ATI - Earnings call transcript Q1 2018

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Operator

Good morning and welcome to the Allegheny Technologies Incorporated First Quarter 2018 Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator instructions] Please note this event is being recorded. I would now like to turn the conference over to Scott Minder, Vice President of Investor Relations. ahead. go Please

Scott Minder

call Good first Nichole. being welcome the Officer; in to on President Harshman, Thank Chief and XXXX morning conference Technologies Executive the Participating atimetals.com. quarter website is are call. Allegheny Rich our Chairman, you, Vice Pat at and President, Chief Kevin today This DeCourcy, broadcast Materials Bob segment; & and John Chief Flat Products Executive and Financial President, Vice Group; Rolled Vice Senior Marketing Senior Finance Vice and Sims, Kramer, Components Wetherbee, Officer; President, Officer. President, Performance Commercial Executive High call

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make every attempt call caveats the allotted noted and the that various earnings will Please the and shown to slide. everyone release this reach in note subject within forward-looking time. queue all as in assumptions on statements to are We

like turn Rich Now to I’d to the Harshman. over call

Richard Harshman

Thank Internet. to those on everyone Good listening you, morning Scott. on the call the to and

formation of earnings basis XX% the year-over-year $X.XX A&T joint per segment which and of to points. and approached quarter with upon total. share includes build and deliberate continued to XXXX and start segments solid venture. in our Stainless from We good prior a both by grew growth margin profit operating in the quarterly revenue related first This drove was growth gain enhancements XX% per XXXX. billion product along momentum share, of quarter ATI’s first versus our a The $X.XX achieved $X top-line year of XXX expansion positive the mix

climbed the throughout solid The are share employees profitable value XX.X% these good Aligned improvement growth per some and We improvement oil year guidance, first for segments foreign to a This shareholders look basis ATI’s sequentially our to achieve long-term created strive environment that sustainable sustainable to Performance decline representing This ATI year quarterly which our performance. the positively the performance. this or first financial mid-XXXX our Materials more was quarter. and earned prior next-generation sales Flat one-time best the products, the to since engine the Excluding by particularly and and quarter making and continues consistently related and or profit lower driven profit in hedge quarter HPMC demand prior fourth to for business despite $X.XX by results saw a remains at greater recent XXXX. performance, represents our is was retirement near segment enhanced Flat expected in we with an quarter. operating than Taking am the in of strong unfavorable for operating markets gain, Segment strong, our versus our customers track cycle. High achieving accounting a segment I by financial in Products quarter expenses both point and quarter and versus benefit The XXX Rolled pleased resulted primarily first ATI on market contributed trade global goals on driven for in our the objectives. This business mix. Rolled gains. product one-time fourth on and on create focus currency XXXX first segment versus Products and operational gas uncertainty our builds Components our jet solid favorable a demand its prior was quick FRP opportunities by to to progress actions. impact and mid-term report profitability our team and

I to our followed HPMC will will the segment to by in and Sims will to on Bob Wetherbee discuss Now the your before Pat in concluding comment DeCourcy call segment. and who by John turn John performance to open the our comment first quarter call results. am second remarks over questions. then who detail then on discuss I we FRP more be financial going our the will some quarter make

Here is John.

John Sims

Thanks, Rich.

our Turning XX% segment report were Year-over-year, better I to earnings the expansion of incremental points. results of grew power leverage asset product XXX base next-generation first financial margin by am accretive mix XX% pleased resulting to additional X, grew Slide drive in by and revenues results basis of quarter across volume the and expected. than the the to jet that HPMC nearly These margin segment’s engine demonstrate growth.

rates. customer engines industry operational plans, success. trend on growth of on achieving understand the consecutive we quarters, results our the wide of This expansion due customer’s agreements expected of keenly of a and quality, at our above our long-term these airplane a pace all phases provide seventh XXX success are expectations, financial While margin support to our our longer-term customer we that production on-time growth for currently expansion next-generation to foundation early continue long-term year-over-year of ongoing the focused major at solid industry engine by of To goals. a superior and and the least basis they in continued growth product delivery, of points. primarily the across excellence, while is OEM build were all quarter HPMC’s pattern margin strong jet expect vary potential growth dependent ramp We build customers. is range multi-year of The production is represented earnings improvement our

relatively of across demand. all albeit Looking our will base engines, in including which end-market prior on end-use low a in than cover beyond more commercial slide. several the strength and end-use performance saw from mining, years more of jet grew other versus I markets next construction several markets we after detail by XX% year the modest

construction aerospace experienced As a mining quarter our assets result to the demand, recently strong of of positioned in in incremental generated isothermal that capability forge conventional and announced market growth and significant these and growth year-over-year well products. our isothermal from including press, across increases future. the in we and sequential fourth the is defense utilization continue sales both our and forging and resulting margin well The we trends capacity believe to ATI into elevated benefit

to investment provide an like titanium progress our business. at I’d castings Finally, on update the

