Good day, and welcome to the ATI Third Quarter Results Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Scott Minder, VP, Treasurer and Investor Relations. Please go ahead. Thank you. Good morning, and welcome to ATI's Third Quarter 2021 Earnings Call. Today's discussion is being broadcast on our website. Participating in today's call are Bob Wetherbee, Board Chair, President and CEO; and Don Newman, Senior Vice President and Chief Financial Officer. Bob and Don will focus on our third quarter highlights and key messages, but may refer to certain slides within their remarks. These slides are available on our website. They provide additional color and details on our results and outlook. After our prepared remarks, we'll open the line for questions. As a reminder, all forward-looking statements are subject to various assumptions and caveats. These are noted in the earnings release and in the slide presentation. Now I'll turn the call over to Bob.

Thanks, Scott. Good morning, and thanks for joining us today. It feels great to report that we returned to profitability in the third quarter, three months ahead of our expectations. This was no small achievement, as we overcame pandemic-induced disruptions, a three-plus month labor strike and the challenges inherent in significant business transformation. Our success is due in equal parts to accelerated rates of recovery in our diverse end markets, our significant business restructuring and transformation efforts and the perseverance of the ATI team. Our third quarter adjusted earnings per share were $0.05. EPS improved to $0.35 per share when you factor in the net positive impacts from settling our recent labor strike, including the benefits from our new collective bargaining agreement, and the lingering strike-related costs as well as the gain from the Flowform Products divestiture. I'm proud of what our team has accomplished, overcoming the challenges of the past two years. We're winning on the top line through new business and by capturing share gains. We're winning on the bottom line by tightly managing costs and solidifying our financial foundation. We've begun to pivot to growth. We're excited about what we can achieve as the commercial aerospace recovery accelerates and our business operates at high utilization levels. Before I dig into our performance and outlook by end market, I'll provide a progress update on a few of our strategic initiatives. First, we took another step in our ongoing business transformation. We sold our Flowform business for $55 million, resulting in a gain on sale of nearly $14 million. While this business primarily serves the defense market, it had little connection to the broader ATI. There were a few material synergies, and its long-term success was linked to specific program volumes rather than our material science. The new owner will be better placed to invest for its future. Second, we've built upon our firm financial foundation by taking steps to reduce earnings volatility and cash flow variability and increase financial flexibility. I don't want to steal a lot of Don's highlights here, so I'll limit my comments. We successfully tapped the favorable debt markets to our advantage. We significantly extended our debt maturities by redeeming notes due in 2023. At the same time, we added new notes due in 2029 and 2031. A portion of these proceeds were used to support a voluntary pension contribution. As a result of these third quarter actions, annual interest expense will decrease by about $6 million and pension funding levels improve. Third, as a visible next step in our continuing journey to become one ATI, we promoted Kim Fields to serve as Chief Operating Officer effective January 2022. This officially recognizes the role she's been serving in since December 2020, leading both business segments. Kim's doing a great job aligning the businesses, accelerating execution and streamlining material flows. As markets recover and asset utilization increases, we're better positioned to expand margins and improve cash generation under her leadership. Lastly, we continue to make progress on strategically transforming our Specialty Rolled Products business, taking deliberate actions to create a competitive cost structure. This began last December when we announced our plans to exit low-margin standard stainless sheet products. It includes closing five facilities and concurrently streamlining and upgrading our high-value material flow paths. Those efforts are largely on track. I'll have more on that in a moment. In July, we reached agreement with Specialty Rolled Products union representative employees, ending their three-and-a-half-month strike. Together, we signed a contract that rewards our employees for their important contributions to ATI's overall success. The SRP business is now positioned to be successful in the long term. I'm pleased to say that by the end of September, we've ramped SRP's production rates back to pre-strike levels, with one exception that we're working hard to address. The SRP team did an outstanding job safely getting back on track, accelerating production to meet strong customer demand. You might wonder where we stand on our decision to exit standard stainless sheet products given the current strong market demand. History reminds us that this is a temporary upswing in a highly cyclical business with chronically low margins and high fixed costs. Our commitment to exit hasn't wavered, but our timeline has extended by three to five months due to the strike-related impacts. First, the strike