I'm Doug Harned, Bernstein's Global Aerospace and Defense Analyst. Great to have with us again, Kim Fields, now both chairman and CEO of ATI Materials. So with that, I think we'll get started. But I think to start, maybe you can just tell us a little bit, give us a little bit about where ATI stands right now and what you're looking at in terms of priorities.

I mean, it's been fantastic, right? it's a material constrained market it continues to be constrained demand is coming kind of across the confluent of all of our markets so we continue to see strong demand in all the areas that we have differentiated materials jet engines continue to grow you know with OE and the next-gen engines on you know double the content on the leap and the GTF and then aftermarket continues to be really strong it's running at like 2x of where we historically are so 50 to 60 percent and so you know again that really leverages where we've got differentiated capabilities and materials and great partnerships across all the platforms and so that's really good and then you layer on top of that defense the defense growth that we're seeing you know in things like missiles nuclear naval and then rotary and fixed wing aircraft those continue to grow and obviously you know and we're continuing to have conflicts around the world. And then specialty energy, which, again, leverages those differentiated materials, demand, that structural demand that's increasing, and those customers are looking at their supply chains in a very strategic way, similar to some of our aerospace and defense. So lots of opportunities for us to continue to grow and leverage that capability and partnering with our customers.

And that's, we'll get into all this, but it's interesting to have you describe it that way because a year ago, you did not. A year ago, it was so much aero, and then, which it still is, right?

Yeah.

But all of these other things are a little more dynamic, perhaps, than they were a year ago.

It is, yeah, the demand is higher. I'd say, I think we focused our portfolio a bit more. If you look at aerospace, defense, and then specialty energy, that's 80% now of our market. And you can see that in some of the growth that we've had over the last 6 to 12 months. We've started to reprioritize those assets towards those three core strategic markets and less so, yes, in industrial, which we talked about last year, but also electronics and medical because there's just the high-value opportunities that demand continues to grow. So anything, I mean, since as you're looking, you know, we're well into Q2 now, anything you want to update after your q1 results yeah I think the one update I'd say is demand continues to be strong we haven't seen any changes with our underlying demand from our customers in fact if anything I'd say there's been an increased urgency for materials especially as pressure on the engine OEMs to keep pace with the the airframe ramp you know with Boeing they're continuing to increase their production and doing well Airbus clearly continues and want to get to 75. And so the last few weeks, there's some discussion around, hey, maybe there's a slowdown. I had three separate CEOs of companies across these markets call me and say, Kim, if you have any openings, anybody pushes out, cancels, I will buy that. I will contract it. And of course, you love me best, right? So yeah, I mean, everybody is still looking for material. I think from a quarter standpoint, operationally, we are production and supply chain are going well, our cost position is good, and so we're in a good spot.

So, you know, one of the things that a lot of your counterparts here have talked about, we've gotten into this discussion about the aero aftermarket customers and the risk of a slowdown in airlines, a lot of them are having a hard time with high fuel prices. I will say so far, whether it's GE, HowMed, I mean, none of them have seen anything that's indicated a degradation of demand. Have you, and as you look at the world now, is there anything on the aftermarket side where you're going, you know, in this time frame, that's when I might have a concern?

Yeah, I'd say today we have seen no slowdown, no change whatsoever. In fact, as I said, people are kind of clamoring and saying, will take any open capacity and are having a sense of urgency about getting that. From an aftermarket standpoint the retirements as they're taking out less fuel efficient planes, those have the older engines in them. It's actually a good thing for ATI. You get more cycles on that next gen engines where our content is 2X where we are on the legacy engines.

So sort of LEAP versus CFM56 2X.

Exactly. Yeah, LEAP and GTF or where we're going to have 2x, more than 2x of the content. So again, the more cycles, the more shop visits those have, the better it is for ATI in the long term. To your point, I am monitoring the situation. There seems to be no impact yet, like you said, to the industry or to the airlines, but as fuel prices continue either to increase or even the longevity of this, I anticipate that we may see some impact, but to date I haven't really seen anything yet. So continuing to monitor, I don't know, every day I wake up and the war's over and they've got a new peace deal going, so.

Yeah, I haven't checked in the last hour.

Yeah, I was going to say in the last hour, I don't know. By the end of the day, it's off the table, so then we're bombing, I don't know. But we'll see.

