Hello, and welcome to ATI's First Quarter 2024 Earnings Call. My name is Lydia, and I will be your operator today. I'll now hand you over to Dave Western, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to ATI's First Quarter 2021 Earnings Call. Today's discussion is being webcast online at atimaterials.com. Participating in today's call to share key points from our first quarter results are Bob Wetherbee, Co-Chair and CEO; Kim Fields, President and COO; 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 also 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 accompanying presentation. Now I'll turn the call over to Bob.

Thanks, Dave. Good morning, everyone. In the first quarter of 2024, our leadership team focused on the things within our control, acting with urgency and a forward-looking perspective. The results reported today reflect those efforts. This morning, I'll summarize the three key points I want you to take from our performance. Point number one, Q1 financial results surpassed expectations. We delivered adjusted earnings per share for the quarter of $0.48, exceeding the top end of our estimated range. Revenue was over $1 billion for the seventh consecutive quarter. Our Advanced Alloys & Solutions segment led the way, achieving a 14% EBITDA margin in Q1. This reflects a double-digit sequential growth in the electronics and medical markets and strong A&D sales in Specialty Rolled Products. Additionally, our Oregon team delivered an accelerated recovery from January-specific Northwest storm-related outages; it was truly a great performance across the segment. We expected the High-Performance Materials & Components segment to be down in the first quarter given the late year production outages we discussed in our last quarterly call. The good news is those impacts are fully behind us, and the business is leveraging the ramping melt rates and new billet forge press capacity. Equally important, our Forged Products business unit wrapped up another great quarter, best two in a row, delivering the highest revenue in their history. All of this sets the stage for strong sequential growth and segment EBITDA margins back above 20% in Q2. Our commitment to managing working capital intensity delivered significant first-quarter improvements for free cash flow over the prior year's first quarter. We fully executed our share repurchase authorization of $150 million, directly showing the benefits of our strong performance with our shareholders. We did what we said we would do and what we needed to do in Q1. Point number two, demand for ATI aerospace and defense, as well as aero-light products, remains robust. While the percentage of A&D sales dipped slightly below 60% in the quarter due to near-term order patterns and the impact of the Q4 outages, the composite of A&D and aero-light business remained above 75%. We're confident sales in the coming quarters will put us back on the trend line to our target of 65% A&D sales. ATI's market position is very broad, significantly more diverse than before the pandemic. We're producing for every commercial airframe and every jet engine program. The struggles with the 737 MAX and the resulting impact on near-term LEAP-1B engine deliveries are well publicized. The impact on ATI is not meaningful. Any impact is more than offset by demand to support Geared Turbofan accelerated overhauls, elevated engine spares, and increased defense and commercial space activity. For clarity, the revised lower 737 MAX and LEAP-1B orders are reflected in our 2024 full year guidance. Our focus is firmly on end markets and premium products where our differentiated capabilities and materials are most highly valued. Point number three, we're increasing our 2024 EPS guidance, driven by strong demand, improved operational stability, and a healthy pricing environment. We maintain our expectations for both top and bottom line growth in the second half. Our operations are performing at rates that support the second half guidance. Kim will share more color on this in a moment. As we leave the first quarter and look ahead to the strong outlook for Q2 and the rest of 2024, we've reached an ideal intersection of effective strategy, top line growth, and bottom line performance. ATI has proven to perform and is well positioned for the future. With that, I'll turn the call over to Kim and return later in the call for a few closing comments. Kim?