caused us to slow aerospace qualification activities across SRP operations. It also created significant product backlog destined for strategic customers. As a result, at facilities slated for closure, we'll extend a few select operations into the second quarter of 2022. I would have preferred to stay on our original timeline. We're committed to better position our customers for the accelerating economic recovery and take near-term advantage where current market conditions offer a valuable upside. The savings capture will be slowed by a quarter or two. So let me be clear, the overall favorable economics attached to our transformation over the long run remain in place. Turning to our third quarter performance and outlook by market. We're seeing clear evidence of recovery. Momentum is building as volumes return to pre-pandemic demand levels. Let's start with our largest end market, commercial aerospace. Expansion continues unevenly across our product portfolio. In the jet engine market, forgings demand grew for the fourth quarter in a row. This expansion was driven by demand for narrowbody engines, coupled with our 2021 market share gains. Our Q3 results included initial LEAP-1B volume increases to support the expected 737 MAX production ramp. In contrast to forgings, our sequential jet engine Specialty Materials sales declined somewhat. While it appears that our customers' jet engine material inventories are nearing a low point, it's clear that pockets of inventory exist. We also believe there's widespread customer desire to tightly manage year-end inventory levels. We predict these inventory stockpiles will be fully depleted soon, as OEM production rate increases materialize. We expect customer hesitancy to wane over the next few quarters and order patterns to reflect underlying demand once again. Lastly, on Commercial Aerospace, our airframe business expanded sequentially for two reasons: first, post-strike recovery efforts in our SRP business; and second, the increasing orders associated with our new European OEM long-term agreement. Year-over-year airframe sales declined. We expect this market to continue at low levels in Q4 and into 2022 as international travel rates recover more slowly and 787 deliveries remain on hold. Despite the mixed third quarter aerospace performance, there's good news on the horizon. As the COVID Delta variant impact slows and international travel restrictions ease, customers are once again returning to the skies. This market is already displaying strong recovery trends in the form of increased domestic passenger travel, higher global cargo volumes and accelerated fleet retirements. Moving to the defense market. Revenue declined sequentially, largely due to customer shipment timing and the sale of our Flowform business. Year-over-year growth was strong. What's driving growth in the near term? Titanium armor for land-based vehicle programs in the U.S. and the U.K., military jet engine sales and the expansion of new helicopter programs. Longer term, we remain highly confident in ATI defense growth. Our confidence stems from a wide range of new programs and opportunities that can benefit from our advanced materials development and production capabilities. Turning to the energy markets. We saw significant growth sequentially and year-over-year in both business segments. This occurred in oil and gas as well as specialty energy. In our Advanced Alloys & Solutions segment, we produced and shipped most of a large nickel alloy project destined for offshore waters in South America. In our High Performance Materials & Components segment, strong demand continued for our nickel products used in land-based gas turbine production in Asia. The near-term outlook for our energy markets is solid. Global GDP growth and higher travel rates will increase energy demand clearly. Sustainability trends will drive exploration and production of more environmentally friendly energy generation and transmission technologies. All of these are best served with our unique high-performance materials. Let's wrap up our market discussion with our critical applications used in medical and electronics. In medical, sales grew sequentially and year-over-year. Increased demand for biomedical implant materials was driven by low post-pandemic customer inventory levels and increased elective surgery volumes. In Q4, we expect these trends to continue and likely expand to include MRI-related materials. Electronic sales were lower compared to the record-setting levels of the previous quarter and last year, but still very strong. The strong demand for other key end markets required production allocations within our China Precision Rolled Strip facility, constraining, within the quarter, available capacity for electronics products. We also had a planned Q3 maintenance outage at our Oregon facility. Underlying customer demand for electronics remains strong and should continue. I'll wrap up my opening comments by saying I'm confidently bullish on ATI's future. Our end markets are recovering. We're growing our market share. We've aggressively locked in cost-structure improvements. We have significant growth opportunities on the horizon. We've put ourselves in a position to accelerate growth and expand margins. We're executing to win. It's an exciting time for ATI. I'm proud to lead this team as we achieve our goal of becoming a premier supplier of aerospace and defense materials. With that, I'll turn it over to Don to cover our financial results in more detail and provide you with our Q4 financial outlook. Don?

