker Change: Does that answer your question and help you.

Yes.

And Theres a couple of different reasons for it and you kind of have to go almost I don't want to say too much about each individual engine platform, but you have to look at it from each individual engine platform I think there are some widely.

Speaker Change: We can definitely follow that but Thats helpful reminder, thank you.

Speaker Change: Thank you. The next question guys keep Michael Alicia of Keybanc capital market. Michael. Please go ahead. Your line is open.

Discussed issues with.

The GTS right and there are other issues in terms of just different versions in different kits that are being put in different engines.

Michael: Hey, good morning, I wanted to ask more broadly on the aftermarket side within commercial aerospace, obviously seeing some strong demand there right now, but could you talk to some of the pockets or platforms within MRO that are maybe elevated right now and then if there's any way that you.

Also the extended use of narrow bodies anytime during a major airport and you see an MD 80 say huh.

Donald P. Newman: As a result of the decline in metal prices in 2023, most notably nickel, Q4 and full year 2023 had lower pass-through revenues than the same periods in 2022. Those year-over-year declines in pass-through revenue created growth headwinds of 3% and 1% for Q4 and full year 2023, respectively. Our HPMC segment continues its sustained performance.

They are all out of the desert everybody's looking for narrow bodies and.

Speaker Change: Could frame the duration of that aftermarket strength that would be helpful.

That's the extended cycle from people are reaching the point, where they have to make that commitment to major maintenance and engines.

Speaker Change: Alright ill give it a try and so ours is our aftermarket is predominantly jet engine spares right.

And overhauls, because it's going to be a while before they get their next narrow body planes.

The wide body side.

Speaker Change: And so we are seeing elevated spares demand historically, it's about 25% of our mix I think today, we've said, it's probably closer to 40.

More and more planes are in the desert, where theres more sandy conditions.

That kind of thing so I think all the trends for us we do see that some engine programs will kind of revert back to the mean here in terms of spares, but for.

Donald P. Newman: Fourth quarter margins were 21.5%, built on our expanding A&E Foundation. The fourth quarter of 2023 in total affirmed the consistency and strength in this segment, revenue and segment EBITDA increasing sequentially and year over year, driven by the Focus on Aerospace and Defense, NMARC, representing 86% of HPMC's Q4 sales. In the fourth quarter, AANS delivered a segment margin of nearly 12%.

Speaker Change: And Theres a couple of different reasons for it and you kind of have to go almost.

Speaker Change: Don't want to say too much about each individual engine platform, but you have to look at it from each individual engine platform I think there is some widely.

For the foreseeable future I think there is enough drivers outside of the norm, that's going to keep that upstairs level elevated for.

Speaker Change: Discussed issues with.

Say a couple of years I think it all gets sorted out.

Speaker Change: The GTS right and there are other issues in terms of just different versions in different kits that are being put in different engines.

Hopefully thats how that helps.

<unk> I'm.

Speaker Change: There's also the extended use of narrow bodies anytime during a major airport and you see an MD 80 say huh.

I'm sorry go ahead.

No that's very helpful.

I just wanted to ask lastly on inventory management, you had touched on that.

Donald P. Newman: For two quarters in a row, AMD sales in this segment were 35%, reflecting the transformation that's underway. That's up from 30% in Q4 2022. We work through the challenges of slower, near-term industrial demand for sales stabilizing at Q4 after declines in Q2 and Q3. What do we expect from this segment in 2020? Richard Salesman, Recovering Industrial Demand and Improving Operating Performance.

Speaker Change: They are all out of the desert everybody's looking for narrow bodies.

Do you see your inventory progressing throughout 2024, just given some of the moving pieces with the outages in the underlying commercial aerospace ramp is there a level that you're targeting or inventory turns.

Speaker Change: And I think that's the extended cycle from people are reaching the point, where they have to make that commitment to major maintenance and engines.

Speaker Change: And overhauls, because it's going to be a while before they get their next narrow body planes.

Speaker Change: And overhauls, because it's going to be a while before they get their next narrow body planes.

<unk> do you frame that.

Speaker Change: Wide body side.

Speaker Change: More and more planes are in the desert, where theres more sandy conditions.

So let me frame it not just specifically for inventory, but how are you thinking about manage working capital and general understanding that inventory is the primary piece of managing capital. So we made some really good progress here at the end of the year getting our overall managed working capital down too much.

Speaker Change: That kind of thing so I think all the trends for us we do see that some engine programs will kind of revert back to the mean here in terms of spares, but.

Donald P. Newman: This will lead to margin expansion, and this is a trend that we expect to continue beyond 2024. In Q4, we took decisive action to put our pension obligations behind us. We annuitized roughly 85% of our qualified defined benefit obligations, transferring $1.4 billion in gross pension liabilities to a third party. We fully funded the remaining qualified defined benefit pension obligations, and we changed the pension accounting policy to better match current financial reform. What are the benefits to those actors?

Speaker Change: For the foreseeable future I think there is enough drivers outside of the norm, that's going to keep that upstairs level elevated for.

Much closer to our 30% target as you think about two.

Speaker Change: I'd say a couple of years I think bill it all gets sorted out.

2024, the way you want to think about it is we are working very hard to not to.

Speaker Change: Hopefully that helps.

To not build inventory as we have done historically during the year keep it ramp really tap talents so that its not a drain on our cash so that is a clear effort.

Speaker Change: In MRO.

Speaker Change: I'm sorry go ahead.

Speaker Change: No that's very helpful.

Speaker Change: I just wanted to ask lastly on inventory management, you had touched on that how do you see your inventory progressing throughout 2024, just given some of the moving pieces with the outages in the underlying commercial aerospace ramp is there a level that you're targeting or inventory turns.

