Ati Inc Q2 FY2023 Earnings Call

Thank you. Good morning and welcome to ATI's Second Quarter 2023 Earnings Call. Today's discussion is being broadcast on our website. Participating in today's call to share key points from our second quarter 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 that can be found on our website at atimaterials.com. After our prepared remarks, we'll open the line for questions. As a reminder, all forward-looking statements are subject to various assumptions and caveats. These are noted in the earnings release and in the slide presentation. Now, I'll turn the call over to Bob.

Thanks, Dave. Let me begin by welcoming you to the ATI team. We're really happy to have you with us, and we're seeing the impact of your presence already. So thanks for being here. We reported another strong quarter with sequential top line growth and margin expansion. We've accomplished a lot, and I'll use my time this morning to focus your attention on the three highlights about the quarter that I think are most important. First, our core aerospace and defense markets are strong. We continue to grow in A&D, both in absolute dollars and as a percentage of our total revenue and income. Why is this so important? Q2 A&D sales increased 5% over the prior quarter and 39% over Q2 of 2022. Specifically in defense markets, sales surpassed $100 million in the second quarter. This is up 7% from the prior quarter and 25% year-over-year. There's sustained demand in materials for military ground vehicles, rotorcraft, and naval applications. Looking longer-term, we're playing a key role in the advancement of hypersonic technologies, an area with significant growth opportunity for our highly differentiated materials. Demand continues to accelerate. Our order backlog is up more than 20% from the beginning of the year, reaching $3.5 billion at the end of June. When you put it all together, strong sequential top line growth in sales, increasing productivity, a very healthy backlog, we're in a very robust part of the cycle with the best still ahead of us. Our percentage of ATI overall revenue attributed to aerospace and defense is now 58%. Just a year ago that number was 46%. We're making rapid progress toward our A&D sales goal of 65%. Highlight number two, our strategic transformation continues to deliver greater and greater benefits. Our High Performance Materials & Components segment is hitting its stride. Sales in this segment grew 12% quarter-over-quarter and 33% year-over-year, driven by ramping commercial aerospace production and robust defense demand. Equally important, HPMC EBITDA margins increased 350 basis points sequentially to 20.5% of sales. This increase was driven by improved overall pricing, mix, and volume. All three are enabled by the continued realization of efficiencies in our operations. Our operating teams are doing great work, continuing to improve efficiencies and debottleneck our critical production flow paths. The team also recognizes that we're not done improving. We still have work to do to improve the velocity of inventory through our system. We're not where we want to be on managed working capital as a percentage of sales for a variety of reasons that Don will provide color on shortly. But I'm confident we'll see tangible improvement in this metric in the second half of the year. Highlight number three, ATI adjusted earnings per share was $0.59, landing at the top end of our guidance range. It all starts with doing what we say we will do and delivering on our commitments to our customers and our shareholders. And we did this in the face of challenges, including continued recessionary headwinds in the industrial markets served by our Advanced Alloys and Solutions segment. Our Asian precision rolled strip business is stabilizing but not yet in recovery, and we’re experiencing continuing late deliveries directed by forging billet supplied by third parties. Q2 was a strong, very productive quarter for ATI. It's one more chapter, and there's more of this story to come. I'm excited to talk about how we see this quarter's results leading us into a strong second half of 2023 and beyond. I'll provide more on that in a moment. But first, Don will share his take on these results and our guidance for the second half.