Thanks, Bob. Bob already gave you my opening line. ATI returned to profitability in the third quarter, three months ahead of our expectations. A lot of hard work went into rightsizing the business and putting us on this path for growth. We'll celebrate for a moment, but in reality, we've already shifted our focus to capitalizing on this momentum, further expanding our business and generating shareholder value. Now for the details. Overall, Q3 revenue increased to $726 million, up 18% sequentially and 21% year-over-year. Q3 adjusted EBITDA grew to $80 million, up 49% sequentially and up 381% year-over-year. Q3 performance suggests a revenue run rate approaching $3 billion and an adjusted EBITDA run rate of $320 million. On a reported basis, ATI earned $0.35 per share in the third quarter. We earned $0.05 per share in the quarter after adjusting for a net $43 million of special items. These included gains for post-retirement medical benefits, resulting from the new SRP collective bargaining agreement and from Flowform products divestiture. Strike-related costs were also excluded. To better understand our results, I'll provide some color around each segment's performance. Starting with AA&S, sales grew by 35% sequentially and EBITDA by nearly 60% versus the prior quarter. Within the segment, the SRP team did an outstanding job accelerating post-strike production levels. This was against a backdrop of strong customer demand and elevated pricing opportunities. Their efforts produced tangible results, bringing us back to first quarter 2021 production rates by the end of September, as we had predicted. Our Precision Rolled Strip business in China once again had record sales and earnings due to continued strong demand across a variety of end markets. AA&S segment Q3 performance also compared favorably to Q3 2020. Revenue increased $49 million, and EBITDA increased $46 million. This impressive earnings growth was powered by increased market demand, higher HRPF toll conversion volumes, streamlined cost structures and metal price tailwinds. HPMC Q3 sales and earnings were in line with the second quarter and much improved from the third quarter of 2020. Sequential forgings growth from commercial and military jet engine sales was offset by a quarter-over-quarter decline in Specialty Materials jet engine revenues and the impact of selling our Flowform business in Q3. Earnings and margins were consistent sequentially. We offset a weaker product mix, driven by increased energy market sales with operational cost improvements. HPMC sales were higher year-over-year in every major market, led by commercial aerospace. Earnings and margins expanded significantly in Q3 versus the same quarter in 2020. This is a result of our decisive 2020 cost-cutting actions, jet engine share gains, and contractual margin improvements. Let's move to the balance sheet. Late in the third quarter, we issued two debt tranches totaling $675 million. $325 million of the notes are due in 2029 and bear interest at 4.875%. $350 million of the notes are due in 2031 and bear interest at 5.125%. Proceeds from these notes were largely used to redeem $500 million of notes due in 2023, bearing a 7.875% interest rate. The financing brings several benefits, including $6 million in annual cash interest savings, significantly lower interest rates and a much improved debt maturity schedule. Excess proceeds from the financing were largely used to support a $50 million voluntary pension contribution in the quarter. I will come back to our pension glide path in a moment. After redeeming the 2023 notes in mid-October, we had more than $800 million of liquidity, including approximately $440 million of cash on hand. Third quarter managed working capital levels improved sequentially but remained above our target. This was largely due to SRP strike recovery efforts. Q3 SRP sales were back-end loaded, increasing quarter-end accounts receivable. We also ramped production in the quarter, but we're unable to fully eliminate inventory backlogs before quarter end. We expect significant reductions in managed working capital levels, well below 40% of revenue across the company in Q4. Returning to pensions. Our $50 million voluntary contribution is the latest action in our plan to improve pension funding levels and reduce related expenses and contributions over time. In the third quarter, we completed our fifth pension annuitization effort. This lowers overall participation by nearly 1,000 people and shifts approximately $70 million of assets and liabilities to a third party. We have seen favorable asset returns and planned discount rate movements so far in 2021. If that holds through the end of the year, we may see a meaningful improvement in our pension-funded status at the close of 2021. Now let's take a few minutes to discuss fourth quarter outlook. In HPMC, we expect the jet engine-driven recovery to accelerate and broaden across our product portfolio. After several strong quarters, sales to specialty energy markets will likely decline. We anticipate continued commercial aerospace forgings growth. We also expect additional defense sales and to benefit from a large discrete commercial space project. These changes should result in improved mix sequentially. For AA&S, we anticipate improved financial results in our SA&C business. This is due to defense and medical volumes increasing and expenses decreasing after our seasonal Q3 maintenance outage. In our SRP business, several pieces of equipment will take extended outages in the fourth quarter in support of our strategic transformation. First, we'll idle a finishing line to upgrade its high-value specialty materials capabilities; and second, we'll idle a melt asset to allow finishing operations to process post-strike backlogs. The outages are expected to negatively impact cost absorption and increase cash expense in the fourth quarter. We anticipate a return-to-normal capacity levels in Q1 2022. Lastly, we anticipate our China Precision Rolled Strip business to experience its normal seasonal slowdown in the fourth quarter due to lower post-holiday electronics demand. Additionally, we expect to recognize a $7 million benefit in the fourth quarter from a retroactive 2021 tax credit in China. In aggregate, we anticipate building on our improved Q3 results on both the top and bottom line. We expect to report adjusted earnings between $0.07 and $0.13 per share in the fourth quarter, despite the SRP strategic outage costs. Incremental margins will fully reflect our cost structure leverage as sales expand, largely in our HPMC segment. This growth should propel our fourth quarter earnings to 2021's high point and lead to further profit expansion in 2022. This guidance range translates into a year-end EBITDA exit rate that's more than three times greater than year-end 2020. In other words, in four quarters, we've more than tripled our earnings trajectory. As Bob said earlier, it's an exciting time to be at ATI. We are back in the black and see a steady climb out of the 2020 earnings trough. Before I hand the call back to Bob, I want to affirm the free cash flow guidance provided in early 2021. Excluding pension contributions, we expect to be free cash flow positive for the full year 2021. The team has worked hard to put us in a position to be successful, and they are committed. Work remains to close out the year, but I'm confident that we'll hit the mark. We demonstrated significant progress in the third quarter and fully expect to exit the year on a high note.