And you should expect to see improvement year over year in that area in terms of the overall year and what are we expecting from managed working capital. We expect that were going to by the end of 'twenty 'twenty four.

Donald P. Newman: higher earnings, a stronger balance, reduced volatility, and increased future cash flow. We accomplish this while ensuring our retired employees receive the benefits to which they are entitled. Our pension glide path is substantially... Let me boil down the financial impacts of the pension change first. Our annual pension expense decreased roughly $50 million from 2023 annual run rates prior to these actions. Additionally, no meaningful cash contributions to the Qualified Pension Plans will be required in the future.

And at the 30% target and very possibly marginally below it.

Speaker Change: <unk> do you frame that thanks.

unknown: So let me frame it not just specifically for inventory, but how are you thinking about manage working capital and general understanding that inventory is the primary piece of managing capital. So we made some really good progress here at the end of the year getting our overall managed working capital down too much.

And so.

So that's how I would describe.

Does that help you.

Yes. It does thank you.

Thank you. The next question Josh Sullivan of the Benchmark Company Josh. Please go ahead. Your line is open.

Speaker Change: Closer to our 30% target as you think about.

Hey, good morning.

Speaker Change: 2024, the way you want to think about it is we are working very hard to not to.

Good morning, just as a kind of follow up to that.

Just as a follow up to that inventory question.

Donald P. Newman: The pension actions are another element of our transformation. In 2019, before the majority of our transformational efforts, we posted adjusted EBITDA margins of just above 10% on roughly $4.2 billion in revenue. Now, we are back to that revenue level, and our mid-team margins far exceed that 2019 performance. Best of all, we are still in the early stages of a ramping performance. Strong demand in our core markets, increasing capacity, expanding capabilities, and focus on operational excellence will continue to drive growth and margin. It closed out 2023 with strong cash generation. The result was roughly $165 million in free cash flow for the full year.

Speaker Change: To not build inventory as we have done historically during the year keep it ramp really tapped down so that it's not a drain on our cash so that is a clear effort.

The narrow body customer developments you mentioned in the prepared remarks, what do you think your customers' willingness to hold and build inventory looks like because these narrow body.

Developments are digested one of the Oems talked about the issue is actually an opportunity for the supply chain to catch up but I'm curious what your thoughts are about the customers' inventory levels.

Speaker Change: And you should expect to see improvement year over year in that area in terms of the overall year and what are we expecting from managed working capital. We expect that were going to by the end of 'twenty 'twenty four.

Yes fair question.

Yes, I think.

Speaker Change: And at the 30% target and very possibly marginally below it.

There's a lot of noise in the system at the moment whether that's.

In the U S system or the European system engine programs airframes, a lot of noise right.

Speaker Change: And so.

Speaker Change: So that's how I would describe it.

Speaker Change: That help you.

We're not seeing any change in behavior.

Speaker Change: Yes. It does thank you.

In terms of buying patterns or are not on.

Robert S. Wetherbee: Thank you. The next question Josh Sullivan of the Benchmark Company Josh. Please go ahead. Your line is open.

On the airframe side and certainly not on the engine side.

I think the <unk>.

Disruption in the spares or the need for more spares around the GTS is having a.

Donald P. Newman: We made significant progress in the fourth quarter in reducing managed working capital, ending the year at just above 31 percent. As promised, capital expenditures were approximately $200 million for the full year 2020. We repurchased $30 million in shares in the fourth quarter.

Josh Sullivan: Hey, good morning.

John: Good morning, just as a follow up to that it.

A positive effect for those of us who supply materials.

Robert S. Wetherbee: This is a follow up to that inventory question.

<unk> engine, guys don't want to be the.

Robert S. Wetherbee: The narrow body customer developments you mentioned in the prepared remarks, what do you think your customers' willingness to hold and build inventory looks like because these narrow body.

You know the laggard I don't want to be the bottleneck either.

We are working to get ahead.

There's also a tremendous influx of defense applications, whether it's rotorcraft engines are about you know, France, there's a lot of activity there.

Robert S. Wetherbee: Developments are digested one of the Oems talked about the issue is actually an opportunity for the supply chain to catch up but I'm curious what your thoughts are about the customers' inventory levels.

Donald P. Newman: Completing our 2023 authorization of $75 million. At our November investor update, we announced authorization for another $150 million of share buyback. We ended 2023 with $744 million in cash and $1.3 billion in total liquidity.

Helicopters in particular, but we're.

We're not seeing any let up from the engine producers and for US we've materially broadened our our market position. So we've always said we love every airliner that flies in every engine that powers it and that's more true today than ever before so.

Speaker Change: Yes fair question.

Speaker Change: Yes, I think.

Speaker Change: There's a lot of noise in the system at the moment whether that's.

Speaker Change: In the U S system or the European system engine programs airframes, a lot of noise right.

Donald P. Newman: Are that debt-to-adjusted EBITDA ratio improved to 2.32%? With that, let's talk about our 2024. At our investor update in November, I shared color regarding 2024. What I'm sharing today is consistent with those thoughts. We see a very strong second half of 2024 forming. Aerospace and defense and aero-like demand remains robust; added capacity from restarted titanium melt assets will reach earnings run rate in the second half will also benefit from de-bottlenecking efforts in both nickel and titanium. As we've shared today, industrial demand stabilized in Q4, and we expect it to recover in the second half of 2020.

Today I think.

These companies are big companies that have great capabilities, they're going to sort themselves out.

Speaker Change: We're not seeing any change in behavior.

Speaker Change: In terms of buying patterns or unknown on the airframe side and certainly not on the engine side.

And I think when they do sort themselves out nobody wants to be.

The ultimate bottleneck in the supply chain.

Speaker Change: Thank.