financial yet the we results satisfied continue further will of titanium near in has in generate investment that our XXXX profitable Much with profitable We’ve sustainably supplier believe not be develop while and to work been continue achieved, is and made progress customers are industry-leading a we results, diligently break-even XXXX. We with with as but progress castings. and employees required. substantial our to more to we

the the Turning expanding aerospace to revenues with market year. by increase chart by by Slide prior comparison In double-digit more and XXXX a markets detailed table total, led and show X, segment in pie defense. of versus half HPMC’s provide and quarter first the sales grew than XX%

smaller MRI by in specialty saw a significant growth ATI’s declines. and a sales aggregate globally. from market the demand medical we markets increased more HPMC’s trend Continuing earlier, market growth Imaging Two declines or due Resonance saw led mentioned of I of sales mining offset year-over-year construction competitive XXXX, material our forgings. As by biomedical Magnetic end-use sales declined than with in activity in to

growth in we first aerospace in in XXXX submarkets. X% Commercial the by about major engine quarter was reached XX% primarily quarter, year. a represent X% mixed of next-generation defense product Sales the lower the the performance a next-generation and in were $X XX% versus prior versus due throughout year-over-year million experienced jet market, the quarter to sales to the oil first marking product approximately in activity customer analyzing significant sales Sales segment’s by revenue total Further in sales that Additionally, this or of and jet of XX% HPMC absence increase levels. of XXXX. of gas increase expanded sales. products primarily restocking to total market due our market engine the inventory the

Overall airframe increase of product sales likely of to product expect the sales year-over-year at demand sales generally are engine order covered improved next-generation the quarter we While distribution moderately OEM for first modest jet primarily not Sales steadily contracts. to but by well a the time, to long-term sales these as and sales legacy market declined the quarter. military jet cause in by by customers’ our ratio fluctuating specialty Commercial and as vary production by engine quarter more naval government quarters. in to customers. materials. inventory customers major these to our submarket nuclear demand due than our X%. were to airframe declines the rate in our first Sales will by models over patterns increased new and levels our Distribution-related our can to vary defense sales offset sales

In exceeding Components forgings. addition, posted our In Materials summary, products by Performance of we sales segment the modest expectations. results for quarter saw sales operating rotorcraft-related led increases and High our solid first

talk HPMC’s accounted Next-generation expand XX% prior margins over increased of levels will Bob and our Flat accretive XXXX. about performance are to XX% the engine Wetherbee for sales. year-over-year turn call I engine will nearly segment over our and segment. to by to Rolled sales likely total to These year continue product throughout sales operating now the in Products jet

Robert Wetherbee

Thanks, John.

trends. quarter favorable in first generated sequential sheet sheet set This experienced in supply sales demand XXXX States. product to despite product fourth previous repair along XX% on strong United record a segment XXXX’s The in a nickel quarter. Turning due to of growth of FRP with segment and X% as XXXX. nickel record previously other Slide experienced results solid the to due project a even products part financial set helped and sales pipeline building quarterly compared in to market market sequentially announced nickel to This several the the oil increased a quarter X. for fourth project, outside period. on was demand The the production gas Revenues headwinds expanding continued to growth strong quarter

projects. approximately foreign required due We guidance, as well was due expect sequential the sales benefit segment previously in gains. operating quarter effect prior hedging by accounting to a our profit repair lower the the currency of retirement the on decline pipeline negative to sheet as with cost impacted capitalization Aligned second in million mentioned $X of changes negatively completion product a nickel

in joint venture demand STAL impact material production saw New negative Chinese a due to We declines. Year from our the raw anticipated level previously decreased Additionally, lower due price to surcharges sequentially a ferrochrome long holiday. weak

increase were level. surcharge offset ferrochrome nickel March’s surcharges However, the lower largely in a by significant

cost The conditions. segment’s see the we quarter and our second anticipate forward, operations ferrochrome results, and based impacts foreign and results current segment higher absence of the reflect material-related any negative Looking the discussed, lower the first quarter. in improved prices in surcharges streamlined and previously the price-driven structure. was quarter STAL first market greatly profitable nickel Despite accounting-related currency that on tailwinds I raw higher

profitable progress consistently regardless business trade We generating long-term our results of toward across continue the to goal policies. cycle of

take Despite announced global trade-related Turning the on to want progress I market goals. continue to of X. provide ensuing significant our few to segment’s actions on to recently updates the some initiatives. a most and uncertainty, Slide we make minutes strategic