So you're, I mean, so your jet engine, your sales are up 12% in Q1. I mean, how should we think about, can you stay in, do you expect to stay in this double digit growth level or could that even be higher?

Yeah, so we are thinking about for the full year that we'll be in kind of that mid to upper teens level, and I've got the bias to the upside on this. Demand, as I said, is very strong on the aftermarket. We're continuing to see that the upgrade packages, the durability issues, corrosion issues continue to be strong on top of Leap's now starting to come into their shop visits here. And so we're seeing that as well as GTF. And we're, we're pretty heavily involved with that with PRAT and helping them with those accelerated shop visits. So that, that's 40% of our revenue. And I do think that, that bias is to the upside for the year.

Well, yeah, that's 40% of your revenue. And then I think, aftermarket is like 40 something percent with, of that revenue.

Right, yeah, it's about half, it's about half of that.

So, so when you look at, at the aftermarket, because there is, I mean, I think it's an interesting dynamic right now because you've seen all the life extensions on CFM56s, V2500s, even G90s. And so those are, I would assume, kind of the core of your aftermarket work. But as you say, you've got LEAPs coming in. But they're coming in typically. It's just now where they're really coming in for full performance restoration shop visits. Is the work that you do, if you're coming in for sort of these early partial shop visits, does that have much impact on you or does it really accelerate once you get into sort of the full heavy checks?

Well, so we do the disks in the hot section. And so, you know, I shared that for the jet engine. There's seven alloys that are used by all the OEMs. We are sole source supplying five of those. And the sixth one we share with a competitor and the seventh the OEM makes. And so typically when they're coming in for a shop visit this is one of the first areas they're looking in that hot section you know are they look having to replace a blade do they have to replace the disc and typically they are taking those discs out they're very heavy heavily stressed um but even on even on the leap i mean even on the leap you're still doing upgrades the gtf yes absolutely yeah and and to be honest for those i think they're still material constrained you know they're making their own material those i think they're not even able to do the full shop visit when they're coming in they're doing what they they have to replace and then they might have to come in another year 18 months after that so those continue and that high rate continues with that but even on the leap you know they're they're seeing um design changes that they're doing for lifing corrosion um some durability with hot sandy environments and so and those are all in those first stage hpt discs that we make out of that powder alloy through our isothermal forgings and so again really highly differentiated There's only two of us in the world making these parts and these materials. And so the demand continues to be really strong. And when I look at their charts, as you said, you know, you can see how maybe those upgrades start to come down. But the LEAP visits and the shop visits start to come up. And so we never really have a dip. It just continues to grow.

Yeah, yeah. And the content is going to grow on the LEAP substantially pretty soon, I think.

Yes, yes. so the content on the leap and then you know we're already talking about next generation these powder alloys are you know the most differentiated and they're what's allowing them to run those engines hotter more efficiently and so we're at the table and some of those seven are new development alloys for the next generation engines okay that's a little ways away right now that is well and we're plenty busy as you said like I said we're looking at that upper teens and to the high side, I think that growth will continue. We're making some strategic investments, backed with customer co-funding and aligning to that demand. But as I look out for the rest of this decade, material constraints is gonna continue, I think, to be a theme.

So on the GTF, so if you go back a couple years, that was a much less important program for you, right?

Sure, yeah.

And, you know, they've certainly had challenges in their own material. You know, how has your role on the GTF progressed over time? How does that compare now to the amount, you know, amount of content on a LEAP, which has been kind of, I mean, I think of it as kind of bread and butter for you guys for quite a while.

Yeah, if you think about engine, I'd say historically, to your point, we were probably the heaviest content on the Rolls-Royce engine, so maybe around 40% from a part standpoint, forging standpoint. And then LEAP was probably closer to like 35, so neck and neck. Pratt's come up to be even, so if you look at the three, we start to be even between the three with the GTF. And, you know, it's been a great story at how, you know, with these alloys, a lot of these started out as co-development, joint technology agreements, and the technology teams are embedded within each other. And so, you know, when this issue came up with PRAT, we were already part of their supply chain. We were already providing parts. And they came to us and said, look, obviously everybody heard about the issue. It was big news. And they said, we need to ramp up very quickly and we can't wait for capacity or capital. And so we looked across and in kind of an innovative way, we shared all IP. We opened up the boundaries and said, if this was under one roof and one set of assets, how would we optimize to get the most out? And that's how we were able to triple and quadruple what we were doing historically with them to help them ramp very quickly.