Speaker Change: The disruption in the spares or the need for more spares around the GTS is having a positive.

And then maybe just one on the nickel powder market I think you mentioned isothermal forging was a highlight.

Speaker Change: <unk> effect for those of us who supply materials.

<unk> deployed a focus here, but how does the nickel powder market look like.

Speaker Change: Certainly engine guys don't want to be the.

Speaker Change: The laggard I don't want to be the bottleneck either.

Yeah, I mean, we feel good about it and normally we talk all about nickel powder, but titanium has kind of been the topic of conversation in 2023.

Speaker Change: They're working to get ahead.

Speaker Change: There's also a tremendous influx of defense applications, whether it's rotorcraft engines or Bob you know, France, there is a lot of activity there.

It is strong we're on.

Some really great programs that are really ramping up.

Speaker Change: Helicopters in particular, but.

I think we've been focusing on yield.

Speaker Change: Not seeing any let up from the engine producers and for US you know we've materially broadened our our market position. So we've always said we love every airliner that flies in every engine that powers it and that's more true today than ever before so.

And obviously in the short term, we can get your yields up kind of 40% that pretty much covers some of the capacity issues that we have in the short to medium term, but it continues to be strong.

Donald P. Newman: Cash generation is expected to take another step upward in 2024 as our capital discipline builds momentum. Let's discuss these drivers and what to expect for earnings and cash flows in 2020. We expect earnings per share in the first quarter to be in the range of 36 to 44 cents.

I think when you look at some of these single points of failure that are occurring in the market.

Speaker Change: Today I think.

Speaker Change: These companies are big companies that have great capabilities, they're going to sort themselves out and I think when they do sort themselves out nobody wants to be.

Especially on the nickel alloy side, if there is a single point of failure and we're not the supplier that just opens the door for us and gives us an opportunity to do more so we actually see.

Seth: The ultimate bottleneck in the supply chain.

Donald P. Newman: I want to bridge you from 64 cents of EPS in Q4 2023 to the midpoint of this. First, $.09 of the sequential change in EPS is attributed to the income tax extension. As a result of our improved performance, we released our tax asset valuation reserves at the end of 2023. That means we will provision taxes at a more normalized rate starting in 2024. As a result, we expect to provision income taxes at an effective rate of between 22.5% and 23.5% in 2024. By contrast, we provision income tax expense at a rate of approximately 5%.

Not only volume growth, but share growth potential there.

Seth: And then maybe just one on on the nickel powder market. I think you mentioned isothermal forging was a highlight titanium gets a lot of focus here, but how does the nickel powder to market look like.

The next couple of years, so theres going to be tight it's always going to be tight because we don't want to have a lot of excess capacity in the system, but I think we're taking steps both on our process improvement with our customer relationships.

Speaker Change: Yes, I mean, we feel good about it and normally we talk all about nickel powder, but titanium has kind of been like.

To move and see the growth there.

Speaker Change: On the topic of conversation in 2023.

Speaker Change: It's strong.

Hey, <unk> this is Dave West.

Speaker Change: We're on.

Alright. Thank you Tuesday of lesson I think we've reached the window of our time I'd like to thank you for coordinating the call and thanks, everyone for joining US today. This does conclude our ATI fourth quarter earnings call. A replay will be available on our website and our Investor Relations team is here to assist with any follow up questions that you may have so thank you and have a great day.

Seth: Some really great programs that are really ramping up.

Seth: I think we've been focusing on yield.

Seth: And obviously in the short term, we can get your yields up 40% that pretty much covers some of the capacity issues that we have in the short to medium term, but it continues to be strong.

Seth: I think when you look at some of these single points of failure that are occurring in the market.

Thank you. This now concludes today's call. Thank you for joining you may now disconnect your lines.

Donald P. Newman: Second, January's extreme winter weather in the Pacific Northwest had a temporary impact on our Millersburg, Oregon facility. We're back in full operation now, and expect the outage will negatively impact Q1 EPS by. We expect a similar financial impact in Q2. Third, HPMC experienced melt and processing outages late in the fourth quarter, but those outages were behind us by mid-January. The impact on materials for sale in Q1 will result in a negative $0.08, 2-1-Earnings. And fourth, the balance of the sequential decrease in EPS is largely tied to seasonality at erasure and precision rolled strip and negative mental impacts on the broader, For your outlook is brighter given meaningful improvement in our key operations and financial measures. Demand in our core M markets remains very strong.

Seth: Especially on the nickel alloy side, if there's a single point of failure and we're not the supplier that just opens the door for us and gives us an opportunity to do more so we actually see.

Seth: Not only volume growth, but share growth potential there.

Seth: The next couple of years so.

Seth: They're going to be tight it's always going to be tight because we don't want to have a lot of excess capacity in the system, but I think we're taking steps both on our process improvement with.

Seth: With our customer relationships.

Seth: To move and see the growth there.

Seth: Hey, <unk> this is Dave West.

Speaker Change: Alright, thank you.

Speaker Change: Dave lesson I think we've reached the window of our time I'd like to thank you for coordinating the call and thanks, everyone for joining US today. This does conclude our ATI fourth quarter earnings call. A replay will be available on our website and our Investor Relations team is here to assist with any follow up questions that you may have so thank you and have a great day.

Speaker Change: Thank you. This now concludes today's call. Thank you.

Donald P. Newman: As we closed out 2023, backlog and customer agreements continued to build. That puts us in a great position to grow in aerospace and defense as we continue to deliver through long-term agreements and market opportunities. As our capacity increases and our capabilities expand, we are confident this growth will translate into profitable earnings and sustained cash generation in 2024. Our current range for full-year earnings per share is $2.12 to $2.52 per share.