Thanks, Bob. I'm excited about ATI's future and look forward to continuing to execute our strategy. We've invested a lot in this strategy, and I'm confident in our direction. Thank you for your leadership and vision. Looking ahead, let's add a little color on the strength of the markets and why I'm confident in meeting the guidance for the year. First, let's answer the question on everyone's mind. How are the 737 MAX challenges and resulting build rate reductions affecting ATI? Let me emphasize, this is not impacting our orders in any meaningful way. As you will hear in Don's guidance, what we do see is strong underlying market demand that overcomes any 737 MAX inventory burn down and LEAP-1B build rate reductions. We are getting signals that further into the year, we'll see order increases to support 2025 wide-body build rates. We are very connected with our customers, and they recognize the importance of smoothing the impact to not derail the momentum that's been built. With today's lead time, if you jump out of line, you'll face up to 12 to 18 months late for material when you get back in line to reorder. In the meantime, there is plenty of demand from others until the 737 MAX gets back on track and returns to a significant growth rate. Last summer, we announced $1.2 billion in sales commitments. These orders are ramping now. Additionally, we're seeing opportunities for emergent demand and expanded share positions as customers eliminate single points of failure and move business from underperforming suppliers to those who perform like ATI. Today, our customer base is more diverse than before the pandemic. ATI provides content to all major engine and airframe OEMs. The other large air framer, Talos, is very busy these days, and we've significantly grown our position in certain products, upwards of 50% share, as they look to diversify their titanium supply chain away from Russian sources. We're seeing very strong demand in engines, too. Across the board, higher shop visits are driving up spares demand, especially for the hot section materials and parts we produce. This continues to pace closer to 40% overall demand versus the 20% to 25% we've seen historically. We're actively supporting the GTF accelerated overhauls and parts replacement. This multiyear replacement plan is driving GTF forging demand up 25% in the back half versus last year, and we see further growth in this important program in 2025 and beyond. Another strong market is defense. Defense armor plate continues to grow due to Abrams rearmoring packages and foreign military sales. We enjoy a strong supply position on the U.K.'s Ajax vehicle program, and we're winning new programs like the U.S. Army's new armored fighting vehicle, which has doubled the ATI content versus previous designs. The robust demand we are experiencing across most of our markets creates pricing opportunities as well. We anticipate seeing these wins hit the bottom line in the back half of the year. This potential is built into our updated guidance. Space provides significant opportunities for high growth, leveraging our material science capabilities. Commercial launch firms are targeting 100 launches this year, which provides a strong start to our new long-term agreements. In fact, every business at ATI participates in this market, and our material and parts are being designed into next generations of rockets, delivering strength at high temperatures for critical components. It may be a small percentage of our revenue today, but it is on track to double this year. The business is going where we want it to go. ATI's products are in every major OEM aircraft and engine program. Bottom line, we have strong customer demand across our markets. Now let's talk operations. I am confident we are operating at the rate needed to meet this demand in our 2024 guidance. Recently, we commissioned a new 12,500 tonne billet press capable of processing both nickel and titanium. This debottlenecking investment gives us maximum flexibility and is a key enabler to achieving our 2025 targets. Another example, Forged Products is in the process of qualifying products on our fourth isothermal press. A major control system upgrade brought this asset up to best-in-class and increases our ISO forging capacity by up to 40% over the first half of 2024. These are both great examples of debottlenecking our nickel and titanium value streams. Lastly, with the increased industry focus on quality, testing and inspection capacity have been very tight. We have substantially expanded our ultrasonic inspection to support the increased testing requirements and relieve a critical industry supply chain bottleneck. By the second half, our testing capacity will triple. This goes a long way to addressing the urgent need of our customer base. Our team is firing on all cylinders, and their hard work really shines through in this quarter's results. We're operating at the rates needed to meet our second half guidance. I'm confident we're taking the steps needed to have increased capabilities and capacity, so we'll reach or exceed our stated 2025 targets. Before I conclude, I want to thank our teams. Every day, they are focused on safely delivering for our customers. As you can see, their efforts are paying off as we achieved solid financial returns for our shareholders. We appreciate all their hard work. With that, I'll turn it over to Don for detail on this quarter's results and the outlook for the second quarter in 2024.