Yeah, and so on top of it now, You've got, you know, Boeing is on the OE side, so the other half of your business. So you're saying Boeing ramp. When you look at the Boeing ramp today, and I kind of throw Airbus in it too, but more Boeing. So Boeing's had a lot of inventory, and they've had a lot of engines. I mean, we heard some yesterday that at least on the engine side, that inventory has been worked down. And so for you all, when you look at the demand on the OE side, should we assume that that's kind of moving with that Boeing production rate now? Is that fair?

Yeah, I think the way I'm looking at it for this year is the first quarter, We still have some variability due to that inventory normalization. For the most part, even as recently as this week, talking with them, I'd say across their product forms, they are pretty aligned. There is one product form around that they continue to have a little bit more inventory because they bought more, but there are other forms that we have that we're seeing increased demand primarily because they really had to disintermediate their supply chain. You know, they were buying finished parts before from Russia, and now they're buying billet, and it's got to go to forging. So it's really changed how they're thinking about their inventory, and so that is at an accelerated level for things like landing gear is one area where we're getting a lot more share. We're qualifying new products to help support them. So for the most part, it's two halves. As we leave this first half and we go into the second half, we're going to be pretty aligned with their production and their pull rate, and we'll start to see that growth gradually start to increase.

Okay, that's interesting. So you're still seeing that. I mean, that's all the old VSMPO work, right?

They're still working through some of the plates and some of those things that they had, they had bought quite a bit of, and they're still aligning that. Now, I'm encouraged by the progress they're making on their production ramps, and they're burning through it pretty quickly.

Yeah, okay. That's great. Well, when you look at all this, and if I go to the engines, side, rather than landing here for the moment. So you've got high demand in the aftermarket. And it sounds like it's more, say, on the leap than I would have thought. And then you've also got this strong OE demand. How does that work in terms of your ability to deliver with capacity? Because you've sort of got a double stress here on what you need to do.

And if you take these other markets, defense and energy, so the gas turbine, those are coming straight to the same assets. So you're right. We are seeing a lot of demand and a lot of pull. And to your point, as Boeing continues to ramp, that pressure is going to even get greater. And so a lot of the focus that we've been doing the last couple of years I've been talking with you about is how do we invest in discrete downstream assets to de-bottleneck, to increase our flow. we've done a lot of work in the last two years around equipment reliability and spending more money on maintenance and spare parts using some AI tools that have really helped us hone our repairs and we're seeing a lot of increased throughput just this last quarter our yields in one of our one of those differentiated alloys I talked about for the engine hit the same level we were at in 2019 so our employees are coming up the learning curve we're getting back to that stable production, those quality and productivity levels. And we're making some discreet investments that, again, are aligning with our customers for these proprietary materials.

So if I were to think about this, if I'm sitting, I'll use this one because it's pretty real. So if I'm sitting at Airbus and I'm complaining about getting engines, are are you guys like not you're not the problem right i mean so you know the stress down in that supply chain i just wonder across the board they're different people get singled out a lot and are you able to respond and deal with both of these growth markets i mean it's a good problem to have but for sure but it's a challenging one right i mean yeah well in that particular situation in both instances we're not the problem but we're the solution um and so you know i shared those seven alloys five of them we make sole sourced that sixth one we really got the

opportunity because the other supplier wasn't able to meet the demand needs and so we were able to step in um and very quickly ramp from a low level in december to kind of 5x for the year now is our is our outlook and so again we're helping now on in the gtf situation they're making their own material but I know there is a lot of interest and desire for them to dual source so that they don't ever get themselves in that situation again and we're perfectly we have the capability we do all these other alloys we have that capability and so there's that opportunity in the future so to your point the team's done a fantastic job I'm going to give them a lot of credit on these these alloys these powder alleys because they went in we didn't come into the year with a lot of capacity and they worked on productivity and change overs and yield and equipment upgrades and pretty rapidly in a three month period of time, we were able to double the output on this alloy to really help the engine guys meet that demand from the OE. So can we do that every quarter? I don't know, we're gonna keep pushing that envelope and making sure that we're taking advantage of it. And then partnering like that nickel investment I shared a quarter or two ago. So that's very strategic and very focused on these particular alloys with customer co-funding to support them.

Well, you know, and for those of us, can you give us a little bit of a picture of what differentiates you in a way that, like me included, I may not understand all of the technology behind this. So if you can do an easy version of what differentiates you guys in this area, that would be great.