Donald P. Newman: There are a few items of note related to our 2024 guide. We expect incremental revenue and earnings to increase, especially in the second half of 2024, once restarted titanium melt assets hit full earnings run rate. As Bob noted, our focus on removing bottlenecks, such as adding the new billet press, is expected to contribute production volumes and efficiencies as 2024 progresses. Additionally, impacts from Q1's Arctic conditions at our Oregon operations will be behind us for the second half. We don't typically provide revenue, guys.

Donald P. Newman: However, we do expect continued strong growth in 2020; excluding metal impacts, we anticipate sales will grow in the upper single-digit percentage range year over year. Let me point out a few other items that will allow you to bridge adjusted EPS to adjusted EBITDA in 2024. Appreciation expense is expected to be in the range of $146 million, and its book interest expense in the range of $113 million for full year 2024. Average shares outstanding are assumed to be $149.4 million in Q1. $146.9 million for the full year.

Donald P. Newman: The drop in shares reflects anticipated buybacks under our current $150 million program. Annual free cash flow is expected to be in the range of $245 to $325 million. At the midpoint of the day,

Donald P. Newman: That's a year-over-year increase of 73 percent. This puts us on a strong foundation to deliver our cash conversion targets of greater than 90 percent. Our free cash flow range assumes CapEx of between $190 and $230 million.

Robert S. Wetherbee: I would also note that we don't expect significant cash taxes to be paid in 2024 due to our net operating loss carry-forward shift. Looking beyond 2024, we are very confident in our ability to deliver the 2025 and 2027 financial targets we provided at our investor update in November. We project more than $1 billion in top-length organic growth and a 60% increase in adjusted earnings from 2023 to 2020. We target revenues exceeding $5 billion with adjusted EBITDA of more than $1 billion by 2027. With that, I will turn the call back over to John. Thanks, John. Today marks a strong end to yet another great year. You know, I don't think I'll ever get tired of saying, "This performance doesn't just happen."

Robert S. Wetherbee: Our hardworking people across the enterprise are driving these results every day. Thank you to the entire ATI team. Aerospace and defense is a complex industry, and we're living in complicated times. There's incredible demand, and the signals aren't always clear. But at the end of the day, two things give me tremendous confidence.

Robert S. Wetherbee: The first, the fundamentals of the aerospace and defense market. Our customers are turning their projections and growing demand into orders and commitments. We're honored to be their partner, supporting their extraordinary performance, earning their first call. Q1 has some challenges, but we have our arms. 2023 was a great year, and 2024 is shaping up to be even better.

Robert S. Wetherbee: The second thing that gives me confidence is our ability to deliver. Our capabilities in material science and our advanced process technologies are the best in the business. We're sharpening our operational advantage, executing with disciplined efficiency, and resolving bottlenecks to accelerate our results. Our team is committed and competitive. I'm here to win.

Operator: This puts us on a strong trajectory to achieve our 2025 and 2027 goals. We're focused on exceeding $5 billion in sales and a billion dollars of EBITDA within the next four years. We are proving to, With that, let's open the line for, Operator, we're ready for the first question. Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to retract your question, please press star followed by two. When preparing to ask your question, please ensure your phone isn't muted locally.

Seth Michael Seifman: And our first question goes to Seth Seifman of J.P. Morgan. Seth, please go ahead; your line is open. Hey, thanks very much. And good morning, everyone.

Robert S. Wetherbee: Hey Seth, I wanted to make sure I understood some of the dynamics around, you know, some of the bottlenecks that are there now and, you know, the way things might improve going forward. It looked to me like airframe sales in A and S were down a decent amount sequentially in Q4. I guess, you know, is that correct?

Robert S. Wetherbee: And is this some of the, you know, de-bottlenecking that's going to happen through the year? And, you know, how do you see that kind of recovery playing out and getting back to the levels we saw in sort of the first three quarters of this year? Sure, Seth. I think the question you're asking about aerospace, I think you also have to throw in the defense bucket. Probably what you saw in Q4 is incredibly strong defense sails picking up, so they're all running through that same flow path. predominantly Plate is where we're seeing some of the debottlenecking being required, whether that's process control equipment or twists to make sure that we're covering titanium. Titanium and nickel and some of the pH grades we make require some slightly different process times, so we're working through that.

Robert S. Wetherbee: But I think when you look forward, the order's very strong for aerospace. The airframes are coming back. I mean, we're going to see continued growth through the year. I think You know, overall, I think Q1 was just kind of mixed up with the defense activity that was pretty heavy in Q4. Okay, so we should think about that as more of a shift rather than a sort of decline in the airframe, a shift in where you're directing the capacity. In the fourth quarter, I think that's true.

Robert S. Wetherbee: I think you'll see, yeah, you'll see it return to, you know, strength. Yeah, you know that, you know, these airframe guys, they kind of go up. We talked about the stair step and the lead times. You remember when we were booking Q4 of 2023, that was like 12 months before. So, obviously, the defense demand is somewhat emergent, and they've got some big programs they're trying to deal with. So, it's just a matter of how the orders fell into the quarter. But long term, we don't see anything disrupting the strength of the airframe side of the business. In fact, That's where we're spending a lot of time debottlenecking at the moment. Okay, great. Thanks.

Donald P. Newman: And then, I guess, just in terms of cash flow, you know, do we think about sort of a typical profile with, you know, a pretty significant outflow in the first quarter of the year? And, you know, does that impact the way you think about... returning cash? Thank you. Hey, Seth, I'll take that one.

Donald P. Newman: Generally, the pattern is going to be similar, but the magnitudes from quarter to quarter, I think you're going to see an improvement. So what do I mean by that? Our seasonality typically involves a heavy use of cash at the beginning of the year, as we're positioning for inventory builds and the ramp that we expect throughout the year.