Thanks, Kim. Let me start by noting that ATI continues to deliver on commitments to our shareholders. First quarter adjusted EPS exceeded the high end of our guidance range in a meaningful way. We also delivered noteworthy improvement to cash performance year-over-year. We used that liquidity in the first quarter to repurchase $150 million of stock. We are also raising full year earnings and free cash flow guidance to reflect expected performance. There are three areas I want to cover today. First, Q1 showed continued improvement in a ramping demand environment. Second, we anticipate a meaningful increase in sales and earnings in Q2. And third, our expected performance in the second half of the year is well aligned to delivering 2025 financial targets. Let's start with color on the first quarter. The AA&S segment delivered stronger-than-expected performance in the first quarter, including revenue growth of 7% over the fourth quarter of 2023 as well as adjusted EBITDA margins of 14%. Aerospace, medical, and electronics drove the sequential revenue increase. As expected, certain industrial end markets remain soft, continuing a trend that started in 2023. Conventional energy sales increased due to a nonrecurring product delivery. Beyond this singular event, we continue to expect the recovery of industrial demand in the second half of the year. For HPMC, melt outages in late 2023 led to lower first quarter sales and unfavorable mix as well as lower earnings and margins. But the outages are behind us. Melt rates are where we need them to be to hit our targets. Here, I want to call out the team's efforts to improve CAP performance. Q1 has historically been a quarter of seasonal cash burn. Cash used in operating activities this quarter was $99 million. Compare that to the first quarter of 2023 when we used $285 million for operating activities. That's a $186 million year-over-year improvement. Working capital management and the absence of pension contributions led to the favorable change. Good progress to date, but we still have many opportunities to unlock when it comes to cash conversion. We are putting that cash to good use. In Q1, we repurchased $150 million of our stock, completing the program our board approved last November. Executing the program early in the year reflects strong liquidity and a stable balance sheet. It also reflects confidence in our improving operating cycle and cash generation profile. We closed the first quarter with more than $950 million of total liquidity, including nearly $400 million of cash on hand. That's after executing the share buyback. Our net leverage ratio was 2.8x at the end of the quarter and should continue to improve because of cash generation and increasing profits. Looking beyond Q1, we remain committed to delivering maximum value as we, one, invest for growth; two, delever the balance sheet; and three, return capital to our shareholders. With that, let's talk about our Q2 outlook and our updated expectations for 2024. To provide greater clarity into our financial outlook, we have added an estimated range for adjusted EBITDA to complement the guidance we offer for adjusted earnings per share. Demand for ATI products remains strong, particularly in the A&D and Aero-life markets. When combined with the improved operational performance and production capacity that Kim highlighted, the expectations for future performance are compelling. For the second quarter, we estimate adjusted EPS will be in the range of $0.54 to $0.60 per share. We expect adjusted EBITDA in the second quarter to be between $170 million and $180 million. Where is that growth coming from? Sales growth in our core end markets, post-outage debottleneck production levels, and stable industrial demand. Expected strength in the second quarter carries over to the full year. We expect full year adjusted EPS to be in the range of $2.30 to $2.60 per share. At the midpoint of the range, that is a $0.13 increase from the full-year guidance provided last quarter. We also narrowed our guidance range by $0.10 to reflect confidence in our ability to deliver. Adjusted EBITDA for the full year is expected to be in the range of $700 million to $750 million. This strong performance and improved outlook carry over to cash flows, where we have increased our full year free cash flow range by $15 million from previous guidance. The new range is $260 million to $340 million. The $300 million midpoint represents an 82% increase from 2023 free cash flow of $165 million. We are not changing our CapEx range. It remains at $190 million to $230 million. I know my audience. Most of you have already done the math regarding what this guidance indicates for the second half. The message is that we anticipate strong earnings, margin, and cash generation momentum as we exit 2024 and focus on delivering our 2025 financial targets. With that, I'll turn the call back over to Bob.

Thanks, Don. Today's call is my 22nd as ATI's CEO. For those of you into material science like we are, now 22 is the atomic number for titanium. So I guess it's fitting. Since being named CEO in August of 2018, it's been a privilege to collaborate with our team to develop ATI's strategy and guide our efforts to execute on that strategy to the benefit of shareholders, customers, and employees. Almost from day 1, I received great counsel from our directors to build a succession plan for whenever the time was right. We've been doing that, building a strong team across the enterprise. That includes investing in Kim Fields. She's learned and led each business unit within ATI, strengthening our operations and championing our growth. Kim equally invested herself in the development experience and the development of our A&D strategy. Our deliberate succession plan has paid off. She's ready to become ATI's next CEO on July 1. I'm really pleased for her, and she's earned it. I'm excited for ATI, and as Executive Chairman, I might be stepping away from the day-to-day, but I'll support Kim in whatever she achieves. As I reflect on the last 6 years, it's been a great run. Some days it felt a lot more like a sprint than a run, but a little more geopolitical and market uncertainty than anyone could have anticipated came along, but we've used every opportunity to our advantage. Yet to be clear, the best days of value creation at ATI are ahead. My confidence in ATI's future is driven first by the strength of the aerospace and defense market demand. This robust growth is expected for the balance of the decade. Second, ATI is positioned in our core markets with a very broad customer and end-use application base. And third, our capabilities are extraordinary. Our operational advantage is formidable, and our velocity, speed in the defined direction is accelerating. It's a great position to begin for sure. I'm extremely proud to have led the team that has transformed ATI and positioned us so strongly for the future. We really have a great team. Thanks to them for all we've accomplished together. We are and will continue to be proven to perform. With that, let's open the line for questions.