Thanks, Don. I'll close with four important points. Number one, ATI is focused on growth with the cost structure we need for success. Number two, we're well positioned in key markets to achieve higher than GDP growth over the long term. Number three, transformation of our product mix is largely on track and will deliver significant benefits. And number four, our people, the ATI team are the core of our competitive advantage. Together, we've accomplished much during an extended period of uncertainty, challenge and change. I laugh a little when I hear financial experts and market pundits describe what we've collectively weathered as headwinds. That's a tad bit understated. The ATI team has persevered to do what needed to be done, working safely and responding with urgency, always with the long-term interest of the company and our shareholders in mind. Has it been easy? No. Have we occasionally had to first convince ourselves it was possible and that we could do it? Yes. But to be clear, we've done what needed to be done. I'm proud of what we've accomplished together. Most importantly, I thank our team for all they've done and the enthusiasm they have for everything that is yet to come. With a clear strategy and consistent focused execution, we're accelerating our velocity to a very successful future. With that, I'll ask the operator to open the line for questions.

At this time, we will pause momentarily to assemble our roster. And the first question will come from Richard Safran with Seaport Research Partners.

I have two questions. First, I wanted to clarify something about HP. It was noted that sales were driven by energy and aerospace, but select defense was down. Bob mentioned that higher forgings were offset by Specialty Materials. If I'm correct, materials typically have a longer lead time. If aerospace production is increasing, why would materials be declining? Based on your comments, I'm assuming it's strictly due to destocking. Also, I think you indicated that the issues would be resolved soon. Should I understand that to mean there might be an impact in Q4 but not likely in 2022?