Thanks, Bob. Following those same headlines, I'll add some more color on our results and financial trajectory. First up, we are increasing A&D content. This is directly in line with our strategy to expand our aerospace and defense leadership. Reaching a near-term high, 58% of ATI's Q2 revenue was driven by A&D. This is up 1,200 basis points year-over-year and up 200 basis points sequentially. With strengthening demand, A&D offers some of our highest margins and projected sustained growth. Our goal for A&D content is 65% or higher of our total business. A&D should continue to drive growth for ATI, and we project it will be greater than 60% of total sales by year-end. Within A&D, sequential jet engine sales increased 10% and defense sales rose by 7%. Strong trends, we expect to continue. Turning to headline number two, margin performance. ATI's overall adjusted EBITDA margin increased to 14.3%. That's an increase of 150 basis points sequentially, driven by our HPMC segment. Overall, adjusted EBITDA increased by 13% from last quarter and 5% year-over-year. Let's take a closer look at HPMC's Q2 results. 2023 Q2 sales increased $56 million or 12% compared to the first quarter of 2023. Remember, A&D content makes up 83% of total Q2 HPMC sales. It's a key driver in the 33% year-over-year increase in HPMC revenues. Another positive in our HPMC performance was a reduction of our lingering cost inefficiencies from 2022 and Q1 2023. As expected, that roughly $5 million headwind incurred in Q1 declined this quarter. The improved mix and efficiencies are clearly visible in HPMC's adjusted EBITDA margins, which improved 350 basis points sequentially to 20.5%. Our 2025 targeted EBITDA margins for HPMC are in the low to mid-20% range. This puts us in line with those 2025 targets. Strength in HPMC offset flatness in our AA&S segment where we saw a sequential sales decline. That was primarily due to softness in general industrial end markets and lingering economic impacts associated with our Asian Precision Rolled Strip business. We're doing a lot of things well, and it shows in our results. One area that we know there's opportunity for improvement is managed working capital. It's an area of critical focus for ATI and our leadership team. At the end of the second quarter, managed working capital was $1.6 billion or 39% of sales. This balance drops by 120 basis points when adjusted for a $50 million strategic raw material purchase we made in Q2. That purchase was funded with a draw on our ABL revolver. We expect that strategic inventory largely to be consumed and the ABL draw to be repaid by the end of the year. What else is driving higher working capital? I would point to three things. First, we've put inventory into position for the continuing A&D ramp. As Bob noted, our backlog has grown more than 20% year-to-date, including 9% growth in Q2. Second, our production rates are improving, which can create inventory spikes as we work to solve downstream bottlenecks and constraints. And third, we have inventory associated with expanding titanium melt capacity ahead of ramping sales. The good news is all of these drivers lead to higher sales earnings and cash generation. We focus on inventory for our purpose. Ramping ahead of new revenue is the best purpose I could think of for near-term inventory increases. We are focused on hitting our 30% managed working capital target by year-end, and we're confident we will deliver. We have equally sharp focus on efficient and strategic capital deployment. Our CapEx for the first half of 2023 was $103 million, which includes $38 million of carryover related to capital expenditures accrued at the end of 2022. Overall, we remain on track in 2023 with our disciplined capital investment plan. We're holding our previous annual CapEx guidance of $200 million to $240 million. It's important to emphasize this guidance includes expenditures associated with our recently announced titanium melt expansion in Richland, Washington. We're managing the challenges of working capital in concert with prudent and focused capital expenditures. Therefore we are holding our annual range of free cash flow at $125 million to $175 million. Expanding on cash management, we generated $68 million of cash from operations in Q2. We ended the quarter with total liquidity of approximately $770 million. This reflects $267 million in cash and $500 million available under our ABL facility. We remain committed to our balanced capital deployment strategy, which includes returning capital to shareholders. In last quarter's call, we announced the next tranche of share repurchases with a $75 million buyback program. While we did not repurchase shares in Q2, we expect to complete the $75 million program by the end of the year. And our third area to highlight is that it was a strong quarter for earnings per share. At $0.59 per share, adjusted EPS was at the high end of our guidance range and $0.03 above the midpoint of the range we provided. The higher performance reflects favorable price and mix tied to A&D growth; this was partially offset by slower industrial demand and moderately lower raw material metal prices. This positive performance builds on our results from the first quarter. This was our fourth consecutive quarter in which revenue exceeded $1 billion. Our revenue of $1.05 billion represents a 9% increase year-over-year and reinforces the sustained strength in demand. We are confident in our position as a premier aerospace and defense supplier. Now, let's look forward to Q3 and full year guidance. For the third quarter, we expect adjusted EPS to be in the range of $0.51 to $0.57. The midpoint of the range, $0.54, is below Q2, driven by planned facility outages in the third quarter. It also reflects our expectation that sales in our Asian Precision Rolled Strip business will continue to be pressured due to China's economic conditions. We are also assuming the slowdown in industrial demand will continue in Q3. We are raising our full year EPS guidance to a range of $2.15 to $2.35 per share. You can use the full year and Q3 EPS guidance to get a sense of how we're thinking about Q4 performance. Assuming Q3 and full year EPS are at the midpoint of their respective ranges, then Q4 EPS would be in the range of $0.63 per share. That will be a strong finish to a great year and will provide nice momentum as we move into 2024. What would drive an EPS increase in Q4? Continued robust A&D demand, contributions from the restart of the 34th Avenue facility in Albany, Oregon, and continued operational improvements. With that, I will turn the call back over to Bob.