Our first question today comes from Michael Leshock of KeyBanc.

Bob, congrats on 22. I wanted to start here on the commercial aerospace side. I know the 737 MAX is incorporated in guidance, and it sounds like you have ample room to mitigate some of the near-term challenges across your whole portfolio, but I wanted to ask how long it would take for subdued MAX build rates to meaningfully impact ATI? So hypothetically, if Boeing's rate stayed the same for another year, what would the impact look like on 2025 numbers for ATI? And are there ways to mitigate this if the 737 issues become a longer-term issue?

So I think I'll take this one, Bob. To give you a little bit of color, as we mentioned, there's been minimal impact on us. And primarily because it's more than offset by demand across all our other programs. So even if it was, as you said, further out and multiple quarters forward, a couple of things are true. One is wide-body demand is starting to ramp, which has much higher titanium content than the 737 MAX, which is more of an aluminum plane. The engines programs, across the board, we're seeing really strong demand on all of those programs; engine spares and MRO visits are up, and some OEMs are predicting increases in that as well. We're a key part of the GTF overhaul and parts replacement, and that's going to be elevated for several years as we work with them to help lower their AOGs. Lastly, you can't forget the LEAP-1A has just as much engine content in titanium as the 1B, and that is continuing to grow, and we anticipate that. So as we said in the near term, minimal impact, and we anticipate that for many quarters out that we're going to be in good shape.

Got it. That's really helpful. And then on industrial demand, I just wanted to get your take on what gives you confidence in a second half recovery? And what are the moving pieces that you're seeing on the industrial side?

This is Don. I'll take that question. Really, we've talked for a while now about our expectations that industrial is going to recover largely in the second half of the year. And what we're looking at are signals within the individual end markets that make up our industrial. What I would say is, this last quarter, we saw some positives in oil and gas. Some of those are recurring, some are not. But we are seeing some indications from an order, a book order volume standpoint, that there's a positive trend. So what it does is it gives us great confidence that our expectation for Q2 is still strong. In addition to that, we've seen recoveries in Asia demand with our Asian Precision Rolled Strip business and stability in industrials overall.

Our next question comes from Richard Safran of Seaport.

Bob, congrats to you, and I have one for you, Don.

Thank you, Rich.

Kim, could you provide more details on the wide-body demand you mentioned earlier? Is this demand coming from both Boeing and Airbus? Additionally, could you discuss the current orders for the 787? Are these orders supporting higher rates than what we're seeing right now, considering your lead times?

Thank you for the question. Yes, there's been an indication of higher rates going forward. It's important to remember that the lead times for these programs are 12 to 15 months out. We are engaging with our customers, and we are in agreement with them. We're beginning to see the demand as they discuss how to ensure that material flow will be available as they ramp up. The 787 has continued to ramp up, and we've started those conversations. We expect to see orders placed soon to meet the lead time for the second half of this year as we prepare for shipments into 2025.

Okay, Don, could you briefly discuss your thoughts on capital deployment now that you have utilized the $150 million in the first quarter? I remember you mentioning M&A at one point, so please include some insights on that as well.