All right. Rich, I'll take that question. A couple of things. You're right. The forgings business, a great example of that was the LEAP-1B. I'll give you a little factoid there. So in Q3, we shipped more LEAP-1B forgings than in all of 2020, right? So when you think about that, what you're seeing is the accordion effect of the supply chain. So the first thing we had to do is get the forgings to the customer. Now we're pulling through kind of some trapped inventory that was there, the billet that we supply or other supply. And then as that gets depleted here at the balance of the year and end of the year, which I think is a fair assumption that it will be gone towards the end of the year, so by the time we get to 2022, we should see a better synchronization of forgings and that longer lead time billet item. There's still some pockets out there, customer-specific, alloy-specific, depending on batches and pull rates. But we're definitely seeing it in the engine side where the demand and the order book, we're booking. If you wanted to order today, it would be early Q2, probably for some of the longer just for forgings and some of the billets. So we're starting to see that demand build. We're obviously adjusting our crewing and capacity to accommodate it. So I think I answered your question, which is it's the accordion effect of pulling inventory out. And yes, we expect that supply chain that we're part of to kind of be back to kind of quarter demand levels and in sync with demand as we enter into 2022.

I wanted to see if you could elaborate on your cash flow comments, looking beyond just 2022 and taking a long-term perspective. Could you talk about the key factors that impact your cash flow, focusing on trends rather than just improvements in net income? For example, you briefly mentioned cash pension, working capital trends, depreciation and amortization, capital expenditures, and other factors. I'm interested in understanding the significant elements that drive your long-term cash flow outlook and how you're approaching this.

I'm glad to provide that information. While you noted not to focus on earnings, I must mention that profitability will be a primary factor in cash flow generation. As we have previously discussed, our potential for increased profitability aligns with the recovery of our end markets. This is crucial. Based on the 2019 volume and mix, we anticipate generating over $600 million in EBITDA, which is significant. Following earnings, another important aspect of cash flow is managing working capital. We are committed to achieving our target of less than 30%. This means we aim to reduce our managed working capital to below 30% of revenue. We have achieved this in the past, but it may take us a couple of years to reach this goal, given that we ended last quarter above 40%. By Q4, we expect to be well under 40%, potentially in the mid-30s range. When considering our goal of under 30% in two years, you can visualize it by drawing a line from our Q4 exit rate. Another significant factor is capital expenditures. For maintenance CapEx, you should factor in about $70 million to $80 million annually as a starting point, keeping in mind it can fluctuate. When we include growth CapEx, we initially planned to spend around $200 million to $210 million on total CapEx in 2020 prior to COVID, but we ultimately spent around $150 million due to deferrals. As we move out of the downturn and into recovery, we will complete projects that were initiated before the pandemic. Going forward, the maintenance CapEx will guide our overall spending, and any growth CapEx will align with long-term agreements and market demand from our customers. Therefore, our overall CapEx will certainly exceed the maintenance level. These are the primary factors we consider when assessing free cash flow generation. I hope this is helpful.

Yes.

The Q4 adjusted EPS guidance, taking the midpoint at $0.10, Bob, is that a suitable starting point as we plan for next year, considering all the factors involved with the exit from stainless and the fluctuations in metal prices? How should we approach building on that as we create our models for next year?

This is Don. I’ll address the question first, and if needed, Bob can add more. In terms of our exit from 2021 regarding earnings, the guidance of $0.07 to $0.13 is a useful reference. However, there are a couple of important considerations. First, we have a planned strategic outage in Q4 within our SRP business, which is part of transforming it into a specialty products business. This will incur some expenses in Q4, likely around $10 million as a rough estimate. Additionally, there’s a $7 million benefit on the tax line. When projecting our EPS, keep in mind that this $7 million on the tax line is a one-time item received in Q4 and shouldn’t be applied to all quarters in 2022. For evaluating our future earnings, consider our Q3 run rate, which was nearly $3 billion in revenue and $320 million in adjusted EBITDA. This signifies a significant turnaround in our business, largely due to the ongoing transformation changes, cost reductions made in 2020, and the efficiencies we continue to implement. Furthermore, we are anticipating a recovery in our key end markets, with aerospace being particularly strong in terms of profitability. I hope this information is helpful.