Yes. So I'll start broadly and then talk maybe more specifically. And you stop me if I get too technical. But if you think about it, those super alloy nickels that are used in the hottest section, if you think of a pyramid, that's at the very highest level. Decades of work. A lot of these had joint technology agreements where we worked and developed it together. the engine guy said here's what we need for the specifications and we develop the technology and that is all kept internal to us not even shared with the engine guys and so those very difficult very difficult alloys to make their powder um there's only two companies in the world well three if you include gtf but that provide gtf meaning pratt right they make their own powder but there's only three that make that in the world because of the issue that you know Pratt had with the GTF the cleanliness the quality control are very very difficult and stringent to maintain the other areas we do you know the isothermal forgings that we make that then go into the discs there's only two people in the world that do that today and you know we're in a great position where we're a main supplier to all the platforms and we're continuing to do that and then you look at premium quality titanium which is being used in engines that has rapidly our backlog has gone up our lead times are gone out there's a great demand for that we've just brought that new asset on that we invested out in Richland Washington that we're in the process of qualifying that has that capability and then the last one is our zirconium and hafnium which which again go into nuclear products, commercial and defense, but also uses alloy additions, master alloys for some of these other alloys. And so again, that system works together to create a very differentiated type of product offering that we can provide to our customers.

Well, given that, and what we just talked about, about the pressures of demand, aftermarket, OE, you and I talked about this a fair amount last year. But when you're in a position like this, you've got long-term contracts. How do you take advantage of the pricing opportunities here?

Yes, and I would say these contracts are structurally much different than they've been in the past. So we have margin accretion opportunities as we look at the surcharges and paths through escalation mechanisms that we've been able to build in. And to your point, every time, I think the important thing to remember for folks is any time a customer comes and says, we need a different product, or you have 80% share, we want you to go to 100 because maybe our other supplier isn't meeting our full needs. We need to go, they all have caps. We need more material than your cap. That gives us an opportunity to open up that contract, and in some cases, not even just that one. Maybe another one is saying, okay, you need this. We need price here. We need different terms, we need surcharges and pass-throughs. And so it allows us, even within that contract and that framework, to make sure that we're getting price and we're getting value. And in this market, with capacity constrained as it is, and I don't see that changing for the rest of this decade, maybe into the next one. There's a great opportunity for us to continue to get that value that we're creating for our customer. And it continues to happen. Like I said, I go to every air show, and I know you've been going to them too. I go there every year, and I think this is the year we're just going to all celebrate and say, okay, we've got it. Everything is flowing and moving along, and it never changes. This year's not going to be any different because I'm already seeing people coming in knowing, I need this. I've got this crisis. I need you to do more. Can you do this? What would have to be true for us to do this? And so the opportunities continue. To your point, it's a good stress. There's a lot of stress for the team. but I will say we've got a fantastic group that has really risen to that challenge and figured out ways to be creative and partnering.

And when you look at it, what are the margin expansion opportunities here?

Well, it's both, you know, so you're going to see as you look at our margins through the year, a continual improvement. AANS, our segment, has been in the upper teens for the last three quarters. that's really a result of all the work we've been doing the last few years around portfolio optimization so you're going to continue to see that on the HPMC side on the aerospace side and engine in particular we're able to capture price we're getting mix and expanded share and content on these engines and then we're also seeing the benefits of the utilization and cost out that we're doing one around quality and also on productivity and so all three of those when And combined then with some of the strategic investments that we've announced, is really giving us an opportunity to expand those margins and increase the profitability of the products that we're doing.

If we switch to defense, and a lot of the growth, I think on the defense side you've had, it's been on the A&S side. Yes. Can you talk about what's driving that growth?

Yeah, we are, I think one of our benefits and strengths is the breadth of our defense portfolio. We're on several key programs and areas that the administration is prioritizing. A big one is the naval nuclear program. That's about half of our defense revenue today. I just announced a big contract that we signed for a billion dollars. And that was a renewal of a prior contract where we're a sole source supplier. And that's about 2x what it's been historically. But just to give you some perspective.

What is that on specifically?