Sure. We've discussed our balanced capital deployment strategy several times, focusing on three key elements: growing the business, reducing debt, and returning capital to shareholders. These priorities will remain unchanged. As you pointed out, we fully utilized our authorization for share repurchases in Q1, amounting to $150 million. Are we planning any additional share repurchases this year? The short answer is yes; we are committed to returning capital to shareholders. Since early 2022, we've repurchased nearly $400 million of our shares. We're fortunate to anticipate strong cash generation, as reflected in our targets. This, combined with our robust balance sheet and liquidity, positions us well for future decisions. Regarding a potential additional share repurchase program this year, I don't want to preempt my board, but I must highlight their strong support for our capital deployment strategy and focus on returning capital to shareholders. I don't expect that the $150 million program we just completed will be the last; in fact, I believe it won't be. As for M&A, our emphasis has primarily been on organic growth and investment, focusing on projects with solid returns, which we don't foresee changing. While we remain open to M&A, there are significant internal hurdles, such as ensuring adjacency to our current business and meeting return profiles. Any acquisition would need to meet our internal standards, and M&A is not our main priority right now. We have a thriving business that is growing with capital expenditures and will deliver the returns and targets we've communicated to the market. We are content with our current position, but it's beneficial to have options. Our main goal with our capital deployment strategy has been to ensure healthy choices for our shareholders, which is evident in our actions.

Our next question comes from David Strauss of Barclays.

Bob, one to offer my congratulations as well, and best wishes going forward.

Thank you, David. I appreciate it.

I have a question for you, Don. The increase in EPS guidance is partly due to a lower share count, but what else changed? We didn't have an EBITDA expectation or guidance before this. Can you explain what improved in terms of end markets, or break it down by business segments like AA&S and HPM? What has enhanced since the initial guidance was provided?

Yes. It starts with our Q1 performance being better than expected. And so that was helpful in getting comfortable with raising the guidance. But really, it starts with two pretty key items. One is continued strength of demand in our core end markets, aerospace and defense and aero-like. That strength is reinforcing growth, especially in the second half of the year in our business, and growth that we expect is going to carry to 2025 and beyond. Seeing that continued strength of demand was helpful. Another thing that I would point to that has increased our expectations of the business are tied to our debottlenecking activity, and of course, that's related to production. As we saw successes in the first quarter around our debottlenecking efforts and seeing improved flow around products that are melted and then seeing those progress through our production cycles through finishing and getting out the door, very positive trends that we see there. So that's what I would point to. We've got some additional debottlenecking focus that our efforts in the second half that will continue to add incremental EBITDA to the business. Those are the primary drivers.

Okay. Great. And you've talked about the second half of the year recovery and in your industrial end markets, I think mainly pointing to oil and gas. If that doesn't materialize, how much risk is there to your guidance? Are we at the low end of the EPS range if the industrial just kind of holds where we are today? Does that put us at the low end, or are we outside the range?

Yes. The magnitude of that, if that were to happen, it wouldn't have a significant effect on the guidance or on us performing against the guidance that we shared today. It would be marginal, I would say, to the EBITDA guidance of $725 million. So I would still expect a stable industrial defined as kind of where we were in Q1. I would expect pretty high confidence in our ability to deliver on the guidance that's on the table today.

The next question comes from Scott Deuschle of Deutsche Bank.

Kim, reading between the lines on the prepared remarks, it sounded like ATI maybe recently expanded its role with freight and its work scope on the GTF. I guess did I read that right? And is there any additional context you can add if so?

Thanks, Scott. Yes, you read that correctly. I believe ATI is part of the solution. We've built a strong relationship that has only strengthened during the pandemic, starting with our partnership on the angle scan testing protocols and processes, which helped them navigate the necessary changes while minimizing supply chain bottlenecks. Additionally, as I mentioned, we are collaborating with them to address the GTF issue and the accelerated overhauls they are implementing. Material flow will be crucial, and we are working with them to enhance the flow of parts. I also discussed our investment in ultrasonic inspection and testing, which supports their effort to reduce AOGs. Although you didn't ask, we did anticipate some of the additional work in our guidance. Looking ahead, my inclination—and I believe Don may feel similarly—is that we could be on the upside of the range because if we can speed up our processes, they will also want to get those planes back in the air and in service as quickly as possible.

Okay. Can you say what specific parts you're selling into them now? Is it powder metal or more forged products? Just trying to understand more specifically...