Yes, it does. To clarify the cash flow question, Don, you are forecasting a $600 million EBITDA. What rate can you convert EBITDA into cash? Including pension, is it a 30% conversion? A 40% conversion? What do you consider to be the appropriate conversion rate of EBITDA into free cash?

I would prefer not to provide just a straightforward percentage. Instead, I want to share some data points. When starting with EBITDA, it's important to consider cash interest, which currently amounts to about $100 million annually. Taxes shouldn't significantly affect your projections as we are tax-shielded. Additionally, consider working capital in your modeling. We firmly believe we can return to our previous levels, which were around 30%. While we have work to do to get there consistently, we are confident in our ability to achieve this. It's also crucial to determine the growth CapEx for any given period. You already know our maintenance CapEx, and for 2022, I would refer back to the $200 million of total CapEx we provided at the start of 2020 before COVID emerged. With these data points, you should be able to assess how to think about conversion.

Okay. And sorry, last one. Next year, including whatever you do from a pension perspective, would you expect free cash flow to be positive? So including pension, not excluding pension?

Well, that is certainly our target. Positive free cash flow is always our goal. We recognize the value creation that comes with generating positive cash flow. Regarding pension contributions, we are on a pension glide path, and we are excited about potentially exiting the pension business. In 2021, we contributed $67 million to our pension plan, while our minimum required contribution is around $10 million to $12 million. As you consider free cash flow generation and conversion, you should expect us to continue making contributions in the range of $50 million to $70 million over the next two to three years. However, our ultimate aim is to reduce our net pension obligations to a minimal level, making them irrelevant both to you and to us. We are on track with that plan, which is very encouraging.

So the way that we're essentially looking at the fourth quarter with all the moving pieces here, and I think you hit on with David, and I don't want to get expectations too far out of the balance is that EBITDA, plus or minus, should be reasonably similar to Q3, because you got HPMC moving up and you have AA&S moving down largely on the outage. Is that the way to think about it?

I think that's good math.

And then regarding your free cash flow being modestly positive or breakeven for the year, excluding pension contributions, is the pension contribution number $67 million this year? Is that...

Yes, that's it. We're not anticipating making any additional pension contributions in 2021.

But that's the right number to be using, $67 million?

Yes. That's right. Yes, you've got it, Phil. I think you can expect our SRP business to improve as we have built our managed working capital for SRP. We are still addressing the backlog from the strike and anticipate being through it by the end of this year. Additionally, I would say that the backlog will likely remain consistent at the end of Q4 compared to the end of Q3. What would you like to add to that, Bob?

Yes, I think that's right. I think, Phil, the way we're looking at it is kind of where are our lead times going and what's going on in the industry. So what we see for our Specialty Materials business is that lead times through the pandemic were less than 90 days. Now they're moving out to closer to Q2. So 120, 150, 180 days. So we're getting to the point where we're starting to see the orders actually align with this demand ramp. So from a backlog perspective, I think the lead times are the best indication that HPMC is really seeing the increase in the order book.

Okay. And then last one, just from a housekeeping perspective, on debt reduction, the refinancing didn't fully gel in 3Q in terms of the actual balance sheet. So how much debt, including accrued interest and other things, should we expect to be coming out of Q4 as those bonds are retired?

So the headline numbers on that would be, we had $500 million of par outstanding at the end of Q3 that we took out. We also paid about a $70 million premium to execute that redemption. And then both of those events obviously happened in mid-October. And then from an interest standpoint, there's about $6 million of interest that we ended up paying related to that redemption.