So it's going into the Naval Nuclear Program for a classified program. I can't give you too many details on that. But, you know, for that program, we've been the sole supplier for decades. We've supported that program. It's highly specialized. And, you know, it does not contemplate. There's been a lot of talk around the Virginia class and submarine and expanding that to two subs a year. That doesn't contemplate any type of growth like that. It's more of just the regular program for the next five years. So there could be upside if we were successful at the shipbuilding and expanding that. That's a big one. I'd say the one I'm excited about here recently is there's been a lot of demand accelerating around missiles. We do have content on those, both titanium, that premium quality titanium, as well as some niobium C-103 based, which uses hafnium. and you know though that demand the inquiries the orders are coming in quite quickly now it's a small part of our business today a small part of defense but i do think that's going to be a long lasting durable stream as we work to replenish the the stockpiles so that's a topic that over here we've been talking about a lot oh okay i've heard a few questions on it we're We're gonna hear more tomorrow, RTX is here tomorrow.

But certainly Lockheed Martin talked about it, and Arthur Grumman, L3 Harris, Anderil, all of them talked about this growth path here. So for you, I mean, we know right now there are frameworks to triple and quadruple production on PAC-3, THAAD, SM-3, AMRAM. I mean, you can kind of go, PRISM, you can kind of go through a lot of these. What programs are you on, and are there some that you're specifically targeting?

So several of the ones you mentioned that were on, PAC-3, THAAD, Tomahawk, AMRAAM, we've got content on those. And to your point, the primes have gotten a lot of pressure around missile and missile production and ramping up. And so we've already seen where we're on some of these programs where people are coming in, placing orders for, you know, they're indicating up to 6X, the normal quantities that they've taken, and are starting to place orders ahead of that funding coming from Washington so that they're ready from a supply chain standpoint. And so, like I said, it is, we'll continue to, it's a small part today, but we'll continue to scale and ramp as the supply chain ramps. And again, our materials are, they're bringing, you know, from a structural, high-temperature structural applications, propulsion, you know, those really unique alloys that we produce.

Because there's an interesting dynamic here where separate even from this new heightened demand, one of the challenges, and I'm sure you're much more familiar with this, but one of the big challenges here has been on solid rocket motors as an example. So you've had those issues at Lockheed, you've had them at Raytheon in trying to increase However, let's say you magically do that. Well, you still have to get more seekers. There's a lot more to this than just one very important piece of the puzzle. And so how do you, like say Pack 3, like are you looking, are you currently on Pack 3 and just looking at higher volumes or are you looking at even more content on there? because everybody is going to be stretched across everything they do on these missile programs.

So for those missile programs, to your point, we are on those programs today. But there is opportunity, to your point, because they're trying to ramp so quickly for us to expand our content. And so we are having conversations around our whole product portfolio to see what other applications might make sense. But today it's mainly on that premium quality titaniums. It's on C103, which is that niobium, hafnium-based alloys that are used both for defense as well as hypersonics and space. And so, again, to your point, there's multiple demands pulling on those supply chains.

And if we flip over to space, they're very different characteristics of, at least from what I've known from the past, of the materials you're using in space applications. But so you should talk about how you fit in there, because that's clearly a high-growth market as well.

Yeah, so it's another one I'm excited about, like missiles. It's a small part today, but it's a critical part of the space industry. So, you know, we're on applications like the stage two rockets, propulsion systems, you know, the Draco nozzles. So we're on the fuel nozzles. And so, you know, it's that C-103 material that uses the niobium. It's for very, very high temperature applications. I think I shared with you last year, you know, it's that second-stage rocket that's glowing in the sky. And for the launch companies, we're one of the only Western U.S. suppliers that make that, and we are the only one that's qualified for any type of manned aircraft and flight due to our consistency of our quality, the consistency of our product. And so, you know, they're continuing to ramp. I'm seeing forecasts that go out to 2,100 and how many launches they want to do. And that's a material that, in that second stage, it burns for six, seven, eight minutes. And it's not reusable. It's gone as they lose the atmosphere. But to your point, it's a very difficult alloy to make. It was developed by the company that ATI bought ultimately in Boeing for the Apollo mission. And over the last 50 years or so, there still hasn't been another company that's been able to crack the code and make it consistently like we do. So there's a ton. I think there's going to be a ton of growth. And it's not just that material. We're doing additive parts that we are making for all of the different launch companies. We're partnering with them as well as some super alloy nickel products as well that go into those.

So if you were to take your defense business today, and I cannot remember how the dollars right now.

It's about 10%.

So, and you go within that, what is the mix today of applications for defense, and what do you see it in five years when you're looking at missiles in space contributing?