A&T receiving regulatory announced formation the March we joint First, X, Stainless after official approvals. on venture of required all the

from The slabs. sheet this utilizes XX-inch directly operates create venture located approximately ATI’s in Direct or Roll and previously stainless Pennsylvania Facilities in Indonesian services joint Rolling or Midland America Processing wide and a Midland, joint indirectly produce idled additional along to conversion stainless in DRAP at in HRPF venture its create reminder, supply owns joint was chain. XXX North semi-finished made hundred products several will venture jobs created jobs Anneal now line Pickle high-paying and ATI’s The Pennsylvania. for sale U.S. Brackenridge Hot and and As

the Section improves facts ever on currently market the venture products increase base provides Based officially critical nor the joint is in Stainless joint and highly that behalf XXX slabs of venture they steel Department on a for recognized product proud joint load executed semi-finished particularly entire imported from appreciated merchant the start-up, wide of of has team conversion interactions a will constituents tariff range imposed And the hit venture third, creates U.S. And and After the support filed a imports. approximately business colleagues used much slabs XX%. Products a am A&T legally, their that jobs which including defense. for to volume United of operationally, by the first, going exclusion slabs semi-finished Flat HRPF ATI steel community government of I a the to produce customers our is increased Rolled Western of ATI’s venture commercially, request to substantially various on utilization Additionally and for XX% to States. second, the Indonesia. Rolled been including defense a safe ATI’s joint Commerce and unfairly has applications. Flat there and healthy efficiencies This Products and tariff venture the serve. March world-class on stainless carbon Their XX. U.S. with there steel effective the financially. ramped hard all by up have joint a cost formation, in stainless U.S. to products venture Pennsylvania joint traded imported efforts ATI’s are stainless HRPF that’s

presents is to case request facts. takes approximately review anticipate we and relevant complete strong our in The in response the second a that exclusion confident grounded are for XX-days a receiving and quarter. tariff process We

STAL. an Secondly, update on

As XXXX conference our to Strip we Precision fourth operates two the on the Products. Rolled produce discussed call, China STAL venture area quarter Shanghai facilities in joint currently

agreements. expect for expansion an ventures third-party update Chinese This products strength and the flows, to capacity finally, markets. with STAL will from second half approximately potential additional line domestic new in HRPF the production XXXX. strong and end-market on of demand complete funded the second XXXX the be of across add begin an that fully demonstrating continuing conversion expansion our remains And the to several nearly long-term are entity. quarter We during throughout on will ramp cash joint XX%

with multiple cases these to the to process multiple maintain its value We of create throughout to conversion a demonstrated their trials for end-customer large-scale trials its gauge material. products have continue capabilities, end-customers. potential the see mill’s many in and To-date, and to product who producers extensive run carbon steel to slab unit mill’s ability capability conversion control partners tremendous single our from the flexibility products successfully input in expansive

agreements at chain, We Department the one sign steel significant tariffs least that imports in while recent conversion continue the company exclusion to the U.S. and uncertainty expect by entire that agreement Commerce will on across cast but carbon requests initiatives improved the supply utilization and recognize capital-efficient will our are particularly we all levied potential XXXX, country FRP still or steel for actions segment. venture consideration. joint increase these The of granted carbon temporarily steel under conversion contribute Each to A&T results. Stainless asset of long-term and to drive sustainable financial represent the to goal profitability for

over hand I the DeCourcy Pat quarter financial first to Now performance. our will call to talk about

Patrick DeCourcy

Bob. Thanks

hand borrowings up to agreement venture expect on our to These ABL growth to Bob joint our at ABL’s provide $XX ATI. million $XXX cash of fund asset-based borrowing or At approximately were year-end on first our outlined and of outstanding our cash available free we our X, financial process. XXXX a Turning of on importantly year areas under have during few largely the for first quarter, of funding to for million borrowings the expected initial to first quarter and would ramp a you Slide on net facility and provide used and and had revolver. capacity our like of to you by business prudent of to Cash deployment minutes previously focus and John the I initial investment full short-term with not manage the to resources our quarter borrowings cash take did production XXXX. working support million key capital generation lending flow. A&T update Stainless guidance remains end performance $XXX to ABL temporary We any

expenditures for the First million were $XX quarter, capital increased two significant outflows projects. reflecting

isothermal initial heat First, excellence we expansion made fourth center treat and Wisconsin. the to downpayments our our be for press isothermal of in at located Cudahy forging

China, next over will cash had we are which a we these beyond. substantial of XXXX. capital due to of facility in investments on payments flows and generate anticipate the in five and joint the Both substantial expected results for the Second, the return second expansion production years venture capacity begin quarter STAL

Looking of to on continue next and the with customers of the understand production several work ahead, potential to ensure timing years we that our expenditures capital industry to the meet we our increases aerospace desired are the over defense impact to rate production rate. able

free As a a ongoing result we cash for our XXXX. and structural a debt our of operational improvement disciplined results improvements, in reduction spending significant in profile, expect flow

versus XXX% in a contributions approximately intend This XXXX. cash the free improvement in pension ATI of balance $XX XXXX. year reverses and small flow roughly This our million to million the in an leverage in the cash of to our We our along this on three plan, we at of we time. free over a improvements step-up more or of XXXX cash Excluding credit step to operating represents to XXXX We in negative generate $XXX anticipate in throughout our metrics. flow to expected sheet ratings trend build to recently expect profit, and prior major segment credit with improvement case will outlook over with ratings direction continued a one investment-grade return took our agencies. bolster ratings financial

over will I we’ll and to hand the update year accordingly. our guidance Rich. continue progresses will flow refine you the We cash as now call to back