Just wanted to ask first about HPMC and the forging ramp that's ahead. Obviously, we've heard in a lot of different places about some of the challenges in ramping. It's historically been a challenge in aerospace forgings. I guess how prepared you feel for what's there in Q4? And what kind of work do you have to do for 2022?

Yes. So I think we're in good shape in our forging business for Q4. We actually supply a lot of the billet that goes into our forgings. So we feel we're in pretty good shape there. We do have isothermal forging and heat-treating capacity that we slowed down during the pandemic. That's coming and getting qualified here. So we feel really good going into 2022, 2023 with the capacity that we're going to have in place. And the things we're working hardest on at the moment are getting our workforce and our labor force back. And we have a pool of prior employees or people that got laid off as we went in. And so we're in the process of calling them back in Q4. Our headcount issues, probably we're going to end up increasing our headcount as we go into next year by 5%, 6% from where we are today, mostly on the direct labor side, and that's where we're spending most of our time. And it's the hiring and then followed by the requisite training to get them in the right spot. But we recognize the importance of getting our staffing in place. I would say our HR team is fully engaged in making sure we get people back. And our team has done a great job to avoid a lot of the COVID-related disruptions. But we obviously keep our eye on that, too. So I think the #1 issue for us is making sure our crewing is in place as we go into 2022.

Okay. Great. Great. And then, Don, I think you mentioned that if the year ended today, the pension liability will have shrunk from year-end. Can you tell us what that would be if the year ended today with today's discount rates and returns and the contributions that you made?

It's a fair question, but I'm actually not going to fully answer it, largely because there's a lot of science, a lot of work that has to be done around that. But what I can say is that we love the direction that key movers are going. And just for some context, when you look at the discount rate and the volatility around discount rates, for every 50 basis point move in discount rates, it has a $150 million impact on the liability. And so if we were to see just a 50 basis point move in discount rates in our favor, then we would see $150 million good guy in our balance sheet, right? And I don't want to share with you how much have they moved so far this year because then, that kind of, I think, takes us into a level of detail I'm not prepared to talk about. But there are indicators of good guys, and we're certainly managing with the expectation that we'll continue to have very good returns on our investments. I think our advisers and our team have done a good job on that. And then there's not a whole lot we can do about discount rates, but we can at least cross our fingers and hope they hold or maybe even go even more in our direction.

Good results.

Thanks.

I have a couple of questions. First, what are you observing regarding titanium demand in 2022, especially considering the situation with Boeing's 787 inventory and the ramp-up of the 737? Do you have clear insights from the Boeing supply chain on what your titanium shipments will be next year? Will they increase or decrease compared to 2021?

Yes, good question. And we probably have more visibility than we'd like at times as to what's going on with titanium. So I'm going to limit the titanium question to airframe specifically. And then if you want to follow up, we'll go further. So I would say that 2021 is pretty much the low point, but 2022 will probably be flat to that on the titanium. I'll call it the mill product side that goes into airframe from the big B perspective. One of the benefits we have that offset some of that is a growing share position with the European OEM with our new long-term agreement there. So we should actually see our shipments be flat to up in 2022 for titanium mill products. But I think the industry will see flat through 2022. And it's really going to take, as you suggested, the 787 is going to have to come back to have some level of confidence. And certainly, the 737 needs to get to 31. Although from a titanium standpoint, it's really the 787 decision that I think we're all waiting for. Now we've taken a lot of our in-process inventory down, but there's a lot still in the pipeline. Did that help?

Okay. That's very helpful. To expand on the engine side regarding titanium and industrial titanium, do you have any insights on 2022 for both of those markets?

I think on the engine side, we see going up, and we see it going up for a couple of reasons. One is obviously the planes that are flying are the next-generation engines, for sure. Obviously, that's a big nickel part for us. In the industrial titanium area, we actually see very strong global demand there, which has been positive. We don't talk much about that because most of the questions we get are aerospace related. But I would say, industrial titanium will be up. And I think on the engines, we should see similar kind of growth rates as we're seeing in the forgings and billet business, not stellar and titanium because of the airframe problem. But other than that, it should be good enough.