Yeah, that's interesting. So today within that 10%, as I mentioned, half is the naval nuclear. I think that is going to continue to grow, obviously, with the shipbuilding and so forth.

And all of those programs, even though I can't know what it is, that area is well supported.

Yes, through the Navy and through, yes. So it's supporting, like I said, the nuclear naval program, aircraft carriers, submarines. you think about the Indo-Pacific and that priority, so that's where the funding's coming from. So yeah, those are well supported and long-term programs that have been in place. The other pieces, so I'd say the other two big pieces that we haven't talked about, one is armor, which is less of a priority in the US, but is increasingly important in Europe. We've got relationships, we're supporting BAE, Ramital, UKGD. So we're continuing to support, and as they grow their manufacturing base and they start to ramp up production, we'll be ramping with them.

There's no substitute in Europe for what you do.

Well, so they're using titanium for weight, right? So it has a higher strength-to-weight ratio than steel, and so you get a much stronger, and it's usually used in the undercarriage, but now with drone warfare coming, they're really looking at how do we create the envelope because now we have to protect from the top as well as the bottom and so I do see that expanding rapidly not just with production but with the use within the tanks and then the last one obviously is the jet fighters you know we're on the current generations we're getting and working on development for the next generations and so then that brings us to the last which is missiles in space which are about two percent today and so if I look out five years you know if it grows, let's say maybe we're not quite as successful at our ambitions to grow 6x over the next five years, maybe it's only 3x, that could go to like 5%, 6%, 7%.

Well, yeah, and you have to, the problem with that is that the top line grows too.

It's going to keep growing, yes.

But I guess the point here is that it's like 2% today, and that could triple in five years.

Yes, exactly. And I would say, if I think about just the growth rate, defense, jet engine, we're looking at kind of mid to upper teens. Both of those, I'm biased to the high side for 2026. We're seeing substantial demand coming in, a lot of growth. If we're able to make it and produce it and ship it, there's a lot of demand to take that. And then specialty energy is in there and that's also in that kind of mid teens area as well. So really strong demand. And so you're seeing in some of our other markets, we're redeploying the assets away from those so that we can really help support these ramps.

So on airframes, going back to commercial, you talked a little bit about kind of de-stocking. I guess there are some things that are still, there's still excess inventory to burn down, some things not. Is that correct?

Yeah, in one product form, I'd say. for the most part it's aligning but i'd say as we go through the rest of this quarter we'll we'll have that full alignment now historically boeing has been a bigger customer but you've gotten much more involved with airbus over the last couple years exactly yeah so where are you now where are you playing with airbus on the airframe side yeah so to your point and i think i mentioned this last year you know before covid we had just signed the new contract with airbus and had not really even begun supplying them and so as we came out you know when russia invaded ukraine they rapidly worked to get us qualified because they wanted that supply in and and today we're at about 50 share on the products that we're selling to them and when you look between airbus and boeing it's it's a pretty even it's balanced between the two um so yeah before covid we were a boeing ge company and we were really focused there and i'd say as we've looked at the portfolio and diversified both our customers and the programs. We've expanded that participation on these different programs and expanded the product portfolios and content that we have as well. So again, it's very balanced between the air framers as well as the engines. And we've got all of our different products participating in these programs.

Yeah, I know that even though a lot of people don't like to talk about it. But the European players continued to source some from Russia, even once the U.S. companies had to completely shut it down. Where does that stand today in terms of titanium that's still coming out of Russia and going into Europe? Because presumably that's going to come, if it hasn't, it will have to come to an end at some point.

Yeah, I know. I get questions a lot. Well, what happens when they come back in? and I'm like, well, the war has to stop first for that to happen. But to your point, I think there is some that's still coming in to some of those European companies, but not in the engine. So I'd say anything that has rotating parts or premium quality attached, what I have heard from them is those require on-site quality audits on an annual or biannual basis.

That's what you can't do.

None of them can get in. Yeah, exactly. You can't get in. they can't go and see it for themselves and judge it and so there isn't anyone that's comfortable so obviously the certifications have lapsed but they're not comfortable using those because although you would think that a lot of their processes and procedures would be in place they know some personnel has changed and until they're able to validate that they aren't using it in those applications which for us is where our differentiated materials typically go and And that's why that premium quality of titanium, I think, is in such high demand, is because that there's anyone comfortable buying it from there.

Now, there's a lot of titanium on wide bodies, right?