Thanks, Don. We've covered a lot this morning, and I can sum it up in one simple statement. We are confident. Look at markets recovering, demand accelerating, focused and disciplined execution, a stronger backlog than we've had in a long time, if ever. It's a great picture, I think of where we are and a very positive trajectory going forward. We're converting near-term demand into long-term agreements. In June, we announced that we've secured over $1.2 billion in new commitments. That's an average of $200 million in new sales per year from 2024 to 2029. Of this, roughly 70% is incremental to our announced 2025 targets, assuming a targeted incremental EBITDA margin of 30% to 35% on these sales, and the result is an estimated additional $40 million to $50 million of EBITDA per year above our previously announced targets. The collective commitments encompass nickel and titanium materials for aero engine and airframe applications and ground vehicle armor. They represent new share positions and support sustained future growth. To meet this rising demand, we continue to increase critical capacity to ensure we can meet the needs of our customers. It starts with getting more from existing assets. Our restarted Albany, Oregon titanium melt shop is producing at the target levels in the third quarter. That's a key component of delivering the 35% increase in capacity on our 2022 baseline. We're already producing ingots at that location. We'll see the positive financial impact from this capacity as the ingots get shipped as end products starting in Q4. A few quarterly calls ago we announced even more expansion to deliver incremental titanium melt capacity. Last month we named our existing operation in Richland, Washington as the site of that build. The expansion is well underway. As we shared previously, it will increase ATI's titanium production by an additional 35% over our 2022 baseline. This additional increase is projected to be online by the end of 2024. Additional product qualifications will occur in 2025, and we expect revenue and profits to reach their full run rate in 2026. Added together, a 35% increase from existing assets, including the Albany restart, plus 35% from the expansion in Richland, a 70% increase in capacity to support $1.2 billion in confirmed commitments. To say the least, we're well positioned for a strong future. It's important to highlight that the expansion in Richland has capabilities in addition to capacity; we'll have the flexibility to produce both standard and premium quality to serve both airframe and aero engine demand. We gained speed and flexibility in the form of extraordinary chemistry control and the ability to input both recycled and prime materials. We continuously refine and advance the mix of capability and products we deliver for our customers to drive the most value for our shareholders. Our strategic transformation has reduced volatility in our quarterly results related to raw material pricing. It stabilizes the consistency of our quarter-on-quarter performance and fuels strategic growth and value creation. So wrapping it up, what are we confident about? Well, we're confident in our strategy, laser-focused on the strong A&D market. We're confident in our execution. The team is delivering for our customers to meet this ever-growing demand. And we're getting stronger every day, unlocking opportunity and operational efficiencies across all of ATI. We're confident in our growth in a disciplined way; we're adding capacity and capability. That gives me confidence in our performance today and what we'll achieve long term. We're confident in the shareholder value we provide by doing what we say we will with a clear path to go beyond. And last but not least, I'm confident in our team. We're working together across the enterprise, constantly pushing ourselves to higher levels of performance. Each new production record reset brings more ideas and drives us to strive for more. We've created a system that leverages collaboration and accelerates improvements. I'm honored to lead this team forward. Our success is a large part of why we were delighted to add the role of President to Kim Fields' responsibilities as Chief Operating Officer. The team is performing and optimizing our business. Now, it's great to take a minute to recognize the impact her leadership is having. Our customers feel it. Our shareholders are certainly seeing it, and our team is responding to it. Titles are first earned and not given, and often well before they're given, they're earned. So thank you, Kim. We're in a great position to grow. It's one of the things that makes us proven to perform. Operator, we're ready for the first question.

Thank you. Our first question comes from Richard Safran from Seaport. Richard, your line is open. Please go ahead.

Thanks. Bob, Don, Dave, good morning. How are you? Don, I think this first one may be for you. And then Bob, if it's okay, I've got a quick follow-up. I'd like, Don, I'd like to ask if you could expand on those comments you were making at the Paris Air show, the $1.2 billion in new contracts. I'm kind of wondering if this work is merchant accretive and how also we should think about what that does to your 30% to 35% incremental margin comments that you've made. Thanks.