Donald P. Newman: We've spent a significant amount of energy improving how we manage inventory, and we saw some of the effect of that with our 31% ending inventory or managed working capital level. So when you think about our cash generation by quarter for 2024, you're still going to see a use of cash in Q1, but it's not going to be as heavy a use as you saw last year. I would expect last year to be a use of something in the range of $300 million, but I could definitely see less than $200 million.

Donald P. Newman: Then, as you progress through the year, you're going to see in Q2, marginal improvement from what we saw last year in the range of probably $50 million, 5-0 of cash generation. You're going to see that increase in Q3, where it's probably two to three times that level in Q2. Then, when you get out to Q4, it'll still be a heavy cash generation quarter for us, but it's not going to be as strong as we saw, for example, in 2023, because we've leveled that cash generation a little bit better in the business. Then, as you look past that, because I know you do your long-term models, I think what you should expect is we're going to continue to get better Okay, okay. And then last one here, just to follow up on the deployment piece of that, I guess about $750 on the balance sheet at the end of the year, and we're looking to generate about $285. If you use the $150 buyback, you still have about $875 on the balance sheet at the end of the year.

Donald P. Newman: Is it necessary to have the cash balance increase over the course of this year, or you know, might there be some other opportunities for deployment? Yeah, so let's talk about that. You know, our goal is not to become a bank.

Donald P. Newman: Okay, we don't see a lot of value in building cash balances and holding them on the balance sheet. We want that cash to go to work. We've been really, really clear on our three destinations for capital. As we shared with you guys today, we intend to spend about $200 million on organic growth through CapEx again in 2024. In terms of de-levering, we took a huge step forward in de-levering when we executed the pension annuitization and transferred $1.4 billion over to third parties. We don't have any debt maturities that are scheduled really before 2025.

Donald P. Newman: It doesn't mean we might not take some actions to reduce our gross debt. But, you know, I think the way to think about it is, I would not assume significant cash use for de-levering in 2024, as you're modeling it. Well, to your point, that leaves a chunk of money at the end of the year, even after we execute our $150 million share repurchase program. Now, there are some other uses of cash that you'll see in our cash flow, our cash statement down in the financing section. They are about $50 million, just to refine your number, pay some operating leases, and things like that.

Donald P. Newman: But the core of your question is really about, Don, are you guys going to do some more share repurchases, right? Isn't that what you're kind of wondering? And after we're done with the $150 million current program, what I would say, Seth, is listen. Returning capital to our shareholders is a high priority for our board. It's a high priority for the management team. Clearly, it's a high priority for our shareholders. When we're done with the current program, we will talk to our board, and we'll be in a healthy liquidity position. We never anticipated that the current $150 million program would be the last one.

Gautam Khanna: So, you know, you can interpret that as you think appropriate. Great. Thank you very much. Thank you, and the next question goes to Gautam Khanna of TD Cohen. Gautam, please go ahead; your line is open.

Gautam Khanna: Hi, good morning, guys. Hey, Gautam, I was wondering if you could put a finer point on the Q1 guidance with respect to segment EBITDA at AAMS and HBNC. Sure, I wanted to learn how to take multi-duty. Yeah, so certainly the bridge that I shared with you in my prepared remarks gives you a sense of how to think about that relative to the Q4 levels of performance. So when you think about that bridge from 64 cents to the 40 cent range, we're seeing some impacts in both of the segments that are causing that decrease in EPS. So let's get to specifics.

Donald P. Newman: When you look at the impact of the severe Arctic weather pattern in our AANS business and that hit on that Oregon facility, we're seeing about $0.03 of impact in Q1, another roughly $0.03 of impact in Q2. So again, that's on the AANS side. And the translation back to EBITDA means you should expect about $2 million of EBITDA for every penny of earnings.

Donald P. Newman: So that'll allow you to do the math on that. And then, as far as the other drivers are concerned, we do note that stall is one of the elements of that bridge. It's not a huge element, to be honest. There's the Lunar New Year that happens literally every year.

Donald P. Newman: And so that's a penny sequentially. So you can bake that into how you think about stalls. That'll just refine your numbers. Then, on the HPMC side of the house, that's where those melt outages really come into play. So I noted that there is about an eight cent divot that's created on the HPMC side of the house because with those outages, it means that we don't have material that we would otherwise be selling in Q1. That eight cents equates to about $16 million, plus or minus. of EBITDA.

Donald P. Newman: So does that help you, Gautam? Does that kind of give you an idea of how to think about that? Yes, it does.

Gautam Khanna: I just wanted to make sure at ANS that the six million or whatever you know, whatever you have, of EBITDA being sequentially plus the stalled impact is the only impact?

Donald P. Newman: Are you actually seeing markets weaken sequentially? Um, beyond, you know, the Arctic weather and the stall issue? I mean, are you seeing just price is rolling over because nickel prices and surcharges have come, etc.? Is there anything beyond what you specifically highlight? I, you know, there's, yeah, I think from a color standpoint, we were pleased to see where the industrial demand had stabilized for the ANS part of the business. That has a couple benefits.

Donald P. Newman: One, I think the indicator is a good guy in terms of volumes. At a minimum, it's kind of flattish and potentially up from Q4 to Q1. Another thing that would potentially benefit us potentially is, you know, when you see that demand increase and orders coming in, what that would typically mean is a firming up of prices. We did see some negative impact of prices from Q3 to Q4 due to industrial softening, but not dramatic. And so, I don't see that as a headline kind of number going into Q1. There are some other odds and sods that I won't drag you through.