Richard Harshman

Pat, thanks, Okay, and John. Bob,

reflecting our in represent view to XXXX first year X, Turning that on start earnings laid full January. year-end to a call Slide we XXXX back our good quarter the out results

new we deliver expect for on our results significant and our engines. the large as a and In product this you jet order multi-year aircraft continue in general, of backlog and trend expansion were from their to John quarter defense our Sims, HPMC part customers next-generation driven by aerospace As heard segment’s expectations sales. first exceeded engine

our points results a for first margins outpaced margin XXXX sales expectations confidence goals as quarter in good segment the achieving of growth minimum and achieve that year-over-year were based currency to results year-over-year a segment’s HPMC while Rolled segment, over These percentage expansion XXXX. sales single-digits. strong on accounting the market Wetherbee our quarter, the support negative the basis foundation a Although from Products first of of fourth carried results high stated our our rate of quarter our XXX in improvement foreign impact detailed fluctuations. the Flat in change demand In the the Bob from a despite HPMC

expect quarter. continue in conditions these to market the We second favorable

the production growth our segment anticipated satisfy a On high expect basis will of favorable the do across ferrochrome we reiterate grow A&T the initial the and based in fourth margin response demand and We second XXX for expansion versus ramp Stainless new ensuing not that nickel quarter the balance to year second XXX this quarter, from ratable Separately, the six a we our and anticipate to year-over-year joint raw surcharges and used from in revenue four market up anticipate expansion the XXXX. conversion through revenue the second, venture tariff joint we will to material completion in of line. benefits of expect – Section agreement anticipate current our request is financial be start-up manufacturing the capacity Additionally, guidance for quarter starting second to the With We we quarter the percentage third the to first during a across ratably growth FRP on anticipate Beginning production operating with China our results quarter support in believe expansion ventures, growth production continue to single-digit of as on to full customer additional points. both quarter. on XXX volumes China. quarters the and regard HRPF STAL phase. we improve for the exclusion sometime during conditions. basis,

a Finally, expand in area disciplined growth remain as projecting for on to you business, free heard laying from this continue our as foundation Pat, significant in the cash and XXXX ATI is our spending. improvement we flow ongoing

progress as will we the this guidance continue We refine to throughout year.

our as I confidence XXXX marked targets. Operator, well to have the full as and our reinforces question year first earlier, financial please? in first good achieving our we XXXX longer-term may goals stated quarter the As a start

Operator

Our ahead. Instructions] Research Buckingham Safran comes Please [Operator go first question Group. of from Richard

Richard Safran

are Good you? How morning, everybody.

Richard Harshman

you? Good morning, are How Rich.

Richard Safran

Very good. Thanks.

discussed events on talking First, Russia, thoughts Boeing a titanium, Boeing just starting And make on recent about ago, appear from accelerate. support cause that amount some multi-part buy you discussed in here to increasing they bit forgings only made we’ve on or I any of you of Airbus but that finally, not moments Boeing from and some time Did trend VSMPO forgings can been What Raleigh? know for you, is that potentially we a derisking Airbus maybe the comments Airbus how that was give the question to there has see geopolitical the about the wanted you is titanium few the quarter? do making? in we impact or you

Richard Harshman

that Yes, a if is here, Rich. Okay. remember part multiple I’ll each part I see question. can

Boeing from the of has, and the risk Russia parts Airbus other the of or any pertains done assessing for think, world. last actions to as it I good a geopolitical very plus any year job

their So may they they including make sure encountered. have have they supply risks what ATI options are those understand to if chain exercised

on today a that and side think was of of we’ve continue our opportunities of forging the emergent in mill of and of And we result to that on XXXX saw the think mostly was see part on the actions. probably demand result side the likely this that. some I some those a kind products commented past in I of

taken the U.S. recent it to taken at year the and impact them ready may to and the the the actions stands chain, us had have, So, think plus of I QX I them. customers support way supply terms supply and whatever OEMs our the in appropriate has on whatever chain think options the all. of need Russia, don’t ATI any I think think, last certainly in inventory they significant builds support understand But that they or more I on that have in what threatened government cost in they actions that

Richard Safran

And on any thoughts Raleigh?

Richard Harshman

forgings. includes in mill both and products that Yes,

titanium Regarding to if risk growth, Raleigh, the chain a need needs see in Raleigh. just more was I for for mitigation any think supply current for or there don’t into deliver products us we for restart either

very grade long-term – in agreement extend premium multiple titanium quality that or several have years future many to competitive with rotating sponge flex For into good supply the and in sponge, for sponge suppliers ability we volume. up titanium place the have including

So, in I don’t us this see Raleigh for need restart time. to a at point

Richard Safran

And Thanks in were LEAP, Okay. that. up by CFM doing bit next, a continue mix to aftermarket going the year this legacy and to the do a impacted the Are am last pick-up you reoccur you here dilutive showing see relative starting for the that a on the we XX looking legacy it aftermarket. wanted to bit I are influx given but I work the quarter, something of an to to was demand which doesn’t work are certainly, on to if appear in that’s is for ask that and could the improve? to obligated is basically, works you pick-up in what platforms