Yes. No. So they're powdered metal. I think they've shared this publicly that they, through their joint venture, provide that material to our forged products group. So we're making the forged parts and just—as an overview, we are typically participating with all of our engine OEMs in the hot section of those parts. The HPT and HPC disks and so forth. As you look at overhaul both from the powdered metal situation they've got but also just from the expanded overhauls that they're bringing these planes in, they may want to do some additional work so that they don't have to come back in again as soon. Both of those opportunities are hitting us.

Okay, great. And Kim, are you able to say if ATI was one of the new sources of supply for titanium that Collins Aerospace recently signed on?

What I can say is RTX is a long-term customer. We are partnering. We've grown our business over this time. I don't usually get into specifics about specific contracts and customers, but this example on the GTF we just talked about is a great example of where we are continuing to grow our business with them. As I said, we've got a great partnership with them.

The next question comes from Chris Olin of Northcoast Research.

I wanted to ask a little bit more about the titanium market share and maybe focus on the Airbus supply chain sourcing strategy. So it looks like the Canadian government officially exempted the Russian titanium imports from that sanctions list? And that decision confused me, but I guess what I was really confused by was the customer behavior because it looks like some of the suppliers in Europe and Canada under the Airbus umbrella, really either did not have any intention of breaking away from Russian supply or adhering to what Airbus had officially been saying. So I guess what I'm curious about is kind of your views on what's been going on lately with the contract movement or lack thereof? And does the fewer breaking off of contracts from Airbus hurt the Northwest titanium capacity expansion strategy? And I guess, finally, Bob, as one of your last acts as CEO, I'm wondering if you're going to throw away your Brian Adams records as a protest of these exemptions from Canada.

I want to deal with the last question first. I don't have any more records, but I'm going to hang on to the digital for sure. If you don't the Canadians, they're friends right? So I would say, let me start with kind of the broader picture and kind of work on my color around that, right? I think your question was, how do you see Russian supply and the risk to those who are investing? I think our operations in the Pacific Northwest going to come online. Customers have committed across the board, giving us a great capability to marry up with our other titanium melting. I don't see any risk with that. It certainly gives us a lot of flexibility both in terms of the input materials as well as the alloys and the MDUs. It's a very broad capability, and we look forward to that. I think if you look at the overall supply chain, what's going on perhaps in Canada, I don't think the Russian material in the supply chain has been totally consumed yet. It's still working its way through. It won't be zero; it's probably going to take until 2025 to do that. I think we have to recognize it's important to the national interest of the U.S., the Canadians, and the Europeans to build airplanes. And that's what they're going to do. They're going to have to build airplanes. And so that's going to be their first priority. That's what you see in some of the exemption activities, but it's going to be spotty stuff because I think the vast majority of the supply chain is being filled by the incumbents. We certainly are seeing that. I think all of our competitors around the world are seeing the same thing. But think back to the experiences and learnings over the last two years of the supply chain and what's going on, right? Number one is this commitment to eliminate single points of failure. So where people relied on sole sources, perhaps out of Russia, probably are not going back to that. Number two is the requalification issues, right? Think about the effort over the last two years to requalify. And here, we are hitting into the start of a wide-body demand increase. So who's going to take real risk on their ramp to switch supply when they've gone to great pains over the last two years to put it in place? I can't speak directly for Airbus and their strategy, but I would say that's the apparent strategy they're on because they're acting like they've made the move and they're sticking to it. The titanium industry needs to perform and meet the need; let's not give need to go back to another source. That's our daily mantra. I think the OEMs want to be reliable, and as Kim said earlier, every CEO on calls in the last few weeks has talked about the importance of material flow. I don't think they take the situation lightly. But I do think there will be spot situations where the industry that doesn't have the right capability or the right capacity at the right time, where you'll see material flowing. I would put it at low to no risk for the balance of the decade that the major OEMs would go back to Russian supply in a significant way. I can't predict politics, but you can certainly predict economics. I think they're committed to doing what's right for their customers to build the planes, and reliable flow of high-quality material that's been qualified over and over again in the U.S. and Europe is going to be their priority. So see, did I answer all the questions, Christopher? I think I did. Brian Adams is still on my Rolodex, and West is going strong.

Our next question comes from Seth Seifman of JPMorgan. Please go ahead.