Okay. Let me take a run at that. The short answer is, yes, they should be accretive. And let me walk you through the math on that. So, we've shared is $1.2 billion of sales commitments over a six-year period. So you spread that out, you expect about $200 million a year and of that, as we think about our 2025 targets, about 70% of that $200 million in annual revenue is incremental. And then, as you think about the margins on that, Rich, I think in terms of 30% to 35% for that new business that we're picking up. Of course, the math on that then indicates, we're going to have probably between $40 million and $50 million of incremental EBITDA that's going to be generated from that new business. As you think about, well, how does that affect our existing EBITDA margins for targeted 2025 and then those 30% to 35% incremental margins for the overall business? The short answer there, yes, this should be incremental. And the way to think about the incremental effect, and I know you're going to do the math on it, but the math is going to prove out that it's probably 30 to 40 basis points of enhancement to our incrementals, which we typically range at 30% to 35%, and it would have a similar effect you would expect to the 18% to 20% kind of EBITDA margin that we've targeted for 2025.

Okay. Thanks for that. Bob, something you've done before. I'd like to ask you again about titanium trends. Specifically, could you talk a bit about share gains, orders, where lead times are? And if possible, pricing, and that's because some of the comments you've made previously I think about not taking on dilutive work. So, any color you could provide on titanium trends would be helpful. Thanks.

Thank you, Rich. We are currently focused on expanding our capacity and optimizing our operations. Because of the enhancements we've implemented, we are in a stronger position to access more profitable business opportunities. This shift means that some previous limitations have opened up for us. To illustrate, let's use the $1.2 billion we announced as a baseline for our market share gains, with approximately two-thirds of that from titanium and one-third from nickel. The gains in titanium stem from our increased market share following the geopolitical shifts caused by the Russian invasion of Ukraine. The nickel share we gained is due to our superior performance in quality. We anticipate significant benefits from these titanium share gains in 2023, though we won't quantify them yet. By 2024, we expect to see a strong impact. With regard to lead times, they reflect our backlog, which has increased by 20%. A few quarters ago, we advised anyone interested in ordering titanium to secure contracts, and we have received a substantial number of orders. Current lead times for titanium bars extend to Q4 2024, and for plates, they could reach Q3 2024 or even into 2025, depending on customer commitments. We might have some transactional opportunities in Q2 of 2024, but overall the market is tight. As we ramp up operations at our Albany facility, the availability for late 2023 is dwindling. This situation positively impacts lead times for titanium. Concerning pricing, it remains a seller's market as customers seek secure and reliable supply. We're achieving good value based on our reliability and quality, and we are seeing appropriate price increases reflecting our current market stage. I hope I addressed all your questions, Rich.

You did. I'd just like to go for efficiency. Thanks, Bob.

Thank you. Our next question comes from Seth Seifman from JPMorgan. Seth, your line is now open. Please go ahead.

Hey, thanks very much and good morning. For first question, I wanted to ask about HPMC and the strong margin we saw in the quarter and the degree to which mix may have played a role there. I saw the engine sales look like they picked up again sequentially. Are there particular products that you started to sell in the quarter that contributed to the profitability in Q2? And how does that factor in going forward if it did in fact have any impact?

That's a good question, Seth. Good morning. I think from a mix perspective, I would say our comment about hitting our stride is probably the biggest issue. It probably had a slightly larger mix of ingot, billet, and bar, which are some of our great products. I think we're also seeing some of the isothermal forgings kind of picking up. I wouldn't say we've seen the start of the widebody recovery per se but those are the kind of products that end up heading towards the wide-body market. So I would say modest mix. I would say a lot of it is volume revenue and efficiencies that come with that. And certainly, the price with these contract upgrades have been positive. So, yeah, I think those are probably the big ones. Don, did you have any color you want to add on that?

Yeah. I think for context, Seth, as you think about the $28 million increase in our sequential EBITDA and that nice expansion on the margin, as you look at it, Bob is absolutely right. It was really all about volume and it was price/mix. But if you want to get a sense as to which of those two really drove it, it was probably two-thirds price/mix driven and about one-third related to volume. So really nice overall contribution to that growth from demand, really.

Thank you. As a follow-up, I'm curious about A&S and the non-A&D demand challenges that segment is facing in the end markets. How do we view the current situation? Did we finish the quarter with demand signals still declining? How did this influence the EBITDA projections for A&S for the remainder of the year, or are we anticipating a more stable outlook?