Richard Harshman

year, our a be on the it alloy transition a the XXXX XXXX, Yes, into but mix the from and consistent and capacity. be rate transition But next-generation as product side, components the not year side little continues think to would begins think, that from I the legacy-oriented mix to that product will volatile richer suggest especially side. the And and continue the only understanding as build I the parts portion XXXX standpoint of into away take a I products also demand. engine larger our to of a side demand you on more a on think, get

always, legacy a some building years right. but still to there is going always are CFM-XX there of number of if for because aftermarket, You not demand certainly have or engines,

mill the the on So or were not – in being parts that on built they but is demand demand product side, that only side. the XXXX, also the components there rate and but not at alloy

to mix XXXX a a in year So is I product and of more transition think beyond. stronger XXXX

Richard Safran

Okay, much well, very thanks for that.

Richard Harshman

you. Rich. Thank Okay,

Operator

ahead. Our from question Company. next Khanna go of Cowen comes Gautam and Please

Gautam Khanna

thanks, Yes, good morning.

Richard Harshman

Good morning, Gautam.

Patrick DeCourcy

Gautam. morning, Good

Gautam Khanna

to expand recent – on subsequent you have sanction by desire the pick-up perhaps and ask the you to to on lagged else guys in QX? anticipate you the Rich of safety you buffer Boeing like kind in answered, sort – ship for could even weeks would asked seems do order things and maybe end. kind of in I wondered, – stock sort a it airframe quarter, intensifies QX seeing Russian the that So, quarter expand of and of anyone some more seen QX the just side of to and to be a start threat this to on

Richard Harshman

one for Yes, we mean, I I what on by which with were the Boeing from we two be look mean, the quarters. our you Airbus to side, mean, or mill this rate at order are the mill tend are products product – at ahead that with much expectation on side entry with know than consistent entry as I is a order larger does would we are filling up rate point.

in in anticipation in seeing that to of of there did taken stock I actions some as are that we sanctions, additional we sanctions. and has that XXXX, XXXX buffer think some in think I were it emergent just So, that potential build demand

So, think risk. the I whatever that to that we OEMs they approach by is seeing that consistent make sure a prudent are manage with

some capability. taken of by – were we smaller move see we forgings our something us in – – especially large on XXXX to the large to continue as that U.S. producing ton those in have would parts large make through there there today. some wouldn’t And to in very that where forging XXXX. seeing there, forgings, we mean, side, we those that is I VSMPO be press do, probably but that don’t are those other plus We don’t we those opportunities saw actions to that unique perhaps our Others have has XX,XXX we awarding I those some frankly. think quite in customers large expect XXXX forgings that those the forgings. capabilities the were produce are fit they on some and so seeing

Gautam Khanna

Okay. very That’s helpful answer. a

on demands suppliers, have are to of being is everyone sort forgings Just you chain. about dynamic, ramp, engine underlying you which a emergent VSMPO the the other the of think expansive them, are growth. that so fairly one When not guys think source the are of you Are is to piece, with constraints fantastic. produce of same of LEAP outside – supply But unable because I …? seeing perhaps one you there second the rate. seen is in we which seeing follow-up the don’t

Richard Harshman

Yes, on we’ve Gautam. this past, commented in the

I of to we of production all, be think first the impediments very hard that, worked ramps. rate the not

lot a of has throughout by that others it the to just sheer of continuous and do by work teams happened is efforts. there by – John improvement has ATI some muscle great and and So Bob and

So, we do to that. will continue

forging contractual share I the side, have emergent think we XXXX. that in saw that, We that the on have we certainly on above won certain seen parts. demand

We are seeing that in XXXX.

about. our other that have continue are here and the discussions we’ll fourth stream years will capacity we do of to currently possibly that isoforging help on on that long the press that the part us available that. ongoing rate but that ago for a think will based I are short coming only we we be reason announced customers opportunities are as that’s our also that not the the that in business a And is talking and ramps and couple we there to of in to customers, as see beyond. that while have And for XXXX

Gautam Khanna

be where a tends could segments, then Okay. in set and to outages level – seasonal the seasonal the just has different bring And made of shorter or margin in something the of – at proper particular. HPM nickel there was pipeline just from am better the to days. sure, because there QX a one one one, but then QX are have due like, QX dropped is been make seen if pattern should even know, QX, the about Rolled, that comment at a I to clearly projects to delivered. mix the the you which and a fewer at very both I about HPM want in down not being level of period strong think just QX something think bit it be Bob I us curious QX sheet year at quarter there – is but – highest the I Historically, last Flat if and about of QX sort mark what – going you is may we days and holidays has on

QX, want get we just on sense you calibrate just I if should don’t about? us be help overshoot So, that we to what thinking on could a