Gautam Khanna: You know, metal prices, for example, have softened globally, and we do see that certainly in our pass-through revenues. I'm not going to drag that answer into your question, but there would probably be a marginal effect on ANS related to those metal price movements in Q1, but they're not the headline kind of figures. Okay, and just, If I could have the liberty of asking two quick ones beyond that. I'm curious, the 2027 targets did not change, correct? I think there was some language around a billion dollars, but the range is still a billion to 1.2 billion on Yubita.

Donald P. Newman: Is that correct? True story. Yeah, neither the 25 nor the 27 targets have changed, period. Okay, good. And then on the HPMC melt outages, were these unplanned and, Just if you could elaborate on what specifically happened. Was this planned maintenance outage, or was it unplanned? And if it was planned, why weren't they conveyed around the environment?

Robert S. Wetherbee: Yeah, I think, yes, there's a question. I think about 50-50 is how I would put it, 50% unplanned, you know, and that was pretty much on the melt side, where you just get a failure or you get some kind of electrical problem or, you know, different pieces. But it was equipment-related and or, you know, we're still going through some operator training issues and crewing issues. So, those about 50% were melted, and it was pretty much unplanned and happened pretty quick.

Robert S. Wetherbee: And but any melt is an important melt today. The other issue, you know, that we certainly dealt with was a planned outage for a particular press. Usually, we do those in about a week.

Robert S. Wetherbee: I think this one, you know, took about two and a half weeks to kind of get where we wanted it to be. And the challenge specifically was that the outage occurred at the bottleneck. Right?

Robert S. Wetherbee: And so you can have outages in a lot of different places, but this one, we pushed it as far as we could. We recognized that we needed to do it. We recognized that we needed to do it quickly. So we did it. And yeah, why wasn't it communicated?

Robert S. Wetherbee: Fair question. We probably thought it was going to have less of an impact at the end of the year. But that's the reality of where we are. But again, we did it to ensure that we had what we needed for 2024 and beyond. Some of these maintenance cycles can be two, three, four years, you know, and we see that in the industry where, you know, you take something down for a week, and other people are down for six weeks, right? So I think that's part of the planned maintenance that we need to make sure we're on top of. Thank you. Thank you. The next question goes to Richard Safran of Seaport Research Partners. Richard, please go ahead; your line is open. Bob, Don, and David, good morning.

Richard T. Safran: I have a question on titanium, and I want to know if you could expand a little bit on your opening remarks about the titanium capacity increases here. I'm trying to get a sense of how accretive titanium is to margins. And also, I'm assuming some part of this is relatively new business due to the VSMPO market share pickup. Is that correct? And I'm also assuming that most of the margin contribution comes in 2025 and not 2024. Is that the way to look at it? Let's see, there are like eight questions in there, Richard. I'm going to have to peel them out for you.

Robert S. Wetherbee: So I think if you go back to June of 2023, we announced $1.2 billion in long-term contracts that would carry us from 24 to 29, or the balance of the decade. That is true, and that's what we're seeing, right? We're seeing customers respond. But if you go back to June of 2023, however, our lead times were already out into the middle part of 2024. So that's why we're seeing this very strong second half, as these orders are kicking in; our capacity from what we're doing in Oregon is flowing through to those orders. You know, we don't cast or melt anything that doesn't have a specific order, so we see that material flowing, and everything's working.

Robert S. Wetherbee: So I think one of your questions was, we've seen the benefit of everyone else leaving the Russian supply source. We see it, and in some cases, we feel we're getting more than our fair share of that. So that's part of the answer to your question. I think, you know, we're debottlenecking everywhere we can. You know, we've historically been kind of a heavy nickel, less titanium airframe. I think we're going to be much more balanced in the future.

Robert S. Wetherbee: So some of our processes require some debottlenecking. The processes are slightly different, and we have to address that. I think, you know, in terms of demand, I would say, you know, about the weather for us is clearly wide body demand, which came kind of to a point where we were doing 12 wide bodies a month, now it's, you know, 15, probably going to go to 19, probably going to go to 24, you know, over the next couple years. So the real strength of the market for titanium is yet to come. We're seeing a lot of defense activity.

Robert S. Wetherbee: And, you know, that's kind of coming through at the same time. So I would just say, when you think about titanium and you think of ATI, about half of it's probably the big B related, you know, 20%, 30% is probably the big A, and the rest is defense. So all that growth is hitting home, kind of as we hit the mid part of the year and into, you know, the next couple years. Yeah, Don, did you want? There's some questions I think Richard had that you could help him with. Sure. Why don't I add just a couple things? One, I think you asked, Rich, is titanium accretive? The short answer is yes. It is an accretive product space for us.

Donald P. Newman: The second question, I think that you also asked, was in regard to capacity. And maybe I can add to what Bob shared about capacity. So we have talked repeatedly about adding 45% of our titanium melt capacity on existing assets. And so to give you an idea of kind of how we're seeing that staged in 2024. So you guys have a sense of, you know, what that build looks like relative to run rate. The way you want to think about it is to go back to the original targets that we gave. And what we said is related to this 45% increase in our melting capacity; we expected that capacity to add an excess of $150 million of revenue, maybe even share, you know, something closer to 160 million of revenue at run rate and assume a 30% margin. So those numbers still hold. I think that there may be some upside to them, but we will share that at the right time. But then the question is, when do we hit the run rate? What does that look like?

Donald P. Newman: We've talked about the second half of 2024 being a really strong second half relative to the first half. This is part of the reason. And so what you want to think about is, you know, for these assets, we expect that they're going to be at their run rate capacity from an income statement standpoint. And, you know, we see them as kind of building from maybe, you know, it'd be split 40, 60, if you will, 40% of that contribution we've been seeing in the first half and 60% in the second half. I know I'm mixing up math here, but it gives you an idea of the step change that we're expecting from half to half.