There is, yes. So- Five times, five times more than a narrow body.

How do you contrast your, the profile of your airframe demand? Is it predominantly A350, 787?

If you look at the titanium demand today, it's fairly balanced. You know, like you said, wide bodies haven't come back to the level that we were forecasting five years ago, but narrow body are much higher. And so when you look at it, they start to come balanced on the volume of titanium.

So you're saying it's sort of balanced narrow body to wide body?

Right, in total. In total titanium, you might have less on a narrow body, but there's so many more of those, yeah. So it's pretty balanced. Now, flight buddy comes back.

That's what I was going to say. So we're, everybody's behind, right? So Airbus is supposed, they're trying, right? But it's been a little difficult lately. And, you know, Boeing is, says they will be 10 a month by the end of the year so that would suggest that you've got a ramp coming here certainly on the Boeing side and hopefully on the Airbus side they have strong aspirations just as I think some operational challenges right so would we expect to see another step up once that starts to come in I think as we go into next year we are looking for that and to your point those wide bodies use five times more titanium and so we are thinking that that's going to continue we put in that new eb

melcher out in richland to help us prepare both for the peq the premium quality side as well as the standard quality side and so we believe that we're positioned to help support that wide body ramp as we go into the back half of this decade but that's the one area in addition to defense and all of the other demands that are coming in that has not come all the way back to pre-COVID. And so, yeah, that would be, we're well positioned. And I think there's some other assets coming on in the industry. So I think that we're in a position to support it.

Well, let's like jump over to these other markets. So there's a bunch of them, you know, in your portfolio. But can you go back to highlight the ones that you think can be material in terms of growth right now?

Yeah, I'd say it comes down to really the three big ones, aerospace, defense, and specialty energy. You know, we haven't talked as much about specialty energy. My video, you know, and my chat with Scott Strasik's out, it came out yesterday. And really that's an area that we've got increased concentration and focus. A lot of the materials we use for jet engines are similar or the same that are used in the gas turbines. And that market has changed so substantially, you know, just from a structural standpoint of very long backlogs, you know, into 2032 now. And they're starting to think about their supply chain strategically like the aerospace OEMs do. You know, they're looking at surety of supply and access to capacity and new product development, both on the material as well as forgings. And so we're continuing to expand our content and participation in our contractual relationships with those energy companies. In addition, you've got the nuclear renaissance, you know, the refueling, the restarting, and our business out on the West Coast with the hafnium, so that naval nuclear business is also just commercial nuclear. And so hafnium, zirconium, we're helping to support that. And we're really, if you think about it in the Western world, there's only three companies that make these products for commercial nuclear applications. The other two have captive nuclear plant arms that they're supplying. We're the only independent. And so if you think about the market and people that are looking for access, they're coming to us and bringing, in some cases, capital because they want more capacity. They want more access to that reserve capacity so they can make sure that they've got that to support their business.

So I'm curious, if we go back, industrial gas turbines. What, I mean, how much, I'm trying to understand how much content you provide for those. Because clearly we're looking at very, very strong ramps right now. Yes. And so how important is that business? I mean, if you're using, I'd say, a modern industrial gas turbine and that technology continues to go up, temperatures continue to go up, what does that mean for you all? Can we look at, it was very interesting yesterday morning because at the same time, we had GE Vernova in here. We had Baker Hughes down the hall and Helmet, which I was doing down around the corner.

Did they say the same thing?

I think so, but I, let's just say not everybody is willing to, like, own up to what this growth rate could be, which, you know, you could see, you know, 20% type growth rates in, in volume. Right. And you add price onto that, and this gets to be a pretty exciting market if you're, if you have a substantial amount of content. So I'm just trying to understand where you are. Because I don't understand exactly what the value you would be putting into these relative to an aero engine.

Well, I'll start with I'm excited with you because I do think that those kind of growth numbers you're thinking about are possible as we go through the rest of this decade. So we're providing similar materials that we do to the jet engine. So it's those super alloy nickel products that go into the disks. We're making forged parts. for blades and discs for that and then there's some joint technology which again i'm excited because i'm seeing them thinking longer term you know in the past this material has really been something that we would use for the assets that if we had an opening from jet engine we'd say hey let's make some stuff for for the gas turbine market now they're looking at more strategically of saying we need that reserve capacity and we're willing and we want to work on new alloys because we want to run these hotter and more efficiently so like those niobiums and some of them more the exotic. So I do see that this is continuing to grow. And I think the opportunity for us is not just growing from a market standpoint, but growing our content and our contractual partnerships with these big Vernovas and Siemens and energy providers as they're trying to ramp and meet their demand.