And let me extend my congratulations to Bob and Kim as well. To begin with the HPMC profitability, you mentioned some decreased shipments of high-value aerospace parts, which we think is partly due to outages. Were there additional timing issues during the quarter instead of just outages? How do you anticipate this will recover? Will this result in margins exceeding 20% in the second quarter for HPMC?

Sure. Let me address that. The main reason for the lower revenues in the first quarter was related to the impact of the melt outages from the fourth quarter, which affected our inventory for the first quarter. With those outages now behind us, we anticipate returning to our production levels, and we are already witnessing that. Additionally, we expect to see further improvements from our debottlenecking efforts. As for HPMC, as Kim mentioned regarding forgings, it's worth noting that they've achieved all-time revenue records for the past two consecutive quarters. Furthermore, we have started the fourth isothermal press and added SONiC testing, which previously was a bottleneck in our operations. Looking ahead to the second quarter and the latter half of the year for HPMC, we can expect increased volumes and improved production efficiency as well as the addition of new assets. In particular, the Albany, Oregon facility, which we restarted in 2023, will ramp up and start contributing to our income statement in the second half of the year. Overall, the efficiencies we are aiming for in HPMC are on track. Regarding volume increases, they are primarily occurring in aerospace and defense, which are our highest margin products, positively influencing margins. Therefore, we anticipate higher volumes, improved efficiencies, and a better product mix, all of which bode well for HPMC margins. The good news is that we expect margins to rise, with HPMC margins anticipated to be back above 20% in the second quarter. As we move into the third and fourth quarters, we expect those margins to be around 23%, aligning with our targets for 2025, which are in the low to mid-20s. When it comes to margins for the overall business, our consolidated experience last quarter was a 14.5% EBITDA margin. I expect our consolidated EBITDA margins to increase in the coming quarters. Our targets for 2025 are EBITDA margins in the 18% to 20% range, making the exit margin for 2024 significant for achieving that goal. For the fourth quarter this year, we expect consolidated EBITDA margins to be in the range of 16.5% to 17%. Achieving a 17% exit EBITDA margin for the fourth quarter will position us well to meet our 2025 target of 18% to 20%. I hope that provides clarity.

Our next question today comes from Timna Tanners of Wolfe Research.

Can you hear me okay?

Yes, we got you loud and clear, Timna.

Okay, great. Bob, congratulations on your impressive performance. It feels like just yesterday that you started, and it’s wonderful to see all the progress you've made. I wanted to ask about capital expenditures and capital allocation. Regarding CapEx, I know you've been effective in addressing bottlenecks and achieving incremental growth. How much longer can you continue to resolve these bottlenecks? How much additional growth can you realistically achieve this way? What stage are we currently in? Additionally, I’d like to ask about the share buybacks. Is this the cadence we can expect moving forward? Are your buybacks influenced by an opportunistic approach based on share price, or do you maintain a consistent amount over time?

Sure. Let me take that. In terms of CapEx and debottlenecking, first, I want to reinforce that the growth we're seeing in the business and the really strong trajectory that we're sharing a part of today, is all built on the CapEx guidance that we've shared with the market up to this point. Our plan is we expect to average $200 million of CapEx each year between now and through 2027, plus or minus. In terms of debottlenecking and what are the opportunities, I would say we're nowhere near really fully exhausting the opportunities and improving the production efficiencies and flows in our business. I think that it's fair to say that those opportunities exist throughout the business. It starts with melt. Unlocking the melt capacity like we have been working on, and we saw significant steps forward in Q1, that is the first step in really unlocking the bottlenecks in this business. So it's very, very exciting. I talk about it's effectively free capacity. Whatever debottlenecking investments that we're making in support of increasing this flow is subsumed in our CapEx guidance that I just mentioned. So it's not incremental to it. And then could you repeat your question around share buybacks?

Sir. Yes, it was more about what's the cadence that we might want to expect? Or does your board think about it in terms of a steady state or opportunistic?