Yes. Before I hand it over, I wanted to mention that Specialty Metals Corp is currently facing a strike. Are you experiencing any share gains that are not directly related to the GE contract you signed, which obviously increased your share? Given the challenges competitors are facing, whether due to strikes, supply chain issues, or other factors, have you noticed an improvement in emerging demand in any of the end markets? If so, could you provide some insight into how long you expect that to last?

Yes. All right. I always have to make sure my attorneys are happy when I speak on a call like this, Gautam, but I'll answer your question. The answer is yes. We are seeing opportunities emerging from other competitors' supply disruptions. And I would say it's hard to quantify how long any of these labor disruptions or these supply disruptions will last. But we are seeing it, and it's a good business for us. And then about half of what we get in emergent gets converted to LTAs, right? So the first calls you get are transactional calls, and then the next opportunities are certainly converting those to LTAs, which is our goal. So I think it's a combination of nickel and titanium opportunities across the board. But is it going to move the needle significantly for the company? It's probably going to be in our Specialty Rolled Products business is where we're seeing a lot of opportunities, a little bit in Specialty Materials. But it's been positive for us. We're just glad we resolved our issues and have moved on.

The next question will be from Josh Sullivan with The Benchmark Company.

Just a follow-up on the titanium theme. Your raw titanium supply agreements, have you seen any impact from the magnesium shortages? Or as you just noted, our current inventories and demand for '22, just not a huge pull in that right now anyways?

Yes. I think the simple answer to the question on mag is no. We haven't seen any major issues yet. We watch it because it's an indicative issue of all other kind of supply chain issues that are out there, but not yet, right?

Got it. And then on the commercial space project, the discrete one that you mentioned, is this an existing customer that's switching material? Or is this a new customer?

It's a great question. This is a long-term customer involved in the space industry, supplying for commercial space activities. I would describe it as a bulk purchase since they're essentially buying in advance. This seems wise given that the capacity they require could be consumed quickly due to the growing recovery in commercial aerospace. So, it’s a significant multiyear purchase, and we're pleased to have it as it effectively utilizes our material science and advanced process technologies. Does that address your question, Josh?

Bob, Don and Scott, just, I guess, a question on 787 given the issues they had in Q3. Do you think your shipments for that program were in line with 5-per-month production? Or you were running lower than that during Q3?

Good question. I believe we are still quite a distance from aligning with the target of five. We are likely performing below that level. The situation with titanium, due to COVID and various other factors, has become quite challenging. It might not be the worst ever faced by the industry, but it is significant in terms of resolving these issues. The primary challenge we faced was the large gap between double-digit deliveries for the 787 and the target of five. This is likely to prolong the destocking process, which we initially expected to be completed by the third quarter, but it seems it will now extend through the end of the year, primarily due to the destocking concern. There is an interest from that specific OEM to find a smooth and cost-effective solution. We are observing some progress, but only to a certain extent. To answer your question directly, we have not yet reached the optimal level. We are still addressing the destocking challenge. Therefore, the recovery of titanium is expected to take longer than anticipated, moving from midyear to possibly the end of the year to catch up.

Got it. Got it. And then how should we think about your Specialty Rolled Product sales in the next two quarters as you exit some commodity business? Should it be down, say, about $100 million sequentially in Q4 because you idled, what, $400 million, $500 million of capacity? Or some of that was already captured in your Q3 results?

Yes, I think it will not decline. The challenge we are facing is that we will experience some margin compression due to our ongoing transformation and the work we are doing to address the outages. However, I believe we will see approximately 10% growth in revenue. The reason Don mentioned the outage issue is that we are currently addressing a $10 million maintenance concern. Is that correct, Don?

Right. And then the outage, of course, was related to SRP.

Right, the overall business.

All right. Thank you.

Thanks to everyone who's joined us today. We appreciate your continued interest in ATI. This concludes our third quarter 2021 earnings call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.