Donald P. Newman: So hopefully, that's helpful. Yeah, I appreciate it. Now, just real quickly, I get the impression from your slides that the supply chain issues are pretty much over for you. I think you said manageable.

Richard T. Safran: I just wanted to set expectations. From your standpoint, are sales and margins no longer going to be impacted by the supply chain constraints we've seen? and ATI. No.

Robert S. Wetherbee: Go ahead. Yeah, we think they're behind us. The bottleneck issue was around the first step in the process from ingot casting to using the billet.

Robert S. Wetherbee: That's why the billet press was important. It was originally designed to be a nickel press, and when you shift over to titanium, you have to add a couple pieces to the puzzle to make sure you're making a quality titanium part, different temperatures, different issues. So that's behind us. You know, I think we eat and breathe the issues around all kinds of melting. That's why we talk about being melt-long.

Robert S. Wetherbee: We're not investing huge amounts of money in melting, other than what we talked about with titanium, which was in our guidance. I do think there are two issues that are out there in the marketplace that we are working on. You know, one is what I'd call contracted services with significant training or certification requirements, which makes it hard for contracted services to ramp up quickly. Some people see that as like ultrasonic inspection, and some of that in aerospace is kind of under duress with some of the other activities that are going on in the market. The other issue is, you know, there are some single points of failure out there. We get, we're part of directed by contracts with our major OEMs where they ship billets to us.

Robert S. Wetherbee: And there are a couple of other parts of the supply chain where they've had a failure. I think an extrusion facility in Texas has had a problem that affects some of the supply chain. But those that are within our control and those things we can manage, you know, we feel very confident that we have what we need to execute in 2024. Thanks very much.

Operator: Thank you. The next question goes to Timna Tanners of Wolf Research. Timna, please go ahead, your line is open. Hey, good morning, everyone. Two questions from us, just to clarify and understand the outlet. Good morning.

Timna Beth Tanners: So just wanted to see if you could elaborate on the comment about taking actions operationally to align with lower demand. Is that, you know, short term, long term? If you could just explain that? Yes, I think that was me that made that comment.

Robert S. Wetherbee: And it was really about our activities and the AAMS segment related to the industrial markets. You know, one of the industrial markets that's in there are some of the I'd call it the nickel-clad pipe projects for oil and gas, you know, basically in Brazil, those kind of places. You know, we want to make sure we have the right amount of capacity there. But we're also seeing, like everybody, a little bit of softness in the residential construction space. So we have some engineered products that go into that space.

Robert S. Wetherbee: And then we obviously watch the distribution channel, although the vast majority of what we sell today is OEM direct. You know, we still see some inventory destocking going on in those places, but it's mostly in the AANS segment. And it's stabilized, I think, is the key. So the headwinds are still there, but they're not getting any worse.

Robert S. Wetherbee: And, you know, we are seeing some signs of life and green shoots for Q2. But, I hope that helps. Is that what you were looking for, Timna?

Timna Beth Tanners: Yeah, I'm just trying to think about how material they could be, so some tweaks or if we're talking about big changes there. Oh, yeah, they're just tweaks. They're in the "tweak" category.

Robert S. Wetherbee: You know, whenever you're dealing with their cost structure, you wouldn't necessarily call them necessarily tweaks, because it can involve people and crewing and shifts and that kind of thing. But I would say they're modest at best. I think most of them have already been taken.

Timna Beth Tanners: It's just a matter of them showing up in the results, which should be by Q2. Got it, thank you. Okay, so the next question was just about the metal price impact. I just want to understand that better, because if you look at nickel...

Donald P. Newman: The big shift in prices, I mean, it was a terrible year for nickel last year, but the bulk of that commodity price change was in the first half of the year, so just thinking about that for going forward, should we think about just the annualized impact, rather, since you said it was more Q4 weighted, or how should we think about the impact of metal price changes for the future? So just to make sure that we're in sync, you know, in the back of my mind, I saw, I'm recalling that nickel prices in the latter half of 2023 really saw a slide. And, you know, the first half is relatively stable, not massive changes to 2022 levels. But then when you get to Q4 2023, we really saw, you know, a continued meaningful step down to the $7 per pound range. So the way to think about that is in our business, there's a little bit of a lag in terms of the effect of metal. And one area where I'd really focus the listeners is around our pass-through.

Donald P. Newman: So our team has done a really good job adding pass-through mechanisms to our various contracts. And as a result, as the metal prices and those material prices move around, we can see our pass-through revenues increase or decrease. For example, go back to 2022.

Donald P. Newman: I shared at the end of last year's call that we saw our pass-through revenues increase in 2022 in the range of $300 million because metal prices went up. And that inflated our revenues, okay? Now, metal prices have kind of retraced to where they were before the, and I'm talking nickel in this case, retraced to where they were before the Ukraine invasion. And so a lot of that lift that we saw going into our pass-through revenues has begun to go the other way. We saw about $15 million of negative impact on our revenues in Q4.

Donald P. Newman: And here's what we're thinking. If the metal prices remain at about the same level they are now, plus or minus, then as you think about that reversal of our pass-through revenues, Timna, I would expect our pass-through revenues in 2024 will probably be, I don't know, $175-$200 million lower than we saw in 2023.

Donald P. Newman: You know, as you know, there's not a significant impact on our bottom line because of changes in pass-through. But as you're trying to get a feel for our underlying growth rates for revenue, it's an important thing to make sure that you have built in. Does that answer your question and help you? Yeah, I think so. We can definitely follow up, but that's a helpful reminder. Thank you. Thank you. The next question goes to Michael Leashock of KeyBank Capital Markets. Michael, please go ahead; your line is open.