I mean, how today, how big is your, what are your revenues like today?

Yeah, energy, especially energy is about 10% of our revenues, and it's probably, it's about 60-40, so 60% gas turbines and 40% nuclear. I think both of them are growing, you know, and we'll see if nuclear continues on the pace that it's at or if the gas turbine starts to overtake that.

Yeah, I mean, I would just expect that, I mean, nuclear is a big opportunity, but this takes a while.

It does, right. Which, to be honest, I kind of like that from a growth standpoint, this durable growth. We've got this short-term opportunity for us to ramp fairly quickly, I'd say in the next seven to ten years, to meet that demand. And then nuclear will continue to ramp up as these new SMRs and other things get installed.

So we're talking about a lot of growth areas here. Where's your investment? Like, how do you think about CapEx with a whole set of high-growth areas in front of you?

Yes. Well, you know, that's where our discipline comes in, right, because there's a lot of opportunities that are in front of us. And, you know, we're staying very focused on meeting our 30% return thresholds for any investments and staying very disciplined around our total CapEx investment being around, you know, net 220, 230. This year, you saw that we came out with a higher number, closer to 280, with 60 million of that coming from customer-funded capital, and this is where these conversations are very strategic with our customers of saying, look, we've got more projects than we're going to fund that meet our return thresholds. You're looking for this capacity to hit at a certain point. Let's partner together. If you want to do that, we're going to go ahead and you can help co-invest and have access us to call it 10 or 20% of this capacity. And if you give us a forecast and a contract to take or pay, then you can have that. But if you don't, then we're going to go and use this to meet needs within the industry. And the conversation gets a little uncomfortable, because then of course they go, well, of course we're going to get a better price, right? And the answer is like, no, this is where the market price is. And this asset is really just to help you get access to capacity. the price is still at market and so I think customers recognize the value to them is if they don't have the material for if it's a gas turbine or it's a jet engine they're not selling the engine they're not selling a plane right you know as I said I was in Seattle this week they had 30 triple sevens sitting waiting for engines and so you know that's money sitting on the ground And the cost of this material in comparison to that cost is something that they're willing to do to make that sale. So lots of opportunities. And so that's how we're thinking about it. And we're prioritizing our investments. I think the one thing that I'm very focused on with the team is that we're not just putting capacity in, we're putting capability in. And so every new investment is improving our capability to making better quality products, more productive, cost-efficient products. Some of those specific melt projects that I've talked about, they're going to have much, they're going to have higher quality and produce up to 2X what the same size furnace does in the vintage era. So, you know, we're really looking at, you know, how do we take this investment today? Yes, meet the demands, but also make sure we're upgrading our capabilities in what we do today, as well as new technologies like additive. We've got our new additive facility down in Florida that just got security clearance. And now we're making parts for, you know, classified parts for the defense and the space programs down there. And so we're continuing to drive that technology for those highly differentiated products. to continue that differentiation and that moat that we've created.

And maybe to finish up here, just can you refresh us on sort of guidance for this year, including free cash flow? And also, how you think about it in light of all of the things you've just walked through, where there appears to be a lot of upside. And I don't know how that fits into your guide.

Yeah, well, so everything I've talked about is in the guide. So as we've shared with some of these very targeted investments, those are all built in. It's aligned with customers and backed by customer contracts. And so those are all in place. We're continuing to drive cost out, productivity improvements, so that we're getting more incremental capacity. As we do that and we de-bottleneck, we're able to take advantage to help meet these growth and these ramps. From a cash flow standpoint, we're still very focused and dedicated to a balanced capital allocation strategy. And so we're making those very purpose-built investments in organic growth. We're continuing to have disciplined balance sheets. We've got a very good debt leverage ratio. We're not looking to really lower our debt levels at this point, but we're returning capital to shareholders. And, you know, so we just got a new share, repurchase authorization, $500 million. It was approved by our board. We purchased $75 million in the first quarter. And so with our prior authorization in this one, we still have about $545 million of authorization to go back and buy back our shares. As we see that is still a good investment and a good way to bring capital back to our shareholders.

Sounds good. Well, Kim, thank you very much for doing this. It's been great.