Richard Harshman

see we QX, early typically interestingly as of we the of emergent are think, quarter. second some we I demand the and see in in it, obviously Yes, half that the happens

what are and today marketplace what schedules production like order in today. we going So, the the what what see off look or like and we really looks book the

that’s our the the this So on the quarter first the be point currently HPMC see think plays how products are with as side, expectation. it that’s in second I business out, we as of that do not is base new we and what in current it the in but looks to at the time. like saw quarter We’ll expecting rich mix

lot You of of the you are Europe year, rest vacations third month extensive that not at because is little and in happen August. whole customers month our shutdowns August, just looking the noisy, the a of appropriately plant the throughout there quarter it’s on and the of commented

So, little a it tendency has to a noisy. be

engine to we because However, this the happening, programs move is rate XXXX. a as ramp an continue of right, you interesting lot on have especially year, throughout

the have the of extent engine to that say we’ll how history half second because rate the hesitate of ramp to plays fourth that the see I on the good year the programs. would is a and that indicator new quarter. of in third in So, out

of As it in year, terms we as a pertains the of to have I pertains half to – second less Flat second of visibility Rolled, we out things it where looking we are bit in of into Rolled business think the pretty Flat Flat very confident don’t that some Rolled are the critical quarter in on of the Bob one the terms in see kind think side ferrochrome and indicated, raw favorable side charge, of are surcharge the expect on have And two in is to to right. the we we have that won’t movement as foreign nickel. going we comparative and I materials the non-recurring the the currency little issue

side performance to we quarter. the an second the Flat improved first in see projects Rolled fact see of nickel would in that Products. quarter gas the I to won’t expect in sheet the second because the the compared quarter in of oil Despite large So, level the plate and or deliveries

oil a projects, gas and half year, second you sheet plate nickel seeing quarter. believe are of the to the particular out fourth one little possibly additional bit positively we at that, look certainly thing for there for is expect the and we the in the in would the and impact that As quarter third side and projects do are in there

Operator

question from ahead. Phil comes KeyBanc. go Please next of Our Gibbs

Phil Gibbs

Hey, good morning.

Richard Harshman

Good morning.

Phil Gibbs

margin I guidance. question had on a the

Rolled So margins anticipating basis the in midpoint, you numbers, call tariff XXX those at – the the impact are growth point Rich? it, in Flat

Richard Harshman

we we favorable low-end, from upper-end. the the are are anticipating JV the a than at at think impact I less of

that the when year, that So, – know what of the didn’t would mean, on, investigation I of going we we was end-result we knew a the be. we but gave guidance aware weren’t at there beginning XXX

that you that JV to upper-end less that Bob, would is be expect of from me Rolled. think what agree the that that? lower out, case. it a JV to directly of XXX it I say as the So we the is. related it range with I was the disingenuous deliver of is would think But The value-add end Flat to to and plays would

Robert Wetherbee

would. I

Phil Gibbs

you above in high-end an other – be or range words, need you I range? you that the do that think So at exclusion guess, need you of need – to

Richard Harshman

of the right, it the on year. other think half I Yes, second depends all the in markets,

Performance don’t we nature oriented the – the to As Rolled of compared I said, longer-term, short-term I because business Products Flat of business. don’t clear the the have more High visibility

is as or objective that end hit markets, exceed playing out positioned. would to higher of the those XXXX But segments in terms guidance that to in say, market to is the I our High are is this our we and time, of a where Performance. end we’re you higher what look the gave objective point we at we yes, at So, this I in is the mean, and in on we both right read exceed see giving ideally,

Phil Gibbs

are increases that you as seeing through And start Excellent. up to little on price a flow tightens market Bob, bit? the commodity, stainless side

Robert Wetherbee

Hey, good Phil. morning,

Phil Gibbs

Good morning, Bob.

Robert Wetherbee

question market of people to terms answer the of The that decisions to through unsettled in I increases the and making we to are need seeing now supply think their supply the is are they the – fill balance your somewhat is make chains QX.

sticky guess, So – I and certainly invoicing, say that I’d the price are are announced increases collecting. we we’ve

customers, close serious demand to So, – like keep they as the talk especially at as close to stainless not in carbon. that out getting or But to with to are their in issues get the price are the their the purchases are segments. we seen stainless, aluminum other various levels, increases. going seeing are overstocked, those for trying spikes I commodities But demand or they’ve not they

Operator

ahead. comes question David from Please next Our Barclays. of go Strauss

David Strauss

morning guys. Good

Richard Harshman

David. morning, Good are How you?