That's a great question, and it's something we're consistently monitoring. It’s approximately 15% of the segment, mainly tied to the industrial markets you mentioned. I anticipate we’ll experience a slight decline in Q3, stabilizing by Q4 and then recovering in Q1. This decline seems to be a temporary issue influenced by a few factors. Primarily, we're noticing downturns in the industrial markets, particularly in appliances and some food and beverage sectors we service, along with some automotive areas. The decline is largely connected to the industrial markets. Moreover, many of these products move through the distribution channel. When OEMs pause to assess the economic landscape, the distribution channel often reacts with even more caution, which can deepen the decline. However, we expect stability in the latter half of the year, followed by recovery in Q1 of next year. Additionally, we're observing some fluctuations on the energy side. Since oil prices dropped sharply in May, nickel prices also fell but have since rebounded. When this occurs, EPCs and OEMs tend to hesitate and take a wait-and-see approach. We predict that these larger, chunkier project orders will return later this year, likely resulting in shipments in the first half of 2024. Overall, it's the general industrial markets facing challenges, with some variability in energy. Nevertheless, we believe our solid business foundation is heavily supported by growth in aerospace and defense. We’re aiming for mid- to high-teens EBITDA by 2025, and we see a clear path to achieve that. We are navigating similar challenges as others, and we've noticed through various reports that different markets are showing mixed signals, which is causing some uncertainty. However, we expect stabilization in Q4 followed by a rebound in Q1.

Cool. Excellent. That's helpful. Thanks very much.

Thank you. Our next question comes from David Strauss from Barclays. David, your line is now open. Please go ahead.

This is actually Joshua Korn on for David. I wanted to ask how you're thinking about nickel pass-through and pension relative to the longer-term 2025 target? Thanks.

As you consider the 2025 targets, we developed them under the assumption of stable metal prices, which addresses your inquiry about the pass-through aspect. Currently, similar to 2022, we are experiencing higher metal prices, leading to increased pass-through and surcharges. However, for the 2025 targets, we are not factoring in the continuation of these elevated metal prices and pass-through revenue. At present, this situation poses a slight challenge to our margins, but we do not anticipate it persisting through 2025. Regarding pensions, we expect a non-cash increase of about $36 million in pension expense for 2024. I've mentioned previously that I do not foresee this additional expense being a long-term issue, and it is not included in our 2025 targets. This should assist you in transitioning from our current performance to our increased profitability and wider margins by 2025. Does that address your question?

Okay. Yes. Thank you. And then did the recent drop in nickel prices over the last couple of months negatively impacted the results in AA&S at all in the quarter?

Yes. The short answer is yes. So there was a modest pullback on metal prices, and the way our business is constructed and contracted. When metal prices go up, generally, that's a good thing for us; when metal prices go the other direction, it's generally a headwind for us. So, as you think about the AA&S business in terms of those headwinds, it was probably $2.5 million to EBITDA, something like that, $2 million to $3 million, to start to get super precise on that. But it's probably $2 million to $3 million of headwind in Q2 that we would expect would turn around. We've already seen metal prices actually recovering in early Q3. And so that should be a good guide for us as we look out to the rest of the year.

Okay. Thank you.

Thank you. Our next question comes from Gautam Khanna from TD Cowen. Gautam, your line is now open. Please go ahead.

Hi. Good morning, guys.

Good morning.

Bob, based on your comments on the new business, the $140-ish million annually, two-thirds of which is titanium. So you got about $100 million of new titanium business. I was curious, does that pretty much exhaust all the opportunity of folks switching away from VSMPO? Or do you think there's still a lot of headroom left to get additional share? I'm just curious how your discussions are largely concluded or still going on?

Yes, it's an ongoing process for sure. I need you to note a new figure. Think about $200 million in new business, with $140 million being additional to what we previously mentioned. To clarify, we are indeed seeing orders related to those commitments, which is extending our lead times. Regarding contract commitments, there are still a few significant ones pending that do not all expire simultaneously, with the next renewal likely around 2026 and beyond. As the wide-body segment returns, companies are reevaluating their long-term needs, indicating further opportunities ahead. We are also anticipating some advantages due to underperformance by other players in the industry, which could be a concern for original equipment manufacturers in both the airframe and engine sectors. This doesn't close off opportunities for us; in fact, we believe we are well-positioned with titanium capacity for emerging needs, without being overextended, and we see a considerable upside as the wide-body market recovers. Additionally, there may be new product opportunities. We consistently apply an 80-20 market optimization strategy, prioritizing opportunities that arise, which presents further upside for us in adjusting our mix. Did that answer your question, Gautam?