Michael Leashock: Hey, good morning. I wanted to ask more broadly about the aftermarket side within commercial aerospace. Obviously, we're seeing some strong demand there right now. But could you talk to some of the pockets or platforms within MRO that are maybe elevated right now? And then if there's any way that you could frame the duration of that aftermarket strength, that would be helpful. All right. I'll give it a try.

Robert S. Wetherbee: So, our aftermarket is predominantly jet engine spares, right? And so, we are seeing elevated spares demand. Historically, it's about 25 percent of our mix.

Robert S. Wetherbee: I think today we've said it's closer to 40, and there are a couple of different reasons for it. And you kind of have to go almost, I don't want to say too much about each individual engine platform, but you have to look at it from the individual engine platform. I think there are some widely discussed issues with the GTF, right? And there are other issues in terms of just different versions and different kits that are being put into different engines. There's also the extended use of narrowbodies. Anytime you're at a major airport and you see an MD-80, it's like, you know, they're all out of the desert. Everybody's looking for narrowbodies.

Robert S. Wetherbee: And I think that's the extended cycle of people reaching the point where they have to make the commitment to major maintenance and engines and overhauls because it's going to be a while before they get their next narrowbody plane. On the widebody side, you know, more and more planes are in the desert where there are more sandy conditions, you know, that kind of thing. So, I think all the trends for us, we do see that some engine programs will kind of revert back to the mean here in terms of spares, but for the foreseeable future, I think there are enough drivers outside of the norm that's going to keep that spares level elevated for, I'd say, a couple of years, I think, until it all gets sorted out. Hopefully, that helps. We don't really have much MROB. I'm sorry.

Michael Leashock: Go ahead. No, that's very helpful. I just wanted to ask, lastly, on inventory management. You had touched on that. How do you see your inventory progressing throughout 2024, just given some of the moving pieces with the outages and the underlying commercial aerospace ramp? Is there a level that you're targeting or inventory turns? How do you frame that thing?

Donald P. Newman: So let me frame it, not just specifically for inventory, but how we're thinking about managed working capital in general, understanding that inventory is the primary piece of management capital. So we made some really good progress here at the end of the year, getting our overall managed working capital down to much, much closer to our 30% target. As you think about... 2024.

Donald P. Newman: The way you want to think about it is that we are working very hard to not build inventory as we have done historically during the year and keep it really tapped down so that it's not a drain on our cash. So that is a clear effort, and you should expect to see improvement year over year in that area. In terms of the overall year and what we are expecting from managed burden capital, we expect that we're going to end at the 30 percent target by the end of 2024, and very possibly marginally below it. And so that's how I would describe it. Does that help you? Yeah, it does.

Michael Leashock: The next question goes to Josh Sullivan of The Benchmark Company. Josh, please go ahead, your line is open. Hey, good morning. Good morning.

Josh Sullivan: Just as a kind of follow-up to that, just as a follow-up to that inventory question, you know, on the narrow body customer developments you mentioned in the prepared remarks, you know, what do you think your customers' willingness to hold and build inventory looks like as these narrow body developments are digested? You know, one of the OEMs talked about how the issue is actually an opportunity for the supply chain to catch up, but I'm curious what your thoughts are about your customers' inventory. Yeah, a fair question.

Robert S. Wetherbee: You know, I think there's a lot of noise in the system at the moment, whether that's in the U.S. system or the European system, engine programs, airframes, a lot of noise, but we're not seeing any change in behavior in terms of buying patterns or on the airframe side, and certainly not on the engine side. I think the disruption and the spares, or the need for more spares around the GTF is having a positive effect on those of us who supply materials. Certainly, engine guys don't want to be the, you know, the laggard. They don't want to be the bottleneck either.

Robert S. Wetherbee: I think they are working to get ahead. There's also a tremendous influx of defense applications, you know, whether it's rotorcraft engines or, you know, frames. There's a lot of activity there, with helicopters in particular.

Robert S. Wetherbee: But we're not seeing any let-up from the engine producers. And for us, you know, we've materially broadened our market position. So we've always said we love every airliner that flies and every engine that powers it. And that's more true today than ever before.

Robert S. Wetherbee: So today, I think, you know, these companies are big companies, they have great capabilities, and they're going to sort themselves out. And I think when they do sort themselves out, nobody wants to be the ultimate bottleneck in the supply chain. And then maybe just one on the nickel powder market. You know, I think you mentioned this with thermal forging was a highlight. Titanium gets a lot of focus here, but how does the nickel powder market do? Yeah, I mean, we feel good about it. Yeah, normally, we'd be talking all about nickel powder, but titanium has kind of been the topic of conversation in 2023.

Robert S. Wetherbee: You know, it's strong, you know, we're on some really great programs that are really ramping up. You know, I think we've been focusing on yield, you know, and obviously, in the short term, we can get your yields up, you know, 40%. That pretty much covers some of the capacity issues that we have in the short to medium term, but it continues to be strong. You know, I think when you look at some of these single points of failure that are occurring in the market, especially on the Nickel Alba side, if there's a single point of failure, and we're not the supplier, that just opens the door for us and gives us an opportunity to do more. So, we actually see not only volume growth but also shared growth potential there in the next couple of years.

Robert S. Wetherbee: So, is it going to be tight? It's always going to be tight because we don't want to have a lot of excess capacity in the system, but I think we're taking steps both in our process improvement and with our customer relationships to move and see growth there. Hey, Nadia, this is Dave Wesson. I think we've reached the window of our time.

Dave Weston: I'd like to thank you for coordinating the call and thank everyone for joining us today. This does conclude our ATI fourth quarter earnings call. A replay will be available on our website, and our investor relations team is here to assist with any follow-up questions that you may have. So, thank you, and have a great day. Thank you. This now concludes today's call. Thank you for joining. You may now disconnect your line.