David Strauss

good. Good,

still XXX forward that get think contributed plan the of question, up don’t that million this the I to then to $XX talked your just on I to that, Following guess, side. that operating million confirm JV go is and on on about in what following if exclusion with line $XX you’ve you income

number what get you that do XXX like? don’t the looks you exclusion, If think

Robert Wetherbee

Good morning, this Bob. is

we to confident are we think, exclusion. the get that the case have I

for So that we drive to result. continue

get JV. we to coming States. tight increases any stainless most price exclusion, the I market see we to is a think costs offset additional related to of don’t what standard would We expect short-term see in pretty the the operating likely if the United

the see to and are Midland If actions all realistic. remain six, the as responded a still the million $XX XXX are twelve of on definitely short-term probably that the long-term. in work from issue base minor perspective work based has we XX-inch stainless nine, extent to say XXX original Again, have We service invested a issue going have of to wide they and estimates to a a JV customer Section for of very with through XXXX, to through XXX. in quality that and Section short-term sheet $XX through. million that that our favorably customers we slide We it’s reintroduction going the they don’t the as month the that JV positive. very from occur see are Can’t

David Strauss

can you on bullet the X around more mean increases give cash also beyond capital assumptions your you Pat, Thanks, then, and bit Okay. impact about and that. capital color Bob. rate What within talk Appreciate the spending. that? What Could little for this working free year, aerospace are flow potential NOIs XXXX? might around forecast there? that of on you plan capital spending a the about that on Slide thinking

Patrick DeCourcy

Sure.

as different a the as full we’ve the anticipate, it several in to modest first investment. Not For half things. year, we significant working I’ll call related seen capital obviously

sales in for plus A&TS joint the segments both the got ramp investments the venture. initial You’ve in

projects pipeline receivables In those to ship addition that inventory have probably the be as the on then we sales. and some some related to collect – they that, we would normally cleared

based the year, in the full growth. to our range for anticipate say revenue it full I’d $XX the do probably on guidance year modest, we million in $XX So, million a increases

And the the So commitment. then that you full second would year question, repeat the question? can be second

David Strauss

Yes, it given spending the XXXX, plan capital was around rate beyond potential potential increases? XXXX just given rating, beyond

Patrick DeCourcy

evaluating rate in significant we continuously we So, if commitments are are CapEx the over and several would adjust build schedules. our years next there those changes

So, are our build schedules timing real, rate look as the expenditures. have of to to adjusted we at a those take capital

have five some little we and the are pull to increases a a forward year of commitments. full anticipate then if what bit, have of we rate those outlook ramp might real, the we So changes

continuously are that. we evaluating So

quarter three announcement next anticipated five expansion to reaction build You in a year saw isothermal to That project. press this new was period. treat with the within increases the the last the and rate heat

Richard Harshman

Yes, Dave, this is Rich.

side I in with on a in on they customers of dialogue strategic profile that going the and to our of in of would lot think terms and ramp that there growth. participate rate – terms in how going like demand ATI forward their their is some that, aerospace of obviously

which years, we shareholders. bouncing against long-term capacity is the interest obviously of couple limit next the would of start constraints our into ATI’s in long-term the get we up participation best upside some that of potential in as not so, growth, And

there, case, that would the extent to and contractual strong strong, has demand look we in it’s prudent supports it’s is that. business a a that So, we that manageable at investment have capital

is So, our differentiated absolutely we opportunities longer-term has recognized in significant specially terms limit leader growth a to entry that technical that investment want barriers that are to upside, of ATI don’t potential foolish products in to producing ignoring by being in.

So, That’s earnings strong why forward critically strong going we look is cash opportunities. generating important. always for flow and will growth kind of those

the investments sheet have interest of to the and that, we the our flow those that of are in kind best support So cash balance shareholders.

Operator

Tanners comes Our from next Timna go Lynch. question ahead. Bank of of America Please Merrill

Timna Tanners

everyone. morning hey, Yes, good

Richard Harshman

you? Good How are morning, Timna.

Timna Tanners

Okay, thanks.

capability. demand Just on appreciate and is I are But, saying question, in the point ATI I important between a last there. balancing you required, the just the really the lines, it’s that, act should the has think discipline the reading

to contractual understand to color your to the works? process how to out? what those you try how Just agreements would little under more whether bit make a us play Can not So, thought any terms, about give decisions or have you add capacity?

Richard Harshman

we reference the probably sums is thought a best – – our to a process movie, right. by Yes,

right. We come, will are if you believers not they big in line, the build it,

line make our that, on commitment investment and contractual the employed shareholders, will capital that for good a supports generates return of the on believers we are we that utilization a that if We have investment.

right So- right. we our and with customers, that dialogue the that’s ongoing have now,

$XXX a to worried something a talking range about like that two not are We everybody I to be all potential million scared. are are of project spend not it’s period. get over it also mean, three These wouldn’t from something, million – we projects investment not and a $XXX or $XX million don’t year that. speculative or I and want

given marginal of kind capital that investment year. the that but past, in add would would it has within additional guidance every Pat roughly So, be the amount to a

something it So, but has to arrangement three the it like or not agreement, years, a it there seven there business to that’s good two it. support when has that’s of longer. there, to us. it’s be case then, And in terms a looks business but The that’s or contractual years something supports being something case project be to to support that and that the to ten long-term

Timna Tanners

on only comments the the construction content. was That’s and other Okay. you. on and on energy demand. helpful Thank question My the mining

little just it’s you is characterize could think lot. onshore? Or if if bit And demand? rebuilding is that you a inventory? offshore, it If that’s a more sustainable underlying energy Thanks this