I just want to clarify my understanding regarding contract share opportunities. The new ones will be competing against suppliers that aren't performing as well. For larger opportunities to regain market share, will that be in 2026 for the next significant ones, or is there something I might be missing?

Yeah. So we get the $1.2 billion, we'll start to see the benefit of that in 2024, right? And then, the next ones you were asking if it was exhausted. And I would say no, it's not exhausted. But the next real opportunity for up-scaling would be shipments in 2026. And that's just a matter of the timing of some of the customer schedules and where they sit in their renewal process. But I do think there's opportunity.

That's very helpful. And then, you guys talked about seasonality, Q3 seasonal maintenance. Could you articulate what the sequential EBIT impact is to HPMC from that? And just if you could reflect on Q1's HPMC performance relative to Q2, because it looked like in Q1 the throughput wasn't as strong as it could have been. It was back-end loaded in the quarter. Did all of those issues kind of resolve and therefore we had a very clean Q2, or is there still opportunity that was on the table in Q2?

Sure. This is Don. Let me address that. To start, regarding the performance from Q1 to Q2 for HPMC, it was mainly influenced by volume and price/mix. The bottlenecks we encountered were resolved in Q2, alleviating some of the constraints in HPMC. We believe there are further opportunities in this area, particularly due to improvements in our management of capital and inventory flows, which will enhance throughput and positively impact sales and profitability. Additionally, Kim and the operational teams are doing an excellent job identifying operational efficiencies that benefit not only HPMC but also our A&S business units. Over time, these efficiencies will contribute positively to our overall business performance. In terms of the seasonal outages we mentioned for Q3, they are not significantly related to HPMC, so we do not anticipate a major decline in HPMC’s performance in Q3. The outages are scheduled in the A&S segment, and you can expect an impact of about $8 million to $10 million on performance. If you analyze the EPS drop from Q2 to Q3, you will see that the increased spending will be reflected in the Q3 performance. However, there are some offsets to consider, particularly with our expectations for the A&D segment, especially within HPMC, which should continue to do well and help mitigate some of the outage costs. Moreover, as indicated for Q4, we expect a strong performance driven by the resolution of these outages and continued strength in A&D.

Excellent. Thank you so much.

You bet.

Our next question comes from Timna Tanners from Wolfe Research. Timna, your line is now open.

Thank you, and good morning, everyone. I just had two questions remaining. I was looking at my past notes and you had said that you expected that China hit the disappointment in China to be a first-half story with stabilizing or improving in the second half. So is this a change to that? And what's embedded in your guidance now? Is it just assuming kind of soft conditions continue in China, or anything you can clarify there would be great?

If this is unclear, please let me know, Tim. You're absolutely right. When we entered 2023, we experienced a carryover of slowness related to the precision rolled strip business. We expected that this slowness would improve in the second half, but we have not seen a recovery in that business. Therefore, our guidance assumes that the performance in Q2 from the PRS business will continue throughout the second half of the year. If there is a recovery, that would certainly be a positive adjustment to our guidance.

Okay. Helpful. Thank you. And then a random question perhaps, but I know you used to be a big player in the electrical steel market, and that's been really, really strong. I would just wonder if it would even be possible to return to producing much electrical steel, whether it be non-grain or grain-oriented. My understanding is those margins have exploded over the last couple of years, and demand is expected to be strong. So just wondering if it's possible and if you would think about it. Thanks again.

Yes. Fair question. I always like clear concise answers like you do, Timna, which is no, we're not getting back into that business. We made a decision back in 2015, 2016 based on the assets we had at the time to devote our capital allocation strategy towards aerospace and defense, and that's what we're still doing. We do see opportunities. I would say in the magnetic alloys; so alloy differentiation where there's we see very good product opportunities and we see technology differentiating but in terms of the historical electrical steels or grain-oriented electrical steels, it's a big fat no. We're done.

Okay. Thank you.

Thank you. There are no further questions on the line. I'll now hand back to David Weston for any closing remarks.

Thanks again for joining us today. This concludes today's ATI Second Quarter 2023 Earnings Call. A replay will be available on our website. Thank you. Have a good day.

This concludes today's conference call, everybody. Thank you very much for joining. You may now disconnect your lines. Thank you. Have a good day.