I would say a combination. What we try to do with our Board is really look at things on an annual basis based upon our planned liquidity and cash generation. We make a recommendation to the Board in terms of a level of CapEx, delevering and share buybacks. That balanced deployment strategy I've talked about. It's typical to talk to the Board about that earlier in the year. We did this year. Actually, we accelerated a little bit and did it at the end of last year. That worked out extremely well. We repurchased shares early enough in Q1 before the run-up in our stock that probably saved us $15 million to $20 million because of being proactive on that, Timna. In terms of being opportunistic, the short answer there is, yes, we would expect to be opportunistic and to have a cadence. Opportunistically, this is a great example. So we expanded the 2024 program of $150 million that was originally planned for execution late in the year, but we pulled that forward for several really good reasons. Now we're seeing this very healthy cash generation profile for the rest of the year. We would go back to our board and have conversations around them—around that topic. Should we allocate more capital for additional share repurchases this year? But it is important to remember, as we think about capital deployment and cash generation, the idea of having a balanced deployment strategy is not a one-off, 1-year or 2-year kind of strategy. Investing for growth, investing for delevers, and returning capital to our shareholders is something that is a continuation in our business.

And our next question comes from Gautam Khanna of TD Cowen.

And congrats, Bob and Kim.

Yes. It's been a quick six years, that’s for sure, but I'm confident go and...

Yes, it's been quick, and I was just thinking; I finally stopped calling you Rich and now you're leaving.

Well, obviously don't call Kim Bob.

Exactly who knows what will happen. But I wanted to just revisit what you said in your prepared remarks on 737 and destocking. I was wondering if you could—maybe I missed it, but explicitly, has there—this has had no impact on lead times, nickel billets on your titanium airframe shipments, et cetera. Is that true like there's just—it's entirely—you have seen a change in schedule, but it's been entirely offset by the other programs. Is that a fair characterization?

Yes. So you raised the question on two different alloy series, and they have slightly different answers. I'll take the titanium side, and I'll let Kim add the color on the nickel side because I think it's important to differentiate the two. When it comes to titanium, the 737 MAX as much as we love it, it really is much more of an aluminum-intensive vehicle, as they say. I would say the uptick in the wide-body space is more than offsetting the downside on the 737. What we see at the moment is stability in the order pattern from the guys in Seattle. Yes, a little bit down on the 37, starting to see the up on the widebody. The message on titanium, I think in the air structures in the United States is stable with an upward bias. We haven't seen it go down; we've just seen it stabilize. But we are definitely seeing interest in the second half, which is also an indication of the build rates of 2025 given the lead times of 12 to 15 months. Kim, do you want to fill in Gautam's question on the nickel side?

Sure. Yes, because that kind of leads us to the engine side and the LEAP-1B. As I mentioned, there have been some modifications, and we're staying aligned with our customers. But as we look at it, it's more of a modifying of the growth. But we're still seeing growth. Instead of maybe 20% to 25% growth, it's closer to like 10% to 15% growth that we're going to continue to see from the LEAP program overall that includes both LEAP-1A and the 1C for that matter. When you look—as we look out over these different programs, as I mentioned, there are a couple of things happening. The wide-body is bringing the Rolls-Royce demand forward. They're looking at some of their large engines and how do they support that. There's a lot of activity there. And then the GTF overhauls obviously; they want to get through that overhaul and replacement as fast as possible. Any capacity that we have that can go to helping them move through that program quicker is going to be used. So yes, we don't have a lot of concern as we look at this. It's a more slight modification of their that 1B ramp rate and everything else seems to be very robust and growing.

And just as a follow-up, Kim, have the—what are the nickel billet lead times at this point? I think last quarter, we were thinking over 60 weeks. Is that fairly consistent?

Yes, we do have some—there are some products that are over 70 weeks. I do think Don mentioned some of the work that we're doing on productivity and debottlenecking. So I'd say 12 to 15 months still, but we are working, and we are seeing some capacity increases that are allowing us to pull some of those orders in and frankly, using those to react to emergent demands that our customers are having that they need to get a little bit further up in line to help them out. So we're still in that same range. We do have some investments coming on that will help that lead time, but it's still kind of in that 12 to 15 months.

We have no further questions. So I'll turn the call back over to Dave Weston for any closing comments.

Thanks, everyone, for your time today. Please reach out to our Investor Relations team today with any follow-up questions. And with that, thank you very much again, and have a great day.

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