Richard Harshman

construction the talk on and and about John energy the side mining can I’ll Yes, comment side.

think I energy broad market. the energy side, is a

turbines, the the in GE think some supportive consistent that the seeing not but have are seeing are So, much that right, is maybe are companies all We demand demand, what like U.S. said gas at of industrial that. has gas demand. some only generation frame significant opportunities in by materials also of make, We and we that turbines but grades with We for also global real. We large gas seeing energy it’s right? any that’s some we – the that demand right? of the pretty turbines lower utilize, think forging specialty demand smaller

two the years. over expect here So, a have growth next three would that to we rate to nice

other scrubbers, markets the Some kind the least are right. at fall of strong, Lexicon of energy that that within in our is energy marine category,

source their the ships systems a heard some I fuel of with passage on Paris of themselves. fueled read are is ships Accord, diesel is – installing the the You’ve and scrubber probably - the of in the new and global lot guess this,

strong a alloy and is is that the and structural that commercial cycles I at renaissance demand look nuclear of three is So strong our segment. nuclear opportunities market, takes the that of are plus next in a on that Bob on comment going to even only some a And not High is market. Product are cargo on, refueling. the Rolled then, ships in When a want today and is mean, that but there and you really we see product produces in so we and ships, systems John, for that And more that Asia. the XXXX, that and demand supportive in especially you in Performance Flat very are the Alloys selling Specialty large market that market two nuclear years. not on And – U.S., nuclear over construction reactors good to energy the Components business mining? side, there but side, our the of there do the refueling strong

John Sims

Rich. Hi, Sure, Timna.

mining these for outside heavy are largely vehicles and the United mining side, forgings for the States. mining On construction activity large

last XXXX have of than five second XXXX not are seen levels they back that the They good seen half increase higher years. we certainly XXXX, at we’ve XXXX, leveling at XXXX. probably saw for into are looks we we but in the the the of so and into project strong and And peak beginning anything

Operator

question Chris Longbow go of Research. next from Our ahead. Olin Please comes

Chris Olin

Hey, good morning.

Richard Harshman

Chris. morning, are Good How you?

Chris Olin

little That’s good. There business was awarded Good, announced a on press. to I was contract was won emergent GE the with jet about formal the I and wondering about talked curious type XX there any Thanks. yet? actually update long-term just decisions. on you engine spoke demand been maybe contracts had. that bit Rich, side that guess, forge about justify all And of terms any that. you decision that no and tied new I to contact, just is is investment the you in have I if

Richard Harshman

agreement isoforge isoforgings, fourth involves we did powder the not is, – Yes, press that for with Pratt only but that also production. actually support announced we the the of Whitney UTC well, long-term part is

and So chain that TSAF the the their produce into to forge into for from it a it’s isoforging in our from using full assets the then them. supply Carolinas producing powder integrated billet process

ramps other So, ramp the on in, the press work will and supports engine that forging when programs the stream. we would of announcement that isoforge combine the on, timing that when plus that that come timeframe for that are in supports when the that for from rate you Pratt demand of

yes. us there to other I think would That the opportunities new on as you well existing look our answer further, as programs on growing from for the the are ton platforms, as that XX,XXX is, precious continued open that the is Carolina die on forge powder. in North that critical to press to billet the producing capacity is our at utilize asset share look

XXXX, XXXX. So that into that into precious that then we iso forward focused much XXXX really becomes and on a capacity capacity how issue going XXXX, flows beyond demands very are

of iso points the what that really coming couple fact at the are So years. us and stream critical including for we on us fourth become next become two capacity in Those the those demand asking assets kind have looking in customers do. emergent despite the to constraint of

Chris Olin

Excellent. Thank you.

Richard Harshman

Thank you.

Operator

Rich This session. concludes closing like our over would question-and-answer turn conference to any I Harshman remarks. the back for to

Richard Harshman

for you continuing as thank you and interest and for us you joining Thank ATI. your in thank the always call on today Okay.

Scott Minder

Thank today. you, for the our joining quarter XXXX concludes you thank Rich. us all listeners And That first for call. conference

Operator

is concluded. today's now Thank conference attending you for The presentation.

now disconnect. may You

Scott Minder	Vice President of Investor Relations and Corporate Communications
Richard Harshman	Chief Executive Officer
Patrick DeCourcy	Chief Financial Officer
John Sims	Executive Vice President, ATI High Performance Materials & Components Segment
Robert Wetherbee	Executive Vice President, ATI Flat Rolled Products Group
Kevin Kramer	Senior Vice President, Chief Commercial & Marketing Officer
Richard Safran	Buckingham Research Group
Gautam Khanna	Cowen and Company
Phil Gibbs	KeyBanc Capital Markets
David Strauss	Barclays Bank
Timna Tanners	Bank of America Merrill Lynch
Chris Olin	Longbow Research

ATI (ATI) 24 Apr 182018 Q1 Earnings call transcript